US Money Supply – February 2009

posted by Nima

March 13, 2009 · Posted in Monetary Economics 

money-supply-growth-february-2009
Click on image to enlarge.

The annual true money supply growth has dropped to 12.15 % in February 2009. The total True Money Supply has now dropped two months in a row. From $2.16 trillion in December to $2.094 trillion in January, and now to $2.046 trillion in February. So far this is in line with my recent expectations.

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2 Responses to “US Money Supply – February 2009”

  1. LauraB on March 13th, 2009 2:28 pm

    Hi, Nima,

    According to this article, there are 8 trillion dollars sitting in cash or cash equivalents:

    Sideline Money Relative to Market Capitalization at Record Levels
    http://greenlightadvisor.com/glablog/2009/03/12/sideline-money-relative-to-market-capitalization-at-record-levels/

    How does sideline cash affect the money supply? I’ve been reading and trying to understand your post on true money supply. If I’m understanding correctly, any of this money that is in savings accounts and short-term investments like CDs is it not part of the true money supply, but the money in demand deposits or money market accounts would be counted. How do we know what portion of this money is being counted in the money supply? As far as the money that is not in the true money supply, what happens when it is moved into the money supply? Is that when we’d see inflation?

    Thanks!

    Laura

  2. Nima on March 14th, 2009 3:18 am

    On the 8 trillion:

    It seems like this article uses M3 or M2 or some other obscure measure for the money supply. In my article on the true money supply I explained what is wrong with these measures.

    On “Sideline” money:

    Money, as such and by its very definition, is always “sideline” money. At any given point in time, it is money that people hold as cash balances. It is thus unnecessary to introduce the term “sideline”.

    On the inclusion of “Cash Equivalents”:

    I don’t like the term cash equivalent. Either something is to be regarded as money, or it isn’t. If someone holds a bond, but wants to buy something, he still needs to sell his bond in order to receive cash for purchases. The same applies to any other asset/good that he owns. Where are we to draw a line? By simply applying the one consistent definition of money. The article http://www.economicsjunkie.com/the-dispute-about-the-true-money-supply/ may be of interest to you in this regard.

    Regarding your question “As far as the money that is not in the true money supply, what happens when it is moved into the money supply?”:

    Important: The items that are not in the true money supply are NOT to be regarded as money. Hence the phrase “the money that is not in the true money supply” is flawed. But to answer your question: If people were to massively liquidate savings accounts and move the money to their checking accounts, in other words if the true money supply rises over a longer period of time, then surely inflation will be looming within a 1-2 year time frame.

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