M1 & M2 is the money supply or money stock and is the total amount of money that is available in the economy. There is a relation between money and prices that is historically related to long term inflation and money supply growth.
M1 is the amount of money in circulation. It is a very liquid measure of the money supply that includes cash and assets that can be converted to cash.
M2 is a much wider view of money than M1. M2 includes M1 as well as longer term time related deposits, overnight repurchase agreements, money market deposit accounts, like CDs, savings deposits, money mutual funds.
So, M1 is the liquidity of money and M2 is the measure of most of the money supply in the US.
The above graph is from the NY Fed site explaining M1 & M2 gives a clearer picture of how M1 & M2 work.
Lets look at the money supply numbers for the last three months through August 2011.
What you see is a huge jump in money supply since january and a giant 14% jump since July!
You can look at the numbers yourself on the US Treasury site here.
Here is the chart from last month.
What do these numbers mean to you? Hyperinflation. The velocity of the increase of money
in the money supply is 36% this year. Where is that money going? I would hazard a guess that the Fed is using this increase in money supply to purchase US Treasury bonds. Why? No one else, Euroland or China, for example, want them. In fact, Ambrose Evans-Pritchard in The Telegraph UK reports that China is dumping US Treasuries. This is a clear example of the end of the US dollar as the world reserve currency, when we have to buy our own Treasuries. As well as a very loud alarm bell for hyperinflation. Move over Zimbabwe, here we come!
No comments:
Post a Comment