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Money Supply Growth Remains Stable at 8.4 Percent in March


The "true money supply" measure (an Austrian money-supply metric) 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 offers monthly updates on the TMS metric and its growth. 

In February, the Austrian money supply metric was up 7.6 percent, which was a smaller growth rate compared to where it had been for much of 2015. February's growth rate was the third-lowest growth rate measured over the past year. Overall, however, there is no evidence of a significant downward trend in money supply growth since it stabilized around 8 percent in mid-2013. 

March 2016 offered more of the same with no sign of money supply growth moving outside the range of 6 percent to 8 percent, as has been the case over the past two years. By this metric, the money supply grew 8.4 percent, year over year, in March. This puts it at about the same level as where money-supply-growth was in mid-2015. 

M2 has generally moved in a similar fashion as TMS lately, and in March 2016, M2 increased 6.1 percent, which means that like TMS, M2 growth has generally been holding steady for the past two years.

There has also been little change in the overall components of the money supply over the past month. In the TMS measure, total money supply was buoyed by increases in Treasury deposits at the Fed. In January, treasury deposits hit an all-time high, and in March, total treasury deposits at the Fed fell from the high, but remain elevated with the level now at $257 billion. 

These ongoing high levels of Treasury deposits are partially due to the fact that the Treasury now increasingly uses deposits at the Fed as a type of cash management system to make sure it has cash reserves in case of Congressional gridlock over spending. It also helps pave the way for easy access to Treasury funds in case of a need for bailouts or other "emergency" spending. 

Moreover, total deposits have been affected by increasing profits at Fannie Mae and Freddie Mac, as the Washington Post reports

Fannie Mae and Freddie Mac, the mortgage financing giants taken over by the government in 2008, plans to send taxpayers another $4.6 billion next month as they continue to play major roles in the country’s housing market.

That will bring the total Fannie Mae has sent to the U.S. Treasury to $147.6 billion. Freddie Mac has forked over $98.2 billion.

To visualize money supply growth another way, we can look at the total money supply as a sum, and not as a growth rate. The money supply has not shown any significant period of negative growth in decades.

In times of economic instability, money supply growth levels can often signal an economic contraction, as happened in 2007 following a sizable drop in money supply growth from 2005 to 2007.

(NB: To calculate this money metric yourself (it's labeled "TMS2" at this link) using FRED at the St. Louis Fed, calculate: M2NS minus TVCKSNS minus STDNS minus RMFNS plus TREASURY.) 


Contact Ryan McMaken

Ryan McMaken (@ryanmcmaken) is executive editor at the Mises Institute. Send him your article submissions for the Mises Wire and Power and Market, but read article guidelines first. Ryan has a bachelor's degree in economics and a master's degree in public policy and international relations from the University of Colorado. He was a housing economist for the State of Colorado. He is the author of Breaking Away: The Case of Secession, Radical Decentralization, and Smaller Polities and Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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