Monetary Watch January 2011

Money supply firing on all cylinders?

Thursday, January 20, 2011
By Michael Pollaro, Forbes http://blogs.forbes.com/michaelpollaro/ ... cylinders/

The U.S. money supply aggregates based on the Austrian definition of the money supply, what Austrians call the True Money Supply or TMS, continued their recent surge, in December posting an annualized rate of growth of 38.9% on narrow TMS1 and 24.6% on broad TMS2. That brought the annualized three-month rate of growth on TMS1 and TMS2 to 22.3% and 18.1%, respectively, 8.6 bps and 2.7 bps higher than those posted in the prior month. No doubt some of this surge is seasonal, but as discussed below, clearly underpinned by the money printing efforts of not only the Federal Reserve but of private banking institutions too.



Turning to our longer-term twelve-month rate of change metrics – more indicative of the underlying trends – and focusing on our preferred TMS2 measure, we find that TMS2 saw another healthy increase, in December growing at an annualized rate of 9.9%. Not only was this a tick up from November’s 9.8%, but we think close enough to 10% to mark December as the 23rd time in the last 24 months that TMS2 posted a twelve-month rate of growth in the double digits. For new readers of the Monetary Watch, the last time TMS2 saw this kind of string was during the run up to the now infamous housing boom turn credit implosion, a time during which TMS2 saw 36 consecutive months of double digit growth.

In what could be a developing trend, M2, the mainstream’s favorite monetary aggregate, is finally starting to show some growth. In the three months ending December, M2 has grown at an annualized rate of 9.5%, bringing its twelve-month rate of increase to 3.6%. Yes, 3.6% is still a relatively low rate of growth, but it is up substantially from its March low of 1.3%.

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