Money Supply – November 2009

posted by Nima

January 10, 2010 · Posted in Monetary Economics 

money-supply-growth-november-2009

The growth rate of the true money supply has slowed down to 6.68 percent in November 2009.

Below is the actual amount of money in circulation over the past months till now:

money-supply-november-2009

Below please find a charge of the true money supply growth rates since 1930:

money-supply-change-1930-2009

The red areas indicate recessions. As I have mentioned before the growth rate of the true money supply tends to be a relatively reliable indicator of coming recessions whenever it drops below 3 percent.

Note the area between 1930 and 1940: The Great Depression, an obvious result of the government’s previous inflation and credit expansion policies and the ensuing business cycle, was accompanied by a decline in the money supply. In 1933 the true money supply spiked up through 1936 only to contract again in the recession of 1937/38. The pattern that is currently panning out may very well be following that one in one way or another. It is certainly likely that soon an official end to the recession will be declared. Another one is likely to follow quickly, attempting to correct all the malinvestments that will have been created or left uncorrected by the recent and ongoing bailout and stimulus policies.

The government’s response to that coming recession is of course predictable. What exactly it will lead to no one knows, except that it won’t be good at all. The recession of 1938 was closely followed by World War II …

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