Without Milton Friedman around to explain money supply to me, I don’t know how to interpret this

M3 money supply at Depression-era levels. Is this as significant as the reporter thinks, or is Bernanke right? Friedman was always preaching on the importance of money supply, but I never quite grasped the concept and still don’t. Bet you smart Wall Streeters do, though.


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9 responses to “Without Milton Friedman around to explain money supply to me, I don’t know how to interpret this

  1. not so anonymous

    Glen Beck’s program covered m3 money supply today… As well as the parallels between Woodrow Wilson, FDR,and Obama’s administration’s and goals and appointees… And the info is being erased from the history books… Soo interesting..

  2. out looking in

    Keeping it very simple…

    Fisher Equation (quantity theory of money)
    MV=PT , which means that the quantity of money (M) in the economy multiplied by the turnover rate of that currency in circulation (velocity, or V), equals aggregate spending or PT (Average Price times the Volume of Transactions (T) of goods and services……..the fear is that if money grows too slowly, the price level will fall (disinflation or outright deflation), and the economy could end up in a liquidity trap (it’s like a sandtrap for the economy!) in which the Fed will lose the ability to influence (inflate) the price level….the dreaded deflationary spiral a la Japan…

  3. Anonymous

    Difficult stat to interpret without knowledge of velocity, credit, etc etc

    Capital is much more virtual, derivatized and globalized than in era when many of those money supply stats were more relevant to Luddite economists

    For ex., most BigTech, BigOil, BigPharma and other global cos. earn ~50% of profits OUS and (like major HFs) keep massive sums of cash outside US and avoid bringing such cash back into US for tax reasons

    Don’t know that smart bond traders ever trusted money supply stats much, even in a more analog era, let alone in modern era

  4. out looking in

    key to the above equation is that V and T are relatively constant, so there is a direct link between the supply of money and the price level..throught the 70s and 80s there actually was a fairly strong link between the two- but in the 90s and 00s it totally fell apart…
    for conspiracy theorists- the Fed did stop publishing broad monetary aggregates a few years back….
    but the devil always lies in the details….as economists are famous for stating- “assume the world is flat”…it follows that……

  5. shoeless

    Don’t forget that “V” has also been declining despite the Fed’s exploded balance sheet.



  6. xyyzy

    The Fed doesn’t publish M3, and the people who do are just guestimating.


  7. Anonymous

    it’s the velocity of money.

    think of all those potential g’wich house buyers with cash in hand sitting on the sidelines indifferent to today’s offered prices. the money is there, just no velocity which would result from a transaction, commissions, hired tradespeople, purchased household goods, etc.

    In “Depression Diary,” the descendants of Benjamin Roth published his diary entries from Great Depression I, when the author was starting out as an attorney and family man in Youngstown, OH. There are numerous segments of the book, some as long as a few pages, where one could substitute Obama for FDR, and be reading an account of today’s statist crock of bad ideas and totalitarian intent.

  8. Walt

    Dude Man –
    Don’t worry about all this technical BS. Here is all you need to know. I will keep it simple for you.
    Unless you have a big wad of cash on hand, you have no shot with the Teri McBeal chick. And we know you don’t – have a shot or cash.
    So what do you do? Go to your room, close your eyes, and take her to the spank bank!! It’s always opened – you can make a deposit anytime!!
    That is all you need to know about money supply.
    Your Pal,

  9. Priapus

    Surprises happen in the direction of the trend. BP, Euro crash, China housing crash, and a jackass in the Whitehouse. Can anyone say “Katla”? Wait til the volcano blows and causes untold havoc to trvel and food supplies. Things are already so much slower than Tass or Pravda will let you know. Don’t be fooled by the media. Even “the ONE” can’t stop the laws of nature and deflationary mathematics.

    Double dip.
    Stick a fork in it.
    We’re done.