What Must Lie Beyond The M’s

This particular part of the hysteria is understandable, if thoroughly unconvincing. Forget the Fed and its bank reserves for a moment, whatever those are now and then. The banking system is where it’s at, monetarily speaking, and it is the banking system that seems to have lost its handle on the money printing lever. If we’re focused beyond bank reserves and upon broad deposit-based money, there does seem to be a reason for alarm.

The increase is simply unprecedented; even on a log scale, it sticks right out:

Much of this bank/deposit money surplus arose from connection to the Fed’s super-charged QE6, so even if the central bank’s bank reserves don’t count as real or effective money (and they don’t) then the banking system has at least performed the task on behalf of Chairman Powell (the details on the rise in checkable deposits and their connection to central bank purchases here).

By May 2020, the broad M2 measure had increased by 21.6% when compared to May 2019. It’s been in the twenties moving upward ever since. Simply staggering levels of expansion.

But, and here’s the question, does it mean anything more than academic trivia?

According to inflation figures, no, this M2 business is not meaningful to US economic business. When the BLS reported CPI estimates for February 2021 today, outside of the modest oil/energy contribution these continued to be among the lowest rates in series history.

This already proposes some categorical disconnect. As noted above, the full speed of the M2 brrrrrrr had been achieve by May last year, really picking up the month before in April. That means for at least the last nine and really ten months, according to this definition of it, money has been otherworldly exploding.

Three-quarters of a year at better than 20% “money” growth would be more than sufficient time and at a way-more-than-sufficient pace for this deluge to have flooded itself all the way completely through any economy and have months ago left behind not just a detectable inflationary signal but more likely a completely unambiguous one. This simply has not happened (leaving many M2 alarmists to fall back on the same the-BLS-must-be-cheating excuse; there might be many things to disagree about where it comes to inflation indices and how they’re constructed, that’s not one of them).

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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