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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (3525)12/17/2003 12:22:29 PM
From: mishedlo  Read Replies (2) of 110194
 
M2 M3
mises.org

The yearly rate of growth of money M2 fell to 5.2% in November from 7.5% in October while the yearly rate of growth of money M3 fell to 4.7% in November from 7.5% in the previous month.

How seriously should one take the recent softening in the yearly rate of growth of money supply? Some analysts believe that this softening in the growth momentum could cause problems for financial markets since a fall in the rate of growth implies that the pace of liquidity generation is slowing down. It is also held that a softening in the growth momentum is likely to hurt economic activity.

Economists who follow money supply data are also alarmed by the fact that the growth momentum of commercial bank lending is displaying a visible decline. After climbing to 12.1% in June, the yearly rate of growth of commercial bank loans fell to 6.6% in November. Does the slowdown in the money and credit rate of growth imply trouble ahead?

...

Now, it is true that the popular definitions of money are also showing a decline in their growth momentum. However, as we have shown, one cannot rely on these definitions since they provide a misleading account of what money supply is. In the following charts one can observe the discrepancies in the growth momentum of popular definitions of money against money AMS.

Now, even if popular definitions were to produce good historical correlations with various economic data, one runs the risk that these monetary measures will lead to misleading analyses on account of the fact that these definitions are flawed. The only criterion of having confidence in a money supply definition is whether it correctly identifies what money is and where it resides.
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