Here's how I interpret this. M1, base, demand deposits measure Joe Soccer Mom's ability to come up with cash to service debt, and buy goods and services. It's also a measure of inflationary pressure. Declining M1 is telling us that inflation and debt service costs are cleaning out JSM's on hand cash. It will also measure JSM's job status.
Non M1 components of M2,
research.stlouisfed.org
and M2 measures the ability of both JSM and Bullies (more of a hybrid measure) to continue to access MEW like credit, and/or sell real estate. Real estate sales are still windfalls, enough so that it can support M2, even with actual housing sales off 25-30%. Obviously the lower housing prices go, combined with even fewer transactions, the lower the M2 measures will drop. Right now it's going down grudgingly. If this falls off it tells us that the recession has spreads from Brazil Americans, to Bully Wannabees and Bullies.
M3 which captures more financial assets, is a measure of Bully economic strength. As long as it rises at close to double digit rates, that will drive inflation, and push JSM (M1) further into the ground. The spread between M3 and M1 is really a measure of the Brazil American, Bully economic canyon or gap, and it's now getting extemely bad. The way to really cure what ails the US, is to close the huge difference between M3 and M1. Think M3 needs to come down, and M1 up, that would be positive.
We might want to look at this as six month annualized to capture the intensity and suddeness of the recession coming on?
Definitions:
M1: M0 + the amount in demand accounts ("checking" or "current" accounts).
M2: M1 + most savings accounts, money market accounts, and certificate of deposit accounts (CDs) of under $100,000.
M3: M2 + all other CDs, deposits of eurodollars and repurchase agreements. |
