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Monday, May 14, 2012

Drop The Cash From Helicopters!

Narrow M1 data for April is the weakest since modern records began. Real M1 deposits – a leading indicator of economic growth six months or so ahead – have contracted since November. They are shrinking faster that at any time during the 2008-2009 crisis, and faster than in Spain right now, according to Simon Ward at Henderson Global Investors ... "China is in deflation," says Charles Dumas from Lombard Street Research. Yes, consumer price inflation is 3.4pc – though falling – but consumption is a third of GDP. Fixed investment is 46pc, and here prices have dropped 3.5pc in six months. Export prices have dropped 6.6pc ... All the BRICs need watching. India's industrial output fell 3.5pc in March. The country seems caught in a 1970s stagflation vice. Brazil has softened too, with car sales down 15pc and industrial production contracting in March. The bad loans of the banks have reached 10.3pc, higher than post-Lehman. The bubble has probably popped already, but hoteliers in Rio are hanging on. The European Parliament has pulled out of the UN's Rio forum on sustainable development in June because the rooms are exorbitant. "We are short the vastly over-vaunted and over-owned BRICs," says hedge fund contrarian Hugh Hendry. – UK Telegraph

Dominant Social Theme: If only we could print as much money as we want. That would make the banks happy, anyway ...

Free-Market Analysis: Ambrose Evans-Pritchard has gotten to the heart of the matter in a recent article on monetary contraction (see above). He rightly points out that less money is circulating but then comes quickly to a Keynesian conclusion that more money will provide the antidote.

Because of all of the conflicting information surrounding this subject, it takes a long time to figure it out. But one thing is for sure: "Printing" money is not the solution.

Unlike many, Evans-Pritchard has gotten the problem right in the past. For a variety of reasons, money is not circulating around the world.


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