U.S. M-2 money supply fell $5.5 bln Jan 5 week

Biz.Yahoo/Reuters ^ | January 15, 2004

[Starwind]

U.S. M-2 money supply fell $5.5 bln Jan 5 week
Thursday January 15, 4:41 pm ET

 NEW YORK, Jan 15 (Reuters) - U.S. M-2 money supply fell by
$5.5 billion in the January 5 week to $6,018.0 billion, the
Federal Reserve said on Thursday.
 The Fed said the four-week moving average of M-2 was
$6,032.6 billion vs $6,041.1 billion in the previous week.
 Following are the details of the money supply report, and
the Fed's H.3 and H.4 reports:
 One week ended January 5 (billions dlrs)
    Latest  Change        Prev week  Rvsd from
M-1....1,286.4 down....3.4 vs 1,289.8.....1,289.8
M-2....6,018.0 down....5.5 vs 6,023.5.....6,023.2
M-3....8,810.5 up.....29.8 vs 8,780.7.....8,781.3
M-2 Avg 4 wks (Vs Wk ago)..6,032.6  vs ...6,041.1
Monthly aggregates (Adjusted avgs in billions)
M-1 (Dec vs Nov)..........1,287.0 vs.....1,281.8
M-2 (Dec vs Nov)..........6,044.5 vs.....6,071.5
M-3 (Dec vs Nov)..........8,806.7 vs.....8,856.1
   Federal Reserve's H.3 and H.4 report:
  Two Weeks Ended January 7 daily avgs-mlns (H.3)
Free Reserves.........rvsd...1,558 vs..rvsd....1,882
Bank Borrowings..45 vs.............54
Seasonal Loans...22 vs.............35
Excess Reserves..............1,603 vs..........1,936
Required Reserves (Adj).....40,814 vs.........40,231
Required Reserves...........41,529 vs.........40,679
Total Reserves..............43,132 vs.........42,615
Non-Borrowed Reserves.......43,088 vs.........42,562
Monetary Base (Unadj)......743,032 vs........737,343
    Two Weeks Ended January 7 daily avgs-mlns
Total Vault Cash.....rvsd...45,803 vs.........44,285
Inc Cash Equal to Req Res...32,875 vs.........31,847
        One week ended January 14 (H4.1)
Bank Borrowings...45 up............22
Primary Credit....39 up............27
Secondary Credit.nil vs..........unch
Seasonal Credit....6 down...........5
Float............330 down.......1,019
Balances/Adjustments.........10,536 down.......1,485
Currency.....713,144 down.......8,018
Treasury Deposits.............4,886 down.........433
   One week ended January 14 - daily avgs-mlns
Fed bank credit.............729,488 down......13,813
Treasuries held outright....666,798 up............94
Agencies held outright..........nil vs..........unch
Repos ........21,143 down......13,536
Other Fed assets.............41,172 up...........626
Other Fed liabilities........20,682 up...........557
Other deposits with Fed.........298 down.........349
Foreign deposits..87 down...........8
Gold stock....11,043 vs..........unch
Custody holdings..........1,082,931 vs.....1,072,660
             Factors on January 14
Bank borrowings...14 vs............11
Float...........-338 vs.........2,144
 NOTE: The Federal Reserve has discontinued adjustment
credit data, saying it had been at zero for so long that it
decided tracking it was no longer necessary.

[Starwind]

The Fed reports are at:

H.3 AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE
H.4.1 Factors Affecting Reserve Balances
H.6 MONEY STOCK MEASURES
H.8 ASSETS AND LIABILITIES OF COMMERCIAL BANKS

[Starwind]

Fyi...

[Maria S]

Please don't laugh at this question (I am good at balancing the checkbook and that's about it)...when you look at these figures, do you see a positive or negative? Do all of these figures represent one big mess for the future or an improvement?

Thanks; I really appreciate your explanation.

[Starwind]

Please don't laugh at this question

I never laugh at honest questions. I take them at face value.

I honestly don't have a good picture myself of all the details. I have been trying to collect and digest all the relevant data and theories.

But the essential point, is while these weekly reports have been coming out for years, only in the last 3-4 months has the amount of money in circulation (M1, M2, M3 above) been consistently shrinking.

This is generally not good (especially when the Fed is supposedly trying to expand the money supply), and is reminiscent of when the money supply shrank leading into the 30's Depression, again while the Fed was trying to expand it.

Why and how it shrinks is somewhat uncertain. As the issue gets more 'press' more explanations are offered, but a really good explanation that details the reasons and mechanics of how it happens this time has yet to be published.

Click on the keywords and read the posts on previous threads. Tauzero and OwenKellog offered good basic explanations here.

[expat_panama]

Please don't laugh at this question

Sign in an aircraft repair area: "There are no stupid questions-- only stupid mistakes."

A good link for the money supply is http://www.howstuffworks.com/question237.htm . On this forum any economic opinion gets flamed unless it's "import taxes are good for us". Personally, short term fluctuations in the money supply will not significantly affect my investment plans for the forseeable future.

[Orangedog]

"There are no stupid questions-- only stupid mistakes."

Or as I used to say when I was acting as the point of contact between Engineering and Purchasing in a big telecom, "There are no stupid questions, but there sure are a lot of inquisitive idiots." ;)

[FreedomFlynnie]

Like the previous poster, please excuse any fundamental errors I may make.

But first, it's my understanding that the Fed targets interest rates, and not money supply per se, and I'd think M1 would be the only value over which they'd have influence (i.e. the Fed has no impact on measures of money included in M2 and M3 but not M1). And from the data posted, it looks like M1 is continuing to expand; therefore, wouldn't a decrease in M2/3 exogenous of M1 be out of the realm of U.S. gov't influence?

Second, if the dollar money supply were actually contracting, wouldn't that tend to increase the exchange rate with the euro, pound, etc.? That's certainly not an effect we've been seeing recently.

[Nexus]

The "How stuff works" link says the M2 supply was at $4,600 billion in Sept 1999. Currently it is $6,018 billion, so the long term trend is up, though?

Also (honest question alert), if M2 is "currency, checking accounts, travelers checks, MM funds, savings accounts, and small CD's", how does the supply go down? Does it go overseas? Not printing fast enough to replace damaged bills? Being transferred to M3 "large CD's"?

[Starwind]

FYI, another money supply thread:

Sitting on a string

[Starwind]

And another:

Liquidity, Money and Credit -- Credit Bubble Bulletin by Doug Noland

Scoll down to the paragraph starting with
"Over the past 12 weeks, M3 has declined $154.5 billion, or 7.6% annualized."

[Maria S]

Thanks for all of the info!

[InterceptPoint]

Why and how it shrinks is somewhat uncertain.

One possibility is lower demand for short term borrowing by the U.S. banking community. When they want money the Fed just "prints" it and that expands the money supply. I assume when it is paid back and not re-borrowed then the money supply shrinks.

[InterceptPoint]

One possibility is lower demand for short term borrowing by the U.S. banking community.

Adding to the above:

Higher corporate profits and more ready cash would naturally reduce the demand for short term line of credit loans by America's corporations. Maybe all we are seening is just the natural consequence of the economic recovery.

Just my $.02 and I am no economist.

[x1stcav]

I have to admit that this is straight out of the 70's and 80's. I can't remember the last time I heard an M2 report.

But, thanks anyway.

[expat_panama]

how does the supply go down? Does it go overseas?

When you go to the bank and borrow money, and put it in your checking account, you've increased the money supply.  That's why lower interest rates generally increase the money supply, and why one would think that bigger M3 is better.  The howstuffworks people had a link to historical data.  

I like graphs-- they give perspective and they show what's really happening.  Not just 'gee-whiz' or 'ain't it awful' ranting.  All I can see in the graph is that the money supply surges with inflation.  Everyone says that Clinton had the greatest economy ever, so the plateau in the m3 must be ok (let's forget that Clinton's unemployment was higher than Dubya's-- everyone else does).

My conclusion is that monetary data is far from the whole story, and that I'm not going to change my lifestyle because of this report.  What's your take-- are you changing any of your plans?

Graphs show me a lot-- or don't show a lot of what others say they see.  We live in a wonderful world where we can make our own decisions on our own research.  So the next time someone says, for example, "how about buying gold" you can just see for yourself.