Wednesday, 22 August 2012

Movements in the Monetary Base and Money Supply in the U.S. (as of 8 Aug-2012)

The Federal Reserve Bank of St. Louis reported the Monetary Base and Money Supply (Stock) figures for the bi-weekly period ending 8 August on 17 August 2012. The data series used in the report below starts from 1984.

Summary
The monetary base, M1 and M2 are all close to their all time high while the M1 Money Multiplier (M1MM) remains substantially lower than normal (as measured by the median). But compared to last year it continues to increase quite substantially driving growth in the M1 Money Supply. The monetary base in USD terms continues to remain largely unchanged as has been the case now for about a year. The M2/Base ratio increased yet again quite substantially on last year leading to a 6.36% increase in M2 on last year. If the two ratios (M1MM and M2/Base) start approaching their historical normal levels, the increase in M2 money supply will be substantial unless there is a corresponding decrease in the monetary base. If M2 were to increase substantially, there will be a real risk of inflation increasing dramatically further down the line (see here for more on this).

Monetary Base
The monetary base increased by 0.3% on the previous week to USD 2,702.7 billion. Compared to the same period last year it decreased by 0.1%. The current monetary base is 1.82% lower than the highest ever reported (February 2012).

M1 Money Supply
The M1 figure decreased 1.5% on the previous week to USD 2,292,7 billion and was up 10.07% compared to the same period last year. The current M1 money stock is 1.6% lower than the highest ever reported (11 July 2012).

M2 Money Supply
The M2 figure decreased 0.12% on the previous week to USD 10,017.9 billion which was 6.36% higher than reported for the same period last year. The current M2 money stock is 0.12% lower than the highest ever reported (last week).

M1 Money Multiplier
The reported M1 money multiplier ended the week on 0.851 which was 58.95% lower than the median (2.073) and 72.82% lower than the highest ever reported (3.131).

M2/M1 ratio
The ratio for the week was 4.369 and was 6.38% higher than the median (4.107) and 21.75% lower than the highest ever reported (5.578).

M2/Base ratio
The ratio for the week was 3.707, which was 54.14% lower than the median (8.083) and 69.36% lower than the highest ever reported (12.097).












 

2 comments:

  1. Money supply used to be correlated with loan growth and hence it's reliability as an inflation forecaster, but post WWII, this link has decoupled due to securitization. If you look at C&I loan growth, government borrowing, and even now some mortgage loans (Wells Fargo loan growth up like 30%), you can see that inflation is well on its way. Manhattan rents were up 8% last year for just one example. I'd put asset bubbles in junk bonds in the camp of inflation too.

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  2. Many thanks for your suggestions. It is perhaps not clear cut and in addition "inflation" depends on how it is defined, e.g. CPI components and weights are often changed. Nonetheless, I find it important to follow the changes in money supply and base money. If the latter increases, it must turn up somewhere in the financial system and lead to inflation somewhere sooner or later. More so now as the velocity of M1 and M2 are very low (the lowest ever reported for the latter).

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