"No warning can save people determined to grow suddently rich" - Lord Overstone

  • 30 mins Bitcoin Bounces Back Ahead Of G20 Meeting
  • 2 hours Trump's Trade War Nears Boiling Point
  • 3 hours Will April Be A Turning Point For Precious Metals?
  • 5 hours Economic Pressures Weigh On Banks And Borrowers
  • 6 hours U.S. Political Uncertainty Keeps Stock Markets On Edge
  • 22 hours Gold: The Religion Of Currency
  • 2 days Economists Polarized On Trump’s Tariff Plan
  • 3 days Why Are Investors Overlooking Gold Stocks?
  • 3 days The App That Democratized Trading Is Now Worth $5B
  • 3 days Super-Cycles: Why Gold Is Set For A Breakout
  • 3 days U.S. Sanctions Russia For Election Meddling And Cyberattacks
  • 3 days Snap Shares Tank Over ‘Slap Rihanna’ Campaign
  • 3 days How Low Can Bitcoin Go?
  • 3 days Amazon’s Japan HQ Raided In Anti-Monopoly Push
  • 3 days Is Barrick Gold Close To Finding A Bottom?
  • 4 days Morgan Stanley’s Top 10 Short-Term Stock Picks
  • 4 days China: The Land Of The Ultra-Rich
  • 4 days Alibaba Soars On Reports Of China Listing
  • 4 days What Killed Toys ‘R’ Us?
  • 4 days SEC And IRS Take An Aggressive Stance On Cryptocurrencies
Amazon’s Bid For A Monopoly On Everything

Amazon’s Bid For A Monopoly On Everything

Amazon started in e-commerce, but…

Markets Surge Despite Tillerson Exit

Markets Surge Despite Tillerson Exit

Markets are enjoying a less-threatening…

Is European Money Growth Helping Stoke U.S. Inflation?

The monthly European M2 numbers are out (they are released with approximately a one-month lag), and so we can get a look at the monetary conditions through the end of October.

US M2 vs EU M2

The chart above (source: FRB and ECB) shows that whatever the ECB is claiming about not conducting QE, money supply growth is most definitely accelerating.

The data also allows me to update one of my current-favorite charts, showing the connection between developed markets money growth (proxied here by US M2 plus Euro M2) and core U.S. inflation. The chart is below (source: BLS, FRB, ECB, Enduring Investments calculations).

Y/Y growth in Euro+US M2

What is most amazing to me about this pretty reasonable (correlation= 0.6) relationship is that it is contemporaneous. This is really important, because what it means is that we can argue that money velocity may not actually have fallen in the U.S. as much as it is commonly believed to have. If the proper measure, now that all of our economies are so interconnected, is global money rather than narrowly domestic money, then one answer to the question "why did the 10% growth in the U.S. money supply not lead to much higher inflation, much higher real growth, or both" (the correlation between U.S. M2 growth and U.S. core inflation is only 0.44) could be "because Europe's tight money was counterbalancing our loose money."

If this speculation is right, then it makes the ubiquity of QE much more worrisome, because it means that even if the Fed stops throwing wood on the fire, if everyone else is doing so we may still see domestic inflation (although, in that case the dollar would likely strengthen appreciably, blunting that effect).


Back to homepage

Leave a comment

Leave a comment

Sign Up For The Safehaven Newsletter