Reader "unknown" noticed that M2 jumped by almost $50 billion this week, and suggested that might be a sign that money was once again fleeing Eurozone banks for the safety of U.S. banks. However, as this chart shows, the latest jump is merely a reversal of an earlier decline. On average over the past 13 weeks, M2 is growing at a 6.3% annualized pace, which is right in line with its 15-year trend. There was a noticeable "bulge" in M2 which began around the time the Eurozone crisis started heating up last summer, but it hasn't gotten any bigger since mid-August. Meanwhile, a similar bulge in M1 is also reverting to trend growth, and dollar currency is only rising at a 5% annualized pace; big increases in currency growth tend to coincide with global panics in which the dollar becomes the safe haven of choice.
In short, there's not much going on with M2 of late, which suggests that although the Eurozone sovereign debt crisis has been intensifying, it is not resulting in a wholesale run on the Eurozone banking system.
Thanks for the update. Seemed like a big number to me when I looked at today's number.
ReplyDeleteBTW I was just looking over the Fed's weekly money supply numbers and noticed ... in late 2007 and 2008 before the Lehman crash, M2 was growing rapidly y-o-y while M1 was flat or even contracting. This time both M1 and M2 are growing rapidly. So there seems to be something quantitively different this time, and perhaps qualititively too.
^
ReplyDeleteOops - I don't think I meant 2007 as much as 2008.
The historical relationship between M2 growth and inflation has been ~6% M2 growth provides ~2% inflation the next 2-3yrs and ~4% M2 growth correlates to ~0% inflation the next 2-3yrs.
ReplyDeleteAs far as Europe goes, either the ECB will "print" the money to buy sovereign debt, or the Euro will collapse -- austerity has failed and/or is too little too late to avert sovereign defaults along the southern flank of Europe -- the only question now is which will happen: (a) default across the southern flank of Europe; or (b) the ECB "prints" the money to buy outstand sovereign debt from the southern flank of Europe -- austerity is no longer an option, period -- let me say that again so that it rings loud and clear in the ears of the austerity hawks -- austerity has failed and is no longer an option in Europe -- an ECB intervention to buy out sovereign debt is the only remaining hope for the Eurozone...
ReplyDeletePS: As far as the US goes, everyone should prepare themselves for the very real prospects of the Federal Reserve having to buy out municipal bond and other state and local debts, together the the reality of having to buy mortgage debt in masse -- the Fed can then either retire the debt off their balance sheets, or complain about it "unbalancing" their books -- let me say this more directly: No one should be surprised when the Federal Reserve buys and retires several trillion dollars worth of state and local debt, together with mortgage debts from Fannie and Freddie -- I know many will disagree with such an outcome morally and monetarily -- however, austerity measures around the world are failing right before our eyes -- that's a problem for the austerity hawks, and even Dr Ben Bernanke seems to be in the fog as to how to handle the civil instability that austerity has caused globally -- the Federal Reserve is the lender of last resort for the US, and although the Fed may have to hold their noses when buying bad debt, the price of not doing so could very well be the end of Federalism and the USA as we know it...
ReplyDeleteIt's a sad thing if austerity has indeed failed. Without a doubt, austerity now seems foreign in the U.S. If all that the world is left with is printing money to sustain the entitlement mentality and costly big government programs - not just here but also abroad - then we are all in trouble. Certainly our freedoms are anyway.
ReplyDeleteToday's definition of Austerity: Living within your means.
ReplyDeleteActually, I hope the Fed prints up boatloads of money, I hope Bernanke runs the presses until the plates melt.
ReplyDeleteThe last CPI, PPI and unit labor costs readings were all negative. Down. While we have 9 percent unemployment, and are 13 percent below trend line on GDP.
The CPI is barely above 2008 levels. The core rate hasn't breeched 2 percent in years and years.
We are doing a Japan.
Happily, the US dollar is losing its sole role as international reserve currency, meaning the exchange rate is going down, and exports are soaring (see Mark Perry today). Hopefully, lots of tourists will come here too, and foreign investors will buyout assets.
Oh, boo-hoo, scarves in Italy will cost you more.
'Happily the US dollar is losing its soel role as international reserve currency ....'
ReplyDeleteLooks like the 'followers' are finally drinking the koolaid!