‘Frightening’ US Money Supply Shrinks to Levels Not Seen Since Great Depression

Here’s some more depressing news. Sure, the CBO will keep cranking out reports telling us the stimulus grew our GDP and put millions of Americans back to work, we all know that’s a big lie. But they can’t tell us the truth, now, can they?

Telegraph: 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.

Of course, the Keynesians controlling things deny there’s any problem. As if they’d feel the need to put us further in debt if everything was all unicorns and roses. And Bernanke is so obsessed with credit, it’s like he can’t see the forest for the trees.

Paul Ashworth at Capital Economics said the decline in M3 is worrying and points to a growing risk of deflation. “Core inflation is already the lowest since 1966, so we don’t have much margin for error here. Deflation becomes a threat if it goes on long enough to become entrenched,” he said.

However, Mr Ashworth warned against a mechanical interpretation of money supply figures. “You could argue that M3 has been going down because people have been taking their money out of accounts to buy stocks, property and other assets,” he said.

Events may soon tell us whether this is benign or malign. It is certainly remarkable.

Oh, we’ll find out soon enough alright. How long can these economic magicians in Washington keep the bubble inflated? I tend to think the longer they keep inflating things, the worse it will be when when it bursts. But hey, what do I know? I’m just another silly American who lives within my means and expects my government to do the same.

If you still think this can all end well, take a look at the US National Debt Clock. In the twelve or so hours since I last checked it our national debt has increased by about $2.5 billion.

Memeorandum now has a thread.

Tags: frightening, Great Depression, M3, money supply, national debt, scary, shrinks, us