Mises Wire

Money-Supply Growth Falls to 8-Month Low as Mortgage Rates Rise

Money supply growth slowed in October, falling to the lowest rate recorded since February of this year. Overall, money-supply growth remains well below the growth rates experienced from 2009 to 2016, and has fluctuated very little since March.

In October, year-over-year growth in the money supply was at 3.7percent. That was down from September’s growth rate of 4.5 percent, but was up from October 2017’s rate of 3.0 percent.

Image
 

The money-supply metric used here — the “true” or Rothbard-Salerno money supply measure (TMS) — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth.

This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler’s checks, and retail money funds).

M2 growth rose in October 2018, rising 3.7 percent, compared to September’s rate of 3.9 percent. M2 grew 5.0 percent in October of last year. Like the TMS measure, the M2 growth rate has fallen considerably since late 2016, but has varied little in recent months.

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of falling money-supply growth.

Image
 

Many factors contribute to these trends. In recent months, money supply growth — in both M2 and TMS — has likely been impacted by falling growth rates in real estate loans at commercial banks. In October, real estate loans grew 3.2 percent, year over year, which was a 46-month low. The demand for mortgage loans has softened as mortgage rates have risen. In October, the 30-year, fixed average mortgage rate reached 4.8 percent, which was a 90-month high.

Image
image/svg+xml
Image Source: iStock
Note: The views expressed on Mises.org are not necessarily those of the Mises Institute.
What is the Mises Institute?

The Mises Institute is a non-profit organization that exists to promote teaching and research in the Austrian School of economics, individual freedom, honest history, and international peace, in the tradition of Ludwig von Mises and Murray N. Rothbard. 

Non-political, non-partisan, and non-PC, we advocate a radical shift in the intellectual climate, away from statism and toward a private property order. We believe that our foundational ideas are of permanent value, and oppose all efforts at compromise, sellout, and amalgamation of these ideas with fashionable political, cultural, and social doctrines inimical to their spirit.

Become a Member
Mises Institute