Money Supply Explosion Continues

When the story of this financial disaster is written, the lead item will be the massive expansion of the Monetary Base.

Here are the most recent numbers (in Billions)

2009-10-21 - - - 1949.799
2009-11-04 - - - 2024.393
2009-11-18 - - - 2012.162
2009-12-02 - - - 2093.677

Notice that the most recent number is $80 billion of new money in the system - in two weeks. It used to take a whole year to add that much in reserves.

These are huge numbers and ensure expansion and inflation unless something is done.

Here's the graph. (Click on the graph for a larger version)



This money is now sitting in bank vaults as excess reserves, waiting for bankers to decide who is credit worthy.

As loans pick up, the Fed will begin to withdraw this money from the system, but that time is a long way off.

Cyclical Indicators

The Yield Spread continues to predict substantial growth in GDP in the years to come, provided the Fed manages the reduction in the monetary base smoothly.

The longer the yield spread remains above 300 basis points, the stronger will be the coming expansion.

Here is the recent chart.



History suggests the yield spread will stay low for another year or more.

In the chart below we see that the yield spread must remain above 300 basis points for long periods to ensure economic growth.



Other Leading Indicators

The Conference Board's Index of Leading Indicators has been positive since March of 2009.

Coincident Indicators are making a bottom and will be turning positive in the next few months as Fed stimulus takes hold.



See Conference Board

Bank Lending

Bank lending continues to contract, as banks deny credit to all but the safest borrowers.

Commercial and Industrial Loans - still falling
Consumer Loans - - - - - - - - - still falling
Real Estate Loans - - - - - - - - still falling

At this stage in the business cycle, we expect to see real estate loans turn positive first.

Commercial and Industrial Loans will turn positive in the next 6 months, along with Consumer Loans.

Here is the data.

Click on each graph for a larger view.

First, Commercial and Industrial Loans



Commercial and Industrial Loans in percent.



Next, Real Estate Loans



Real Estate Loans - in percent



Consumer Loans



Consumer Loans - in percent