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The Sad State of Money Supply


Several Minyans wrote to me in February talking about a declining money supply. How can the market continue to go up while money supply is declining they ask? What about the thesis that the only thing driving this market is liquidity?

We didn't know then what we know now. The sad answer is that the government has already heard this argument and did what seems natural to it to correct (eradicate) the problem: they changed the rules.

In January when the government statistics were showing a declining money supply, these statistics were the result of the government changing the way they calculate money supply. Of course they didn't tell anybody this, they just did it. It has taken investigation to uncover this fact.

But that is all we know. We do not know exactly what they did, just that they did something that made the January numbers decline. The numbers have since rebounded to reflect 10% growth, numbers that are near all time highs. Numbers going forward from January should not be affected, although we don't really know how they are calculated.

The bottom line is that we are confused about everything except the fact that they changed the calculation and that they didn't tell us.

Confusion seems to be the state that they want us in.
No positions in stocks mentioned.

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