M2 Money Supply Declines 8 Straight Months, ODL Down 12 Straight Months

Other Deposit Liabilities vs M2, monthly average via St. Louis Fed

ODL vs M2 Chart Notes

  • Other Deposit Liabilities (ODL see description below), is a monthly average.
  • M2 is a monthly measure through March.

A Better Definition of Money

The main difference between ODL and M2 is that ODL does not include currency or retail money market funds.

Currency is accepted at an increasingly fewer number of business establishments and simply cannot be used for very large sized transactions. Retail money market funds never became an important medium of exchange. Both are becoming a far less used medium of exchange.

ODL has the additional advantage that it is the main source of funding for bank loans and investments, making ODL both a monetary and credit aggregate. Friedman would not be surprised that the need to change the best definition of what constitutes money would change over the years. 

The above three paragraphs from Lacy Hunt at Hoisington Management.

ODL Other Deposit Liabilities vs M2 Percent Change

H.8 Annualized Liabilities Percent Change 

Table above from the Federal Reserve H.8 Report.

My chart differs slightly because St. Louis Fed monthly averages do not precisely match the way the Fed averages the H.8 report.

All Ears, It’s Deflation

Money Supply vs CPI

Where are the Inflationistas on Money Supply?

The amusing thing about these inflation-deflation discussions is that for years, decades actually, the inflationistas pointed to money supply as their measure of inflation. 

Now they point to the CPI because that’s all that remains.

Purposeful Recession

Meanwhile please note, the Fed is purposely marching the US into a recession.

For discussion, Fed Minutes Now Predict a Recession This Year Along With Higher Unemployment

This is more of an admission than a forecast. The Fed is on a mission to slow the economy, and it will. But the Fed cannot say it the way I just did.

This post originated at MishTalk.Com

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gaygoldbug
gaygoldbug
11 months ago
It’s not deflation, but disinflation. The government won’t allow it to go into deflation. This stuff always ends the same way. There will be no Great Depression 2, this one will end in hyperinflation. We’re headed that way, what’s happening right now is just a blip on the screen.
Counter
Counter
11 months ago
Still way too much money in the system
Lisa_Hooker
Lisa_Hooker
11 months ago
Isn’t oodles what comes after a trillion?
Salmo Trutta
Salmo Trutta
11 months ago
There are countervailing forces at work. The demand for money is falling/velocity rising.
M2/Gross Domestic Product | FRED | St. Louis Fed (stlouisfed.org)
hmk
hmk
11 months ago

From Barrons:
At $20.81 trillion in March, M2 is still $5.4 trillion higher than prepandemic levels, offering a more than adequate level of liquidity and likely still fueling some inflation, including increases in prices for motor vehicle insurance, airline fares, household furnishings, and other items in March. Shelter prices grabbed the top spot, increasing 8.2% over the past year in March.

“M2 growth absolutely has an impact on inflation but it works with a long lag,” Wilson said.

Salmo Trutta
Salmo Trutta
11 months ago
It seems incredulous to me that the pundits are clamoring about a deceleration in the money stock. No money stock figure standing alone is an adequate signpost for monetary policy. And Divisia aggregates and TMS figures show poor correlations for N-gDp. But M2 is mud pie. ODL is not a superior metric.
Banks don’t lend deposits. Only deposit holders/owners can spend or invest their funds. The banks can’t use these deposits. And the volume of money (stock) is irrelevant
unless it is turning over (flow). Thus, one should use means-of-payment money in their analysis.
Link: George Garvey:
Deposit Velocity and Its Significance (stlouisfed.org)
“Obviously, velocity of total deposits, including time deposits, is
considerably lower than that computed for demand deposits alone. The precise difference between the two sets of ratios would depend on the relative share of time
deposits in the total as well as on the respective turnover rates of the two types of deposits.”
The rate-of-change in short-term money flows, the proxy for real output increased in March.
Sunriver
Sunriver
11 months ago
‘Now they (inflationist) point to the CPI because that’s all that remains.’ That is partially because the CPI has been understated for decades.
The M2 money supply is still above the ‘trend’ line and it will take years (we are already a year and a half into the reduction) for M2 to return to the trend line. But the M2 supply won’t return to the ‘old’ trend line, there is a ‘new’ trend line. The FED will continue to increase M2 6-7% per year on this ‘new’ trend line. The comments on this post, point to the exact same conclusion. The FED has caused the inflationary mess and the ‘everything bubble’ will not disappear in an overnight deflationary event lest there be civil unrest.
vanderlyn
vanderlyn
11 months ago
Reply to  Sunriver
and the M1 was banned like books in FL or whatever dumb stuff people cancel left and right. shadow stats only place i know who tries to keep it honest regarding M1 and inflation and GDP…………….not perfect, of course as economics is a very soft science, but the hooey main stream tries to pawn off as reporting is BS. remember when raygun changed the unemployment denominator. a great con man he was, doing the bidding of GE and MIC for an entire lifetime of acting…………….
vanderlyn
vanderlyn
11 months ago
i think you left out the federal reserve money creation since silicon valley bank panic. our ruling class has many levers to “conjure up zeroes on computers” from the treasury to the fed to the bankers large small and shadow bankers, too. junk houses coast to coast are priced beyond middle brows income range. not to mention the outrageous cost of food and insurance and r/e taxes……………..and on and on. i don’t know a soul out there that thinks life is getting more inexpensive to live. anyone using BLS numbers on recessions or CPI……..needs to have their brain checked in for rehab or maybe some more bong hits. please laugh. a collapsing empire is quite comical. the alternative is despair.
PapaDave
PapaDave
11 months ago
I will be glad when the recession arrives. Then Mish can start commenting about the coming economic expansion.
Mjs357
Mjs357
11 months ago
Reply to  PapaDave
Under this FJB admin and Senate/House conflict? Grab a thermos of coffee, it will be a loooong while. .
PapaDave
PapaDave
11 months ago
Reply to  Mjs357
Lol. You don’t get it. Mish rarely talks about economics in a “positive” way. Its usually doom, gloom and blame. Which is pretty common in the financial press. Many financial books have titles like “The Coming Depression”. Its hard to sell a book with the title “The Coming Okay Years”. Yet history shows that 9 in 10 years are “okay”. But that doesn’t draw much attention, does it.
Mjs357
Mjs357
11 months ago
Reply to  PapaDave
ah ok lol
Lisa_Hooker
Lisa_Hooker
11 months ago
Reply to  PapaDave
Nine in ten years?
So the 1930s were the only bad years in the 20th century?
PapaDave
PapaDave
11 months ago
Reply to  Lisa_Hooker
Sorry. I wasn’t alive for the Great Depression. How about you? I was thinking more recent, like since the start of WW2.
The Union Recession (February – October 1945), 2 months
The Post-War Recession (November 1948 – October 1949)
8 months
The Post-Korean War Recession (July 1953 – May 1954) 10 months
The Eisenhower Recession (August 1957 – April 1958) 8 months
The ‘Rolling Adjustment’ Recession: April 1960–February 1961
Duration: 10 months
The Guns and Butter Recession: December 1969–November 1970
Duration: 11 months
The Oil Embargo Recession: November 1973–March 1975
Duration: 16 months
The Iran and Volcker Recession, Part 1: January 1980–July 1980
Duration: Six months
Part 2 of Double-Dip Recession: July 1981–November 1982
Duration: 16 months
The Gulf War Recession: July 1990–March 1991
Duration: Eight months
The Dot-Bomb Recession: March 2001–November 2001
Duration: Eight months
The Great Recession: December 2007–June 2009
Duration: Eighteen months
The COVID-19 Recession: February 2020–April 2020
Duration: Two months
Add it up and its actually more like 1 in 8 years of recession. (123 months or 10 1/4 years out of the last 82 years since 1940)
You are welcome to go back to 1776 if you want.
Lisa_Hooker
Lisa_Hooker
11 months ago
Reply to  PapaDave
Wow, kudos for keeping great notes.
I prefer to go to 2030.
Maybe 2035.
PapaDave
PapaDave
11 months ago
Reply to  Lisa_Hooker
Or, in the last 30 years, 36 months of recession. 1 year in 10.
Matt3
Matt3
11 months ago
So money supply, after a huge spike is now going back to the longer term normalized level. Government policies are inflationary as well as the geopolitical situation. I’ll stick with a few years of Stagflation as the outcome.
KyleW
KyleW
11 months ago
Both sides have good reasons why they expect inflation or deflation. In the long run I think the Fed will inflate to bail out the over-indebted banks and the government. It’s what they’re already doing.
HippyDippy
HippyDippy
11 months ago
Yet another comparison to the great depression. Color me surprised. See no reason to change my forecast that the FED will overshoot its recession goal and go straight to a currency crushing depression. And let’s not forget that we’ll soon have another puppet in the white house, with the same banks and corporations up their butts. The one thing you can count on is that each president is worse than the one before. Especially that jackass you adore. And the slaves do love their misery.
vanderlyn
vanderlyn
11 months ago
Reply to  HippyDippy
the smell test is simple to perform. ask anyone on planet if their benjamins buy more stuff of life in 2023 or 2013 or 2003 or 1993. call it whatever one wants, but this is currency debasement. aka inflation. aka screwing the middlebrows and lumpenproles. been going on since ancient greece money clipping at siracusa, sicily. now it’s easy. just hit the zero key on the keyboard boys.
HippyDippy
HippyDippy
11 months ago
Reply to  vanderlyn
Aww, 1993. When I could rent a decent apartment for 250 a month.
Billy
Billy
11 months ago
Where are the Inflationistas on Money Supply?
The US has used MMT to tax us and fund all of their problems over the past 10+ years and now that M2 has decreased slightly, we expect deflation? OK, so over the past 20 years we’ve increased our money supply by 6-7% on average per year. Then we decrease it by 4%. If you look at the first chart, M2 is falling right back into line of the 6-7% per year. Nothing too crazy. Everything seems to be falling right into the average. That includes the M2 to Gold ratio.
That includes the logarithmic chart of the S&P dating back to 2008. The only thing deflating are the PE ratios bringing the S&P to 3,200 within 6-8 months from now.
I also expect us to be paying $10 for sandwiches. Those won’t be deflating back to where they were before this president took office.
Lisa_Hooker
Lisa_Hooker
11 months ago
Reply to  Billy
And my 11 ounce 12 ounce beer.
That’s one missing bottle in a 12 pack.
HippyDippy
HippyDippy
11 months ago
Reply to  Lisa_Hooker
In Florida most beer comes in a 4 pack. I had never even heard of 4 packs until I moved here. We were way ahead of the curve in shrinkflation here!
vanderlyn
vanderlyn
11 months ago
Reply to  HippyDippy
ha ha ha. too funny.
vanderlyn
vanderlyn
11 months ago
Reply to  Lisa_Hooker
ha ha ha. like the old 3 card monty street hustlers of my youth on 42nd street in 70s.
HippyDippy
HippyDippy
11 months ago
Reply to  vanderlyn
I’ve never seen any difference between politicians and cheap street hustlers. People just think if you’re wearing a suit you must be honest. I’ve worn suits before, and I’m definitely a contrarian on that one!
vanderlyn
vanderlyn
11 months ago
Reply to  HippyDippy
i’ve always respected street hookers and hustlers much higher in my pecking order from priests and politicians and blue and white collar workers. the street hookers and hustlers in my hood are straight up honest about who they are. the plumber and lawyer and cop and preachers, not so much.
HippyDippy
HippyDippy
11 months ago
Reply to  vanderlyn
Yeah, hookers fill an actual need, and street hustlers generally take just a little. The others? No need whatsoever. I can tell you’ve used plumbers before. Some good ones, but not many.

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