Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

USD FMQ Carries on Growing Ddespite Tapering

Stock-Markets / Quantitative Easing Aug 01, 2014 - 10:10 PM GMT

By: Alasdair_Macleod

Stock-Markets June's FMQ components have now been released by the St Louis Fed, and it stands at a record $13.132 trillion. As can be seen in the chart above, it is $5.48 trillion more than an extension of the pre-Lehman crisis exponential growth trend. At this point readers not familiar with the construction of FMQ and its purpose may wish to refer to the original paper, here.




It should be borne in mind that there may be seasonal factors at play, with dips in the growth rate discernable at this time of year in the past. So the slower growth rate of FMQ, up $44bn between April and June when it might have risen $150-200bn, is not necessarily due to tapering of QE3. If tapering was responsible for slowing growth in FMQ, we could expect to see some tightening in short-term interest rates. But as the chart of 3-month T-bill rates shows they have been in a declining trend since last November.


The chart confirms that tapering seems to be having little or no effect on money markets and therefore the growth rate of fiat currency.

Weakness in interest rates is also consistent with poor economic demand. This week the first estimate of Q2 GDP was released which came in at an annualised 4%, substantially above market estimates of 3.1%. This outturn conflicts sharply with the lack of any meaningful demand for money, until one looks at the underlying estimates.

Of this 4% increase, the change in real private inventories added 1.66%. In other words GDP based on goods and services actually sold was only 2.34%. That changes in unsold goods, which is what inventories represent, should be part of final consumption is a dubious proposition, but need not concern us here. According to the technical note accompanying the release, figures for inventories and durable goods (which showed an incredible rise of 14%) are estimated and not hard data, so are subject to future revision. On this basis, the surprise GDP figure is little more than a government econometrician's guess until the real data is available. Suspicions that these guesses err on the optimistic side are confirmed by the experience of the Q1 GDP figure, which was revised sharply downwards from first estimates when hard data eventually became available.

Whichever way we look at FMQ, it continues to expand at a frightening pace irrespective of the GDP outturn and its flaws. Furthermore, a look at the most recent Fed balance sheet confirms this view, showing that the 1st August figure will be considerably higher, unless there is an offsetting contraction of bank credit.

There is little sign of any such contraction. We can conclude from short-term market interest rates that the US economy is going nowhere fast, contrary to this week's GDP estimate, and that demand for credit continues to come from essentially financial activities. But given that GDP estimates turn out to be far too optimistic, what if the US economy stalls or even slumps? Won't that lead to a reversal of FMQ's growth trend?

This is essentially the argument of the deflationists. In a slump they expect a dash from credit into cash as asset prices tumble. The counterpart of credit is deposits, the major components of FMQ. And without Fed intervention FMQ would rapidly contract. But in the event of a slump the Fed cannot be expected to stand idly by without taking extraordinary measures: in the words of Mario Draghi at the ECB, whatever it takes.

Alasdair Macleod

Head of research, GoldMoney

Alasdair.Macleod@GoldMoney.com

Alasdair Macleod runs FinanceAndEconomics.org, a website dedicated to sound money and demystifying finance and economics. Alasdair has a background as a stockbroker, banker and economist. He is also a contributor to GoldMoney - The best way to buy gold online.

© 2014 Copyright Alasdair Macleod - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Alasdair Macleod Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in