Why the Money Supply is GROWING Again

Summary

The video discusses the unusual fluctuations in the US money supply, highlighting a significant decrease from April 2022 to May 2023, followed by a stabilization and recent increase. It attributes the initial contraction to the Federal Reserve's actions, while the stabilization is linked to government borrowing and a decrease in the reverse repo facility. The video suggests that the increase in money supply is due to a slowdown in the Fed's balance sheet reduction and an uptick in bank lending. It warns of potential economic consequences and emphasizes the importance of financial education to navigate and potentially profit from these market conditions.

Takeaways

• 📉 The US money supply experienced a rare contraction from April 2022 to May 2023, reminiscent of historical periods like 1948.
• 🔄 The Federal Reserve's balance sheet contraction was a key factor in this money supply decrease, attempting to combat inflation.
• 📈 Despite the Fed's efforts, inflation remained steady at around 3%, indicating other factors at play in price increases.
• 💹 The reverse repo facility played a role in stabilizing the money supply as it decreased from $2.3 trillion to $493 billion.
• 🏦 Bank lending has started to increase again, contributing to the recent rise in the money supply.
• 💰 The US government's checking account balance has remained relatively flat, indicating a temporary pause in government borrowing.
• 📊 The Federal Reserve has slowed its quantitative tightening, allowing the money supply to stabilize rather than continue shrinking.
• 📈 The combination of reduced government borrowing and increased bank lending has led to a resurgence in the money supply.
• 🚨 The temporary nature of the government's balanced spending suggests a potential increase in borrowing and inflation in the future.
• 🌐 Global inflationary forces are at play, influenced by various factors including government actions and regulations.
• 📚 Financial education is crucial for individuals to protect themselves and potentially profit from the current economic uncertainties.

Q & A

What was unusual about the money supply trend from 2022 to early 2023?

The money supply was decreasing, which is rare in recent U.S. history, and this contraction was similar to the ones seen during past recessions and depressions.

Why did the decline in the money supply gain attention?

The decline was unusual because, since the 1980s, there had never been a contraction in the money supply until April 2022, and the last similar contraction occurred in 1948.

What happened to the money supply in the last couple of months of 2023 and the first few months of 2024?

The decline in the money supply reversed, and it began to grow again, which most people were not aware of.

How did the recent expansion of the money supply impact prices and inflation?

The expansion started to affect prices, leading to an increase in consumer prices at a faster pace than expected, with year-over-year inflation in January 2024 at 3.1%.

What are some factors that contribute to changes in the level of prices?

Factors include the ultimate scarcity or abundance of something relative to everything else, regulations, taxes, tariffs, subsidies, and government actions like sending money abroad for wars.

How does the Federal Reserve affect the money supply through its balance sheet?

The Federal Reserve can increase the money supply by buying assets from banks (quantitative easing) or decrease it by letting debt get paid back and not rolling it over (quantitative tightening).

What is the reverse repo facility and how does it affect the money supply?

The reverse repo facility is where excess cash sits with the Fed, earning an interest rate. It affects the money supply because the cash in this facility is not in circulation, and when the facility's level decreases, that cash re-enters the market.

Why did the money supply stop shrinking for a couple of months?

The money supply stopped shrinking because the government started borrowing more, drawing money out of the reverse repo facility and putting it back into circulation, which stabilized the money supply.

What has been happening with the U.S. government's checking account balance recently?

The government's checking account balance has stayed relatively flat, indicating that they are spending roughly the same amount as they are bringing in through taxes.

What is the role of bank lending in the money supply?

Bank lending contributes to the money supply by creating new loans, which deposit money into other bank accounts, effectively multiplying the original deposit and increasing the total money in circulation.

What are the implications of the recent changes in the money supply for future inflation and economic stability?

The recent increase in the money supply, combined with high interest rates and government borrowing, suggests that inflation may continue to rise, and unexpected economic consequences could occur due to central planning.