MZM Truth in Advertising. The file JW just posted is of the Adjusted Monetary Base, not MZM as described in the text of the post. Actually, the AMB is closer to direct Fed activity than MZM, but my historical study shows a more reliable tie from MZM to subsequent price changes than AMB, so I have always used MZM (and M1 prior to the advent of MZM).
However, as JW knows, weekly numbers should be very suspect. While the current annualized rate of growth in MZM over the last 4 weeks is 19.8%, for one week it was 29.9%; however, this rate of growth may be nothing more than the Fed has deemed necessary to bring the MZM growth rate from a lower end of channel growth rate of 7%-8% to the upper end of the channel.
research.stlouisfed.org
There has only been one period of time in the last ten to fifteen years where the Fed's debt monetization activity as measured by MZM was visibly accelerated. From November, 2000 through January, 2002 the MZM growth rate exceeded 20% annualized for 15 straight months. My belief is that period of money creation led to the 36% appreciation in the CRB Index 12 months later in the 15 month period November, 2001 through January, 2002. The structural deflation within the system as noted by JW prevents the price action from going much beyond raw materials.
The Fed steadily lowered MZM to 8% after January, 2002, and MZM fell as low as a 3% annualized rate for the 5 months preceding the last 4 weeks. It's no wonder the economy is relapsing at this pace of money supply support. Still, it is too soon to conclude that the Fed has changed its money creation policy with out a few more weeks data to see if the rate of creation takes MZM "above channel" |
