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I understand M1 includes the most liquid portions of the money supply in circulation. When the Fed "prints" money I don't think they are talking about physical money.

Can someone explain what this graph tells us?

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"The money supply measures reflect the different degrees of liquidity—or spendability—that different types of money have. The narrowest measure, M1, is restricted to the most liquid forms of money; it consists of currency in the hands of the public; travelers checks; demand deposits, and other deposits against which checks can be written. M2 includes M1, plus savings accounts, time deposits of under $100,000, and balances in retail money market mutual funds."

From the Fed itself:

https://www.newyorkfed.org/aboutthefed/fedpoint/fed49.html

The money is physical in the sense that people are able to extract value from it. It is given to a bank to loan out, essentially for free, and they are able to keep the interest.

So if you're a bank you basically are given free money by the government.

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