The Money Supply. It's a phrase that most people don't get, or don't understand.
Basically - the money supply measures how much buying power there is out there. The first kind is M1 - that is money that is available almost on demand - checking acounts, traveller's checks and so on. M1 is what the day to day economy runs on. The stuff that can be spent on any given day.
Then there is M2 and M3 - what do they measure? M2 measures the money in semi-liquid accounts in the US - retail institutions they are called. M3 is the big money supply - it includes the big investors, Eurodollars and the rest. About anything that isn't in the black market for money.
M3 year on year growth is plunging, and that means that the game is almost over for Bush.
First the numbers
- 5 2000-Jan.
- 2 Feb.
- 2 Mar.
- 4 Apr.
- 9 May
- 3 June
- 4 July
- 5 Aug.
- 8 Sep.
- 6 Oct.
- 1 Nov.
- 6 Dec.
- 2 2001-Jan.
- 3 Feb.
- 1 Mar.
- 5 Apr.
- 3 May
- 4 June
- 8 July
- 0 Aug.
- 8 Sep.
- 3 Oct.
- 9 Nov.
- 6 Dec.
- 7 2002-Jan.
- 9 Feb.
- 9 Mar.
- 8 Apr.
- 9 May
- 1 June
- 4 July
- 3 Aug.
- 9 Sep.
- 3 Oct.
- 0 Nov.
- 7 Dec.
- 1 2003-Jan.
- 2 Feb.
- 2 Mar.
- 0 Apr.
- 7 May
- 7 June
- 7 July
- 4 Aug.
- 4 Sep.
- 1 Oct.
- 9 Nov.
- 2 Dec.
- 7 2004-Jan.
Now the answers - what this shows is the Year on Year growth of the big M3 number. It is this number that pushes up the stock market and other credit markets. If it is flat, then the stock market is flat, or growing slowly - if it roars upwards, then investment demand has moved upwards, and someone, someplace, is making money. In low inflation times that means the stock market, in high inflation times - it means who ever owns the commodity that people are paying more for.
This numbers plunge is a warning indicator - it means despite massive tax cuts, very low interest rates and all the rest, Bush's attempt to prop up equity prices is failing. Which means that it is highly likely that the "recovery" we are in will not take flight of its own - no recovery does without real growth in M3.
- - -
So what does this mean? It means the economy will look increasingly unstable over the course of the next year. Given that there is still a hefty M3 number, that does not mean a recession or a pull back - the numbers don 't point to that - but it does mean that the current seeming expansion will slow to a crawl. The stock market will peak, and then have a series of spikes to try and reach back upward. Interest rates will stay low - simply because the economy will be hovering near a Japan style liquidity trap - where the fed can't even give away money.
However, next year, is the year the bill comes due. With Fannie Mae and Freddie Mac about tapped out for mortgage lending - Greenspan is urging that their debt be capped to a willing congress - which means that housing, the core of the buffer for regular jobs, comes to a halt. With the Federal deficit at unsustainably high numbers, look for heavy spending cuts.
And with it, the beginning of the next wave of the recession - unless action is taken shortly, and a new policy regime is put into place.