Fantastic Analysis of the Money Supply

by Robert Wenzel, here.

His key point is that the monetary base is not the money supply. The monetary base is useful for understanding the potential of the money supply to expand, but the money supply is the amount of money that is actually out in the real economy. Money “parked” at the Federal Reserve as excess reserves are not physically in the economy. Considering this, it is no surprise that price inflation has not yet jumped to high levels when 1.7 trillion/2 trillion of the Fed’s printed money is being held as excess reserves. If this money leaks out, you could see drastic price inflation, eventually forcing the Fed to pull back and raise interest rates, driving the economy into the dirt.

It is worth reading this and looking at the data Wenzel cites to get a proper grasp of the money supply yourself.


Posted on May 6, 2013, in Economics and tagged , , , . Bookmark the permalink. Leave a comment.

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