The relationship between M1, M2 and total credit market debt and GDP.

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Subprime JD's picture
Subprime JD
Status: Platinum Member (Offline)
Joined: Feb 17 2009
Posts: 562
The relationship between M1, M2 and total credit market debt and GDP.

In 1985, total M1 was $554 billion. Total credit market debt at 8.62 trillion. Debt to M1 ratio is 15-1.

     M2: 2.34 trillion. Debt to M2 ration 3.6- 1. GDP to M2 is 1.79

      1985: GDP at 4.21 trillion. GDP to M1 is 7.5-1

In 1990, total M1 was $798 billion. Total credit market debt stood at 13.7 trillion. Debt to M1 ratio is 17-1

      M2: 3.17 Trillion. Debt to M2 ratio 4.3- 1. GDP to M2 is 1.82 to 1.

     1990: GDP at 5.8 trillion. GDP to M1 is 7.2-1

In 1995, total M1 was at roughly $1.14 trillion. Total credit market debt stood at 18.4 trillion. Debt to M1 ratio is 16-1

      M2: 3.5 trillion. Debt to M2 ratio 5.2 to 1. GDP to M2 is 2.11 to 1.

     1995: GDP at 7.41 trillion.  GDP to M1 is 6.5

In 2000, total M1 was at roughly $1.13 trillion. Total credit market debt stood at 27 trillion.  Debt to M1 ratio is 23-1. Note that this is the peak of the dotcom bubble.

     M2: 4.67 trillion. Debt to M2 ratio 5.78 to 1

      2000: GDP at 10.28 trillion. GDP to M1 is 9-1. GDP to M2 is 2.20 to 1.

In 2007 M1 stood at roughly $1.37 trillion. Total credit market debt stood at 51 trillion. Debt to M1 ratio is 37-1!!

     M2: 7 Trillion. Debt to M2 ratio 7.28 to 1.

      2007: GDP at 13.8 trillion. GDP to M1 is 10-1. GDP to M2 is 1.97 to 1.

M1 has skyrocketed since the fall of 2008. M1 now stands at $1.66 trillion. Total debt has stalled to 52 trillion. Debt to M1 ratio is 32-1.

     M2 8.29 trillion. Debt to M2 ratio 6.27 to 1.

       Currently GDP is at 14.14 trillion. GDP to M1 stands at 8.5 -1. GDP to M2 is 1.70 to 1.

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So we can see from this data that the discreptancy between M1 and total debt has widened considerably since 1985. Notice how the M1 spread was 37 - 1 right before the collapse of the financial markets. This difference is the largest in US history. Soon after the dollar went through the roof as institutions sold off dollar denominated assets in exchange for dollars. Depending on which measure you use the spreads widened right before the crash and are still highly elevated.

So the question that remains is: what will happen if institutions ever dispose themselves of these assets? If they do then the supply of dollars out there is limited as the data shows. Were a true panic to ensue then how low will persons be willing to sell those assets in order to get the supply of limited dollars? Based on this data assets should fall and the dollar should rise.

docmims's picture
docmims
Status: Platinum Member (Offline)
Joined: Jun 17 2009
Posts: 644
Re: The relationship between M1, M2 and total credit market ...

Nice post.

quarterly GDP propaganda comes out tomorrow(thursday). The estimate is 3% growth which I think is laughable.

If we don't as a population believe the number, and the market really tanks; there will be a sell off of not only stocks but bonds, gold, oil, property and other assets to raise funds.  This will have the side affect of depressing commodities(including gold) and raising the value of the dollar in a huge deflationary wave which will give the fed an excuse to print even more money.  Will this happen? -- the chartists are calling for a major break either up or down soon.  I dunno, but we are a bunch of sheeple <-- I just learned that term, but I like it.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: The relationship between M1, M2 and total credit market ...

bearmarkettrader - thanks for this post and your calculations regarding money supply / debt.  I think you have provided solid evidence of the exponential growth of interest debt. 

Larry

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