Friday, 31 March 2017

The Money Relation (Feb-17)

Personal Income and Outlays has just been published for the U.S.

The Money Relation, which compares changes in people's consumption vs. saving decisions with changes in the growth rate of the money supply (see here for an explanation), remains relatively stable suggesting inflationary pressures still persist in the U.S economy. This pressure declined quite sharply however in February compared to the previous four months.

As readings below zero over time indicate increased risk for an economic reaction, the current reading also suggest there is no imminent economic crisis lurking.

In recent months, it is especially a surge in the reading for the consumption/saving ratio that is keeping the ratio well above zero. This is not a sustainable development however. And with the money supply growth rate falling fast, the ratio could fairly swiftly plunge into negative territory (which would suggest increased risk of an economic reaction, a GDP recession and potentially also if it drops considerably, a banking/financial crisis). 

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