Friday, 7 November 2014

The Short Version of the "Austrian" True Money Supply (TMS), as of 27 October 2014

The short version of the Austrian True Money Supply for the U.S., the measure of the money supply applied in this weekly report, decreased 0.48% on last week for the week ending 27 October 2014. At $10.3191 trillion, the money supply is now up $435.8 billion, or 4.41%, year to date.

The year on year growth rate in the money supply increased to 6.90% for the week, up from 6.64% last week, but remains substantially lower than the 8.30% longer term average.

Compared to the same period last year, the year on year growth rate continued to drop and is currently 1.46 percentage point lower.

The 5-year annualised growth rate dropped again this week, shredding 1.90 percentage point compared to the same week last year. This was the 48th consecutive week in a row with a declining growth rate and the drop in the growth rate during the last two weeks are the biggest since the growth rate first started falling week ending 2 December 2013.

As I've been regularly pointing out for a while in this weekly post, the drop in the 5-year annualised growth rate is seriously resembling that preceding the "end" of the previous money cycle.

It is important to remember that the drivers of the money supply are different during these two periods. Up to 2008, money supply growth was driven by banks. This time around the driver has been the Fed monetizing the vast expansion of government debt, though bank credit once again started shooting up at the beginning of this year. This difference has repercussions for anyone entertaining bubble-spotting.

A few things appear clear to me however in this money cycle: 1) The actions by the Fed has created artificially high prices in treasuries which has pushed corporate bonds in the same direction, 2) The 90.31% increase in the money supply since Lehman filed for chapter 11 on 15 September 2008 has pushed the U.S. stock market to bubble levels and 3) The money supply growth, the mother of all bubbles, seen in recent years is itself an unsustainable bubble. The increase has inflated prices and distorted the will of the free market across the board and will have serious consequences in one way or another as the growth rate continues to fall.

This is extremely interesting times to monitor the money supply and to see how things play out. Stay put.

Meanwhile, the growth rate in the "overall monetary stimuli" is declining fast due to the Fed taper (QE3 ended last month)....

...and the U.S. Stock Market Risk Indicator is at an all time high as of October (and has moved even higher during the first week of November)...

...and deflationary pressures started to appear months ago.


Growth In Lending Increases Even As Banks' Equity Ratios Approach 2008 Levels