Money Supply Growth – June 2009
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Compared to 1 year ago, the true money supply has grown by 16.14% to now $2.17 trillion.
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 – April 2009
In April 09 the true money supply was $2.14 trillion, or 13.66% higher than April 08.
Money vs. Credit
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.
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.
Money Supply Growth – January 2009
The true money supply growth has dropped to 12.5% in January 2009. The money supply is now at a total level of $2.07 trillion.
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Money Supply Growth – December 2008
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The money supply has grown by 15.85% in December of 2008 when compared to December 2007. It has now grown to $2.16 trillion. This data still supports the thesis that asset prices might bottom out between the end of 2009 and mid 2010.
To be sure, this is an estimation. The number for retail sweeps for December is not out yet. This number is usually published with a 2 month time lag. This is all the more noteworthy since a dramatic change has occurred in the development of retail sweeps in October and November of 08. For the first time ever retail sweeps have begun to drop significantly.
This level of growth is almost at the record levels of 1997. It is of course a direct outcome of the government’s disastrous spending spree that is setting the stage for a hyperinflation or at least another asset bubble, once the credit contraction is over.
It is amazing that while Hank Paulson, Ben Bernanke, Barack Obama and others are touting the necessity of more regulation, they themselves are blithely cheering on an out of control money supply inflation, which was of course what caused the credit crisis in the first place. If anyone needs more regulation it is these people.
We need more regulation of the government by the people, more regulation of the Federal Reserve Bank, the Department of Treasury, and Congress. What steps has Congress taken to restrain government spending? Nancy Pelosi, the most clueless out of all of them, just proudly announced another $850 billion and called it “pretty exciting”. Please consider House Minority Leader Boehner’s appropriate response.
Of course the politicians don’t have this kind of regulation in mind. They think they need yet more power in order to regulate private business. They think the government needs to grow even more than it already has. The public is in full compliance with this nonsense. What a mess. Who protects us from our government if not a vigilant public?
The reserve ratio is beginning to adjust as expected. There is still plenty of room for the money supply to explode. As I mentioned, in order for the ratio to get back to regular levels, the money supply approximately needs to triple. Now that has changed. Bank reserves are now at $820 billion. If the reserve ratio adjusts to regular levels without a drop in reserves, the money supply would need to rise to roughly $8 trillion.
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!
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