The supply of US dollars has slowed during early 2017 with February’s year-over-year percentage increase hitting a 17-month low of 7.7 percent. Monthly year-over-year growth rates in the money supply have been falling each month since October.
Over the past eight months or so, money supply growth rates have become somewhat volatile with the growth rate surging from 6.7 percent in late 2017 up to 11.3 percent by late 2016, and down again to under 8 percent by February of this year.
This recent period of volatility comes after a long period of relatively sedate and consistent growth in the money supply through most of 2013, 2014, and 2015.
The “Austrian” money supply measure (AMS) used here 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 regular updates on this metric and its growth.
The “Austrian” 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).
Since 2014, money supply growth has ranged from about 7 percent to 8.5 percent. In October of last year, money supply growth hit a seven-year low of 6.8 percent, although this proved not to be an indication of any new trend.
February’s drop to a 7.7 percent year-over-year growth rate shows a return to the sort of growth that has been common in recent years.
Recent variations in growth rates in AMS — compared to M2 — is being driven partly by historically large increases and decreases in treasury deposits at the Fed. The federal government has become increasingly liquid in recent years, with unusually large amounts of spend-ready dollars available. Looking at total deposits at the fed, for example, we can see that until recently, totals had reached well beyond what has been seen in the past:
As of February there were 269 billion dollars in deposits at the Fed, which is a decrease of 1.7 percent from February 2016. Deposits nevertheless remain at a relatively high level. This follows a long period of sizable increases in Treasury deposits which can be seen in the graph below:
Since December, however, treasury deposits began to fall quickly, and if we look at a similar measure that is available weekly — namely, ”Deposits at the Federal Reserve other than reserve balances“ — we find that totals have dropped to their lowest point in a year:
This appears to have affected our overall measure of money supply and is helping to push down money supply growth.
What have treasury deposits been disappearing so quickly? David Stockman theorizes it is the result of political posturing.
