The M3 money supply in the United States is contracting at an accelerating rate that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the biggest fiscal blitz in history.
The M3 figures - which include broad range of bank accounts and are tracked by British and European monetarists for warning signals about the direction of the US economy a year or so in advance - began shrinking last summer. The pace has since quickened.
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 9.6pc. The assets of insitutional money market funds fell at a 37pc rate, the sharpest drop ever.
"It’s frightening," said Professor Tim Congdon from International Monetary Research. "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.
The US authorities have an entirely different explanation for the failure of stimulus measures to gain full traction. They are opting instead for yet further doses of Keynesian spending, despite warnings from the IMF that the gross public debt of the US will reach 97pc of GDP next year and 110pc by 2015
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Well, we can’t say we did not warn everyone; for a long time now we have been stating that this recovery is all smoke and mirrors. Worse yet we proved that the Dow has not put in one single new high in our article not too long ago.
We also stated that the housing recovery was all humbug and unemployment levels would remain at lofty levels for years to come. High unemployment coupled with a terrible housing market are cause for concern. If one combines a rapidly contracting M3 money supply, well we have the perfect recipe for a disaster. Double dip recession is not what these chaps should be worrying about,; the term they should be thinking of is depression.