The monetary indicator AMS (see this article on the Austrian method for quantifying money) shows a fall in yearly growth from 6.5% in August in 4.5% in Sept, which is a continuation of a falling trend from earlier this year.
The yearly rate of growth of money AMS adjusted for CPI inflation (real AMS) fell to 1.9% from 3.8% in August.
Our measure of liquidity, money AMS adjusted for nominal economic activity, fell by 3.4% after declining by 1.4% in August. The rise in liquidity between January and March (segment B-C) is having a positive effect on the stock market. However, a sharp fall in the growth momentum of liquidity between April and September (segment C-D) poses a serious threat to the stock market in the months ahead.
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Assuming the inflation-adjusted growth remains low (or drops even further), don’t we expect the economy to finally go through its much needed adjustment phase? Of course, modulo further tinkering, this would be a good thing.
Since the new money minted over the past two years mostly found its way into the stock market, wouldn’t we expect the adjustment to first make itself known through a fall in stock prices?
the U.S. economy has become heavily dependent on the savings of SE Asia…..
shouldn’t any gauge of U.S. Money supply be more global….and include SE Asia Central Bank holdings?
also, the AMS doesn’t appear to have a significant correlation to the stock market ?
I do agree with the logic of the AMS ….
capturing changes in the money supply via fractional reserve banking and central bank injections…
maybe i am not fully aware of all the components of the AMS, but it seems it needs to be more global in scope…..
An argument against that might be that foreign currencies aren’t cash here: you can’t buy anything with Euros or Dinars in the US – you have to sell them for dollars first. In that way, foreign currencies would be excluded the same as money markets.
An argument against that might be that foreign currencies aren’t cash here: you can’t buy anything with Euros or Dinars in the US – you have to sell them for dollars first. In that way, foreign currencies would be excluded the same as money markets.
2 things. With regards to Bob’s point most central banks use their US$ to buy debt obligations, bonds etc. which is a credit transaction and so not money as defined here. I am not sure if the AMS captures their US$ demand deposits however if located say in a Malaysian bank?
Secondly, I read the linked article and thought many of the points justifying the inclusion of demand deposits in the AMS were equally valid with using money market chequing accounts too? Mises’ and Rothbard’s comments would not seem to exclude chequing accounts either. What am I missing?
I certainly agree with the basic approach that money supply should not be changed according to whatever measure best correlates with the national income.
I do however find the view that MMMF:s and savings deposits aren’t part of the money supply questionable. Since it is possible to make payments with MMMF-assets it should be considered money. The argument that a payments with MMMF is “an instruction to sell money market certificates for cash. The buyer of these certificates parts with his money which is then transferred to the holder of the check; money changes hand but no new money is created” is invalid. Anything regularly used as a means of payment is money and a transaction does result in a change (actually a decrease rather than increase) in the money supply. Before that payment with the check, the person who wrote the check had his MMMF-assets available for payments, after the payment he didn’t , resulting in a decrease in the money supply as the supply of cash was unchanged.
As for savings deposits, Murray Rothbard answered Shostak’s argument in his article “Austrian definitions in the supply of money”, a article which Shostak has in his references but still strangely refuses to argue against. As Rothbard points out, the “30 day waiting period” is never enforced and because of that people quite properly subjectively treat their savings deposit assets as money.
Money market mutual funds typically invest in short-term debt (in most cases, US gov agency obligations). If these types of debt were more volatile or riskier, a MMMF wouldn’t offer checkwriting/debit card privileges anymore than a stock or bond mutual fund would.
In any case, the debt instruments would need to be liquidated into cash for payment (if there aren’t sufficient cash holdings in the MMMF to cover the liquidation). Whoever bought, for example, the Treasuries sold by the MMMF supplied the actual money used to make payment for the first guy’s purchase via MMMF check. Counting the cash holdings of a MMMF in addition to the checkwriter’s position in the MMMF would double-count the money.
Some brokerage houses offer cash-like services for accounts, collateralizing bonds or equities if the client exceeds the cash balance in the account. Since the client could write a check on his investment account that would be covered by stock sales doesn’t mean we should count stock as cash. So it is for MMMFs: what isn’t cash needs to be exchanged for cash to cover any checks, and what is cash is already counted.
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