Tags: US | Money | Supply | Plunging | 1930s | Rate

Report: US Money Supply Plunging at 1930s Rate

By    |   Thursday, 27 May 2010 09:07 AM

The United States’ M3 money supply reportedly is plunging at an accelerating pace similar to that in 1929 to 1933, despite near-zero interest rates.

The M3 data — which include a broad range of bank accounts and are tracked by British and European experts for danger signs about the U.S. economy — began shrinking a year ago, London’s Daily Telegraph reported. That race has since picked up speed.

The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April, amounting to an annual rate of contraction of 9.6 percent, the report said. The assets of institutional money market funds fell at a 37 percent rate, the sharpest drop ever.

"It’s frightening," Professor Tim Congdon, from International Monetary Research, told the newspaper.

"The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing banks to raise capital asset ratios and to shrink their risk assets. This is why the US is not recovering properly," he said.

White House officials plan even more spending, despite warnings from the IMF that the gross public debt of the United States will reach 97 percent of GDP next year and 110 percent by 2015.

Larry Summers, President Barack Obama’s top economic adviser, has asked Congress to "grit its teeth" and approve a new financial boost of $200 billion to keep growth on track.

"We are nearly 8 million jobs short of normal employment. For millions of Americans the economic emergency grinds on," he said.

Meanwhile, a top Federal Reserve official said the central bank will watch the U.S. economy's progress through autumn and into 2011 as it decides how long it will hold interest rates at ultra-low levels, Reuters reported.

In an interview earlier this week with Reuters Insider television in London, St. Louis Federal Reserve Bank President James Bullard said the U.S. economic recovery was on track and that the Fed was keeping a close eye on risks stemming from the euro debt crisis.

He said the Fed could not make any promises on when it would change its monetary policy stance.

"The economy is doing fairly well so far," Bullard said.

"We have some risk, we have the situation in Europe we're watching very closely, but we'll see how things proceed through the fall and into 2011."

The Fed has chained rates to near zero since December 2008 to help steer the world's biggest economy through the financial crisis and resulting recession.

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The United States M3 money supply reportedly is plunging at an accelerating pace similar to that in 1929 to 1933, despite near-zero interest rates. The M3 data which include a broad range of bank accounts and are tracked by British and European experts for danger signs...
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2010-07-27
Thursday, 27 May 2010 09:07 AM
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