US M2 Money Supply Hits $21.94 Trillion, 4.5% Yearly Growth

The US M2 money supply has reached an unprecedented high of $21.94 trillion, marking a significant milestone in the nation's monetary landscape. This surge in the money supply, which measures the total amount of money in circulation, reflects a year-over-year growth of 4.5 percent, up from 3.9 percent in March. This increase is indicative of the Federal Reserve's ongoing efforts to stimulate the economy, despite the prevailing notion that the central bank has implemented a "tight" monetary policy.

The expansion of the money supply is not an isolated event but part of a broader trend that has been unfolding over the past few years. Since the onset of the COVID-19 pandemic, the Federal Reserve has injected nearly $5 trillion into the money supply through quantitative easing (QE) alone. This injection, coupled with the nearly $4 trillion in QE during the Great Recession, has resulted in a massive spike in the money supply. The new money created by lending, incentivized by over a decade of zero percent interest rates, has further contributed to this expansion.

The M2 money supply, which includes cash, checking deposits, savings deposits, money market accounts, and other liquid assets, has been on an upward trajectory since the 2008 financial crisis. Since 2009, the M2 money supply has grown by nearly 156 percent, with nearly two-thirds of the total existing money supply created in the past thirteen years. This expansion has been driven by the Federal Reserve's efforts to support the economy during times of crisis, but it has also raised concerns about inflation.

The expansion of the money supply is a key driver of price inflation. Historically, inflation was defined as an increase in the amount of money and credit in the economy. Economists such as Ludwig von Mises and Henry Hazlitt have emphasized the importance of understanding inflation as an expansion in the money supply, rather than simply as rising prices. This distinction is crucial, as it highlights the role of monetary policy in driving inflation.

The Federal Reserve's efforts to combat inflation have been met with criticism from various quarters. Some argue that the central bank has not done enough to put inflation in the grave, while others contend that the economy is addicted to easy money and cannot function in a normal interest rate environment. The Fed's challenge lies in balancing the need to cut rates to prop up the economy with the need to hold rates steady or even raise them to keep inflation at bay.

The recent surge in the M2 money supply to $21.94 trillion underscores the complexity of the Federal Reserve's mandate. The central bank must navigate the delicate balance between supporting economic growth and controlling inflation, a task made more challenging by the unprecedented expansion of the money supply. As the economy continues to evolve, the Federal Reserve's actions will be closely watched by economists, policymakers, and the public alike.