The true money supply has grown to $2,232 billion in December 2009.
The annual growth rate has now slowed down to 3.2%:
A sustained drop below 3% is most of the time a good recession indicator. Given that we are still in a recession which may be declared over soon, this may be just another indicator of the coming double dip recession, as I have outlined a few days ago.
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:
Below please find a charge of the true money supply growth rates since 1930:
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 …
The true money supply has fallen by $11 billion from August to September to now $2,133 billion:
This is the 4th monthly decline straight.
The annual growth rate has dropped to 10%:
One more noteworthy item in this month’s money supply data: The Treasury’s “Supplementary Financing Account”, after 6 months of maintaining a constant level of $200 billion, has now dropped to $191 billion. I believe this may be yet another sign that the Fed’s efforts to wind down the monetary stimulus have already begun behind the scenes.
This, along with an ongoing and accelerating credit contraction, will be forces blowing in the face of all futile attempts to reflate the bubble.
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.
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.
Click on image to enlarge.
Compared to 1 year ago, the true money supply has grown by 16.14% to now $2.17 trillion.
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.
Mish defines inflation and deflation as an increase/decrease of money and credit, respectively. He brings this issue up a lot in his posts, for example:
The logical outcome of the above discussion is that a proper definition of inflation or deflation must be built on the foundation of a sound definition of money supply that distinguishes between money itself and credit. The definition should also ensure that the horse and the cart are in their proper places.
The problem that I have with his explanations is that nowhere I have seen him make a clear and precise definition of what he means by money vs. credit.
The two don’t preclude each other. Money is the commonly accepted medium of exchange. Credit is the exchange of present goods against future goods. A money credit transaction it the exchange of present money against future money. Virtually all credit transactions are money credit transactions.
If new money is created via credit expansion, the money is injected by a central bank or fractional reserve banks via the purchase of a newly issued credit instrument, a claim to future money. Credit increases, just as money increases on the recipients bank account. When the money is repaid, money disappears from the recipient’s bank account, the credit instrument disappears from the bank’s balance sheet and the money supply, ceteris paribus, falls, just as credit falls.
If one catches the appearance of this newly created money and the disappearance thereof on individuals’ or businesses‘ bank accounts, the money supply is perfectly accounted for. The true money supply accomplishes just that. Thus it would suffice to say inflation/deflation is an increase/decrease in the true money supply, respectively.
Thus I am not sure what Mish is referring to when he talks about money vs. credit and so far I have not really found a sufficient answer in his posts. Nor have I received any satisfactory answers from him directly that addressed my concerns outlined above. What he could be talking about is maybe base money injected by the Fed vs. fractional reserve money created on top of the base money. If this is the case then he should refer to it in those terms to avoid confusion. If it is not, then I am still confused.
Any suggestions are appreciated.
Update: I have now dealt with this issue in my post Inflation & Deflation Revisited which clarifies the questions above.
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