Money supply, in vogue again?

[girl gone mad]

Money supply, in vogue again?
Some forecasters say flood of money means economy is recovering
By Laura Mandaro, MarketWatch

SAN FRANCISCO (MarketWatch) -- Along with shaggy hair on boys and hand-wringing about inflation, money supply -- that favorite 1970s indicator of economic cycles -- is making a comeback.

Some economic forecasters and strategists are pointing to a steep five-month rise in the amount of money held as indicating that a recovery in the U.S. economy is slowly but surely getting under way.
The rise in the M2 measurement of money supply is saying "monetary policy is pretty easy and the economy may pick up before the consensus expects it," said Paul Kasriel, chief economist for the Northern Trust.

Kasriel, for years one of the gloomier private-sector prognosticators thanks to his early forecast that the U.S. housing market was on the path to meltdown, now has a sunnier outlook. He expects the economy to start recovering by the fourth quarter and that it will avoid a prolonged, debilitating bout of deflation.

One reason, he says, is the federal government's spending to get out of the financial crisis, which is forcing more money into the banking system. The Fed has injected roughly $1 trillion into credit markets in the past year by buying commercial paper and agency bonds, for instance. And the Treasury is issuing record amounts of debt to underwrite the federal deficit. If the Fed buys back more of that debt, its puts more money into supply.



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