Friday, August 22, 2008

Annual M2 Growth: It's Nothing Like the 1970s

The chart above shows annual M2 growth rates (monthly data here) based on the average M2 level in each year, except for 2008, which shows the growth rate of M2 from July 2007 to July 2008.

Notice that in the inflationary 1970s period, there were 5 years of M2 growth above 12% (1971, 1972, 1976, 1977 and 1983), 12 consecutive years of above average M2 growth between 1975 and 1986, above average growth in 15 out of 16 years between 1971 and 1986. More recently, we've had five years of slightly above-average M2 growth between 1998 and 2003, and below average M2 growth for the last 5 years.

Bottom Line: Today's inflationary environment is nothing like the 1970s.


At 8/22/2008 10:32 AM, Anonymous Anonymous said...

For a finance-based economy like ours, this is troubling since it now takes $5.57 in new debt to fuel $1 worth of GDP growth.
Raymond James

Although few are predicting an imminent need for a bailout just yet, credit rating agency Standard & Poor's recently placed an estimated price tag on this worst case scenario -- $420 billion to $1.1 trillion of taxpayer's money.

This dwarfs how much it cost to help banks during the savings and loan crisis of the late 1980's and early 1990's. That cost taxpayers about $250 billion in today's dollars.

S&P added that saving Fannie (FNM) and Freddie (FRE, Fortune 500) might cost so much that the federal government's AAA credit rating, the top possible rating, might even be at risk. If that was lost, then all federal government borrowing would become more expensive.


At 8/22/2008 10:50 AM, Anonymous Anonymous said...

Automakers seek Fed loans to ride downturn

Whaaaaa, Whaaaaaaaaaa, Whaaaaaaaaa

At 8/22/2008 11:05 AM, Anonymous Anonymous said...

NEW YORK, Aug 22 (Reuters) - A gauge of future U.S. economic growth fell to its lowest level in more than five years, while the drop in its annualized growth rate was the biggest in 28 years, indicating there is no business cycle upturn in sight, a research group said on Friday.

The index declined to its lowest since July 2003 due to lower stock prices and housing activity, and the fall was partly offset by lower interest rates and jobless claims, said in an instant message interview Lakshman Achuthan, managing director at ECRI.

"Last year WLI growth fell to its worst reading since the 2001 recession, and today it has plunged to a 28-year low, its worst reading since the 1980 recession," he wrote.

"This makes it crystal clear that there is no business cycle upturn in sight."

Put that in your pipe and smoke it.

At 8/22/2008 6:30 PM, Blogger OBloodyHell said...

As the "our approach" section of your ECRI link admits:
Economic forecasting deserves its bad reputation in predicting recessions and recoveries. As a 63-country IMF study concluded, "The record of failure to predict recessions is virtually unblemished."

So explain, please, why ECRI is to be taken all that seriously? Do they have a proven track record of being right?

What I see on their "our record" page isn't bad, but it's also quite possibly nothing but a Texas Sharpshooter approach. I want to know how many times they've been wrong, too, and how badly.


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