Money Supply Growth Dropped In May To A 15-Month Low

Money supply growth slowed again in May, falling for the third month in a row, and to a 15-month low. That is, money supply growth in the US has come down from its unprecedented levels, and if the current trend continues will be returning to more "normal" levels. Yet, even with this slowdown, money supply growth remains near some of the highest levels recorded in past cycles. 

During May 2021, year-over-year (YOY) growth in the money supply was at 15.3 percent. That's down from April's rate of 23.1 percent, and down from the May 2020 rate of 29.5 percent. Growth peaked in February 2021 at 39.2 percent.  

Historically, the growth rates during most of 2020, and through April of this year, were much higher than anything we'd seen during previous cycles, with the 1970s being the only period that comes close.

tms

The central bank continues to engage in a wide variety of unprecedented efforts to "stimulate" the economy and provide income to unemployed workers and provide liquidity to financial institutions. However, "emergency" government spending appears to be slowing from the unprecedented levels experienced during 2020, and this is likely showing up in declining money supply growth. Nonetheless, Congress continues to turn to very large amounts of borrowing, and in order to keep interest rates low, the Fed has been buying up trillions of dollars in assets—including government debt. This has fueled new money creation.

The money supply metric used here—the "true" or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler's checks, and retail money funds).

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