Posted by on May 23, 2017 10:30 pm
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Categories: Black Swans Business Crude Crude Oil Economy Inflation M3 Macroeconomics Monetary economics Monetary Policy money Money Supply New Normal Purchasing Power US Federal Reserve Wilshire 5000

Authored by Chris Hamilton via Econimica blog,

Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it’s purchasing power versus the inflation of the assets to be purchased.  Thus printing more money has not necessarily created “wealth” if the assets to be purchased are rising as fast or faster than the purchasing power of the “money”.  The Fed touts it’s dual mandate of full employment and stable prices…but the result in prices; not so stable.

The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices.  Since the end of Bretton Woods and the subsequent Congressionally dual mandated roles bestowed on the Fed…crude oil prices have gone bezerk, twice climbing nearly 10x’s within a decade.  This is the opposite of stable (particularly compared to the price stability from WWII’s end until the?Fed took over).

Soooo, theoretically the growth of  “money” should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population.  In a moment I’ll show you anything but a stable money supply.  But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value in dollars of all publicly traded US stocks (represented by the Wilshire 5000).  Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.

With that in mind, the chart below shows the growth of M3 money (the broadest measure of US “money”) and the broader 15-64yr/old US population since 1971.  The money supply has grown in excess of 20x’s (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).

This results in a rising ratio of “money” on a per capita of the core population basis, as the chart below details.  The total amount of “money” rose from approximately $5 thousand dollars per working age adult to todays $65 thousand dollars per adult…an increase of  13x’s (1.300%).

The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since…while annual M3 growth has doubled over the same time period.  The chart below shows the annual changes from 1980 into 2017.

The chart below from 2000 into 2017 shows the change in both core population and M3 money supply, showing the year over year change on a monthly basis…and the current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America).

The final chart is the growth in M3 money supply per the growth in the adult, working age population.  I’m not an economist or expert on much of anything…but that doesn’t look particularly good to me (something to do with “hyper-monetization” or some such thing).

All I can say is the appearance of hockey sticks typically aren’t a good or stable sign but their appearance, just like those of black swans, has become the “new normal”.

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