Money Supply – October 2008

posted by Nima

November 18, 2008 · Posted in Monetary Economics 

The final data for October 2008 indicates that the money supply has gone up by 8% as compared to October last year, to now almost $ 2 trillion.

It will be important to watch whether or not this trend hold up over the next 2 months. If it does, it is very likely that that the current asset market crash will bottom out in about 1 year from now.

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8 Responses to “Money Supply – October 2008”

  1. Joe on November 25th, 2008 3:34 pm

    Hey Nima

    Thanks for posting the money supply by component. I understood from that the growth is primarily in personal and business accounts (including sweeps)and cash. That suggests people are hoarding cash, which is what one would expect, but I still don’t really get how that constitutes an increase in the money supply. How are the Fed’s actions weaving their way into people’s deposit accounts? Are these account balances increasing because of money repatriated from investments in foreign currency assets?

  2. Joe on November 25th, 2008 3:39 pm

    For some reason I can’t post a comment at the end of your “money-supply-and-the-price-of-treasury-bills” article.

    But I was going to say: why don’t you send Shedlock your graph of the money supply and get him to comment on that huge uptick since August and especially September. After all, you use a narrow definition of the money supply, so he can’t blame the results on that. I would be really interested to know what he had to say!

  3. Joe on November 25th, 2008 3:41 pm

    Why don’t you send this graph to Shedlock and see what he says about that big uptick since August and especialy September. You use a relatively narrow money supply definition, so he can’t blame it on that. I would be interested to see what he had to say!

  4. Nima on November 25th, 2008 4:38 pm

    Regarding: “For some reason I can’t post a comment at the end of your “money-supply-and-the-price-of-treasury-bills” article.”

    This is a bug in the site that I am currently trying to iron out. Some pages, for some reason, don’t let me activate comments.

    Regarding: “…why don’t you send Shedlock your graph of the money supply…”

    I do think that Mike knows very well that the money supply is soaring. I believe he said that himself in a post.

    As to how exactly the Fed’s actions are affecting business and personal accounts: The massive bailouts are the main reason for this. A lot of money has been injected into the banking system and, it is true, not all of it has made it to business and individual account balances.

    However, a fraction of those unbelievable $1.3 trillion that the Fed has added since November 21 2008 must end up somewhere (http://www.federalreserve.gov/releases/h41/Current/). The Fed has more than doubled (!!) its asset holdings in 1 year. This is unprecedented. What is a measly $200 billion growth of the money supply when compared to that number?

    The money is trickling through and will continue to do so, whether we like it or not.

  5. Joe on November 25th, 2008 5:29 pm

    Thanks. I’ve been scrolling round Shedlock’s site for what feels like eons and I couldn’t find anything where he was commenting on this type of evidence.

    Great site Nima. I will keep coming back here.

  6. Nima on November 25th, 2008 6:21 pm
  7. Joe on November 26th, 2008 4:57 am

    Yes, but that graph you link to is only looking at the base money supply, which as I understand is too narrow to incorporate the effect of the contraction in credit, so if he were challenged he would simply say that the graph doesn’t show the impact of both base money and credit.

    That’s why I would like to see him comment on your graph, which, if I’ve understood it correctly, incorporates the impact of both money and credit.

  8. Nima on November 26th, 2008 10:35 am

    OK, I will ask him. If you could also do this, we’ll be more likely to get an answer…

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