M1 growth in charts: the Majors vs. the BIICs
by Rebecca Wilder
This is expansionary monetary policy…
… this is expansionary monetary policy on drugs
Note: Japan’s M1 growth is labeled on the RHS, with range -1.5% to 1.5%.
I know, kind of corny; and I did grapple over which set of economies should be labeled “on drugs”, the BIICs or the Majors.
And BIICs is NOT a typo. I’m going with BIICs now – Brazil, Indonesia, India, and China. This is a modified version of Jim O’Neill’s famous cohort, the BRICs (Brazil, Russia, India, and China), whose economies in $ terms are expected to jointly transcend the G6 by 2050. Russia’s been ousted for reasons that I will discuss at a later time.
Soon to come: Indonesia vs. Russia.
Rebecca Wildercrossposted with Newsneconomics
I don’t get how the “on drugs” reference applies, but I’m thinking specifically of this old commercial:
However if you look at the broader measure of money M2 which is M1 plus retail money market funds, savings deposits and small time deposits it grew fron 8300 to 8463 in 2009 or about 2% which is not nearly the 6% the M1 measure carries. It is this that makes one wonder about the predictions of wild inflation in the near future. With the various financial innovations M2 probably includes more of the funds retail customers can treat as available. The fed says M1 went from 1565 to 1667 for 6% but the difference in change between the two indicies is small of about 65 billion more growth in M2 on a much larger base.
I’m sure that M1 is a useful metric, but in times like these I’m not entirely clear what it is useful for. The problem is that M1 changes to reflect people’s priorities and that in troubled times, priorites — especially perceived liquidity and perceived safety — change rapidly and in directions that aren’t all that easy to follow.
I disagree with Ron Paul on a wide variety of subjects, but I’m with him in feeling that the best metric for money supply growth is M3. I don’t think the fine Christian gentlemen who were running the US stopped publishing M3 in 2006 to save money. They stopped publishing it because they thought it might make them look bad. Turns out that they didn’t need M3 to look bad.
FWIW, M3 growth in the US is possibly a couple of percent negative http://www.shadowstats.com/
I don’t know if the numbers at http://www.safehaven.com/article-12305.htm have any validity at all. They are interesting, M3 growth shows a much subdued version of what your charts show.
Finally, I know just enough about China to believe that the statitics coming out of there started out dubious and may be fudged as well if the Chinese government has any reason to fudge them. It wouldn’t surprise me if the same were true of India and Indonesia.
Hi VtCodger and Lyle,
Yes, a broader measure of money would probably be more instructive regarding actual purchasing power and policy pass-through. However, there are different measures of “broad”. For example, the BoE uses an M4 measure, while the Fed uses the less broad M2 measure.
Long-winded way to say that M1 is the most comparable.
I certainly won’t argue dropping Russia from BRIC. My company’s annual report this year still shows Russia in “emerging markets” even though Russia was quite literally our Very First international market a hundred and something years ago. I found that entertaining.