How much money is added to the money supply every year - normally?

[cbc58]

According to this article - 7 trillion has been added to the global money supply by the central banks in the last 4 years.

http://www.zerohedge.com/news/here-w...t-passed-13000

Question is - what would the normal amount supposed to be over that time? In other words - how much is going to have to get wiped out or removed to get us back to normal figures?

[Zippyjuan]

Here is a chart of the US money supply using the most common measure of it- M2.
http://research.stlouisfed.org/fred2/series/M2

[Black Flag]

According to this article - 7 trillion has been added to the global money supply by the central banks in the last 4 years.

http://www.zerohedge.com/news/here-w...t-passed-13000

Question is - what would the normal amount supposed to be over that time? In other words - how much is going to have to get wiped out or removed to get us back to normal figures?

Answer this question:

What is the normal amount of computers supposed to be?
How many computers need to be created or destroyed to get that amount of normal?

Money is an economic good, like a computer.

There is no such thing as a "normal" amount - there is an amount and it is X

There are consequences to an increase in the supply of money
There are consequence to a decrease in the supply of money
There are consequences to a static supply in the money

But there is no such thing as a normal supply of money (PS: unless your are asking for a statistic, normal=average. But what would the 'average' supply of money tell you? What information? Nothing at all other than a relevance to measure the cause/consequence of an event due to a change (up or down) money compared to an average?)

[Zippyjuan]

I believe that cbc58 is concerned about all of the "stimulus" the Federal Reserve and other central banks pumped into their economies in an effort to halt their collapse and hopefully get them going again.

The thing is, there is not a simple answer as to how much money the economy "should" have. It depends on how vibrant the economic activity is in the economy. If there is a lot of economic activity going on, then it needs (or can handle) more money than if the economy is slower. When the global economy collapsed in 2008, the demand for money in the economy also collapsed. The Fed tried to get things going again by purchasing securities like US Treasury notes and Mortgage Backed Securities but that didn't have much of an effect. Why? There was no demand for the extra money the Fed tried to put out there. If the problem had been that the economy was slow because there was not enough money to go around then it would have helped a lot. Instead all that money ended up stuck at the banks which weren't lending and individuals and businesses weren't borrowing so the money could not get out circulating.

The Fed tried to put $2 trillion into the US economy but instead of going out and being spent on goods and services and creating new jobs the money sat in bank vaults or was sent back to the Fed in the form of Excess Reserves. Those excess reserves- perhaps not coincidentally- total, yes, you guessed- $2 trillion. The same amount the Fed tried to get into circulation. That is why the chart I posted above shows little change in the money supply itself- despite the Fed's efforts.

What we can also look at is the Monetary Base- another figure the Fed tracks.
http://research.stlouisfed.org/fred2/series/BASE


This is basically a measure of POTENTIAL money. It is available to go out when the economy demands it. Notice that it did have a huge spike in 2008 as a result of Fed actions. It shows roughly how much money the Fed puts out. As you can see, that number does have a long ways to go down before it reaches "normal" levels. If the Fed starts selling those securities they bought (or collect the value of them as they mature- right now they are using the money they get from maturing securities and buying replacements for their portfolio), this number will go down. Based on the previous trend, this perhaps should be closer to $900 billion.