At garynorth.com one can get a look at all of the monetary trends as he’s aggregated all of the information on one page. The Fed updates these charts on Thursdays. So, this afternoon, some of these will have new data appended to them.
Bernanke has kept the adjusted monetary base flat for most of the year, and YOY, he has actually shrunk the Fed’s balance sheet by a significant amount. Now, at the same time the excess reserves held by the banks with the Fed has dropped in the past few months by over 20%. So, the banks have been drawing down their excess reserves, which may be a signal that the credit markets are unfreezing. M1 has risen by over 10% this year and the M1 multiplier has bounced off the bottom at around 0.79 and is now rising rapidly back towards parity. The M2 chart looks the chart of gold over the same time period. Lastly, the velocity of money has flattened out recently and may even be dropping after a mild rise in the past year.
Now, I’m not a big Velocity of Money guy, but Bernanke is, being a Keynesian. High powered money, M1 is rising which makes sense if the banks are drawing down their reserves and that money is moving into checking accounts. The multiplier is rising which means that the fractional reserve process is beginning again, so this supports the idea that all the money Bernanke printed is beginning to be lent into the economy and is creating the upward push on commodity prices we’ve been seeing. M2 is rising which means that the savings rate is rising rapidly. Why? Most likely because people are rightly scared about the near and medium term, same as the banks have been for nearly 2 years now.
So, if the velocity of money is still falling and the broader monetary statistics are increasing that means that as a disciple of Keynes Bernanke will have to inflate even more to increase the flow, as the flow is everything to an economist of his stripe.
Can anyone dissuade me from thinking that this has all the earmarks of a nascent bout of really nasty price inflation especially as the news out coming from all corners of the world is that governments are broke and there’s a real danger of some form of default on their debt obligations?
Something is going to break this stasis soon. I don’t know what it is, but when it goes it’ll likely go quick.