Advertise | Bookmark | Contact Us | E-Mail List |  | Update Page | 

Commentary : Gold Review : Markets : News Wire : Quotes : Silver : Stocks - Main Page >> News >> Story  Disclaimer 
Latest Headlines

Gold Seeker Weekly Wrap-Up: Gold and Silver Gain Roughly 1% on the Week
By: Chris Mullen, Gold Seeker Report

Ira Epstein's Metals Video 12 1 2017
By: Ira Epstein

COT Gold, Silver and US Dollar Index Report - December 15, 2017

Gold Bullish on Fed Hike 2
By: Adam Hamilton, CPA

Europe, Brexit and the credit cycle
By: Alasdair Macleod

WGC: 2018 Set To Be A Positive Year For Price of Gold and Investors
By: GoldCore

GoldSeek Radio Nugget: John Embry and Chris Waltzek

Basing Phase Ending
By: Gary Savage

AlphaZero for President
By: George Smith

Ira Epstein's Metals Video 12 14 2017
By: Ira Epstein


GoldSeek Web

US Monetary Inflation Slowdown

By: Steve Saville, The Speculative Investor

 -- Published: Tuesday, 15 April 2014 | Print  | Disqus 

Below is an excerpt  from a commentary originally posted at on 13th April 2014.

On the US monetary inflation front, the news is that there isn't much in the way of news. As depicted below, the year-over-year rate of TMS (True Money Supply) growth hit a 5-year low of around 7% at the end of last year and has since edged a little higher.

There are only two ways that money can be added to the US money supply. The first is via Fed asset monetisation, which is how most new US dollars have come into existence since September of 2008 and how almost all new US dollars came into existence last year. The second is via commercial-bank credit expansion. This is how almost all new US dollars came into existence for decades prior to September of 2008.

The Fed began to reduce the rate at which it creates new dollars a few months ago and plans to turn off its 'money pump' before the end of this year. We think that by July-August of this year the Fed will be sufficiently worried about how the stock market and the economy are faring to prematurely end its "QE tapering", but in the meantime there will be a further scaling-down of the Fed's so-called "monetary accommodation". This suggests that the US monetary inflation rate will drop below last December's multi-year low within the next three months unless the commercial banks ramp-up the rate at which they lend new money into existence or monetise securities.

The up-tick at the end of the following chart (the chart shows the year-over-year rate of growth in US commercial bank credit) indicates that US-based commercial banks collectively boosted their rate of credit expansion during the first quarter of this year. Note, though, that during the 50 years prior to 2008 the rate of growth in commercial bank credit was never significantly lower than it is right now. In other words, the recent bounce is a bounce from an extremely low level to a level that is, by historical standards, still very low.

Is it likely that US commercial banks will increase the rate at which they expand credit by enough to fully offset the reduced rate of the Fed's money-pumping?

Before answering the above question we'll reiterate a point we've made in previous commentaries over the years, which is that if the commercial banks do begin to expand credit at a faster pace it won't be due to their huge quantity of excess reserves. The reason is that there isn't now, nor has there been for at least the past four decades, any relationship between US bank lending and US bank reserves. (Hopefully, the writers of economics textbooks will figure this out within the next couple of decades and remove references to the fictitious "money multiplier").

Whether or not the US banking industry expands credit is determined by its collective balance sheet, risk aversion, and ability to find borrowers that are both willing and qualified. The quantity of reserves doesn't come into it. Consequently, just as having almost no reserves didn't prevent the commercial banks from massively expanding credit during 1995-2007, having massive excess reserves has not prompted the banks to become aggressive credit-creators over the past five years and will not cause the banks to ramp-up the pace of their credit expansion in the future.

So, a bet that the commercial banks are about to increase the pace at which they expand credit is a bet that they a) have sufficient balance-sheet strength to support greater leverage, b) are about to become less risk averse, and c) will soon be presented with a growing pool of borrowers that are both willing and qualified. This is not a bet that we would currently make. Our best guess, therefore, is that the US monetary inflation rate will gradually work its way lower until the Fed reverses course.


| Digg This Article
 -- Published: Tuesday, 15 April 2014 | E-Mail  | Print  | Source:

comments powered by Disqus

Regular financial market forecasts and analyses are provided at our web site. We arenít offering a free trial subscription at this time, but free samples of our work (excerpts from our regular commentaries) can be viewed here.

E-mail: Steve Saville


Increase Text SizeDecrease Text SizeE-mail Link of Current PagePrinter Friendly PageReturn to >> Story

E-mail Page  | Print  | Disclaimer 

© 1995 - 2017 Supports

©, Gold Seek LLC

The content on this site is protected by U.S. and international copyright laws and is the property of and/or the providers of the content under license. By "content" we mean any information, mode of expression, or other materials and services found on This includes editorials, news, our writings, graphics, and any and all other features found on the site. Please contact us for any further information.

Live GoldSeek Visitor Map | Disclaimer

The views contained here may not represent the views of, its affiliates or advertisers. makes no representation, warranty or guarantee as to the accuracy or completeness of the information (including news, editorials, prices, statistics, analyses and the like) provided through its service. Any copying, reproduction and/or redistribution of any of the documents, data, content or materials contained on or within this website, without the express written consent of, is strictly prohibited. In no event shall or its affiliates be liable to any person for any decision made or action taken in reliance upon the information provided herein.