"True Money Supply" Growth Falls to Seven-Year Low in October

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“True Money Supply” Growth Falls to Seven-Year Low in October

November 13, 2015

The “true money supply” measure is a measure of the money supply pioneered by Murray Rothbard and Joseph Salerno and is designed to provide a better measure than M2. The Mises Institute now offers monthly updates on the TMS metric and its growth. See here for August's update. (I somehow missed September's update.)

During October 2015 (the most recent data available), the TMS increased 6.9 percent over October 2014's TMS value. October's growth rate was the lowest rate of growth shown in 7 years (84 months) and follows several months of an upward trend in year-over-year growth. The last time the TMS growth rate was below6.9 percent was during October of 2008, when the growth rate was 6.1 percent.

If indicative of a new trend, October's growth rate would suggest the end of the money-supply stability exhibited since early 2014, and would signal a resumption of a weakening in TMS growth that had been apparent during much of 2012 and 2013.

A weakening in TMS growth often signals a larger weakening in the economy, as was the case from 2005 to 2008. 

The first graph shows the growth rate for the TMS since 2001:

The True Money Supply is M2 with non-money components (small time deposits, retail money funds, and travelers checks) removed. Treasury deposits held at the Federal reserve are added.

In October, and for much of the past year, M2 growth was more stable, and continued with a trend of year-over-year increases near six percent. During October 2015, M2 was up 5.8 percent, year over year. During September 2015, the YOY change was 6.1 percent.

Notable Changes in Components of TMS

One significant change to the components of TMS was a sizable year-over-year fall in Treasury deposits at the Fed. Year over year, treasury deposits fell 43 percent, although treasury deposits overall continue, for now, in an upward trend:

TMS and M2 Values

Remember, we're looking at growth rates here, not at the actual sum total of TMS or M2. When I say “declines” or “weakening” I simply mean a drop in the rate of increase. If we look at the values of TMS and M2, we find continuous growth:



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