Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Minyan Mailbag - Supply & Demand



Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Hi John,

A couple of questions for you. You can answer on Minyanville if you'd like:

1. Why is money supply growth so far below debt growth?

2. In theory, why couldn't the fed fill any funding gap caused by diminished foreign buying of our securities? It seems to me that the fed has an unlimited ability to step in if/when the rest of world decides to walk away from the U.S. (Bernanke's printing press).

Thank you,

Minyan Jim


1. This ratio is more a function of the willingness of consumers to accumulate debt (in our case since that is the major source of private debt growth, or in better terms, credit expansion). For example, Japan has been expanding their money supply aggressively in addition to extremely low nominal interest rates and is not experiencing credit expansion. Their population is strictly conservative while ours is, well, you know.

In addition, we are fairly certain that our money supply figures are under-reported. Studies have been done that show that GSE's have added greatly to credit expansion, yet as they expand their balance sheets, money supply as reported is not affected. Somehow the GSE system has circumvented the reported figures.

2. Another way to look at this is that it is taking more and more debt to create GDP growth.

We have talked about this factor: monetization. I am fairly certain that a degree of this is currently going on where the Federal Reserve creates its own credit to buy U.S. treasury debt. This can go on for an undetermined period of time and magnitude, but infinity, as you suggest is a difficult thing to grasp. Will the world let the Fed print untold dollars (where the value of the dollar is severely affected) without consequences. I have wondered aloud for some time as to when the world (central banks) will cry uncle. But remember, central banks are not profit motivated, so I guess it can go on for a while and ends only when it is too late.

Prof. Succo

< Previous
  • 1
Next >
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos