We’re keeping these three charts on our radar over the next year.
With a heavily spiked punch bowl, we suspect U.S. monetary policymakers will be a little nervous if they start to see bank credit accelerate and a rapid expansion of the monetary aggregates. In fact, we wouldn’t be surprised to see the money supply figures back on the front pages of the Wall Street Journal sometime soon.
At the end of the day, monetary policy is a black box and subject to “long and variable lags.” Nobody knows precisely how, when, and where central bank liquidity injections and interest rate moves affect the overall economy. This is even more true with the rise and fall of the shadow banking system and further complicated by the massive increase in central bank foreign exchange reserves over the last decade.
Even defining and measuring money is, at best, ambiguous.
(click here if chart is not observable)