Money Supply Growth

If the money supply increases 10 percent in 3 months, we call it a 40 percent annualized increase. If it flattens at three months and is at the same level 3 months after that, it becomes a 20 percent annual rate for the 6 months. Six months later, if money growth remains flat, it becomes a 10 percent annual rate.

This is an oversimplification, but something like that has been happening. The money supply spiked, and then flattened out. Pre-spike until now still gives us pretty big numbers, but they are getting smaller every day. Yet, commentators treat the money growth statistics as if the rapid rise is ongoing.

I don't know the economic implications of the difference in a steady money growth and an equal percentage money growth achieved by a spike followed by flattening. However, I can't imagine that the latter pattern-the recent pattern-is as stimulative.

Turning to the different subject of how to lie with statistics, I've seen lots of graphs lately that have had the horizontal axis squeezed together to produce scary money-growth graphs. The most egregious is probably the graph of the monetary base growth dramatic enough to make You Tube. Shame!

Comments (4)

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  1. Greg says:

    Was this the “hockey stick” graph of the money supply growth rate with Glen Beck as commentator? I noticed that the graph was an arithmetic, not logarithmic graph, thus giving an incorrect image of the growth rate.

  2. John Booke says:

    Bob
    What about the MZM chart? Do you think that one is a “scary money-growth graph?” Don’t you think it shows that everyone is cashing out of risky assets and stuffing their money under their mattresses?

  3. Bob McTeer says:

    Greg:

    As I recall it was the monetary base that he showed.

  4. [...] worth noting is that money supply growth has actually been flat since its significant spike.   Bob McTeer layed out his thoughts on the issue in terms simple enough for even me to understand.  To make a [...]