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Tuesday, August 19, 2008

More Evidence of Pending Deflation

Regular readers of this blog already know I’m firmly in the Deflation camp.
Via Naked Capitalism and the Telegraph, the evidence for a sudden, deflationary sucking sound continues to mount:

More Evidence of Sharp Contraction in Money Supply (Not for the Fainthearted):

“We had written in mid July that money supply in the US, as measured by M1 and M2, had been contracting for several months. Eurozone M1 growth had also fallen to near zero growth levels, and M4, the broadest measure of money in the UK, had actually dipped into negative growth territory.”

The Telegraph story that highlighted this development provided additional detail:

"Paul Kasriel, chief economist at Northern Trust, says lending by US commercial banks contracted at an annual rate of 9.14pc in the 13 weeks to June 18, the most violent reversal since the data series began in 1973. M2 money fell at a rate of 0.37pc...Leigh Skene from Lombard Street Research said the lending conditions in the US were now the worst since the Great Depression. "Credit liquidation has begun," he said."

I recommend reading the entire post.


Anonymous said...

John Williams' SGS M3 estimate at ShadowStats does not show the massive drop in broad money supply growth (updated August 16th). I'm also in the deflation camp, so I wonder what the reconciliation is.

-Mike J

Ben Bittrolff said...

Mike J,

I really respect John Williams and his efforts over at ShadowStats. Currently, I am not able toe reconile the differences. I do know that credit destruction on such a grande scale has to leave a mark... and I do know that NOBODY is 'printing' money. (Despite all the crap you hear around the blogosphere. The Fed is actually sterilizing it's alphabet soup of liquidity programs.)

Anonymous said...

Have you noticed $50 bills in circulation? I used to get only $20 bills even when withdrawing the maximum at the ATM, now it’s $50s. For those who have lived through inflation, that is a very first “anecdotal” sign of coming inflation.

Anonymous said...

Using M1 and M2 to measure the money supply is like using binoculars to map out the craters on the moon.

Anyone who uses M1, M2 and MZM as measures of the "broad" money supply egregiously misunderstands what is going on in the system.


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