Money Multiplier: Another Down Month...A Warning?

I have previously noted about the recent changes to the M1 metric published by the FRB. Although this change caused the M1 to balloon, it did not materially impact how it is use in our proxy assessment for the money multiplier. The money multiplier, as you may remember, is an estimate in relation as to how fast the money is moving and being created in an economy.

The more money moves, the more money is being multiplied – which means more of it is created. This ultimately puts pressure in inflation, which impacts all markets. The reverse is also true: a slowing down of the multiplier means money creation is slowing. In a debt-ridden market that we are currently witnessing, a slowing down of the money multiplier is not particularly sanguine.

Based on the M1 reported by the FRB yesterday, the overall money multiplier declined month-over-month, and the trend appears to be solidifying. That said, the Biden Administration continues its spending spree, as there is talk that more “stimy” money may make its way into the market. This should be read somewhat bullish by those who believe that the economy is improving.

But make no mistake, this economy is being propped up by government money. Any growth seen is fictions. The money multiplier, while slowing and giving an ominous warning sign, will not be received by the market in the manner that it should. As it is common to bubbles, they do crazy things that extend beyond reason or logic.

As you can see for yourself, the money multiplier trend is down.