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Money Supply Rockets 25% in Just Two Weeks: Got Gold?

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https://seekingalpha.com/article/4395704-money-supply-rockets-25-in-just-two-weeks-got-gold
Money Supply Rockets 25% In Just Two Weeks: Got Gold?

Dec. 21, 2020 3:26 PM ET|
A gold-based approach to protecting wealth and profiting off Fed inflation

Summary
The amount of dollars in checking accounts in the US banking system exploded by 25% from Nov. 16-30, the fastest rate in history, including the immediate post COVID-19 printing bonanza.



The money, an unbelievable $1.3 trillion, came from savings accounts. The transfer coincides with the expiration of most mortgage forbearance plans and the shipping container fiasco at international ports.

Checking deposits are used for payment, savings deposits for investment, suggesting more spending and less investment, meaning stagflation is about to pick up in a big way.

In the high stagflationary years of 1978-1980, checking deposit growth outpaced savings deposit growth. In the high growth low inflation years 1994-2000, checking was unchanged and savings grew 55%.

Consumer price inflation is about to pick up fast, and the window to buy gold and silver to protect against a dollar collapse is closing.

This idea was discussed in more depth with members of my private investing community, The End Game Investor. Get started today »

These numbers almost seem like a joke, but there's nothing funny about this. From Nov. 16 to Nov. 30 the amount of dollars in checking accounts in the US banking system rose by an unbelievable 25%. In the space of just two weeks, the narrow money supply termed M1 increased by a whopping $1.3 trillion, from $5.534 trillion to $6.865 trillion.

To get a sense of proportion here, or lack thereof as the case may be, here's the broad view since 1975.

Where is all this money coming from? The answer to that question can be found in this next chart, of Non-M1 M2. That is, the broad money supply M2, excluding M1. This consists mostly of savings deposits.



ChartNotice the plunge at the end of the chart. We can see here that over the same two-week period, savings deposits contracted by about the same $1.3 trillion, from a high of $13.6 trillion on Nov. 16 to $12.3 trillion by Nov. 30.

An absolutely unprecedented amount of money is suddenly being vacuumed out of savings and into checking. The obvious question is why, and what are the implications?

Major Consumer Price Inflation Imminent

People, institutions or individuals, generally pay their bills with checking deposits. Savings, on the other hand, are used mainly for investment purposes. When an individual on the retail level or a corporation or large financial institution needs to pay a bill, the money is first taken from savings and transferred to checking. For such a gargantuan amount of money to have been transferred from savings to checking in just two weeks likely means there are suddenly a whole lot of big bills coming due all at the same time. I'll get into what that may be in a second.

First, echoing this, here's Investopedia’s explanation of the difference between the broad M2 money supply and the narrower M1 (emphasis mine):

M2 is a broader money classification than M1 because it includes assets that are highly liquid but are not cash. A consumer or business typically doesn't use savings deposits and other non-M1 components of M2 when making purchases or paying bills, but it could convert them to cash in relatively short order.
So what bills are coming due all at the same time now? This is from Fitch, in a note dated Nov. 12, just before the massive $1.3 trillion transfer of funds began (emphasis mine):

The vast majority of forbearance plans that were granted in the first few months of the pandemic are expiring now, and borrowers will need to resume regular payments and make up for missed payments. With slowing economic growth and elevated unemployment, weaker borrowers carrying more debt will fall delinquent, with loan performance expected to deteriorate. There has not been widespread extension of debt relief programs, although some sectors have selectively offered forbearance beyond the original terms.
And so it seems that this absolutely massive amount of deposits is being moved to pay bills that have been suspended since around March. Next question, what are the implications of this exodus from savings into checking? Well, if checking deposits are used for spending and savings deposits for investment, this means that there are now about $1.3 trillion more dollars available for spending now than there were on Nov. 16, and $1.3 trillion less for investment. Logically, that would at some point translate to higher consumer price inflation and lower asset prices.

Checkings vs Savings During Stagflation vs High Growth Periods

That's all nice and logical in theory, but where's the empirical evidence? The charts below oblige. This first one is M1 (checking in blue) vs Non-M1 M2 (savings in orange) during the stagflationary period of the 1970s.



Chart On its own this chart looks normal. Narrow money climbed by about a third during the stagflation of the 1970s, and savings by about two thirds. Now let's look a little closer. Let's zoom in to the peak stagflationary period of 1978-1980 when the gold price roughly quintupled:


Chart

As you can see above, during the peak price inflationary period of the modern era when the official CPI inflation rate peaked out at 15% annual, checking deposit growth actually outpaced savings growth.

Now let’s look at a high-growth low-consumer-price-inflation period. Here’s what happened in the US banking system during the roaring 1990s boom:

Chart

The narrow money supply actually fell over a six-year period, while savings deposits rocketed 55%. Inflation was low, and asset prices soared. By implication then, plummeting savings and skyrocketing checking as we have just seen from Nov. 16-30 would signal much higher consumer price inflation together with stagnant or falling asset prices.

Consider the enormousness of these figures in perspective: Checking account money from Nov. 16-30 expanded by about the same amount percentage-wise as from the entire period of 1974-1980.

Could this be a glitch? Maybe all this money will flood right back into savings in the weeks ahead and this is just some kind of temporary lurch caused by the extraordinary monetary movements since the COVID-19 era began.

There's some theoretical validity to that guess, as checking and savings typically yo-yo back and forth week to week. Some of that $1.3 trillion in checking deposits has indeed gone back into savings last week.


Chart But as you can see from the chart above, not much. Checkable payments tend to be transferred into savings during the first half of each month, and some savings tend to be disgorged back into checking in order to make payments during the second half of each month. On a monthly basis the move down in M1 and back into savings tends to retrace at least 75% of the previous M1 advance. So far the latest move down has retraced only 27% of the previous all time record $1.3 trillion move higher.

Judging by short-term cyclical patterns, there should be one more week of decline in M1 back into savings until the next M1 advance begins. If stronger price inflation is imminent, we should see progressively weaker retracements in M1 back into savings as that would signal economic actors are more willing to part with those checkable dollars for goods and services rather than move them back into savings for investment purposes. It would signal a fall in the demand to hold cash balances generally, which would push up the general price level.

Inflationary Signs Abound in Commodities

We already are seeing signs of higher consumer price inflation in the commodities sector, especially food commodities, concurrent with a fall in the dollar index on the foreign exchanges. Soybeans for one have broken through their 2016 high at $1,208, closing last week at $1,220. Copper has been up 29 of the last 39 weeks since March and is at seven-year highs.

And it’s not just prices themselves, but the fact that many commodities are stuck in backwardation – meaning spot prices are higher than futures prices for these commodities - despite no supply shortages. In a previous article I explained why a collapsing dollar would lead to backwardation across all commodities regardless of shortages, and this seems to be already happening. For background on backwardation I would highly recommend perusing that one.

Cocoa, for example, is in backwardation despite abundant supplies. Below are the latest cocoa futures prices current to Dec. 18, nearest contract more expensive than futures:



Here's the latest futures table for sugar, Dec. 18, also in backwardation despite abundant supply:



Also in backwardation as of Dec. 18 are lumber, oats, corn, and class III milk. If backwardation is persisting in these commodities despite no physical shortages, it means there is dollar flight. Commodities traders are more anxious to get out of dollars sooner rather than later and trade them for tangible goods as soon as possible.

The next $2.3 trillion spending tranche could smash the dollar

In the meantime, preliminary reports are that Congress has agreed on a second COVID-19 bailout package around $900 billion. Add a $1.4 trillion omnibus spending package, and Congress is about to spend another $2.3 trillion at a time when the dollar index is showing significant weakness. The index is close to breaking the 2018 lows at 88.15. If that level is broken while Congress is spending trillions more while at the same time record amounts of money are pouring out of savings and into checking to make back payments, serious consumer price inflation could be only a few short months away.

For those who do not have healthy positions in gold and silver to hedge against an upside explosion in consumer prices that may be imminent, time is running out. Gold appears to have bottomed a month ago. Silver is leading gold to the upside. How much higher do precious metals prices have to go before the world catches on and the dollar gets dumped across the world? Best not to guess and just get in now.

The End Game Investor is dedicated to protecting real wealth and helping subscribers profit during the ongoing global fiat monetary collapse. Coming from an Austrian School perspective on economics, we discuss ideas like this one and other more exotic ones using a variety of vehicles that are low-risk/high reward. If you suspect that something is seriously wrong in the monetary sphere and that the US fiat dollar standard is in existential danger, then take a peek at what we're doing to prepare for the end game with a two week free trial, lest the end game catch you unprepared.

Disclosure: I am/we are long AAAU, GLD, SLV, PSLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
 

Silver

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All very disturbing. Gold and silver may preserve some wealth, but it will be like living in an economic war zone.
 

Buck

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when the writer mentions "cash in their checking account"

are they also referring to Unemployed People and the .gov accounts set up to distribute this money to the unemployed?

what .gov money was doled out during this two week period?

maybe what he's really saying is: Stop Paying Your Bills, You'll Now Have Enough To Go And Buy Some Gold


i don't care much for pundits
 
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#4
For those who do not have healthy positions in gold and silver to hedge against an upside explosion in consumer prices that may be imminent, time is running out.
My position in silver is far from healthy...Right now, It has a constitution of a malnourished African child.
When you're trying to rebuild your position in a panic, these articles take on a different tone.
Motivational either way!
 

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Where is all that money going?

Behold, the lowly 2x4x8 stud


Screen Shot 2020-12-24 at 4.32.16 PM.png
 

gliddenralston

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That's some serious stud inflation, glad I don't need any. A few yrs from now they'll look cheap.
 

Casey Jones

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Why is it worrisome that persons move from savings accounts to checking accounts?

What does a savings account pay, now? Half a percent?

Why even BOTHER putting money in there?

I have some plans in January, barring Martial Law...so I sold a gold bar and put the proceeds into my checking account. It's what I do; and later next year, if we're still allowed to own gold, I'll buy a bar back after I don't need the money anymore.

It seems that modern economists like to confuse inflation/shrinkage of the money supply, with velocity of money and market demands. Price rises are...price rises. More demand than product, and/or limits on manufacture/growth and/or increased cost of processing.

Price declines are the same. Decreased demand and/or decreased costs. Perhaps a desire to clear out old inventory.

Moving money into demand deposits, tells us money is about to start moving, more than it had. Well, yeah. The holidays; on top of that rent-moratorium.

But the money supply HAS been grotesquely inflated; and the reaction in overall prices, is often delayed but never denied.
 

Tbonz

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Beans and bullets boys and girls. Shits coming, it will not be good.

Our country has been sold out by the people that we have sent to DC to represent “We the People.”

In reality it has become “We the Sheeple.” Most people have become complacent, and the outcome is just due to laziness.
 

Casey Jones

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Beans and bullets boys and girls. Shits coming, it will not be good.

Our country has been sold out by the people that we have sent to DC to represent “We the People.”

In reality it has become “We the Sheeple.” Most people have become complacent, and the outcome is just due to laziness.
I agree, it is not going to be good.

Over at ZH and Peak Prosperity, Dave Collum has his Year-In-Review up. It's not easy reading, and it's not knee-slapping funny; but he does put things in perspective.

One thing he hits, is how criminal the banksters and financial communities, and corporate management, have all become...share buybacks, abuse of bailout monies; using the unavoidable upheavals to demand bailouts in bad times, and pay huge bonuses and other compensation in peak times.

Of how organized the handlers of the Left's street army have become, with the Cancel Culture, and their pouncing on one victim after another. There truly is a lot there.

What I take out of it is...Trump, no matter his organizational competence, did nothing to put the fiscal house of the Federal Government in order. Meantime, the crazed mobs are treating him like a deposed State Criminal - and have been, for years, now.

What Collum is saying, and I agree with, the crash is coming, and hard; and would have happened with a Trump victory (that the Left couldn't out-cheat) or not. It's a critical mass where insanity meets complete moral bankruptcy. And where those who appear to be leaders, have zero emotional maturity and no perspective of history...which is going to make the crash come hard, and hit harder.

It's a tough read, but tomorrow, while your family is carrying on and you wish you could sneak a 10am drink...download it and read the PDF HERE. Right-click to save it to your computer
 

Treasure Searcher

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#12
IMHO, people and businesses are leaving cash in checking accounts, instead of savings accounts, because savings accounts hardly pay any interest.

In the past, savings accounts (and CD's) would pay reasonable interest, so you would park cash in those. Now with ultra-low interest rates, you
just leave it in the checking account.
 

Cigarlover

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People just moving money around for xmas shopping. Or just a few billionaires moving money around and skewing the averages.
 

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solarion

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Anybody and everybody with a lick of common sense.

1609086440248.png


It's beyond ridiculous that privately issued bank credit "dollars" have anything near purchasing power parity with FRNs or US Notes.
 

Goldhedge

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Heck, buy and stockpile 2x4's...
 

Casey Jones

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#18
Heck, buy and stockpile 2x4's...
Hard to move.

Where you gonna stockpile them?

What seems a good location, and a good land value, today...with the coming chaos, may be absolutely worthless in two years. Much of our preparations, I fear, will be abandoned by the wayside, as the walls go up and, probably, the H-bombs drop.

Gold, guns and good friends, seem the soundest investments right now.
 

Uglytruth

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File (hide): 8b2139356c5b63c⋯.png (139.25 KB, 1024x504, 128:63, wwk9nxqgug861.png) (h) (u)



37% of all the dollars EVER printed were printed this year.


This image was before the $900bil they are printing now. (If anyone has an updated graph please post it).

How are we not in hyperinflation?

If there are no consequences then why stop? Is it because it's going to billionaires and not poor people. "We can give your owners infinite money but you can't get more than table scraps or shit gets fucked".

Why do people still not realize they are slaves? Even the self-employed.