The money supply (M2) includes physical currency, bank deposits and money market funds. As reported in the WSJ (March 4, 2010 by Kelly Evans), the growth of money supply is about 5% and with overall GDP growth of about 3%, we can kind-of see why inflation targets are around 2% - the difference.
During the economic crisis, the money supply spiked to over 20% (2008-9) and yet we had negative GDP. The pundit's and some respectable economist's conclusion: inflation is on the horizon.
However, since mid to late 2009 and certainly in these first couple of months of 2010, the money supply growth came back down to its historical average of 5% and in 2010 has hovered near zero. Why? We are still in a credit crisis and the money being poured into the system has been used to pay down debt not create demand for more goods and services - yet.
Yes, there is much "unwinding" to be done (the Federal Reserve increased its balance sheet from $.8 trillion to over $2 trillion in the past two years) - a brilliant move, in my opinion, to avoid depression. But not one without ramifications as they eventually sell the debt (mainly $1.25 trillion in mortgages they bought) back into the market. But that can be done in a way that mitigates the inflation risk. Only time will tell if the Fed is successful.
An Introduction
Hi. Welcome to BourGroup and my blog. Phil
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.
Phil Bour is a CERTIFIED FINANCIAL PLANNER(tm) professional since 2004, a Magna Cum Laude college graduate and an accounting professional for over 35+ years. I love numbers, statistics and economic history.
I am also an Enrolled Agent (EA) to represent taxpayers before the Internal Revenue Service and to prepare tax returns.
"Phil"osophy: I believe that you can manage your money on your own (not necessarily through individual stock selection but through mutual funds, ETF's and other solutions) once you receive some one-time, professional guidance. Why pay annual fees when there may be little added value? For additional information, first read the "An Introduction" label at the left. Then move on to others.