Hyperinflation or Slower Monetary Destruction?
Monetary Watch February 2011: Obama’s Budget, the GOP and Its Implications for US Inflation
by Michael Pollaro
Monetary Aggregates, Where We Are
After December’s blistering rates of growth, the U.S. money supply aggregates based on the Austrian definition of the money supply, what Austrians call the True Money Supply or TMS, slowed markedly in January, with narrow TMS1 posting an annualized rate of growth of just 2.1% and broad TMS2 an annualized rate of growth of 4.6%. That brought the annualized three-month rate of growth on TMS1 and TMS2 to 21.5% and 14.7%, respectively, still high, but down from December’s 22.3% and 18.1% rates. No doubt some of this pullback was seasonal, as was December’s surge, but as we discuss below it’s a data point worth watching, as private banking institutions were a total no show in January.
Turning to our longer-term twelve-month rate of change metrics – more indicative of the underlying trends – and focusing on our preferred TMS2 measure, we find that TMS2 saw another healthy increase in January, growing at an annualized rate of 9.9% for the second month in a row. As we said in last month’s Monetary Watch, we think that’s close enough to 10% to mark January 2011 as the 24th time in the last 25 months that TMS2 posted a twelve-month rate of growth in the double digits. That equates to a cumulative increase in TMS2 of some 26% over those 25 months. To put those numbers into perspective, the run-up to the now infamous housing bubble turn credit implosion turn Great Recession saw a string of 36 months of double digit growth for a cumulative increase of 48%. So yes, today’s inflationary largesse may be only 54% of that which brought on the Great Recession, but this one’s still going strong.