Thoughts re a simple QE model of asset price bubbles…M3 versus nominal GDP

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And for more explanation:

The following chart shows shows M3 growth (reconstructed post 2006 Nowandfuture.com data), nominal GDP growth and the cumulative difference between the two:

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Now let us brake down the cumulative data into more shorter term 1, 3 and 5 year bursts:

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The above chart shows the annual change in the differential between the growth in M3 and the growth in nominal GDP.  That is M3 cumulative growth/Nominal GDP cumulative growth broken down into discrete annual rates of change in the differential. It clearly shows the 3 bursts of excess that we know as the build up to the 2000 peak, the 2007 peak and the current period.  

The next graph shows the same data but with annual nominal GDP growth overlayed on top:

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The next chart shows average annual changes in the differential between the M3 growth rate and the nominal GDP growth rate (M3%change/GDP%change) drawn from rolling 3 and 5 year periods:

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It is worth noting that the final period of excess is based on an increasing difference between the cumulative growth in money supply and growth in GDP.  That is even though the growth rate of the differential itself is slowing the cumulative difference between money supply growth and nominal GDP is continuing to expand.

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