Money-Supply Growth Slides Again As Recession Looms

Authored by Ryan McMaken via The Mises Institute,

Money supply growth fell to a three-month low in May this year, continuing a general downward slide in growth rates that's been in place since late 2016.

In May, year-over-year growth in the money supply fell to a 3-month low, growing 4.2 percent. That was down from April 2018's rate of 4.3 percent, but remains up from November 2017's low of 2.6 percent:

The money-supply metric used here — an Austrian or "true" money supply measure — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure than M2. The Mises Institute now offers regular updates on this metric and its growth.

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds).

M2 growth accelerated in May 2018, rising to 3.8 percent, compared to April's rate of 3.7 percent. Overall, though, the M2 growth rates has fallen considerably since late 2016.

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth.

Factors at work in differences between M2 and the Rothbard-Salerno measure include treasury deposits at the Fed , which have climbed again in recent months back to near all-time highs. Rothbard-Salerno calculates money supply including these deposits as money, although M2 does not. Thus, these recent increases in treasury deposits will result — all else being equal — in more money-supply growth in the Austrian measure of the money supply, than in M2.

The Rothbard-Salerno method also removes retail money funds and small time deposits from the money supply. In recent months, both retail money funds and small time deposits have been increasing. So these increases, which show up in M2, are not reflected in the Austrian measure.

The overall result has been slightly more moderation in the Austrian measure of money supply over the past 18 months, than we see in the M2 measure. We can see that in the orange line here showing the total money supply in billions of dollars:

What should we take away from this? Falling growth rates — not necessarily into negative territory — often precede economic crises. It nevertheless remains impossible to say with any precision as to how long after a sizable drop in money-supply growth a recession is likely.

2017's declines in money supply, however, were the largest we've seen since 2007, and do point toward a worsening in economic activity.

We can see this partly, for example, in falling loan activity, since loan activity is a major factor in money creation:


Deep Snorkeler Thu, 06/28/2018 - 11:46 Permalink

Ronald McTrump the Big Mac of Dementia

Has set up the economy for a dive into recession:

  • tax cuts for the billionaire hoarders
  • tax cuts for corporate buy backs and non-investment
  • giant military spending increases into the no return-on-investment zone
  • rewards and accolades for the criminal banks
  • unnecessary trade wars
  • an atmosphere of whim, whine and wimp


gdpetti Tony 12-Letters Thu, 06/28/2018 - 15:15 Permalink

That's one of the official excuses, but when the PTB thinks it's time to cull the herd, there are excuses a plenty.... afterwards, as their puppets are sent out to gloss it over as a need, nay, demand for the Central Banksters to have more power... How else can they do their job?

I did think it funny this mention of 'loan activity'... isn't that a joke these days given the fake fiat situation and the Fed paying interest for the big boys to park their funds at the Big House? it's free money, so why make real loans to real customers?

All that said, IMO, it's best to remember their main gameplan... 'out with their OWO, in with their NWO'.... all of this market crap, fiat crap, fake democracy, fake business cycles et al... all of it is OWO.... not needed in the near future as Mother Nature swings on in to 'clean house'.

In reply to by Tony 12-Letters

rex-lacrymarum Tony 12-Letters Fri, 06/29/2018 - 16:24 Permalink

It was definitely not "intentional" - the Fed expanded its balance sheet by more than 400% between late 1929 and early 1933. That didn't work because too many banks went bankrupt - more than half of the nation's banks were not even members of the Federal Reserve system at the time - and there was no FDIC, so all their deposit money went to money heaven. 

In reply to by Tony 12-Letters

mkkby Number 9 Thu, 06/28/2018 - 16:44 Permalink

Bullshit article.  I thought we all learned (most never do) back in 2008, money supply doesn't matter much.  You also have to consider velocity and a thousand other variables.  Money is also created in markets that aren't counted.

Another day, another scary recession/depression prediction.  Ho hum.

In reply to by Number 9

Number 9 homiegot Thu, 06/28/2018 - 12:05 Permalink

cycles? wtf is that.. are you trying to be sarcastic?

unless you mean the bankster cycles like during the great depression when they dried up the money supply and purposedly starved 7.5 million Americans to death..

THOSE cycles..

like the Holodomor?

Bolshevik revolution?

In reply to by homiegot

Captain Nemo d… Thu, 06/28/2018 - 12:01 Permalink

The "Austrian" measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short time deposits, traveler's checks, and retail money funds).

The Captain Nemo measure includes a fraction (1-a) of the treasury deposits at the Fed and the fraction (a) of the short time deposits, traveler's checks and retail money funds, where a is the fraction of decision-makers who believe in using M2 while (1-a) is the fraction that believes in the Austrian measure to better reflect the actual situation in the minds of people who will decide on what to do based on the measure.

It not only gives you another squiggly line, it also provides significant opportunity for new research because as soon as people start believing in this measure, the values of a and 1-a will no longer be valid because no one will believe in either of the two components, ultimately demonstrating the nonsense of it all.

arrowrod Thu, 06/28/2018 - 12:03 Permalink

How can I publish a self serving article on ZH?

I'm still hiding under my after the last "the world is going to end" ZH hit piece.

I'm publishing "Gourmet Zombie Cookbook", as soon as I can find a publisher.  For when times are really bad.  Really, really bad!

Balance-Sheet Thu, 06/28/2018 - 12:12 Permalink

All USD are the registered brand of the USG issued primarily by licensed private banks and by the Federal Reserve System. Only the extremely wealthy can arbitrate the implications of sovereign legal tender in the USA.

MusicIsYou Balance-Sheet Thu, 06/28/2018 - 12:25 Permalink

Well yes, but you and they only think themselves are wealthy. The truly wealthy know what will be valuable in a future time. Case in point: you can watch people paying 10's of 1000's or millions of dollars for collector items such as paintings or old firearms, but someone truly wealthy buys what will be a collector item someday, for a whole lot less. Really, it's merely geometric thinking, they travel around their little rings of life, and the truly wealthy ARC over the circle to another point, and wait for everybody else to catch up. That's the way Superman does it.

In reply to by Balance-Sheet

Balance-Sheet MusicIsYou Thu, 06/28/2018 - 13:42 Permalink

Anything that is authentic may become more valuable over extended periods of time simply due to attrition.Imagine if you had the foresight to buy Fred Flintstone's car back in the day think of your wealth now. Even if you are born wealthy you are quickly dead and all that wealth goes back into circulation.

No country of any size is going to use collector items to collateralize currency issuance as collateral is not required. What the legal tender is will be a real issue for everyone.


In reply to by MusicIsYou

MusicIsYou Thu, 06/28/2018 - 12:51 Permalink

It's funny, the other day while I was at the hardware store there was a pickup truck that had a zombie stuck in the grill of the truck. Of course in reality had he hit a zombie his grill would be ruined. 

ThanksIwillHav… Thu, 06/28/2018 - 13:00 Permalink

Well, as the Yield Curve is about to invert expect banks to curtail new loans.   If Powell raises two more times this year, the 2yr/10yr curve should invert.  When that last happened, one year later TSHTF.  

ZeroLounger Thu, 06/28/2018 - 13:24 Permalink

I applied at 1st Interstate Bank yesterday for a collateralized business loan: My silver bullion to back up monopoly money $$$.

Answer: Sorry, no can do.

Conclusion:  Banks won't lend funny money against real money. (Something about metal's difficulty in being kept track of versus 401k's, truck titles, etc). Fraud, in other words.

Balance-Sheet rejected Thu, 06/28/2018 - 15:35 Permalink

Silver is simply not legal tender though you may think or insist otherwise. If you or others insist that it MUST actually be money then that cannot be other than an opinion. It WAS the equivalent of money at one point though few swapped their Silver Certificates for Silver BECAUSE it was not a common currency before 1962 and not money or currency after 1962. Take your coin down to the pawn shop and get the real value in USD. If it amuses you to adhere to the political issue of Bimetallism then fine. If you own a commodity like Silver, Corn, or pork bellies and you want USD then SELL the USD. No local bank is going to maintain huge vaults to store commodities with all the associated costs and risks especially the bank will carry no more than its MINIMUM in paper bills as a float for the technologically challenged and this is the way it is going to be. 

In reply to by rejected