Basically, i want to understand if the Money supply is growing or shrinking. (as an indicator to predict whether stocks/bonds/metals will be net positive, or net negative in value)
I believe in the austrian theory that an increase in the money supply leads to inflation. (although not inflating all sectors equally), and that certain areas can deflate while others inflate. I understand it could travel to other places such as consumer staples, however i do not think the US consumer is in a desperate hurry to spend, and it would be dwarfed by the amount of cash being dumped into stocks/bonds/metals by large institutions.
I remember from a chart i have seen recently, that it showed m1, and m2 expanding at a very fast rate. however m3 was declining from (october) 2007. This m3 was obviusly a private estime (unsure of the agency.)
I also know that austrians tend to use the AMS. I know that Rothbard created a TMS. and i know that m3 is no longer given by the fed. For my purposes what do you think is the best indicator? (real time is preferable, although i do not mind monthly updates)
Practically every Austrian thinks that M3 is useless because it includes so much credit instruments that are not redeemable into cash immediately.
Most Austrians do think that the most accurate money supply measure is MZM or TMS. The biggest difference between these two is that MZM has MMMF holdings included. There is no agreement inside the Austrian community whether they should be included as a part of the money supply. Murray Rothbard was against including them although he understood why some people were sympathetic towards the idea of including them.
Both MZM and TMS tend to move to the same direction and because MZM is weekly available, I think you should concentrate on that. Or do it even easier way and read Stefan Karlsson’s blog at stefanmikarlsson.blogspot.com where he tracks very constantly changes in the MZM stock. He occasionally writes about the money supply definition issue and for including MMMFs in the definition concluding that “since money deposited in savings deposits can be used as a means of payments they should be included in the money supply. That should be the general principle in determining what is and what isn’t money: can it be used as a means of payment. That would indeed include both savings deposits and MMMF:s.”
On the other hand the are some Austrians such as Mike ‘Mish’ Shedlock and Frank Shostak who think that even TMS is too wide, because of some saving account instruments included in it. I think that they prefer some form of M1.
Here are two interesting articles about this complex issue that I hope will clarify it at least a little bit [8-|]:
