US money supply plunges at 1930s pace as Obama eyes fresh stimulus

[Donnachaidh]

http://www.blacklistednews.com/news-8909-0-13-13--.html


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 stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.

"It’s frightening," said Professor Tim Congdon from International Monetary Research. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015.


MORE at the link above ---

[SemiCharmedQuark]

1. Keynesian economics are bad now?

"David Rosenberg from Gluskin Sheff said the White House appears to have reversed course just weeks after Mr Obama vowed to rein in a budget deficit of $1.5 trillion (9.4pc of GDP) this year and set up a commission to target cuts. "You truly cannot make this stuff up. The US governnment is freaked out about the prospect of a double-dip," he said.
...
Mr Congdon said the dominant voices in US policy-making - Nobel laureates Paul Krugman and Joe Stiglitz, as well as Mr Summers and Fed chair Ben Bernanke - are all Keynesians of different stripes who "despise traditional monetary theory and have a religious aversion to any mention of the quantity of money". The great opus by Milton Friedman and Anna Schwartz - The Monetary History of the United States - has been left to gather dust. "

When Obama vowed to cut the deficit, people freaked out. Obama appears to reverse this trend and people freak out.

[backscatter712]

14. If Obama's listening to Krugman and Stiglitz, I'm ecstatic!

Bout time we get some Keynesians in the driver's seat!

[dipsydoodle]

2. Where did they get figures from ?

I thought the USA had stopped publishing its M3 figures. :shrug:

[SemiCharmedQuark]

3. It says that although it doesn't publish the M3, it publishes the components

[Subdivisions]

4. IIRC, they stopped reporting the M3 when they started seeing it go off the rails. n/t

[dipsydoodle]

6. Isn't that due to the ability of the USA

to print fiat money cos of the petrodollar recycling scheme ?

[Subdivisions]

8. I'm not an expert, but I think so. n/t

[Greyhound]

16. Yep. n/t

[Possumpoint]

5. I Would Think The Key Word Is Publiching

I'll bet the data is still being collected and studied. Next question is why did they stop publishing it? Do you believe the stated reason that the data is too erratic and unreliable? More likely it reflects badly on part or another of the government. Kinda the same logic that was used when the cost of fuel and food was dropped from the formula for the CPI.

[Subdivisions]

9. Or ... another example might be the inclusion of 'all liquids' to the figures for

Crude Oil + Crude Condensates (CC), including biofuels, to mask the steady decline since 2005 in crude oil production.

Edited to add: Which didn't work, BTW. Even adding all other liquids to the crude production figures didn't make up for the decline in crude oil production. Instead, Crude + CCs + all other liquids are all in decline now.

[dmallind]

7. So it's bad when there is easy money and bad when there isn't too?

The M3 is down because there is little lending. Much of the cause for the bubble was too free lending. Which way do people want it?

[orwell]

10. So much...

...for the Gold Bugs "impending inflation" argument...

What's next, Obama's going to take away our guns?

Never mind...

[Subdivisions]

11. Have you shopped for food lately? There's definately inflation there. There's

inflation on the stuff we need and deflation on the stuff we don't.

[Hannah Bell]

18. stuff we don't need like housing, land, oil, & other commodities

http://www.heraldonline.com/2010/05/20/2182140/falling-consumer-prices-raise.html

[closeupready]

12. I'm sorry, economics is not my strong suit - can someone explain why this is important,

and why people should be concerned? Thanks in advance.

[dmallind]

13. If there is not enough money in circulation

People have less to spend to drive up demand to drive up hiring.

This is a function of tightening credit where banks are less willing to loan.

Inflation is too much money chasing too few goods (like the housing bubble where everyone could get home loans and drove up prices).

Deflation is the opposite - not enough money chasing too many goods (like the housing crash we are now in drives down prices).

The trouble is people often panic about both being bad. Since we had too easy access to credit for years and we saw a nasty recession because of it, it's understandable and indeed positive that some tightening is happening now.

It does slow down recovery of course as first sentence shows, but a slower more stable recovery has more chance of lasting than another ramp up caused by easy money and pricing bubbles.

Should you be concerned? Depends on whether you value speed of recovery especially in housing and durable items over control of inflation and less likelihood of future collapse. You can't have it all.

[closeupready]

15. Excellent, thanks a lot.

:)

[Hannah Bell]

20. usually it means nobody has enough money to buy things.

prices fall, but businesses go bankrupt, homes go into foreclosure, people get laid off, etc. because businesses, esp small & medium-sized ones, get squeezed. they can't make enough to cover their costs & they don't have big cash cushions. they don't make enough to cover the debts they have.

states & localities also go bankrupt.

last time there was major deflation = great depression.

the super-rich do well during deflations.

all the people screaming "we have to balance the budget" will make this worse.

"balanced budgets" in a deflationary period = more deflation.

[Greyhound]

17. Nobody could have predicted this, except everybody that has.

This is inevitable because the banks are using the proceeds from extortion to make their books look better than they are (still hiding the mountains of bad debt that haven't gone anywhere). When they do that, not enough money is created because that is done by lending which they are not due to the liabilities they are hiding.

The contracting M3 is just another symptom of the shell game they've been playing for almost two years. The global economy collapsed, instead of addressing the causes, we're essentially playing let's pretend it didn't happen and finance a do-over.

[Rex]

19. Debt? Americans are masters of debt, we have companies that

have companies that hire companies to tell you how 'you too can get out of debt' if you call now and let them 'help'.