Money Supply – August 2009
Click on image to enlarge.
The true money supply has fallen from $2,157 billion in July 2009 to $2,140 billion in August 2009, a drop of $17 billion. Compared to one year ago it has still grown by 13.6% but the growth rate is coming down from recent highs.
This is a chart of the money supply itself, on a monthly basis:
Click on image to enlarge.
Money Supply Growth – July 2009
The true money supply has dropped to $2.157 trillion in July 2009 from $2.172 in June 2009. It is still up 14% from 1 year ago, but annual growth has slowed down from 15.3% in June.
Money Supply Growth – May 2009
The true money supply has dropped from $2.135 trillion to $2.123 trillion, but is still up 13.07% when compared to one year ago.
Money Supply Growth – March 2009
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In March 2009 the true money supply has gone up by 14.27% when compared to March 08. It has now reached $2.116 trillion.
US Money Supply – February 2009
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The annual true money supply growth has dropped to 12.15 % in February 2009. The total True Money Supply has now dropped two months in a row. From $2.16 trillion in December to $2.094 trillion in January, and now to $2.046 trillion in February. So far this is in line with my recent expectations.
Reserve Ratio at All Time High
The Federal Reserve’s true reserve ratio, the ratio between the monetary base and bank deposits that are subject to reserve requirements reached an all time high in October at 59%:
This is due to the aforementioned explosion in the monetary base that has not yet fully been reflected in the true money supply.
In order for the reserve ratio to go back to more normal levels, the true money supply would either need to rise to approximately $6.3 trillion from currently $2.07 trillion within the next few weeks, or the reserve balances would need to drop back down to normal levels.
My money is on the former alternative. This will of course result in hyperinflation. Gold and silver will then soar to unprecedented heights.
Either way, something big is going to happen shortly. The Federal Reserve Bank is approaching judgment day.
Money Supply Growth – November 2008
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The true money supply has grown by 12% over the past year to now about $2.07 trillion. The enormous increase of the monetary base is now spilling over to private bank accounts. The effects can already be seen in a resurgence of gold and silver. Due to the unprecedented increase of the monetary base I don’t see an end to this trend anytime soon. Welcome back, inflation!
Money Supply and the Price of Treasury Bills
It is very important to understand the effects of the central bank inflation do not all appear at once on the market. Since the money needs to be injected through certain assets first, the prices of those assets will rise before it trickles through to other assets as the people who receive the money begin spending it. Different asset types see changes in their prices at different times. Have a look at a chart that shows the development of the money supply and the price of 13 week treasury bills:
Click on image to enlarge.
As can be seen in the chart above, a significant rise of the price of US Treasury Bills always preceeds a monetary expansion beyond 3%. This is simply due to the fact that before the money supply appears on the bank accounts, the Federal Reserve Bank, through its FOMC, needs to begin bidding for these bills on the market. Alternatively the Fed might inject the money into banks by other means upon which the banks will initially park it in Treasuries, mostly T-Bills.
Thus there is no better immediate indicator of an impending inflationary credit expansion than the price of Treasury Bills and Bonds. This is why Mike Shedlock is wrong when he expounds the issue of deflation. He has been right over the past year when he said that we were in a deflation. But he says that an increase in the price of Treasury Bills is a sign of deflation. This is of course a fallacy. An increase in the price of treasury bills is, to the contrary, the very first indicator of a new inflation. It is the sign that the past deflation has come to an end and that we are entering a new monetary expansion. There is not one single point on the chart above that would corroborate the opposing view.
I agree with Mike that gold has bottomed out, albeit for a different reason. The new money inflation has begun. Treasuries are once again the first assets to soar. In about 1-2 years from now the current Wall Street bear market will bottom out and then start a new primary rally. Gold will pick up steam from now on and stage a major rally once the aforementioned stock market rally comes to an end.
I, too, don’t like too see inflation raise its ugly head again. We need a deflation, badly, to save us from complete financial havoc. But the government is at the very least slowing it down significantly. Whether we like it or not, we have to observe the data in an unbiased fashion. This is not to say that the numbers may not swing back with a resumption of the deflationary trend. But we should not just cast them aside just because we don’t like what they tell us.
US Money Supply Growth October 2008 – By Component
As mentioned in Money Supply October 2008, the money supply has grown by $150 billion or 8% from October 2007 through October 2008.
Upon request, I am listing the contribution of each money supply component to this growth:
Click image to enlarge.
Based on this chart, the most significant contribution to this growth has been in domestic private and business checking accounts ($85.3 billion or 57%), which needs to be calculated by adding up retail sweeps and demand deposits, followed by a growth of $29 billion or 19% in cash and an equal amount in government deposits at the Federal Reserve.
The contribution of government deposits at commercial banks, government note balances at repositories, and deposits of foreign banks and institutions has been negligible.
Money Supply – October 2008
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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