Saturday , November 17 2018
Home / LewRockwell / The True Money Supply

The True Money Supply

Summary:
Jeffrey Peshut at RealForecasts.com has composed several very illuminating graphs based on the Rothbard-Salerno True Money Supply (TMS). In one graph Peshut shows the collapse of the growth rate of TMS beginning at the end of 2016, which was caused by the Fed beginning to raise the fed funds target rate at the end of the preceding year. What is of great interest is that the recent deceleration of monetary growth (the second red arrow) almost exactly matches in extent and rapidity the monetary deceleration (the first red arrow) that immediately preceded the financial crisis of 2007-2008. The Fed recently reaffirmed its commitment to increasing the fed funds rate three more times in 2018 and has just begun its program of shrinking its

Topics:
Joseph T. Salerno considers the following as important:

This could be interesting, too:

Tyler Durden writes Sentiment Scale Reveals Which Words Pack The Most Punch

Tyler Durden writes San Francisco’s War On Airbnb Is A War On The Free Market

Tyler Durden writes For The First Time Ever, Psychologists Warn Facebook Can Cause Depression 

Tyler Durden writes Why Orwell Is Superior To Huxley

Jeffrey Peshut at RealForecasts.com has composed several very illuminating graphs based on the Rothbard-Salerno True Money Supply (TMS). In one graph Peshut shows the collapse of the growth rate of TMS beginning at the end of 2016, which was caused by the Fed beginning to raise the fed funds target rate at the end of the preceding year. What is of great interest is that the recent deceleration of monetary growth (the second red arrow) almost exactly matches in extent and rapidity the monetary deceleration (the first red arrow) that immediately preceded the financial crisis of 2007-2008.

The Fed recently reaffirmed its commitment to increasing the fed funds rate three more times in 2018 and has just begun its program of shrinking its balance sheet by a cumulative total of $450 billion by the end of 2018. Given these circumstances, I am inclined to agree with Peshut’s conclusion:

 “it’s easy to see that the growth of TMS could grind to a halt and even begin to contract later this year.”

With equity prices heading back toward historic highs after the January “correction” and housing prices bubbling to an all time high in major markets, the suppression of the TMS growth rate, if it is sustained for the rest of the year, portends another credit crisis and housing bust, followed by an economic recession for the U.S. economy. As Peshut’s graph below indicates the qualitative relationship between TMS growth, credit crisis, and recession has been remarkably clear since 1978. Of course, this empirical relationship should not surprise us, because it is nothing but an illustration of the Austrian theory of the business cycle.

The True Money Supply

The True Money Supply

 Mises.org are not necessarily those of the Mises Institute.

Joseph T. Salerno
Joseph T. Salerno is an Austrian School economist in the United States. He is a professor at Pace University, an editor of the Quarterly Journal of Austrian Economics, and Academic Vice President of the Mises Institute. Salerno specializes in monetary theory and policy, comparative economics, and the history of economic thought. Dr. Salerno received his Ph.D. in economics from Rutgers University. His most recent publication is Money: Sound and Unsound.

Leave a Reply

Your email address will not be published. Required fields are marked *