Many have been writing asking how the chart and commentary in M3 Contraction - The Future Is Now can possibly be correct. Here is the chart and a snip of text once again for convenience. The key sentence below is in RED.



The Telegraph is reporting Sharp US money supply contraction points to Wall Street crunch ahead.



The US money supply has experienced the sharpest contraction in modern history, heightening the risk of a Wall Street crunch and a severe economic slowdown in coming months.



Data compiled by Lombard Street Research shows that the M3 ''broad money" aggregates fell by almost $50bn (£26.8bn) in July, the biggest one-month fall since modern records began in 1959. "Monthly data for July show that the broad money growth has almost collapsed," said Gabriel Stein, the group's leading monetary economist.



On a three-month basis, the M3 growth rate has fallen from almost 19pc earlier this year to just 2.1pc (annualised) for the period from May to July.



This is below the rate of inflation, implying a shrinkage in real terms. .....



contraction

real terms

Real"

inflation adjusted

M3 - Now And Futures

M3 - Shadowstats

John Williams monthly reconstruction of M3 is here. Ours tends to be more volatile and averages slightly higher than his, partly because it's weekly and partly because of our minor differences in calculating the Eurodollar component of M3 and repos.

What's Going On With M1?

Much of the large growth in M3 lately has been in flows into CDs and Money Market Funds, a normal occurrence during financial turmoil.