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Comment by rootusrootus | Hacker News Reader

Perhaps worth reading along with this: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...

The important bit: "According to this ruling, if a bank suspends enforcement of the six-transfer limit on a savings deposit, the bank may report that account as a “transaction account” on its FR 2900 reports."

This is just a reclassification artifact. Savings accounts were M2 before, M1 now. No news here.

Yeah, the real world explanation is so boring.

It's like reclassifying chicken as being vegetarian then reporting on the growth in the number of vegetarianism.

This should be the link.

Sharing a link to a graph with minimal context, might as well be spam/misinformation.

Definitely. The M2 supply grew by about $4T last year, from $15T to about $19T, it's a lot, but it's about one annual federal budget in normal years. $4T is like 20% of GDP, not nothing, but not hyper-inflationary.

The question is will M2 grow by 20% per year, or is this a one-off?

When that article was posted, M1 money supply for feb. 1 of this year was still listed as 6.8 trillion, a 70% increase vs. 1 year ago. Right now it's almost 3x as much. Although it does look like the graph in that article has been updated automatically as well.

M1 has become basically a meaningless category. The Fed blog post says that their April 24 change to Regulation D allows banks to remove the 6 tx/month limit on savings and money market accounts, which classifies them as M1. The growth in M1 since April has largely been banks changing their policies and their reporting strategies.

Sure enough, the rapid growth in M1 starts on April 24, and M1 is now about $1B less than M2 (roughly $18B vs. $19B). We should be looking at M2, which has grown by about 25% ($15-19T): still a big story, but nowhere near as dramatic as this graph.

> On the other hand, it’s not immediately clear what advantage there is from the bank’s perspective in relabeling savings accounts as transactions balances.

Does anyone have any insight into why banks would relabel their savings accounts?

This is also interesting (tangentially related):

https://twitter.com/RaoulGMI/status/1361509921624317952

Key context:

> This suggests that the rapid acceleration in M1 since May 2020 is mainly from money moving out of the non-M1 components of M2 into M1, rather than reflecting any acceleration in the demand for transaction balances.

So, it the fed allowed banks to report client's accounts in a different way, so although there were not counted as M1 in the past, now they are considered M1?

(I've read this a couple of times I'm still not 100% sure I understand what's going on).

Yes, more or less.

Look at it this way: M2 money supply includes M1 money supply. If you look at M2, you’d expect to see the same step-function increase because it includes M1, yet we don’t see it.

This step function is just an artifact of moving some things from M2 to M1, not because the government printed all of that money.

https://fred.stlouisfed.org/graph/?g=BlKq

M1 vs M2. The creation is still quite significant ($3T) but nothing whatsoever like the M1 chart implies.

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