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U.S. Money Supply Explodes Higher, Growing at Same Rate as the Early 1980s

Over the last six months, the Fed has embarked on the largest money printing and asset buying spree in its history, swelling its balance sheet by over 50%. So far, the Fed has ‘printed’ more than $2 trillion, roughly $6,300 dollars for every person and child in the US. For the last few weeks, the Fed has ‘printed’ roughly $500 billion a week.

Whereas past QE programs had mixed success in overcoming slow endogenous money growth to create identifiable growth in the overall money supply, the Fed’s new unconstrained QE program, so-called QE-Inifinity, has had no such problem.

The Fed reports three measures of the nation’s money supply: M1 (narrow money), MZM (liquid money supply), and M2 (narrow money and near money). Controversially, the Fed no longer reports the broadest measure of the money supply, M3, which included larger CDs and institutional money market funds, as well as short term repurchase agreements.

All three measures that the Fed reports (M1, MZM, M2) have jumped by the largest dollar amounts on record in recent weeks and have hit year-over-year percentage growth rates only seen a handful of times in the past 40 years, including when inflation was over 10% in the early 1980s.

While the liquidity created by the Fed’s past QE programs struggled to do much beyond building excess bank reserves, no such problems are being experienced today. Not only have bank reserve requirements been suspended, the Fed is directly lending to companies through its alphabet soup of special purpose vehicles. On top of that, the Federal government is promising to directly lend to small and medium sized businesses and send checks to most Americans. The result is the fastest ever increase in commercial and industrial credit ever witnessed.

What effects will be caused by the largest ever increase in the money supply and the fastest surge in lending? We are going to find out.