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M1 Money Stock

fred.stlouisfed.org

12 pointsxqcgrek217 comments

Note: M1 is not heavily followed or analyzed in the economics or finance world. It's frequently called narrow money and is basically cash and cash equivalents. Whereas most of the meaningful forms of liquidity in the economy exist as credit which doesn't get counted here but does get counted in M2(broad money)

So I'd recommend to check out M2 as a more meaningful way to think about USD money supply. M2 has also skyrocketed over the same period

https://fred.stlouisfed.org/series/M2SL

Another interesting USD metric to track is the DXY, frequently referred to as the dollar index which comparatively tracks USD strength to a selected basket of currencies.

Counterintuitive, although M2 growth is through the roof along with inflation the dollar is very strong right now from the DXY perspective, which I would interpret as USD is less bad then a lot of others right now

https://www.marketwatch.com/investing/index/dxy

> M2 has also skyrocketed over the same period

Over the long term on a log scale, it looks like M1 would still be pretty dramatic in the last few years, while M2 wouldn't look that weird, just a bit of a blip in 2020.

M2 is up 50% in three years. Coming off the end of a decade of strong m2 growth that is a pretty dramatic figure I'd say

> Another interesting USD metric to track is the DXY, frequently referred to as the dollar index which comparatively tracks USD strength to a selected basket of currencies.

DXY is not all that interesting in reality (financial media aside). All other central banks basically act relative to the dollar (see BOE recently). The DXY is important for international trade or certain rates trades but not really related to money supply.

USD being the reserve currency helps here. Being a reserve currency means it's literally the backing collateral for other currencies (at least in great part). Of course other currencies are devaluing at the same rate, or those countries would have a financial crisis on their hands.

USD or any currency measured against a basket of real assets though... well we know how that's been lately.

Relatedly, a great primer on this concept has been written up by the Bank of England and IMO is a must-read for anyone who wants to know how money is "created".

https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

The dollar is strong right now because people are speculating that the inflation figures mean that interest rates will be higher sooner and that QE will be rolled back more quickly.

The more an asset earns, the more it is worth.

I would be hesitant to make blanket statements like that about literally anything in the forex world.

I would say that's a potential factor. Then again, I don't believe that there is much sentiment that rates are about to rise but I'm sure others would disagree.

Why? Relative interest rates are one of the main determinants of the value of a currency, and there is a very popular trade that enforces it.

The "carry trade" involves borrowing money in a low interest currency (say EUR) and selling that to buy a higher yielding currency (USD) and pocketing the difference in interest rates.

> M2 has also skyrocketed over the same period

Has it, if you enable log scale?

Reason for the jump was a change in banking regulations.

>Recognizing savings deposits as a transaction account as of May 2020 will cause a series break in the M1 monetary aggregate. Beginning with the May 2020 observation, M1 will increase by the size of the industry total of savings deposits, which amounted to approximately $11.2 trillion. https://www.federalreserve.gov/releases/h6/h6_technical_qa.h...

https://fred.stlouisfed.org/graph/?g=IO4k

it was pretty funny how ppl on twitter were freaking out about this without seeing the reason why it was so abrupt

So the graph is basically showing two different datasets on the same plot line, nice.

The sudden rise is because they started counting Savings in M1 in May 2021:

https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

A related graph on Currency in Circulation (I assume this is the total worldwide?): https://fred.stlouisfed.org/series/CURRCIR

If I'm reading it right, that's like a 23% increase on US dollars in circulation (anyone understanding that differently?). If this is true, that should amount to about 23% inflation in the last ~2 years.

Note that apart from the obvious huge jump during Covid (2020), if you enable log scale, the supply is back to rising somewhat consistently.

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