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View Full Version : FED: US M2 continues to rise (Money Supply)




RDM
03-15-2012, 04:37 PM
The latest figures for the week to March 5th show that US money supply rose by over $15 billion to $9800 billion.
An increase in M2 will not necessarily lead to an increase in inflation, especially if an economy is going through what Keynes described as the ‘liquidity trap’. In such a case the increase in M2 helps to get idle resources working again. Also during a recession, people tend not to spend much money and so the ‘velocity of circulation’ is low and this also helps to keep inflationary pressures low.
However the US economy is starting to show some vibrant signs, with manufacturing output on the increase and unemployment starting to fall; consumer and business confidence are also starting to return to the economy. That means that any increase in M2 will now likely start to have an inflationary impact and its no surprise to see US rates starting to rise. http://www.forexlive.com/blog/2012/03/15/us-m2-continues-to-rise/

Zippyjuan
03-15-2012, 07:41 PM
A $15 billion increase in a total of $9.8 trillion is a pretty small number.

What we do have sitting out there is the $2 trillion in "stimulus" the Fed tried to inject which is still sitting at the Federal Reserve in the form of excess reserves. Now if that starts flowing out then we could see price inflation pick up. Mortgage rates hit new lows this week.

cubical
03-15-2012, 08:17 PM
A $15 billion increase in a total of $9.8 trillion is a pretty small number.

What we do have sitting out there is the $2 trillion in "stimulus" the Fed tried to inject which is still sitting at the Federal Reserve in the form of excess reserves. Now if that starts flowing out then we could see price inflation pick up. Mortgage rates hit new lows this week.

Could start? Do you only shop for houses?

I can already tell inflation is pretty bad just by how much we have left at the end of each month. From 09 to the middle of 2011 we lives solely on my wife's income and we had a bit left over each month I could invest with. Now we both work and there is no way we could get by on her pay alone, and our spending habits are almost unchanged. Things are much different now than just 2 years ago.

By the time the fed acknowledges inflation it will be far too late, but it's not like the fed can do much anyways. They are in a corner in regards to keeping rates low and keeping inflation contained.

Imagine if the CPI was calculated in the 70s like it is today. Would it even show inflation?
http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=

Seraphim
03-15-2012, 08:37 PM
I agree with Cubical.

Food prices are rising dramatically...quick glance, it seems to be about 20% in the form of price increases and 80% from smaller packaging at the same price.

For example, orange juice about 2 month ago was 6.49$ for a 3.16L jug. WEEKS later, it's at 6.49$ for a 2.63L jug. That is a massive increase and because a PRODUCTION LINE was altered...it means it is PERMANENT. The price may drop **A BIT** in the short run , but such a drastic reduction in packaging is not temporary.

That 2.63L jug will be over 7$ in a matter of months.

This is just one example. I could make a list...

ZanZibar
03-15-2012, 09:05 PM
What about M3?

Zippyjuan
03-16-2012, 02:48 PM
The Fed quite trying to calculate M3 a while back becasuse they said it did not give them any significantly important information beyond M2 to be worth the costs of compiling and calculating it.

What is in M3 but not in M2?
http://en.wikipedia.org/wiki/Money_supply

all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

"Large CDs" are CD accounts with more than $100,000 in them
"Deposits in Eurodollars" are accounts in foreign countries which are denominated in US dollars