The “true money supply” measure is a measure of the money supply pioneered by Murray Rothbard and Joseph Salerno and is designed to provide a better measure than M2. The Mises Institute now offers monthly updates on the TMS metric and its growth.
Last month we reported that October’s TMS growth had fallen to a seven-year low. This suggested a slowing in overall economic activity, since a decline in TMS often accompanies a slowdown in the economy.
In November, TMS growth rebounded slightly, although without altering the overall trend. While TMS growth had fallen to a 6.9 percent year-over-year growth rate, November’s growth rate rose to 8.0 percent:
As we can see in the graph, however, TMS growth remains largely where it has been since late 2013, and well down from the peaks seen during 2009 and 2011.
Of course, the money supply generally grows unabated, and growth rates have not even fallen under two percent since 2010. Taken as an actual money value, here is M2 and TMS:
Why did growth in TMS pick up again in November? A big part of it is due to an increase in Treasury deposits at the Fed. Treasury deposits fell briefly in October, which helped push town overall TMS growth, but Treasury deposits remain at historic highs, to where they climbed after the 2008 financial crisis:
So what are Treasury Deposits? In many cases, they are an artifact of increases in government spending and a highly active government in general. For an explanation, Joseph Salerno quotes economist Harold Barger in Money, Sound, and Unsound:
The Treasury’s deposits are ... part of the general fund of the Treasury available for meeting general expenditures. Output is purchased and taxes are collected with the help of these deposits, and they would seem to be as much a part of the money stock with which the economy operates as are the deposits of state and local governments, which are included in adjusted demand deposits.
