Sunday, June 4, 2023

Can Money Supply Figures Accurately Predict The Economic Future ? June 4th. 2023

Crypto-currency Donations:


MONERO crypto-coin donations here:


42AK8MnVKCmgJMb5j7Wz4gc3MaXSCwk5u5aRBMGcj1wFWm4Nx7VPcegNyZavLwfpbo4R1NeyPoXVXDTeRi1uVfEWM1bUBsw


***********************************
 

Question: Can Money Supply Figures Accurately Predict The Economic Future?

A short answer to the above question:

No ,
they cannot!

That is, they cannot and should not be used to predict the future state of the economy.

Every Last Penny?

However, if you dear reader, [or the author of the article discussed below], firmly believe that money supply figures can be used to reliably predict the future economic environment, then logically, you/they should have no problem with putting all , [ie every last penny!] of your hard earned savings into whatever "investment" that you know "for certain" is going to benefit from whatever it is that you "know" is coming, because you simply cannot fail to "win big" this time around, right?

If you're not prepared to do that, then that would seem to indicate that you are not prepared to risk all of your savings on a supposedly "certain"
economic future, right?

As Dirty Harry famously asked:

"Do ya feel lucky, punk? :-)

Reality Fact:

Money supply figures/graphs etc. cannot/do not accurately predict the future state of the economy [although you might get lucky, regardless].

Of course, all previous F.S.S. clients already understand this very important point:

[But maybe some of them need to be reminded of that fact of reality :-( ]

Why Is This So?

If you are not a current or former client , and feel the need to fully understand, in excruciating detail, exactly why money supply [or any other] figures/graphs etc. cannot and should not be used to "reliably" predict future economic activity, then you can email me at : onebornfreeatyahoodotcom 
and I'll give you my current exorbitant rates for such explanations! :-) .
 
Free Advice?

On the other hand, a link to some totally free investment/speculation advice is given at the close of this post.

And so, finally, to the article in question:


What? A "Miseian" Economist Contradicting Von Mises?

What is most interesting to me about the article linked above that I focus on here, is that the author, Mr Ryan McMaken, publishes his findings and conclusions at the Von Mises Institute website.

He says, in part:

"Money supply growth can often be a helpful measure of economic activity and an indicator of coming recessions" .

However, Mr McMakens primary influence in economic philosophy, Ludwig Von Mises [presumably], has himself stated :

"The very idea that the future is predictable...... is, of course, an outgrowth of the whole complex of fallacies and misconceptions which are at the bottom of present-day anticapitalistic policies." Ludwig Von Mises- "Human Action- a Treatise On Economics" page 867

[More similarly relevant Von Mises quotes here.]

Mr McMaken also illustrates his article with a graph which illustrates growth in the M2 money supply from 1988 through March 2023:

Fig.1 . McMaken/Von Mises Institute graph of M2 Money Supply, Percentage Rate Change 1988 -2023


No Log Scale? Creating A False Impression?
[A Lesson I Learned Directly From Harry Browne]

As you can see, according to the graph above there seems to have been a huge decline in M2 since its peak in the years 2020-21.

However, I would say that the above graph gives a very misleading impression.

I mentored under financial advisor Harry Browne and subscribed to his wonderful investment newsletter , "Harry Browne's Special Reports", for 10 years ['86-'96].

One of the many valuable lessons he taught me over the years was how to read and construct financial data graphs, and of the usefulness of using a logarithmic [log.] scale for the vertical [left or right side] scale of a standard graph when appropriate, especially in the case of money supply graphs, as this will reveal percentage changes in volume between _any_ two points shown on the graphs horizontal axis.

The far more commonly used linear scale, which does not accurately depict volume changes percentage-wise between any two points on the horizontal axis, is usually more visually dramatic, which is mostly why it gets used.

[Either that, or ignorance, or maybe dishonesty.]

If you check my other graphs here, you will see that the majority of them use a log scale. [As well as subscribing to Harry's newsletter for 10 years, in order to get the latest updates on Fed money supply figures, which at that time I followed somewhat religiously :-(, I also, pre- internet, of course, subscribed to the monthly Federal Reserve Bulletin, plus numerous other alleged "economic indicators" and various "economic and investment forecasting" financial advisor publications. Ah!, those were the days!].


To illustrate my point regarding the use of log scale graphs, lets take a look at the same data for M2 shown in Mr McMakens graph, for the same time period ['88-'23], but using a log scale:

Fig.2 M2 money supply '88-'23 [log scale]

A big difference, right?

Now for comparison lets look at M2 over the same time period using the far more common, and more visually dramatic, linear scale, where the percentage change difference in volume between any two points on the horizontal is not represented:

Fig.3 M2 money supply '88-'23 [linear scale]

Notice how much more dramatic the upwards trend in M2 looks, especially after 2020, when a linear scale is used instead of a log scale.


Now lets look at the same data for the last two years, first from Mr McMaken's Von Mises Institute graph, and then using my own log scale graph:
 

Fig.4 M2 money supply '20-'23,
[Von Mises Inst. article graph]


Fig.5  M2 money supply [log scale] '20-'23

As can be easily seen, the drop in M2 for those last two years looks a lot less dramatic when the log scale is used instead of the way that percentage change is represented in Mr McMakens graph.

Conclusions?

Regardless of whether a graph uses a log, or linear scale, or some other scale formula, that graph, regardless of what it portrays [money supply , stock market, bond market, precious metal or other price/value  changes], is not a reliable indicator of future price/valuation changes. 

As I said earlier, its not impossible to accidentally be right with an economic or investment prediction based on graphs, and if that happens, the trick is to not then conclude that the author of such a prediction can reliably see the economic future, but to instead conclude that he/she just got lucky this time around.

To that end, I would suggest a close reading of: "Confessions of a Mr. X", at the end of Harry Browne's excellent "The Economic Time Bomb" book.

Related articles:

[This one gives a similar opinion to Mr McMaken, complete with an equally misleading graph, used for dramatic effect, no doubt :-) ]:


FSS articles on money supply:
Free Advice:
 
So what's Next? Inflation?Another Global Plandemic? Bank Failures?, A Stock Market Boom? Stock Market Crash? Deflation? Hyper-Inflation ? A Dollar crash?

THIS "JUST" IN -

A REALITY FACT THAT MOST EVERYONE IS IN COMPLETE DENIAL OF:

NOBODY, INCLUDING ALL SO-CALLED "INVESTMENT EXPERTS" ECONOMISTS ETC., REALLY KNOWS FOR SURE!

Question:

So if nobody can reliably, consistently, predict the economic future, what can the individual do in light of this simple, yet hard to swallow, fact of reality?




$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

F.S.S. Crypto-currency Donations:

MONERO donations here:

42AK8MnVKCmgJMb5j7Wz4gc3MaXSCwk5u5aRBMGcj1wFWm4Nx7VPcegNyZavLwfpbo4R1NeyPoXVXDTeRi1uVfEWM1bUBsw



*****************************





 

Sunday, October 16, 2022

Ben Bernanke-The Greatest Inflator and Nobel Prize Winner !

                    ***********************************                      

Fig. 1: The Feds inflationary record - Consumer Price Index averages 1875- 2003

Introduction:

Oh the irony! For being the greatest inflator in the Feds recent 1959-2022 history, Mr Bernanke has now been awarded the Nobel Prize for economics! [For more on that travesty see 3 article links at the bottom of this blog entry.]


Anyway, way back in the mists of time [2013] I wrote a post here that examined the inflationary records of all of the Chairmen of the Federal Reserve system from 1959 through to 2013:

This new entry is an update to that post, and covers the chairmanships of Bernanke [2006-'14] Yellen [2014-'18], and Powell.[2018-'22]

N.B.: Please understand that this article is in no way to be considered as a defence of Bernanke, Yellen or Powell, nor of the Federal Reserve system itself.

So lets leave the Bernanke record till last, and start with his immediate successor. Janet Yellen:

Fed Chair Janet Yellen- The Great Deflator?


Fig. 2: Federal Reserve Monetary Base under Yellen 2014-2018 [log. scale]

 [N.B.  Monetary Base, M1 and M2 + All other graphs are indexed here ]

The above Fed graph reveals only an approximate 3% increase in monetary base over the 4 years of Yellen's tenure. Which means that, while technically speaking it is incorrect to call her the "the greatest deflator", [the base money supply still slightly increased 2014-18], nevertheless, no one in the history of the Feds recent history [1959- 2022], comes anywhere close to such a deflationary policy as Ms Yellen!
[ See here.] 


Fed Chair Jerome Powell [2018- '22] - The Greatest Inflator?



Fig. 3 Federal Reserve Monetary Base under J. Powell - 2018- 0822  [log scale] 

Mr Powell has been labelled an irresponsible "inflator" by various persons in the financial analysis and investment analysis communities, when, if you study his record to date, [see Monetary Base graph above], you can easily see that in the 4 years of his chairmanship to date [with 4 more to go],he has "only" increased the monetary base by around 50% when viewed from the beginning of his term [2018] to the last update of the Feds own monetary base figures [August 2022], 4 years later, which means that his own inflationary policies to date pale in comparison to those of some of his predecessors [ eg Greenspan and Bernanke]


Ben Bernanke- Still The "Greatest" Inflator!

And so finally, we arrive at the monetary inflation record of Fed. chairman/ Nobel Prize winner Ben Bernanke:
Fig. 4: Federal Reserve Monetary Base under Bernanke 2006-2014 [log scale]

With an approximate 300% increase in monetary base over 8 years, Mr Bernanke still reigns supreme as the "greatest" inflator of the Feds monetary base to date [from 1959 -2022], outstripping the previous record holder, Alan Greenspan, who "only" managed a 275% increase - shame on him! [ For the Greenspan record see: "Mr. Ben Bernanke: The "Great[est]" Inflator" ?: https://onebornfreesfinancialsafetyreports.blogspot.com/2013/07/mr-ben-bernanke-greatest-inflator.html


Conclusions:

As you can see, contrary to the general consensus, the inflationary policies of both Powell and Yellen are almost nothing when compared to those of both Greenspan [see here: https://onebornfreesfinancialsafetyreports.blogspot.com/2013/07/mr-ben-bernanke-greatest-inflator.html for a short review of Greenspan's 8 year tenure ], and Bernanke, and in fact, taken together, both can be considered as downright deflationary and "conservative" by comparison to either !

Important Questions For You, Dear Reader:

As I see it the questions are:

[1] Is the current inflation only a direct result of the feds recent policies of the last few years under Powell, or is it more likely due to the combined massive inflations of Greenspan and Bernanke? , or is it the result of all of their policies combined [Greenspan, Bernanke, Powell]?

[2] Or have the consecutive, somewhat "conservative" inflationary policies of both Yellen and Powell been "conservative" enough to partially offset the flagrant inflations of both Greenspan and Bernanke, and will they then offset a hyperinflation and perhaps cause a deflation?

[3] Or, on the other hand, must inflation continue to increase in severity due to the prior wildly inflationary policies of the Fed, as many predict?

[4] THE MOST IMPORTANT QUESTION FOR YOU, DEAR READER:

Assuming that either more Inflation, or deflation is somewhere out there in the future, how can the individual saver ensure that they are equally protected from either possibility? 

Notes:

Links to articles covering Bernankes recent Nobel Prize in economics award:

"Ben Bernanke's Nobel Prize: The Committee Rewards an Arsonist for Claiming to Fight the Fire He Started":

“Giving Ben Bernanke the Nobel Prize in Economics may be the drunkest decision of all time.”:

"Ben Bernanke Winning The Nobel Prize In Economics Is A Sick Joke":

  Graphs index here 


"If it were possible to calculate the future structure of the market, the future would not be uncertain. There would be neither entrepreneurial loss nor profit. What people expect from the economists is beyond the power of any mortal man."  Ludwig Von Mises

More Von Mises quotes here
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$