The Making of Bubbles

The September "personal income and outlays" statistics for the U.S. has just been released. 

F.A. Hayek once explained that "...saving at a continuously high rate is an important safeguard of stability" and that a high rate of saving would also "...tend to mitigate disturbances arising from fluctuations in credit". *

Changes in the ratio between money supply and saving hence indicate which direction an economy is moving in; a higher ratio signals more potential disturbances to an economy while a lower ratio signals more stable and sustainable economic developments. 

In the U.S., there is little doubt which direction the economy is currently heading in - it's the same direction it's been heading towards for decades, namely a money supply growth that vastly outpaces savings growth, a key ingredient in the making of bubbles.

Little wonder the U.S. economy has been so unstable for so long. And it should come as no surprise that it will continue to be so well into the future.

* Profits, Interest and Investment