More apologies on off topic, but RW brought it here following our private messages, so I'll post it here. To bring anyone who cares up to speed, our exchanges have been (in my view) like ships passing in the night, with RW focusing on credit expansion and its economic impact and with my focus on Fed money supply expansion.
I have been posting MZM activity on this thread because I believe that it is a relevant factor to the price of gold, which is the product of the majority of stocks discussed on this thread. So it is relevant. Before making that case I'll splice the most recent activity in MZM
research.stlouisfed.org
which is the first positive activity for MZM relative to the gold price in 18 months (the graph below is year on year, so trust me that annualized growth of MZM first fell from its 20% growth rate in January, 2002). It is the "first positive activity" in my estimation because the growth in MZM and its trend is beyond the probability of a chance expansion but is indicative of direct Fed intent to monetize debt.
research.stlouisfed.org
MZM is not itself directly indicative of Fed activity in creating money out of thin air, by crediting a deposit in a member institution by a T-bill purchase, for example, but it is more directly indicative of money creation than the broader measures of money such as M2 or M3. I have also used MZM or, prior to its realgamation to MZM around 1994, M1 since the early 1970s to plot future impact on gold and raw materials in U.S. dollar prices.
I am not so concerned with economic impact of money creation as I am in inflation and currency debasement, as I believe those aspects are more directly relevant to the future price of gold. I am also more interested in directly observable cause and effect consequences and I believe that a monitoring of MZM provides it, as I have previously posted here my observation of the lagged impact of the MZM surge in November, 2000 through January, 2002 on raw materials prices (as measured by the CRB Index
futures.tradingcharts.com
Note that the CRB Index period of 30%+ appreciation began November, 2001, roughly 12 months after the beginning of the onset of the prior MZM surge, and has ended in January, 2003, roughly 12 months after the end of the prior MZM surge. I believe that there is a causal tie between the initial MZM growth pattern and the subsequent impact on raw materials prices as measured by the CRB Index (as the newly created money worked its way through the economy).
I also tie this to gold in a rough sense. If the Fed is active in debasing the U.S. Dollar, that is directly positive for gold. It gives me confidence, no matter what else happens -- shorts of commercials, forward selling of producers, central bank sales -- that the investment in gold will ultimately be successful in U.S. Dollar terms.
Maybe this is coincidental - maybe not -- but the bottoming in gold and its beginning ascent in early 2001 was roughly coincident with the initial MZM surge in November, 2000.
futures.tradingcharts.com
Certainly, gold has not looked back since the Fed has expressed its willingness BY ITS ACTIONS to debase the currency.
Credit expansion outside Fed activity may have economic impact, but I have not seen any studies relating a tie to that expansion to raw materials prices or U.S. dollar inflation, and that is my narrow focus here. |
