Money Supply Growth – March 2009

posted by Nima

April 17, 2009 · Posted in Monetary Economics 

money-supply-growth-march-2009
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In March 2009 the true money supply has gone up by 14.27% when compared to March 08. It has now reached $2.116 trillion.


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2 Responses to “Money Supply Growth – March 2009”

  1. Robert on April 23rd, 2009 10:17 pm

    Nima,

    I wonder how much of the money supply decline was repayment of loans? Plus, one area I can not seem to figure out is how does write downs or outright loses affect your true money supply. How would retiring debt by using equity shares affect the true money supply?

    Excellent work, very clear delivery.

    Robert

  2. Nima on April 23rd, 2009 11:57 pm

    Robert:

    On an annual basis the money supply has actually grown, so I assume you are referring to the declines that occurred from December through February.

    Yes, loan repayments are definitely a, if not THE, negative force on the true money supply. And it is highly likely that they made the money supply fall during the aforementioned months as they outstripped the amount of newly created money. In addition to that, foreclosures contribute to a reduction

    Write downs don’t affect the true money supply directly. When a bank writes down the value of a loan on its books, nothing at all happens to the money that was loaned out. It remains in circulation. Notice how I said “directly”. Obviously the bank will reduce if not stop its loans moving forward if more debtors default. This will curb additional money creation while loan repayments continue.

    Foreclosures involve partial repayments of non-performing loans. In addition the bank reclaims assets and sells them on the market. Money is withdrawn from the new buyers’ bank account and flows back to the bank. Money disappears from circulation.

    Losses don’t affect the true money supply. When a business loses money it has spent more than it has earned. But the money remains in circulation.

    If a business owes a bank money, but can’t pay it back, and instead offers a claim to its profits (equity) as debt retirement, the money supply is not affected by this transaction as such. However, as the business earns money, and a part of the profit goes to the bank, that money effectively disappears from circulation.

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