Scott Grannis issues a Money Supply Growth Alert, on July 7, 2011.
As the above chart of the M2 measure of money supply shows, recently there has been a very unusual pickup in the amount of money in the economy: $76 billion, to be precise, in just the last week. Over the past several years and since 1995, M2 has grown about 6% per year on average, which would equate to about $10 billion per week currently; the latest surge thus stands out as a huge aberration, and one that warrants close attention. About 80% of the growth in M2 in the past week came from increased savings deposits at commercial banks and thrift institutions (mostly commercial banks).
This next chart shows the year over year and 3-mo. annualized growth rates of M2, in order to highlight just how significant the recent increase in M2 has been. A one week outsized jump in M2 has resulted in a 3-mo. annualized growth rate that is very high by historical standards. A few more weeks like this and we would have M2 growth that was only equaled during the panic of late 2009, when the world was desperate to hold as much liquid money as possible. This latest growth might be panic-related, but there is no other sign of panic that I am aware of.
So this surge last week is 7 times the normal weekly growth. It could be that those interpreting Representative John Boehner's rejection of the $4 Trillion Grand Deal as an omen of an inablilty to make a deal.
If this happened the bonds, and other markets would most likely collapse so the big money holders, will get out of those risky positions to hold cash positions until after the crisis is over.
But, Grannis Says he does not see other signs of panic. Well, maybe because this isn't panic but just a shrewd move. Taking money out now, waiting for a collapse, where they can buy back in cheap after a drop.
Nonetheless, I add this last chart to the mix, since it shows that there has been a significant pickup in Required Reserves of late: in fact, required reserves have grown at a 32% annualized rate so far this year. Why is this important? Because the Fed has flooded the banking system with $1.6 trillion of reserves in the past few years, and until recently, the vast majority of those additional reserves were being held by banks as Excess Reserves. Banks were using only a very small portion of their additional reserves to create new deposits, which explained why the broad money supply was growing at only 6%, and leaving the rest on deposit at the Fed as excess reserves. That is now changing, as banks are putting more and more of their reserves to work, and thus expanding the money supply.
Well, I don't know what this all means, but I am hoping some of you smarter folks can explain to us what this means if anything.
Maybe it's just a coincidence? Really rich people wouldn't move their money around just before this debt-ceiling crisis just to try to make a profit on the misfortunes of others would they? No, that wouldn't be patriotic. Nothing to see here folks move along.