Vox Rationalis

The Vicious Cycle of a Falling Dollar

wheelbarrelsofcash wrote:

> LOL so what about M1-M3? Anyone have the current M3 info right now?

Aside from the currency component of M1, the Fed has no direct impact on any of these. More about each money measure here: seekingalpha.com/insta....

Now, here's the data you ask for, from the FRED database.

M1: August 4: 1411.8 billion; May 18: 1590.2 billion
Increase: 12.7%

M2: August 4: 7687.1 billion; May 18: 8327.5
Increase: 8.3%

The Vicious Cycle of a Falling Dollar

"...the unprecedented increase in the U.S. monetary base – the sheer ocean of liquidity being poured into the financial system... Which would you choose to own – a currency that is being printed faster than any other in history..."

Nonsense.

The monetary base is currency in circulation outside the Fed and Treasury plus banks' reserve deposits at the Fed.

Between the end of July and the end of April, the adjusted monetary base has increased by 104%, or about $910 billion. Of that, currency makes up just $71 billion (or an 8.6% increase). The rest, some $812 billion, came from increased bank reserves at the Fed -- up from about $10 billion in August. Holy crap - what happened?

Two things. Banks started massively building reserves (look up excess reserves in the FRED database to see the numbers), and the Fed started paying interest to attract bank reserves so that it could then lend this money (think commercial paper facility). Essentially, the Fed stepped into the lending markets as the banks stepped out.

Please look at the data before accepting the conventional wisdom in this area. There simply has not been a massive expansion of the money supply.