Thursday, May 27, 2010

US Money Supply plunging at Depression pace

A story out of the UK Telegraph:

The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history. The M3 figures – which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance – began shrinking last summer. The pace has since quickened.

The Fed no longer publishes M3 data, but apparently there are some groups that still compile it.

It's not surprising that money supply is contracting. The vast majority of what we call "money" is bank credit and that is not growing. The other money--the monetary base or the government's money--is showing a sharp slowdown in the rate of growth as spending cuts slowly start seeping in.

1 comment:

Mike Sandifer said...


Yes, this is a tragedy unfolding.

Just look at the 5 year TIPS spreads this month. The decline is frightening. The market is predicting inflation at well below target, and even the too-low recent trend, and we still have idiots focused on deficits and inflation.

Do these morons not understand that deflation would increase the real value of our debt, while further undermining our ability to pay, by killing GDP?