Mises Wire

Home | Wire | GDP Forecast based on TMS

GDP Forecast based on TMS


Tags U.S. EconomyCalculation and Knowledge


Here is a forecast of Gross Domestic Product based on the Austrian notion of the money supply and its growth rate. Jeffrey Peshut shows that Real GDP peaks with a variable lag to the growth rate of the True Money Supply. In other words we should expect Real GDP growth to peak from 1 to 3 years after the True Money Supply growth rate peaks. He writes:

On February 28th, the Commerce Department released its revised estimate of real Gross Domestic Product growth for the fourth quarter of 2013, reducing it from January’s original estimate of 3.2% to 2.4%. Both are down from the third quarter’s GDP growth of 4.1%. For the entire year, real GDP grew by only 1.9% after expanding by 2.8% in 2012.
Because this writer lacks the meteorological skills ostensibly possessed by Ms. Yellen and others at the Fed, RealForecasts.com will limit its analysis to data associated with GDP and the money supply.

Real Gross Domestic Product YOY% vs. True Money Supply YOY%

Although TMS has been increasing over the past two years, it’s been increasing at a decreasing rate, which is what really matters. The Fed’s reduction of bond purchases will likely decelerate the growth of TMS even further, setting the stage for the next credit crisis. Extrapolating the TMS’s current trajectory into the future, TMS growth should approach zero in early 2015, setting the stage for a credit crisis near the end of 2015 or the beginning of 2016. Based upon a one-year lag between the TMS growth rate and the GDP growth rate since 2009, the growth rate of GDP is expected to approach zero in early 2016.

Mark Thornton is a Senior Fellow at the Mises Institute and the book review editor of the Quarterly Journal of Austrian Economics. He has authored seven books and is a frequent guest on national radio shows.

Add Comment

Shield icon wire