money supply

Saturday Reads Around The Internets - Inflation, China, Exchange Rates, and Outrage

Welcome to the weekly roundup of great articles, facts and figures. These are the weekly finds that made our eyes pop.

Food Inflation

The World bank reported food inflation put 44 million more people into extreme poverty as wheat prices have increased 75% in some countries.

Shrinking money supply and collapsing housing market

"By allowing persistent declines in the money supply and in the price level, the Federal Reserve of the late 1920s and 1930s greatly destabilized the U.S. economy and the economies of many other nations as well.
- Federal Reserve Governor, Ben Bernanke, 2004

Ben Bernanke, Nobel Prize winner Milton Friedman, and most other economists out there agree that the reason the Great Depression was so deep and destructive was that the Federal Reserve failed to keep the money supply from shrinking. I'm a little more skeptical, but I agree that it would be impossible for an economy to grow without a growing supply of money in a debt-based monetary system.
That's why this news article should be extremely distressing.

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.

As our political and financial leaders are using every tool at their disposal to jump-start the economy, there are fewer and fewer dollars in circulation. That's not a prescription for a growing economy. It's a prescription for economic disaster.

2009: Recession vs. Recovery (Update 2)

Update 2, Nov. 7, 2008: We got three new pieces of data this week, 2 on the monetary front, and one on the inflation front.

On the monetary front, M1 was updated weekly, increasing to ~ +8% YoY. Monetary base continues to soar, up about 60% YoY now!

Meanwhile the ISM manufacturing "prices paid" index showed that more prices are declining than increasing at the producer level:

This is our first October inflation reading, and it strongly suggests we will get another month of deflation when the PPI and CPI come out in 2 weeks.

Why the recession *should be* ending

No, I have not lost my mind, although with a slew of just awful economic data for September and October spilling out, the title of this blog entry is a contrarian statement to say the least. What I mean is, measured by the indicators of past recessions going back all the way through the Great Depression, the shallow recession that I believe started approximately last December, and primarily affected Wall Street with only a glancing blow at Main Street, ought to be ending.

Hints of a year-end economic respite?

The recession is here (and has been since last December). It's going to hang around for a while longer at least. And layoffs and unemployment are almost certainly going to continue to increase right through election day, which is bad news for the people who will lose their jobs, but at least has the silver lining that it will increase the chances of Democrats doing very well indeed this November.

That being said, like seeing the green shoot of a crocus popping up above the ground at the end of January, I am seeing the first nascent signs that the economy may enter a period of respite by the end of this year, either growing very slowly or at least the pace of contraction slowing down to a crawl.