TMS-2 Growth Rate Declines Further

The U.S. money supply as represented by TMS-2 (True “Austrian” Money Supply), our broadest and preferred U.S. money supply aggregate, posted a year-over-year rate of growth of 7.7% in October, down from an 8.3% rate in September. Now down 880 basis points (53%) from the current boom-bust monetary inflation cycle high of 16.5% posted in November 2009, this is the lowest year-over-year rate of growth in TMS2 since the 6.9% rate seen in November 2008 (month 4 in this 75 month long and counting inflation cycle). As a result, although we are not yet ready to declare that the economy is staring at an imminent bust in the face, this decelerating trend in the rate of monetary inflation is bringing us ever so closer to one. To investors and speculators alike, we say time to be especially cautious.

Here’s the current growth rate in TMS2 in the context of the last 20 year experience …

 US true money supply TMS-2, total and 12-month growth rate. Decelerating further – click to enlarge.

Defined by how we measure boom-bust monetary inflation cycles (by the year-over-year rate of change in TMS2, cycle trough to trough), here is how the current inflation cycle – what we have termed the Bernanke Risk-On Boom – Bust-to-Be – stacks up against the inflation cycles that gave us the Tech Boom-Bust and the Housing Boom-Bust turn Credit Bust turn Great Recession…

Changes in the true money supply vs. booms and busts of the past – click to enlarge.

As readers of THE CONTRARIAN TAKE are aware, given the size of the monetary largesse injected into the economy during this inflation cycle, this kind of deceleration in the rate of monetary inflation is a huge yellow light for both the economy and markets. If it continues, a bust awaits. As we have written in the past…

Read the rest of this entry at Forbes

Charts by: Michael Pollaro

 

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