Show me the money

Most business cycle models include the money supply as a leading indicator of the economy, meaning that changes in the money supply tend to precede and signal changes in the economy in the near future. The money supply year-to-year change spiked late last year, giving some money watchers goose bumps.

According to Ryan McMaken at the Mises Institute, the money supply jumped 11.3 percent on the Austrian money supply (AMS) index late last year. Murray Rothbard and Joseph Salerno created the Austrian money supply index to provide a better measure than the Fed’s M2. That spurt in money occurred after a several years of sedate money growth. 

McMaken wrote that since 2014, money supply growth has ranged from about 7 percent to 8.5 percent. In October of last year, money supply growth hit a seven-year low of 6.8 percent. The AMS spiked to 11.3 percent in the fourth quarter, then in February it collapsed back to a year-to-year growth rate of 7.7 percent.