Monday, January 26, 2015

US Money Supply

Money supply data is the most important data to watch in relation to understanding trends in the economy, such as price inflation and interest rates. It is at the business cycle. (SEE: Austrian School Business Cycle Theory by Murray Rothbard)

 The Federal reserve releases money supply data in terms of two components—M1 and M2 (the Fed formerly produced a version called M3 but no longer does so). M1 and M2 are progressively more inclusive measures of money: M1 is included in M2. M1, the more narrowly defined measure, consists of the most liquid forms of money, namely currency and checkable deposits. The non-M1 components of M2 are primarily household holdings of savings deposits, small time deposits, and retail money market mutual funds.

M2 provides the best rough estimate of the supply of money in the economy.