Has money supply really gone parabolic since 2008? No.
US money supply (pink) has actually steadily increased in percentage terms. It has not risen sharply despite what most people say.
Using a log scale shows the steady rise in percentage terms. If you use an arithmetic scale it looks like things are going parabolic. But you can't compare values from 50 years ago with values today, because compounding over time has a large effect over time. Use a log scale chart for any long-term analysis.
Over the long term, money supply rises. Inflation, which people often talk about in association with money supply has no visual relationship.
People talk about rising money supply as a cause for inflation. As you can see money supply constantly rises, and at a pretty steady rate. Inflation on the other hand, moves up and down. If you want to find a cause for inflation, don't quote money supply. The relationship isn't there.
People also say inflation occurs when money supply rises faster than inflation. That doesn't hold true either. Even on a shorter time frame, I went through and looked at increasing periods of inflation...sometimes money supply increased faster than inflation, sometimes GDP increased more, and other they were rising together.
Finally, if looking at any of these things to predict stock moves, they don't seem to hold true. Basically, if you are analyzing stocks, analyze stocks. Adding in this other stuff just creates a bunch of noise. This is not my opinion, just my interpretation of the data, which may be flawed?
Here's How I created the chart:
Money Supply, GBP and S&P 500 are all log scale.
Inflation is arithmetic.
Using a log scale shows the steady rise in percentage terms. If you use an arithmetic scale it looks like things are going parabolic. But you can't compare values from 50 years ago with values today, because compounding over time has a large effect over time. Use a log scale chart for any long-term analysis.
Over the long term, money supply rises. Inflation, which people often talk about in association with money supply has no visual relationship.
People talk about rising money supply as a cause for inflation. As you can see money supply constantly rises, and at a pretty steady rate. Inflation on the other hand, moves up and down. If you want to find a cause for inflation, don't quote money supply. The relationship isn't there.
People also say inflation occurs when money supply rises faster than inflation. That doesn't hold true either. Even on a shorter time frame, I went through and looked at increasing periods of inflation...sometimes money supply increased faster than inflation, sometimes GDP increased more, and other they were rising together.
Finally, if looking at any of these things to predict stock moves, they don't seem to hold true. Basically, if you are analyzing stocks, analyze stocks. Adding in this other stuff just creates a bunch of noise. This is not my opinion, just my interpretation of the data, which may be flawed?
Here's How I created the chart:
Money Supply, GBP and S&P 500 are all log scale.
Inflation is arithmetic.
Cory Mitchell, CMT
Stock and forex trading insights at tradethatswing.com/
Stock and forex trading insights at tradethatswing.com/
