Money Supply is rocking

[Wonk]

Every few months I track money supply levels--both traditional (MB, M1, M2) and alternative (TMS).  Everyone knows the monetary base has exploded, but the issue to date is that it's not spilling over into broader aggregates.  That's no longer the case.  Here are some updated totals YOY as of August 2010-August 2011:

MB: +33%
M1: +21%
M2: +9.6%

More importantly, I believe you could classify Harry Browne as an adherent to Austrian economics.  The Austrian benchmark for the money supply is Rothbard's True Money Supply.  The mises.org site hasn't been updated recently to give real-time TMS updates, so I construct them using Rothbard's formula.

We've seen nearly 16% year over year growth in TMS since 8/2010--something we haven't seen since the mid 70s.  Now, we may still see another liquidity crisis--which could hit money stock levels.  The salient issue for me is realizing that The Fed has--to date--succeeded where the Bank of Japan failed. 

[Wonk]

Forgot to mention that I don't think it's a coincidence that TIC data for the last 8 months has been largely flat:

http://www.treasury.gov/resource-center ... ts/mfh.txt

This suggests foreigners--especially central banks--are not sucking up treasuries (and our exported inflation) like they were previously.  Worth mentioning, they aren't dumping them either--just holding steady, which appears to be enough at this point.

[Gumby]

I wouldn't be so sure of that. Look a little closer...

Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over

[stone]

Wonk, is it all about devaluation of the USD relative to the cost of global commodities? If money supply data were calibrated against a commodity index; would that write it off?

[Wonk]

I wouldn't be so sure of that. Look a little closer...

Yes Virginia, U.S. Back in Deflation; Inflation Scare Ends; Hyperinflationists Wrong Twice Over

So sure of what?

[Wonk]

Wonk, is it all about devaluation of the USD relative to the cost of global commodities? If money supply data were calibrated against a commodity index; would that write it off?

Absolutely--it's always about devaluation relative to real assets.  In the case of Japan, they were never able to sustain >2% M2 growth, so their CPI always hovered around the 0% level and could therefore not achieve the negative real interest rates necessary to devalue.  It remains to be seen if The Fed is willing to further expand the balance sheet in order to counter new and unseen deflationary shocks, but at the moment it appears they've achieved what the Japanese could not.

[Gumby]

So sure of what?

That the Fed has achieved anything substantial. The powers of deflation are still very strong right now.

[stone]

Wonk, in principle wouldn't it be possible to have M2 growth that held up even when re-calibrated against real assets? Comparing the 1930s to the 1960s wasn't there an increase in real economic activity with people producing and using more goods and services? My impression was that both Japan and the West have failed to create such a real increase. The difference is that the trade surplus for Japan prevented/protected? them from having a nominal increase.

[Wonk]

So sure of what?

That the Fed has achieved anything substantial. The powers of deflation are still very strong right now.

I agree the powers of deflation are very strong, but I disagree that a 16% growth in TMS and nearly 10% growth in M2 is not substantial.  Japan never had anything close to 10% M2 growth after their bubble had burst.  Of course future outcomes depend on future decisions, but my point was regarding what has been achieved today.

Also, I think Mish is a smart guy, but I would disagree with him on a large point in his central thesis--that credit needs to be marked to market when it is not in the real world.  When the rules change, everything changes. 

[Wonk]

Wonk, in principle wouldn't it be possible to have M2 growth that held up even when re-calibrated against real assets? Comparing the 1930s to the 1960s wasn't there an increase in real economic activity with people producing and using more goods and services? My impression was that both Japan and the West have failed to create such a real increase. The difference is that the trade surplus for Japan prevented/protected? them from having a nominal increase.

Stone, I'm not sure I know how M2 could be re-calibrated against a broad basket of real assets--with the exception of gold--which has historical precedent.  Unknowingly, the Japanese expanded M2 at almost the exact annual rate as under a gold standard (which is roughly equal to real economic activity), leaving the CPI largely flat.

[doodle]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

[Gumby]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

Food prices have definitely gone up. But, the rise in food prices is mostly due to the terrible weather and drought which have ruined a large portion of crops this year.

[moda0306]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

Food prices have definitely gone up. But, the rise in food prices is mostly due to the terrible weather and drought which have ruined a large portion of crops this year.

Still helps my i-bonds... booyah.

[doodle]

PPI numbers sound like inflation is the issue...not deflation: http://www.cnbc.com/id/44173147

I think this is what they call stagflation. Break out your disco records and bell bottoms. We're going back to the 70's.

[MediumTex]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

1. Basically everything in a Best Buy store.

2. Wages

3. Money (i.e., interest rates)

4. Stocks

5. The price of gasoline has been falling for a few weeks now

Those are a few.

[doodle]

MT,

With the exception of Best Buy Prices (maybe related to Moore's law)...I don't think that the others really qualify as goods and services.

Gasoline blipped down on fears of a second recession but the trendline is higher.

I am not wedded to the idea of inflation....it's just that I haven't seen prices declining much in my day to day life.

[Gumby]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

1. Basically everything in a Best Buy store.

2. Wages

3. Money (i.e., interest rates)

4. Stocks

5. The price of gasoline has been falling for a few weeks now

Those are a few.

6. Home Prices.

At least they were dropping. A lot of people like to ignore home prices, but technically it's the largest purchase most people make.

[MediumTex]

I know that the big fear today is deflation, but in my daily life I see nothing but inflation. I can't think of a single thing that I buy today that was more expensive last year with the possible exception of housing. With regards to food, the price increases in the supermarket seem to tick up every few weeks. Just the other day at Chipotle Mexican Grill the prices were jacked up about 5%.

Can anyone give me an example of where they are seeing deflation in their daily purchasing habits?

1. Basically everything in a Best Buy store.

2. Wages

3. Money (i.e., interest rates)

4. Stocks

5. The price of gasoline has been falling for a few weeks now

Those are a few.

6. Home Prices.

At least they were dropping. A lot of people like to ignore home prices, but technically it's the largest purchase most people make.

Ironically, TAXES have been falling for a few years now.

There was a small tax cut in Obama's first stimulus package, and so far in 2011 we have all been enjoying a rather large tax cut in the form of the cut in the employee portion of the FICA tax.

For those people who pay property taxes, as property values have declined, so have the taxes on that property, assuming the rates haven't changed.

For those people who pay sales taxes, as the cost of many consumer goods has fallen, so too has the amount of sales tax paid on the purchase of these items.

In the past, I think people might have responded to rising prices by just putting more purchases on credit.  Now, however, I get the impression that people are often just buying less of everything in response to rising prices.  That's certainly what I am doing.  I actually really enjoy cutting back on things.  I feel like I am gradually extricating myself from a consumer cult.

[doodle]

I have reached a level of extrication from the "cult of consumption" that puts me over the other edge of extreme. I paired down all of my furniture to a single coffee table which I sit at Japanese style. Honestly, what more does a man need? Actually, besides the advantage of being able to clean my house in about 10 minutes, having next to nothing provides a wonderful feeling of liberation. If a bunch of robbers broke into my house, they would probably leave figuring I had already been robbed.

That said, I am surprised my girlfriend hasn't dumped me yet.  

[Wonk]

...having next to nothing provides a wonderful feeling of liberation.  

Amen to that.  I've often said to friends, "the less stuff I want or have, the happier I feel."  Apart from fire, water, food & shelter, everything else is a luxury of some kind.  "Stuff" can be expensive and unfulfilling, while experiences are typically priceless and life changing.

Back to topic for a moment...

Not sure if I shared this before, but I find the Billion Prices Project pretty compelling:

http://bpp.mit.edu/usa/

[doodle]

Wonk,

That sort of confirms what I have seen...which is about a 5% increase in prices over the last year. I agree that the economy is teetering on the precipice of deflation...but so far I haven't seen much of it.

[MediumTex]

I have reached a level of extrication from the "cult of consumption" that puts me over the other edge of extreme. I paired down all of my furniture to a single coffee table which I sit at Japanese style. Honestly, what more does a man need?

You're probaly going to want a modem, wireless router and a good laptop computer to keep up your forum work.

Actually, besides the advantage of being able to clean my house in about 10 minutes, having next to nothing provides a wonderful feeling of liberation. If a bunch of robbers broke into my house, they would probably leave figuring I had already been robbed.

That said, I am surprised my girlfriend hasn't dumped me yet.  

A haiku:

Doodle is stark mate
Peace fills his empty abode
I still may dump him

[Gumby]

I have reached a level of extrication from the "cult of consumption" that puts me over the other edge of extreme. I paired down all of my furniture to a single coffee table which I sit at Japanese style. Honestly, what more does a man need? Actually, besides the advantage of being able to clean my house in about 10 minutes, having next to nothing provides a wonderful feeling of liberation. If a bunch of robbers broke into my house, they would probably leave figuring I had already been robbed.

That said, I am surprised my girlfriend hasn't dumped me yet.  

Sounds like you're following Harry Browne's 'Starting from Zero' plan without even realizing it. I haven't read it, but in his book, How I Found Freedom in an Unfree World: A Handbook for Personal Liberty he supposedly recommends liquidating all of your assets to begin a new dream life. Or something like that. I'm probably butchering the concept. But, it sounds like you've already done the hardest part!

[MediumTex]

I have reached a level of extrication from the "cult of consumption" that puts me over the other edge of extreme. I paired down all of my furniture to a single coffee table which I sit at Japanese style. Honestly, what more does a man need? Actually, besides the advantage of being able to clean my house in about 10 minutes, having next to nothing provides a wonderful feeling of liberation. If a bunch of robbers broke into my house, they would probably leave figuring I had already been robbed.

That said, I am surprised my girlfriend hasn't dumped me yet.  

Sounds like you're following Harry Browne's 'Starting from Zero' plan without even realizing it. I haven't read it, but in his book, How I Found Freedom in an Unfree World: A Handbook for Personal Liberty he supposedly recommends liquidating all of your assets to begin a new dream life. Or something like that. I'm probably butchering the concept.

He suggests a mental liquidation and a mental projection of what would be needed if you were to start from zero.

When you have identified only the essentials, you can then pare down what you have to get closer to your fresh understanding of what is actually essential.

Doodle appears to have executed this move expertly.  However, he may find at some point that dust gathers on the table and creates envy in others and he may find that even the table is no longer essential.

At that point he may come to terms with the deepest expression of himself while seated in the lotus position in his empty room. Shortly after that he will marry and begin acquiring countless non-essential items.

If you are familiar with the zen story of the search for the missing ox, the picture of doodle finding nirvana in an empty room followed by embracing a life of domestic bliss is akin to moving from the eighth to the ninth to the tenth frame of the missing ox series.

Search for the Missing Ox

[doodle]

MT,

Thanks for the haiku. It warms my barren heart.   

I think that this downsizing thing is the latest trend in America. More and more people that I talk to seem to be exhausted from 30 years of massive debt fueled over consumption.  Small, simple, clean, seems to be slowly gaining traction on "gaudy bling". From an economic standpoint, this cultural trend certainly makes deflation seem like a much greater possibility.