shapeimage_2

This scary hockey stick chart is not the global warming presentation you see so often – this is about the money supply.  The “adjusted monetary base” is “the total amount of a currency that is either circulated in the hands of the public or in the commercial bank deposits held in the central bank’s reserves. This measure of the money supply typically only includes the most liquid currencies.” Now according to this chart, from before the Great Depression, to about 1972, the AMB stayed in a range of $1-30 Billion Dollars. In 1971, Nixon took the U.S. Dollar off the gold standard…you know, “In God We Trust,” and from that point till September 2008, it grew from about $30 billion up to about $850 billion in September, 2008. Some quick math here…hang on, my shoes are still on…about $22 billion per year on average. Now…from September, 2008 till today, it has grown from just under $900 Billion to about $1750 Billion…hmm, that’s $850 BILLION in less than six months. Well, surely something that dramatic must have had a profound impact on financial futures in our country right? Let’s see…the Dow Jones Industrial Average stood at 11,020. Today it is hovering around 7,500. Well that’s good isn’t it?? Lower is better?

Umm, no. So while our money supply has increased almost 95%, the Dow has lost 27%. Bear in mind that the Dow is a forward thinking index…while it reacts to day-to-day news, in the aggregate it reflects the sentiment of investors for where they think this thing is going.  Some naysayers say a 4,000 point Dow is not out of the question.

What does this have to do with real estate?  The Dow has a psychological (and capital) impact on the ability of lenders and investors to make deals.  As long as there is grave uncertainty about the direction of the economy…I really need to adopt John Mill’s verbage, the “political economy,” real estate will stay stalled.  What we need Washington to do more than anything is STOP.  Stop the crazy spending, stop trying to micro-manage the economy through legislation…step back, take a breath and let the market work through this thing unhindered.  It will be ugly, but the alternative is a loooong slow band-aide pull followed by the same agony.  Let’s have the agony without the band-aide.