November 16th, 2014

True Money Supply Decelerates

Michael Pullaro over at warns that the Austrian measure of the money supply is exhibiting a deceleration in its growth rate indicating potential trouble ahead in bubble related economic activity.

Joseph Salerno on the True “Austrian” Money Supply

The U.S. money supply as represented by TMS2 (True “Austrian” Money Supply), our broadest and preferred U.S. money supply aggregate, posted a year-over-year rate of growth of 7.7% in October, down from an 8.3% rate in September. Now down 880 basis points (53%) from the current boom-bust monetary inflation cycle high of 16.5% posted in November 2009, this is the lowest year-over-year rate of growth in TMS2 since the 6.9% rate seen in November 2008 (month 4 in this 75 month long and counting inflation cycle). As a result, although we are not yet ready to declare that the economy is staring at an imminent bust in the face, this decelerating trend in the rate of monetary inflation is bringing us ever so closer to one. To investors and speculators alike, we say time to be especially cautious.

Yes, at 7.7%, the year-over-year rate of growth in TMS2 is not sporting the same sub 5% year-over year rates that ushered in the last two busts. But consider this: The latest installment of the Federal Reserve’s QE asset purchase program is history with the last $15 billion in asset purchases now complete. Over the last 12 months, that program accounted for roughly three quarters of the growth in TMS2. And while the U.S. banking system, the other money creation engine in the economy, has of late been helping to offset the money creation void being vacated by the Federal Reserve, it is going to have to really step it up to ward of a continuing deceleration in the overall the rate of money creation. If not, we could be very well staring a bust directly in the face.