US M3 Growth Rising In Line With Oil Prices

by: The Prudent Investor

US money supply M3 - the figure the Fed will stop publishing by the end of March in order to save 0.00000699% of its annual net income - shows an alarming trend. In line with rising crude oil prices and exploding public debt, M3 grows faster and faster:

M3 weekly changes in billions of dollars in the period
from July 4, 2005 to January 2, 2006. (Data: St. Louis Fed)

While M3 grew 8.37% over the last 12 months, the speed of the Federal Reserve's money printing press gained speed, in line with rising crude oil prices.

In the last 6 months the annualized growth rate of M3 crossed into the two-digit area, coming in at 10.09%.

Over the last 3 months, when oil prices retreated for a few weeks below the $60 mark, M3 grew at an annualized rate of 9.38%.

But now don your hardhat before you read on: In the last month M3 growth exploded to an annualized rate of 17.19%!

Being educated in the old European monetarist school that the rate of M3 growth minus GDP growth results in the true inflation rate I will buy more gold on the next dip after the yellow metal rose to another 25-year high last Friday, with the February future closing at $557.90. Gold marched on further in early European trading, the spot price advanced another $1.30 to currently $557.40. There is a very high correlation between the gold price and future inflation expectations. Inflation rates normally follow the development of the gold price with a time lag of 14 months.

Also take note that the strong M3 growth coincides with the strong rise in energy prices. Is it too far-fetched to conclude that the oil price does not really matter to the USA because ist is just a matter of printing/electronically creating more greenbacks in order to pay the bills?

Remember that the end of M3 publication coincides with the opening of the Iranian Oil Bourse which will boot up its computers in April. For much more information on M3 and the Iranian Oil Bourse browse the archives of this blog a nd the earlier posts of this month where all the links are provided.

I finish this post with the reminder that no nation in history has ever managed to print its way out of its debt problems. I cannout find the source anymore. But over the weekend I read somewhere that every try to replace gold with some fiat money that can be created at will has always ended in hyper inflation, strengthening the people's craving for the precious metal ever more. Do you think it will be different after 6000 years of monetary history? Then sell me your gold today!

« Any opinions expressed on the Seeking Alpha sites are those of the individual authors and do not necessarily represent the opinion of Seeking Alpha or its management. »