[photo] Mark Jeftovic

easyDNS CEO, Career Contrarian & AntiGuru

Canadian M3 Money Supply still going strong. (Is that good or bad?)

At least M3 is still reported here in Canada. The number is so politically indigestible in the US, they simply pronounced it “irrelevant” and stopped reporting it years ago. To get US numbers you have to use the non-official numbers over at ShadowStats.

Source: Statistics Canada
Canadian M3 Money Supply 2005-2007

Statistics Canada still reports it. In fact they seem to have updated the figures today. We see that M3 grew single digits from 2005 through 2007, the yearly YOY numbers were 9%, 7% and 9% again before flaring out to 12% from 2007 to 2008.

US M3 Tanked
What’s interesting is the seeming divergence between US and Canadian M3 data. According to ShadowStats, M3 in the US tanked over ’08. That would be deflation in action – billions upon billions of what looked like “money” (or an “asset” with a AAA rating from Moody’s) turned out to be in fact, toxic debt with little or no value.

Here in Canada, the quarterly data tells a different story, M3 didn’t implode this year, it’s up another 3% so far, to the end of August.

The Good News
So the good news is that Canadian M3 didn’t implode like it did in the US. This means there wasn’t nearly as much toxic debt fueling asset bubbles here in Canada. That could mean we may/might hopefully see a divergence in the Canadian and US economic paths going forward, one where the Canadian economy holds up better than what happens in the US (green shoots aside, and sorry to our American readers , but I fear there is still a lot of gloom ahead).

The Bad News
M3 is still going up, which means we’re all being hosed via inflation. Got a million dollars sitting in the bank that you’re calling your “nest egg”? Well that million dollars became 12% less powerful in ’08 and 3% less this year. Sure, the government would point to the CPI figures which show a drop in inflation this year. But think of it like owning shares in a company: you hold 1 million shares of “Canadian Dollar Corp”, suddenly the Board of Directors decides to issue another 120 thousand shares “to shore up liquidity”, are your shares diluted or not?

(What’s more is that pretty well all global currencies, whether their M3 went down or not in ’08/’09 are still pumping new money supply as we speak. This is the story gold is telling right now. Everybody is debasing their own currency so gold is once again rising against all of them.)

More Bad News
If you’re an exporter, (or say, an internet company that does a lot of sales in the US), you may get caught in a type of double bind: Canada holds up better than the US, which leads to a stronger Canadian Dollar than the US, which leads to weaker exports, and/or weaker revenues out of the US. So even though the amateur economist in me sees a glimmer of Canadian divergence from the ongoing financial gloom, make no mistake that we’ll still feel it. (In case you haven’t already).

At the end of the day, as Marc Faber noted in this month’s GloomBoomDoom report

the world is not black and white and that there can be inflation in some sectors of the
economy and in some asset markets while other sectors and asset classes

Always keeping in mind that this is not financial advice, I am not a licensed financial advisor so do your own due diligence, remove cellophane before eating, etc. my guess is that we look to be on an inflationary path here in Canada.

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