Continuing with this important theme, all measures of the money supply are at new all-time high levels. Since the Fed began its new "quantitative easing" program last September, the M2 measure of money supply has grown by over $400 billion, which is an annualized growth rate of almost 24%. That's a big deal, since annual growth in M2 has averaged about 6% a year.
A good part of the reason M2 has grown is that demand for money has surged. But it's equally important to note that the Fed has been very willing to accommodate this increased money demand. And by telling us that it will remain accommodative for "some time" the Fed is actively encouraging money growth. Borrowing costs for many people are now lower than they have been in a lifetime. "Come and get it!" the Fed is telling us.
We may still be in the throes of a credit crisis, but this is most definitely not a credit crunch. That's an important distinction. A credit crunch implies an actual shortage of money, like we had in the early 1980s when the Volcker Fed clamped down on the growth of money and interest rates spiked. But a credit crisis implies a shortage of confidence, a reluctance to lend. Confidence can return almost as fast as it vanished. The market's rally over the past week is one sign that this is now happening.