FLASH UPDATE - June 8, 2009

 

 

 

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

 

FLASH UPDATE

June 8, 2009

 

__________

 

May M3 Money Supply Annual Growth Showed Minimal Uptick

Fed’s Dollar Debasement Continues and Should Intensify

 

__________

 

PLEASE NOTE: The next planned Flash Update is for Thursday, June 11th, after the release of the May retail sales report. Any interim Flash Update or Alert would be published as dictated by developing economic or financial-market circumstances.  

– Best wishes to all, John Williams

 

May’s SGS-Ongoing M3 Estimate at 7.3% Annual Growth. Although annual growth in the broad money supply appears to be on the rise again, the pace of growth still does not reflect the extreme liquefaction of the system attempted by the Fed in its recent doubling of the monetary base. Erratic weekly sluggishness in the major money supply M3 components suggests a continuing severe crisis in the systemic solvency arena, despite what may be an early signal that the system has begun to absorb the orchestrated surge in bank reserves.   

Rising M3 growth is a harbinger of inflation, but earlier and more severe signals of pending price woes have been generated by developing weakness in the U.S. dollar. Largely as result of the Fed’s efforts to debase the U.S. currency, the weak greenback has helped to reignite oil prices and the prospects of higher domestic inflation driven by exogenous factors, not by strong economic activity that might otherwise be responsive to Federal Reserve policies.        

Suggesting the possibility of a near-term April trough in annual M3 money supply growth, the SGS-Ongoing M3 estimate for May showed year-to-year growth of 7.3%, up from 7.1% in April and versus 8.2% in March. The M1 and M2 monetary aggregates still published by the Federal Reserve Board, and the SGS-Ongoing M3 aggregate based largely on ongoing Fed reporting of major M3 components, all showed upturns in May on both year-to-year and month-to-month bases.  (Note: the May monthly averages are estimated from 25 of 31 days per FRB H.6, and from 27 of 31 days in FRB H.8. Estimates based on full-month reporting will be posted next weekend.)   

May year-to-year growth in M1 is estimated to have risen to 16.4% from 15.9% in April and from 13.8% in March. Year-to-year growth in M2 is estimated to have risen to 9.2% from 8.5% in April and from 9.0% in March. Details have been posted the Alternate Data tab at www.shadowstats.com.

The broadest available money supply measure (M3) tends to be the best monetary leading indicator to inflation. The narrowest measure (M1) tends to be a near-term leading indicator to the stock market. (See the Money Supply Special Report available in the right-hand column of www.shadowstats.com for a more detailed discussion).

Fed Maintains Its Dollar Debasement. Despite Mr. Bernanke’s recent protestations that the Fed would not monetize federal debt, and despite misplaced market expectations that the "strengthening" economy will cause the Fed to tighten, draining liquidity from the system, the monetization of federal debt and deliberate dollar debasement continue. Contrary to Wall Street and Administration hype, the worst of the economic downturn and systemic liquidity crisis is ahead of us, not behind us. Out of perceived political and systemic-stability necessity, so, too, is the worst of the Fed’s efforts at dollar debasement. 

In the two weeks ended June 3rd, the St. Louis Fed’s adjusted monetary base (seasonally adjusted) was up 107.7% from the year before, down slightly from the 113.4% annual growth in the prior two-week period. The monetary base (currency plus bank reserves) is the Fed’s primary tool for affecting the money supply. The current surge is due primarily to explosive growth in bank reserves. With 1813.4% annual growth in excess reserves, banks generally are not lending their funds into the normal flow of commerce. Nonetheless, required reserves, which are reflective of certain deposit accounts, still are up 35.1% year-to-year in the June 3rd period, versus 33.4% in the prior period.    

Week Ahead (Details are unchanged from the June 5th Flash Update). Trade Deficit: Consensus expectations are for minor deterioration in the deficit versus March, per Briefing.com, due for release Wednesday (June 10th). Chances are fair for a worse-than-expected number, given the pending catch-up reporting of rising oil price costs and the impact of same on imports.

Retail Sales: Consensus expectations appear to be for a small monthly gain in May retail sales, due for release Thursday (June 11th). Such a result is possible given some eventual bottom-bouncing and rising inflation. The year-to-year contraction, however, will continue to be severe in both nominal and real (unadjusted and adjusted for inflation) terms, with the monthly change a fair bet to be in contraction, net of inflation and reporting revisions.

 

__________