Sep
27th
Sun
27th
Money Supply Is Indeed Just Going Down
Even looking at money supply figures, there’s nothing else than signals of deflation ahead. As Ambrose Evans-Pritchard points out in his article, money supply is decreasing rapidly.
M3 money has been falling at a 5pc rate; M2 fell by 12pc in August; the Commercial Paper market has shrunk from $1.6 trillion to $1.2 trillion since late May; the Monetary Multiplier at the St Louis Fed is below zero (0.925). In Europe, M3 money has been contracting at a 1pc rate since April.
If one adds declining credit to the collapse in the securitization machine, that was the real liquidity fire hose, it seems that there is no limit to the amount of money central banks should print to counter such strong deflation forces.
Until of course the bond market reaches a tipping point and there will be no buyers for government bonds, except central banks themselves. I wonder what it takes to get there since the Fed is already monetizing half of treasury issues and 80% of mortage-backed securities.
