In the week ended September 13, M2 rose to a fresh all time record, just above $8.7 trillion, representing the 10th consecutive increase in the broadest monetary aggregate tracked by the Federal Reserve, during which time $115 billion in new liquidity has been injected in the US economy. Additionally, since the 2010 M2 lows recorded oddly enough on April 19, around the time when the S&P peaked for 2010, there has been $235 billion of money injected into M2. Yet a peculiar observation arises when one looks at the components of the M2 - the bulk of the individual pieces of M2 (and M1 by definition) declined: there were W/W drops in Demand Deposits, Other Checkable Deposits, Savings Deposits at Thrifts, and especially Small Denomination Time Deposits, offset only by Savings Deposits at Commercial Banks. Now that is rather troubling, because the former list represents products used by the "less than wealthiest" to park their money. It appears that in the prior week (and throughout 2010), what's left of the middle class continues to actively withdraw its saved up money, but the net effect was offset by increased deposits into Commercial Bank savings deposits: traditionally capital storage reserved for the richer (due to the relative immobility of the capital: the vast majority of Americans for whom money does not grow on trees, prefer to have instant access to their deposits). This makes us wonder: is the trend seen in the stock market being replicated in the bank deposit realm? Are the lower and middle classes actively withdrawing money from banks, even as the wealthiest 1% continues to deposit? No wonder then that Huffington's campaign to punish the TBTF's by extracting their deposits is not working.
M1+M2 Update, Or Does The Deflation/Hyperinflation Debate Hinge On The Propping Of Shadow Monetary Aggregates?Submitted by Tyler Durden on 09/16/2010 21:39 -0400
Together with the Fed's balance sheet, we are now convinced that the second most important developing metric for the economy is a granular analysis of the key public monetary aggregates: M1+M2. Within a month we also hope to develop our own definition of M3, to supplement such work elsewhere, in order to provide an independent opinion on what the true monetary growth is, now that increasingly more people are discussing the threat of outright hyperinflation. But before we get there, here is our first breakdown of M1 and M2 data. As a reminder, M1, or the monetary base, consists of the i) Currency in Circulation, ii) Demand Deposits, and iii) Other Checkable Deposits (technically it also includes roughly $5 billion worth of Travellers Checks each week, but this is merely a remnant of a bygone era and it rarely if ever changes). In the most recent week, total M1 was $1,700.7 billion, a modest decline from the prior week mostly due to a $12 billion drop in Other Checkable Deposits. Beyond pure M1, there are also i) Savings Deposits at Commercial Banks, ii) Savings Deposits at Thrifts, iii) Total Small Denomination Time Deposits and iv) Retail Money Funds. All these, in addition to the items listed under M1, make up M2, which closed the week ended September 8 at just over $8.7 trillion for the first time in history. For those who look at M2 as an indication of just how much liquidity is sloshing in the system, and use it as a proxy for inflation, the attached chart must be rather troubling.
Another week in which the M2 jumped to a fresh all time high, increasing by $30 billion W/W to just under $8.7 trillion. This was only the fourth largest weekly jump in this broad money aggregate in 2010, with the prior biggest ones clustered just around the time of the Greek "out of court" reorganization and the flash crash in May. This was also the 8th sequential increase in the M2 in a row. Oddly enough this occurred even as the Monetary Base (NSA) declined by $11 billion to $1.983 trillion. Currently, the M2-MB ratio stands at 4.4x, close to its all time lows, with the recent decline purely a function of the modest contraction in the Fed's balance sheet as MBS had been rolling off for the past 4 months. With QE Lite in play, expect the Fed's Balance sheet to remain flat, which will likely mean that the ratio of the Fed's asset to the Monetary Base will remain more or less unchanged at its elevated ratio of 1.15x (with a tendency toward declining), compared to the historical average of around 1.00. Note the (as expected) inverse relationship between the M2-MB ratio and the total size of the Fed balance sheet, as the monetary base has exploded courtesy of excess reserves, without this number actually hitting M2. Is the recent leakage in M2 higher, coupled with a contraction in MB the critical step that all the inflationists have been dreading (yet at the same time expecting)?
Once again, presented without comment.
The "M" is there. Now all the Fed needs to get is to find the velocity that goes with it. However, with GDP now realistically declining, the latter is proving to be quite problematic for the Chairman.