US Money Supply Continues to Expand at Record Pace

The money supply grew by 37.08% year-on-year in November based on the True Money Supply Measure (TMS). It was effectively the same rate of growth we saw in October and remains near September’s all-time high rate of growth.

The staggering growth in the money supply becomes more clear when you compare this year with last. TMS growth in November 2019 was just 5.9%.

The TMS set all-time records eight straight months leading into October. September’s record rate was 37.54%. October’s year-on-year growth came in at 37.08%, the same as November’s

While the TMS metric fell just shy of a ninth straight record month in October, the M2 growth rate did reach historic highs that month and then set another record in November. It grew 25.07% last month compared to October’s record growth rate of 24.17%.

And there is no sign that money creation is slowing down. According to Fed data released on Dec. 18, M2 surged by $228.1 billion in the preceding week. In other words, the Fed created over $228 billion out of thin air in just one week.

The “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by economists Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. 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).

Historically, the growth in the money supply has never been higher with the 1970s being the only period that comes close.

The M2 growth rate fell off considerably from late 2016 to late 2018 during the Federal Reserve’s failed attempted to reverse the extraordinary monetary policy it launched during the Great Recession. M2 began growing again in 2019 when the Fed relaunched quantitative easing (although it refused to call it that.) Since March, M2 has followed a trend similar to that of TMS, but to a lesser degree.

Meanwhile, in the week reflected by the latest Federal Reserve data released last week, the central bank’s balance sheet surged by $120 billion. It now stands at $7.363 trillion. It was the biggest increase in the balance sheet since May – the early days of QE infinity. The Fed’s assets are now up more than 600% from the period immediately preceding the 2008 financial crisis.

The number of Treasuries on the Fed balance sheet has doubled since the beginning of the year.

Ryan McMaken at the Mises Institute provides some more insight into the numbers.

In terms of total dollar amounts now extant, the overall M2 total money supply in November was $19.0 trillion and the TMS total was $19.3 trillion. Since January, this is an increase of $3.6 trillion in M2 and $5.0 trillion in the TMS. Moreover, for the past five months, the TMS total has done something new: it has grown to become larger than the M2 total. This is largely being fueled by the immense growth in US Treasury deposits at the Fed, which are factored into TMS, but not M2. Treasury deposits ballooned from $375 billion in March to an unprecedented $1.7 trillion in July. By November, Treasury deposits had fallen slightly to $1.5 trillion, but remained near record-breaking levels.”

All of this money creation is starting to show up in the dollar index. As Peter Schiff explained in a recent podcast, that’s not good news. The only reason the US economy works is because of the overvalued dollar.

The only reason the Fed has been able to get away with all the stimulus and the bailouts is because the world has made it possible by buying up all those dollars. But now that the world doesn’t want those dollars, and is in fact starting to hemorrhage those dollars — this whole process is going to unravel.”