Comments (15)

• Justin

  For us layman, I assume what is being pointed out here is the increase in zero-maturity money versus M2? Am I interpreting this correctly?

  Published: January 20, 2009 11:46 AM

• Lester Hunt

  I notice that gold has been rising steeply for three days or so. Bad for the country, good for holders of gold like me.

  Published: January 20, 2009 12:09 PM

• DD

  Jeffrey,

  Perhaps a few words on what you are trying to convey?

  Published: January 20, 2009 1:29 PM

• Alvaro

  Yes Jeffrey, don't underestimate the "lay" in laymen when it comes to some readers (like me)

  Published: January 20, 2009 1:40 PM

• Matthew

  Attempting to speak for Jeffrey, I think he's bringing attention to the fact that broader monetary aggregates (I'll call them BMAs in this post), such as each of those in the graph, are starting to increase in response to the astronomical rise in the monetary base (http://research.stlouisfed.org/fred2/series/BASE).

  Whereas the Fed is basically 100% in control of the monetary base, the BMAs reflect banks' willingness to lend money into existence through fractional reserve banking. Presumably, rising BMAs indicate that we might soon be headed for runaway inflation and rising consumer prices...if the Fed doesn't do something to offset it.

  Published: January 20, 2009 2:02 PM

• AJ Witoslawski

  I think Jeff is trying to point out that M1 and M2 are finally responding to the huge increase of M0 that was initiated by the Fed to "save" the financial system.

  All of the actions of the Fed will be extremely important in the next few months, as they can either plunge us into an inflationary depression or at least save us from inflation (not the depression, unfortunately).

  Published: January 20, 2009 2:42 PM

• Will

  I think Jeff is trying to point out that all the indicies (not just M1 and M2) in the graph have a relatively significant jump. Look closely at the 5 pixels or so at the far right, each measure has a relatively significant upwards tail on them (especially the MZM and the M2 - where I believe we would expect the jump to be the most significant).

  Published: January 20, 2009 3:33 PM

• Alvaro

  Thanks Matthew and AJ. Searched for and found this in Wikipedia : http://en.wikipedia.org/wiki/Money_supply
  

  
  # M0: currency (notes and coins) in circulation and in bank vaults, plus reserves which commercial banks hold in their accounts with the central bank (minimum reserves and excess reserves). M0 is usually called the monetary base - the base from which other forms of money (like checking deposits, listed below) are created - and is traditionally the most liquid measure of the money supply.
  
  # M1: currency in circulation + checkable deposits (checking deposits, officially called demand deposits, and other deposits that work like checking deposits) + traveler's checks. M1 represents the assets that strictly conform to the definition of money: assets that can be used to pay for a good or service or to repay debt. Although checks linked to checking deposits are gradually becoming less popular, debit cards linked to these deposits are becoming more popular. Like checks, debit cards, as a means to complete a transaction through their links to checkable deposits, can also be considered as a form of money.
  
  # M2: M1 + savings deposits, time deposits less than $100,000 and money market deposit accounts for individuals. M2 represents money and "close substitutes" for money. M2 is a key economic indicator used to forecast inflation.
  
  

  It goes on, and I suggest reading it. And Rothbard.

  Published: January 20, 2009 3:47 PM

• Ned Netterville

  Hey, look at the BASE curve. Oops, excuse me, that's not curved. It looks more like the trajectory of the pea I just launched from the table with my spoon as a lever. If it sticks to the ceiling I won't have to clean the floor. Damn gravity; pass the peas.

  Published: January 20, 2009 4:08 PM

• Sukrit

  Is it true the Fed discontinued the M3 measure of the money supply? Is this a good or a bad thing?

  Published: January 21, 2009 12:42 AM

• WSR

  Yes, the fed stopped releasing the M3 in 2005 and anounced in the same press release it would cease pusblishing "large-denomination time deposits, repurchase agreements (RPs), and Eurodollars". http://www.federalreserve.gov/Releases/h6/discm3.htm

  I think this is bad, we need every bit of information we can get.

  However it should be possible to approximate this data. Shadow Government Statistics is the example from the Wiki article. http://www.shadowstats.com/alternate_data

  Published: January 21, 2009 10:15 AM

• Joe

  I bet that money supply chart looks just Zimbabwe's did just a couple of years ago.

  Published: January 21, 2009 10:45 AM

• Joe

  I bet the U.S. Federal Reserve would just love to tell everyone about how people in Zimbabwe are all millionaires due their Central Bank's generous monetary policies (woo hoo!). However, they will leave out the part that those millionaires can't even buy three eggs with a million Zimbabwean dollars either.

  Published: January 21, 2009 10:52 AM

• Abhi

  But this is for the last 50 yrs, doesnt really zoom into present situation, so how do you exactly does "starting to respond" show here ?

  Published: January 21, 2009 1:34 PM

• Carl

  Actual cash money supply remains at $836 Billion, Fed added to its reserves another $600 Billion in cash money equalivents, the rest is credit, to include 100% of all U.S. Savings.

  The Fed is not 'printing money', it is issuing credit. Credit is received as debt. One cannot pay debt with more debt.

  The difference between Money and Credit will become readily apparent when BoA, Citi and/or JPMC fail and people make the mad dash to their local branchs to get their money only to receive a check no one will or can cash.

  Published: January 29, 2009 10:29 AM