Good news – Trough monetary velocity suggests growth can accelerate. Bad news – sharp increase in M1 says people are scared and depriving the economy of growth capital and spending.

The pile of cash in the U.S. economy is phenomenal.  It is being underutilized.  Banks are full of low cost deposits but are challenged to find enough commercial and industrial loans to abate the dropping velocity of M1.  This can all change.  When depositors decide to re-engage with the economy and replace worn out vehicles (check out increasing auto sales – this may be starting) and other capital assets and invest in businesses as proprietors or shareholders, we could see a strong pick-up in economic growth.  Unfortunately a precondition for that scenario is for the idiots in Washington to quit scaring the bejeezus out of the public with threats of taxes and “fiscal cliffs”.  There is plenty of raw material for growth.  The financial strength in the banking system is a bulwark against the fears for a government policy triggered recession in 2013.  We have not had a recession following declining velocity such as we are now witnessing.  Jeb Terry, Sr. Dec. 10, 2012.

The sharp increase in cash serves to slow investment and spending – this is not good.  This may cause sluggish GDP growth in 1H 2013.  Fortunately markets will look beyond that.

Aberdeen Investment Management – a guide service for micro-cap technology investment

 

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