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Money-Supply Growth Surges to 8-Month High in September

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The money supply growth rate rose in September, rising to an eight-month high.  The last time the growth rate was higher was during February of this year, when the growth rate was 3.19 percent.

During September 2019, year-over-year growth in the money supply was at 3.10 percent. That's up from August's rate of 1.85 percent, and was down from September 2018's rate of 4.38 percent. The increase in money-supply growth in September represents a small reversal of the trend we've seen for most of this year so far. In August, the growth rate hit a 120-month low, falling to the lowest growth rates we'd seen since 2007. Growth rates are still a long way from reaching the heights reached from 2009 to 2016, however.


The money-supply metric used here — the "true" or Rothbard-Salerno money supply measure (TMS) — is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes treasury deposits at the Fed (and excludes short-time deposits, traveler's checks, and retail money funds).

The M2 growth rate also increased in September, growing 5.62 percent, compared to August's growth rate of 5.22 percent. M2 grew 3.70 percent during September of last year. The M2 growth rate had fallen considerably from late 2016 to late 2018, but has been growing again in recent months.

Money supply growth can often be a helpful measure of economic activity. During periods of economic boom, money supply tends to grow quickly as banks make more loans. Recessions, on the other hand, tend to be preceded by periods of slow-downs in rates of money-supply growth.

Moreover, periods preceding recessions often show a growing gap between M2 growth and TMS growth. We saw this in 2006-7 and in 2000-1. The gap between M2 and TMS narrowed considerably from 2011 through 2015, but has grown in recent years.


The overall M2 total money supply in August was $15.0 trillion, and the TMS total was $13.7 trillion.

The lack of money supply growth also points to growing weakening in economic activity since the Fed has turned to increasingly accommodative monetary policy  in recent months — but has not managed to return money supply growth to levels we'd expect in an expansion. The FOMC has cut the target fed funds rate more than once this year, but the big change is in the Fed's recent moves to increase its balance sheet again. Since late August, the Fed has added 208 billion to its total assets in an effort to provide a "blast of cash" for the repo market.  The Fed apparently has concluded the market requires additional liquidity and has acted accordingly. Fed assets are now headed back to four trillion dollars, in spite of numerous claims from the Fed that the economy is sound and strong.




Contact Ryan McMaken

Ryan McMaken (@ryanmcmaken) is a senior 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 Commie Cowboys: The Bourgeoisie and the Nation-State in the Western Genre.

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