FLASH UPDATE - October 10, 2008

 

 

 

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 

FLASH UPDATE

 

October 10, 2008

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Latest Monetary Base Jumped 16.8% Year-to-Year

September M3 Growth Expanded Year-to-Year and Month-to-Month

 

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PLEASE NOTE: The following is just the promised brief update on the money numbers. Barring extraordinary intervening events, my plan is to publish a Special Update on market and economic/ inflation conditions late next week, in advance of the full newsletter. The broad outlook is unchanged.   — Best wishes to all, John Williams

The ongoing, extraordinary actions by the Federal Reserve and the U.S. Treasury — aimed at preventing a collapse of the U.S. financial system and halting what has become a slow-motion crash in the U.S. equity markets (this morning’s trading is off to an unusually volatile start) — will result in sharp spikes to domestic money supply growth and will intensify inflationary pressures in the year ahead, irrespective of wild gyrations and sell-offs in oil and of strength in the U.S. dollar that should prove very short-lived going forward.  

Almost any official action could be forthcoming at this point; the only thing I would find a shock would be the Fed and the Treasury allowing the financial system to fail.  The Fed and Treasury have all the tools in hand they need to stabilize the functioning of the system. Panicked new actions each day in response to stock-market selling do not help the market and actually may intensify investor unease. Shy of the Fed becoming the equity-market buyer of last resort, there is little that can be done at present to turn stock prices fundamentally higher, other than what would be seen in normal trading activity and bottom bouncing on the downhill slope of a severe bear market.  Indeed underlying equity fundamentals remain about as bad as underlying U.S. dollar fundamentals.

September M3 Annual Growth About 13.3%. Based on partial Fed reporting through September 29th for the monetary aggregates (Federal Reserve Board H.6), it looks like the SGS Ongoing M3 Estimate for September will be up by roughly 13.3% year-to-year (August was 14.0%) and 0.9% month-to-month, but such reflects massive revisions just published to the series and is based on incomplete data. The numbers will be updated over the weekend, on the Alternate Data tab of www.shadowstats.com, as more complete information becomes available. October likely will see an upside spike in annual M3 growth. 

In terms of bank reserves and monetary base for the two weeks ended October 8th, they surged (Federal Reserve Board H.3). Total bank reserves (seasonally adjusted) rose to $179.9 billion in the latest two weeks, up from $109.5 billion and $47.1 billion in the prior two periods, with non-borrowed reserves now at a negative $363.1 billion. The monetary base (effectively currency plus bank reserves) rose to $985.9 billion, which was up 16.8% from the average level of October 2007. September’s year-to-year change was up 10.0%, versus 2.0% in August. The broader monetary aggregates should start to catch up in the weeks ahead.

 

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