The data in the above table is taken from the Fed’s H.6 Money Stock Report published on January 24.
- M1 consists of (1) currency held outside the US Treasury, Federal Reserve Banks, and depository institution vaults; (2) demand deposits with commercial banks (excluding amounts held by depository institutions, the US government, foreign banks and official institutions), excluding cash in process of collection and floating Federal Reserve funds; and (3) other liquid deposits, which consist of other checkable deposits (or OCDs, which include Negotiable Withdrawal Order, or NOW, and Automatic Transfer Service, or ATS), accounts at depository institutions, general draft accounts at credit unions, and demand deposits : in thrift institutions) and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing up currency, demand deposits and other liquid deposits, each seasonally adjusted separately.
- M2 consists of M1 plus (1) small nominal time deposits (time deposits of less than $100,000), minus individual retirement account (IRA) and Keogh balances in depository institutions; and (2) balances in retail money market funds (MMFs) minus IRA and Keogh balances in MMFs. Seasonally adjusted M2 is constructed by summing small nominal time deposits and retail MMFs, each seasonally adjusted separately, and adding the result to seasonally adjusted M1.
- ODL is described below
A better definition of money and Lacey Hunt’s thoughts on when the recession will begin
I discussed ODL in A Better Definition of Money and Lacey Hunt’s Thoughts on When the Recession Will Begin
The main difference between ODL and M2 is that ODL does not include currency or retail money market funds.
The currency is accepted in fewer and fewer business establishments and simply cannot be used for very large transactions. Retail money market funds have never been an important medium of exchange. Both are becoming a much less used medium of exchange.
ODL has the added advantage of being the main source of financing for bank loans and investments, making ODL both a monetary and a credit aggregate. Friedman wouldn’t be surprised to see the need to change the best definition of what constitutes money over the years.
Blocks above by Lacy Hunt at Hoisington Management.
Details of M1, M2, Other deposit liabilities from 2019
M1, M2, other deposit liabilities Percentage change over the year
The Fed’s QE panic attack during and after the Covid pandemic severely distorted the percentage changes in the M1 money supply.
M2, other deposit liabilities Percentage change YoY
In the mid-1990s, the Greenspan Fed greatly distorted the amount of money M1 through Sweep Account Programs.
Clearing is the process by which banks take money from checking accounts and move them to accounts that pay interest. The interest, of course, did not reach the consumers, but the banks.
Simply put, unknown to depositors, the money people think is sitting in their checking accounts and supposedly available on demand is not.
The St. Louis Fed published Sweep Data for a while, then stopped in 2012.
I believe that the increased use of Sweeps kept M1 negative annually from June 1995 to February 1998.
Reverse repos explain the rise in M1 relative to M2 in the leading table.
The Fed has seriously distorted the money supply. and in the process lends huge amounts of money to financial institutions.
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With the M1 so warped, back to ODL.
M2, other deposit liabilities Year-on-year percentage change Details
Not since 1932
Lacy Hunt on what that means
From the last quarter of 2021 to the same quarter of 2022, nominal ODL is estimated to have fallen at a record 2.8% annual rate, the largest annual decline on record. In real terms, ODL also contracted at a record pace.
Based on the Fed’s balance sheet reduction of $96 billion per month and a delay in monetary policy, the rate of decline in ODL will accelerate at least through the first half of 2023.
If the Fed sticks to its plan to raise the Fed funds rate by another 75 basis points, the pace of ODL declines will be enough to offset the 2020/21 money mountain by the second quarter of 2023, given the pace.
The above is from Lacy Hunt ahead of the release of H.6 on Tuesday.
Both Lacey and I think the recession started in November or December.
For more details, see A Better Definition of Money and Lacey Hunt’s Thoughts on When the Recession Will Begin.
Long time readers may remember that I came up with M’ (pronounced M-Prime) as a way to rebuild the M1.
M’ was my way of creating a better version of money that was supposedly available on demand but really wasn’t.
The process became impossible when the St. Louis Fed stopped publishing Sweeps data. Again, money you think is in your account and supposedly available on demand is actually not.
Lacy’s ODL should not be confused with the Fed’s report “other liquid deposits“.
In retrospect, a similar name to M2-, M2″ or “Prime M2“A better name to convey Lacey’s message.
Finally, through all these manipulations, the Fed saved the banks over time, while the ECB, with its negative interest rates, did not. How much free money?
Please see how much free tax payer money the Feds are giving the banks. for details.
Confused? The central bankers want it that way.
This post originated on MishTalk.Com
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