Liabridge's Economic Commentary

The Short Version of the “Austrian” True Money Supply (TMS), as of 25 August 2014

The short version of the Austrian True Money Supply for the U.S., a measure of the money supply applied in this weekly report, decreased 0.55% on last week for the week ending 25 August 2014. At $10.1824 trillion, the money supply is now up 3.07% year to date. The 1-year growth rate dropped to 7.85%, down from 8.06% reported last week. It remains lower than the 8.30% long term average since 1980. The 5-year annualised growth rate continues to fall. The current growth rate of 10.54% remains well above the long term average of…

The U.S. Stock Market Risk Indicator, August 2014

According to this stock market risk indicator, developed by combining insights from the disciplines of Value Investing and Austrian Business Cycle Theory, the risk of a future U.S. stock market decline (or the probability of poor future returns) became even bigger during the course of August. The indicator now signals the U.S. stock market has never been more risky to invest in (i.e. go long) than it is today based on data going back to 1986. The increase in risk during August was largely driven by a stock market that…

“Management of the Money Supply is More Sensible than Linking it to Gold…”

Right, I’m doing a bit of research on fractional reserve banking. So I pulled up my old “Macro-Economics” textbook from my days at college some 21 years ago. The 12th edition of the book, written by McConnell and Brue, was published in 1993. In a section titled “money as debt” they write: Most economists feel that management of the money supply is more sensible than linking it to gold or any other commodity whose supply might arbitrarily and capriciously change. A large increase in the nation’s gold stock as the…

One Key Reason Banks Will Continue to Merge and Its Implications

In the first quarter of 1984 there were 14,400 commercial banks in the U.S. As of the first quarter this year, the number had dropped to only 5,693. During the course of about 30 years, the number of banks in the U.S. hence declined by 8,707 or 60.5%. During the same period, total assets for all U.S. commercial banks increased from USD 2.0259 trillion to USD 14.4846 trillion, an increase of 615.0%. As a result, total assets for the average bank increased from USD 0.14 billion to 2.54 billion, or…

Combining Austrian Business Cycle Theory and Value Investing: This U.S. Stock Market Risk Indicator is at an All-Time High

Strict value investors focus on company fundamentals and price vs intrinsic value and pay little, or no, attention to macro economic data and developments. Though focusing on fundamentals, and buying at an attractive price, is of the greatest importance, even great value stocks will fall during larger stock market corrections (though perhaps by less). Keeping an eye on where we are in the financial cycle driven by central bank policy and fractional reserve banking is therefore also of great importance in my opinion. As I consider myself a value investor…

Does The World No Longer Care About Prosperity?

In a world creating ever more bureaucrats and central planners, draining the public for resources, in a world where central bankers manipulate the money supply and currencies and effectively control one of the most important prices of all affecting all others, the interest rate, in a world where value created is viewed as a cake that needs to be shared equally, not recognising where and how this cake was created in the first place, how can we expect standards of living to rise?

What Is The Optimum Quantity of Money In An Economy?

The correct answer is “any amount will do” as long as the money is divisible. A short example might help explain this very straight forward fact. Let’s say you and your best friend decide to play Monopoly. As you open the box you discover to your horror that all the money is missing. As it’s impossible to play the game without it, the both of you agree to create money out of pieces of paper in just one denomination, each representing 1 MM (Monopoly Money). How many MMs do you need to…

Euro Area Money Supply and Lending Continue to Plummet, Demand for Cash Surges

The ECB today released the money supply and bank lending figures for March 2014 for the euro area. Though all the money supply measures hit new all-time highs, except for M3, what is really interesting about the figures are that the respective growth rates are falling sharply: The year on year (YoY) growth rate for the M2 money supply fell to the lowest level since October 2011. The YoY growth rate for the M3 has now hovered around the 1% benchmark since October last year. The last time the growth…