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.

Outlines

00:00

📉 Unusual Money Supply Trends

This paragraph discusses the unusual decrease in the money supply over a year and a half, reminiscent of past recessions and depressions. It highlights the recent reversal of this trend in 2023 and 2024, where the money supply began to grow again. The speaker notes that this change has not been widely recognized due to the rarity of such a contraction in recent US history. The paragraph also mentions the impact on consumer prices and inflation, which have been increasing at a faster pace than expected, despite the money supply not growing until the end of 2023.

05:01

📈 Understanding Inflation Dynamics

The speaker delves into the factors contributing to price changes, emphasizing the role of scarcity and abundance. They explain how prices communicate information about resource availability and how inflationary forces, such as government spending on wars, can increase prices. The paragraph also discusses the Federal Reserve's role in controlling the money supply through its balance sheet and the concept of quantitative easing. The speaker announces an upcoming webinar to discuss these topics in more detail.

10:01

💹 Federal Reserve's Balance Sheet and Its Impact

This section explains how the Federal Reserve's balance sheet influences the money supply. It describes the process of quantitative easing and debt monetization, where the central bank creates new money to buy assets. The speaker discusses the recent changes in the Fed's balance sheet and the reverse repo facility, which has been decreasing, leading to a stabilization of the money supply. The paragraph also touches on government borrowing and spending, which have temporarily remained balanced, affecting the money supply and inflation rates.

🏦 Bank Lending and Its Role in Money Supply

The final paragraph addresses the role of bank lending in the money supply. It explains the process of loans creating more money in circulation and how this, combined with the Federal Reserve's reduced efforts to shrink the money supply, has led to an increase in the money supply. The speaker also mentions the temporary nature of the government's balanced spending and borrowing, suggesting that higher rates and inflation are expected in the future. The paragraph concludes with an invitation to join a Financial University for better financial education and protection against market volatility.

Keywords

💡Money Supply

The money supply refers to the total amount of money available in an economy at a particular point in time. It includes various forms of money such as cash, checking deposits, and other liquid assets. In the video, the narrator discusses the unusual contraction and subsequent expansion of the money supply, which has significant implications for inflation and economic stability. The money supply's fluctuation is a central theme, as it directly affects the rate at which prices increase, or inflation.

💡Quantitative Easing

Quantitative easing (QE) is a monetary policy tool used by central banks, like the Federal Reserve, to stimulate the economy by buying assets from banks, thereby increasing the money supply. This process injects liquidity into the financial system and encourages lending and investment. In the video, QE is mentioned as a historical practice that has been reversed in recent times, leading to a contraction in the money supply.

💡Inflation

Inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is falling. The video script highlights the relationship between the money supply and inflation, explaining that an increase in the money supply can lead to higher inflation rates, as seen with the 3.1% year-over-year inflation in January 2024.

💡Federal Reserve

The Federal Reserve, often referred to as the Fed, is the central banking system of the United States. It plays a crucial role in regulating the economy by setting monetary policy, including interest rates and the money supply. The video discusses the Fed's actions, such as quantitative tightening, which aimed to decrease the money supply to control inflation.

💡Reverse Repo Facility

A reverse repo facility is a mechanism used by the Federal Reserve to temporarily remove liquidity from the banking system. Banks deposit cash with the Fed, and in return, they receive a risk-free return. The video explains that the decline in the reverse repo facility contributed to the stabilization of the money supply, as less cash was being held out of circulation.

💡Deficit Spending

Deficit spending occurs when a government's expenditures exceed its revenues, resulting in a budget deficit. The video mentions that the U.S. government's deficit spending has temporarily shrunk, which has had a stabilizing effect on the money supply. However, the narrator warns that this is likely temporary and that increased government borrowing is expected to continue.

💡Bank Lending

Bank lending is the process by which banks provide loans to individuals, businesses, and other entities. This creates new deposits in the banking system, effectively increasing the money supply. The video notes that an increase in bank lending contributes to the recent rise in the money supply, which in turn affects inflation rates.

💡Interest Rates

Interest rates are the cost of borrowing money and are determined by various factors, including central bank policies and market conditions. The video discusses how interest rates on short-term government debt have remained consistent, reflecting the temporary stability in the government's deficit spending and the money supply.

💡Economic Stability

Economic stability refers to a state where an economy is free from extreme fluctuations in output, employment, and prices. The video's discussion of the money supply, inflation, and government borrowing all relate to the broader theme of maintaining economic stability, which is a primary goal of monetary policy.

💡Financial Education

Financial education involves learning about financial concepts, markets, and personal finance management. The video emphasizes the importance of financial education to protect oneself against market volatility and to potentially profit from economic changes. The narrator invites viewers to join a financial education platform to better understand and navigate the current economic landscape.

Highlights

The total money supply was decreasing for about a year and a half, echoing past recessions and depressions.

The decline in money supply reversed in the last few months of 2023 and began to grow again.

The last time the money supply contracted was in April 2022, which was unprecedented since the 1980s.

Year-over-year inflation in January 2024 was at 3.1%, higher than expected.

Prices have been increasing at a consistent pace of a little over 3% since June 2023.

The Federal Reserve tried to decrease the money supply for the first time in recent history.

The reverse repo facility has been declining since May 2023, affecting the money supply.

The US government's checking account balance has stayed flat, indicating a temporary decrease in deficit spending.

Bank lending has started to increase again, contributing to the rise in money supply.

The Federal Reserve's balance sheet contraction has slowed, affecting the rate of money supply decrease.

The temporary flatlining of the reverse repo facility is due to government borrowing and spending being balanced.

The increase in money supply is also due to less government borrowing and an increase in bank lending.

The speaker is hosting a free live online event to discuss these financial trends and their implications.

The speaker emphasizes the importance of financial education to protect and profit during turbulent economic times.

The speaker invites viewers to join Financial University for further education on these topics.

The speaker warns of unexpected consequences due to central economic planning.

The speaker suggests that the current economic situation is like pushing a snowball down a hill, with problems growing larger over time.

The speaker concludes by encouraging viewers to be proactive in understanding and navigating the financial landscape.

Transcripts

something strange has been happening to

the money supply because for about a

year and a half the total money supply

was constantly decreasing and the rate

at which the money supply was

Contracting was echoing recessions and

depressions of the past but during the

last couple of months of 2023 and the

first few months of 2024 the decline in

the money supply has reversed and begun

to grow yet again this is something most

people have not caught on to simply

because of the fact that a decline in

the money supp Supply is actually so

rare in recent US history that it's been

gaining all the attention recently if we

look back since the 1980s we have never

seen a time in which the money supply

contracted until April of 2022 in fact

we have to go all the way back to 1948

before we see a brief contraction of the

money supply and before that a

contraction in the money supply was

quite common but for months now the

money supply has actually been

increasing again the question is why

well we can see that this recent

reexpansion of the money supply has

started to impact prices month over

Monon inflation in consumer prices have

started to increase at a faster Pace

than expected with year-over-year

inflation in January of 2024 at 3.1%

which was higher than what people

expected at 2.9% this means the rate at

which prices have been increasing on

average hasn't really changed since June

of 2023 and again this doesn't mean that

prices are not changing this means that

prices are going up at a consistent Pace

a little over 3% which is odd

considering the money supply wasn't

actually going up until the very end of

2023 we have a ton of puzzle pieces that

we're going to need to put together here

so let's start off with what actually

causes a change in the level of prices

there are many things that contribute to

prices but you can think of prices as

information regarding the ultimate

scarcity or abundance of something

relative to everything else for for

instance if half of the wheat crops in

the world are wiped out tomorrow then we

know that the price of bread will

probably go up because we can't make as

much bread as we used to because there's

less wheat the prices will go up until

we find a new equilibrium point at which

people are willing to pay the higher

prices and some people are not willing

to pay the higher prices so they don't

buy ultimately the prices communicate

that information and it lets people make

decisions about whether they're going to

continue consuming something or not we

only have half the wheat so we can only

consume half the wheat because you can

only consume something that has been

produced prices going up are the most

Fair most efficient and most effective

way to decide how that increased

scarcity will be allocated but obviously

we don't live in a completely free

market in fact most things that we buy

and sell on a regular basis have other

things influenc in their price other

than just free market scarcity or

abundance things like regulations taxes

tariffs subsidies are all in influencing

whether something is artificially higher

in its price or artificially lower in

its price as an example when our US

government decides to send hundreds of

billions of dollars to a foreign country

for a war and they turn around and spend

that money on arms manufacturers here in

the United States those arms

manufacturers then increase the scarcity

by taking some supply of things like

steel aluminum gasoline oil Plastics and

rubber electronics and they ship those

off to the foreign countries just to be

exploded and destroyed thereby

increasing the scarcity of those items

and materials for everybody else

increasing the price and so all across

the world we have inflationary forces

that are pushing up the price of things

by soaking up some of the abundance by

increasing their scarcity but obviously

we have the money supply is one of the

largest factors that contributes to

inflation or deflation this is why

despite technological advancements and

Innovations over the past decades we've

seen the cost of living continually rise

because the amount of money in

circulation continues to rise but that

all changed in April of 2022 after a

historic increase in the rise of the

money supply the Federal Reserve caught

religion and started to try to decrease

the money supply for the first time in

recent history we can see that they were

successful with it for about one year

from April of 2022 until about May of

2023 and then the money supply started

to move sideways real quick I want to

let you guys know that in just under two

weeks from today I'm going to be hosting

a completely free live online event it's

going to be a webinar covering how all

of this fits together we'll be

discussing how the Federal Reserve will

try and fail at putting a lid on

inflation as soon as the economy starts

to break and how what the federal

government is doing is actually pushing

the financial system closer towards

something breaking we'll talk about the

overall context how this fits into the

longterm debt cycle because we've seen

these things play out many times

throughout history there's a pattern at

play here here and it's playing out

again today and obviously above all

we're going to be talking about how to

actually profit from all this the event

is going to be on Thursday March 7th and

spots are actually limited I know people

always say that but it's actually a zoom

limitation on the webinars there's only

500 slots and they're already starting

to fill up so if you're interested in

joining go to the link below sign up now

see you there so the question is how

does the Federal Reserve do this well

now we're looking at a chart of the

federal reserve's balance sheet and this

is their main tool for affecting the

money supply when their balance sheet is

increasing it means they are printing

money to buy assets from Banks and then

those Banks can if they want to turn

around and buy other assets from other

people like the United States government

this is called quantitative easing or

debt monetization it's where the Central

Bank creates new money out of thin air

to buy assets out of the economy and in

place of those assets they insert cash

then those financial institutions that

they gave the cash to for those assets

had the freedom to turn around and do

something else with them which is

usually just make new loans they buy new

assets instead so while the Federal

Reserves balance sheet is going up this

is creating the opportunity for more

cash more liquidity in the economy this

also means that when the Federal Reserve

balance sheet is declining the opposite

is happening when the fed's balance

sheet is declining that means they're

letting some of that debt get paid back

to them and they're not rolling it all

over it means they're not taking that

cash and loaning it all back out again

some of that debt is actually retiring

which means the amount of dollars the

money in the system is actually

shrinking of course I'm not saying that

that's the exact net result because

there are other factors that affect the

money supply we'll get into I'm just

saying that if everything else was equal

and if the only thing happening was the

fed's balance sheet then yes the money

supply would be shrinking and so for a

while from May of 2022 up until about

May of 2023 the fed's balance sheet

contraction was effective at shrinking

the money supply but even though they

continue to shrink their balance sheet

from there it did not have the same

effect on the money supply and that's

where we get to the next piece of this

puzzle which is the reverse repo

facility the reverse repo facility you

can see has been declining since about

May of 2023 and it has gone from a level

of about $2.3 trillion down to about

$493 billion I've made quite a few

videos explaining what this facility is

but essentially this is just where a

bunch of excess cash is sitting because

it's getting paid an interest rate by

the Fed mostly money markets have placed

their cash with the FED in this reverse

repo facility because it's a risk-free

return the reason that it's declining is

because the federal government is now

offering t- bills which is short-term

debt at higher and higher rates so it

makes sense to take some of the money

out and loan it to the government with t

bills instead because it's a higher

return as the government borrows more

and more at the short term it will draw

more and more money out of the reverse

repo facility this is why the money

supply stopped shrinking for the last

couple of months because all the money

that was in the reverse repo facility

was not technically in circulation it's

not counted in M2 so as the reverse repo

facility started to drain the money

supply started to Flatline the Fed was

still trying to do their job of

shrinking the money supply by shrinking

their balance sheet but money into the

reverse repo facility was getting pulled

back into circulation by government

borrowing and that had a stabilizing

effect on the money supply and so the

money supply stopped shrinking so the

Fed was trying to pull money out of

circulation with quantitative tightening

but more money was getting pulled into

into circulation by government borrowing

the result was the money supply stayed

relatively flat and since we have more

things than just the money supply

impacting inflation well that's why we

saw the rate of inflation Flatline as

well because we still have inflationary

forces but we no longer have the

offsetting force of money getting pulled

out of circulation so prices still

Rising now at a very consistent pace so

what in the world is this all about then

over the last couple of months the money

supply is starting to rise again

especially considering the drop in the

reverse repo facility has started to

Flatline well if we take a closer look

at the Federal Reserves balance sheet we

can see that the amount that it's

decreasing by has actually started to

Flatline as well it can be kind of hard

to see this on the normal chart so I've

changed the chart now to show the

percentage change on a monthly basis and

you can see that recently this line has

started to curve upwards which means the

amount their balance sheet is declining

by is a slower and slower Pace okay so

that piece makes we are seeing the

balance sheet decline at a slower and

slower pace which means they're not

sucking as much money out of circulation

as they were before but there's another

piece to this puzzle and that's

government borrowing this is a chart

called the treasury general account this

is the US government's checking account

and you can see that over the last

couple of months the amount of money

they have in their checking account has

basically stayed flat at around the $800

billion level this means that they are

spending roughly the exact same amount

of money as they are bringing in they're

checking account isn't increasing on net

it's not decreasing on net we can also

take a look a little bit deeper and see

that when we look at their tax receipts

meaning the money they take in taxes

versus the amount of money that they are

spending those two lines are converging

recently so over the last couple of

months the US government has actually

been spending a little bit less and the

amount of money they've been receiving

in taxes or I should say taking in taxes

has been increasing and this is why we

see a flatline in the reverse repo

facility that was decreasing at a very

consistent pace and has recently stopped

decreasing as quickly essentially over

the last couple of months the deficit

has shrunk this is temporary but it has

shrunk the amount of money the

government takes in taxes is right now

very similar to the amount of money it's

spending and they're not borrowing any

extra on net right now so the amount

that they have in their checking account

is also staying roughly the same this

explains why when we look at interest

rates on short-term government debt we

can see that the interest rate has been

fairly cons consistent over the last

couple of months okay so now it looks

like we have a couple pieces of

conflicting data here the money supply

is increasing part of that is because

the Federal Reserve has stopped trying

to decrease the money supply as much as

they were before but at the same time we

also have less government borrowing

right now just for a very short period

of time it won't stay this way forever

but for right now less government

borrowing so where is this increase in

the money supply coming from and that's

where we get the last piece of this

puzzle and that is Bank lending in

normal environments Bank lending

continues to Trend higher and higher

during the financial crisis we had a big

drop off in Bank lending that started to

Rebound in 2011 and in 2020 we had a

decrease in government lending that

started to rebound again in 2021 and

while the course of 2023 did see

somewhat of a Slowdown in Bank lending

that has recently started to tick up

higher if you are not aware how Bank

lending works it is loaning money into C

circulation if you put $100 in your bank

account they're going to take 99 of

those dollars and make a loan with those

dollars as soon as they make a loan

those $99 get deposited into somebody

else's bank account and then that new

bank takes that $99 and they loan out 98

of those dollars and those $98 land in

somebody else's bank account and then

that bank takes 97 of those dollars and

Loans them out again this means that for

every original Dollar in the banking

system if you can even call it that ends

up being1 or even $100 throughout the

banking system in various bank accounts

the more loans that are created the more

dollars exist in the system and because

Bank lending is starting to increase yet

again at a time period where the Federal

Reserve is not decreasing their balance

sheet as quickly as they used to means

that we are seeing a new increase in the

money supply explaining the sticky

inflation that we are unfortunately

continuing to see so what does this mean

moving forward well the low in deficit

spending is likely extremely temporary

it's a seasonal thing and this year is

going to see a massive rollover in

government debt I made a video about

that last week if you haven't seen it

which means more government borrowing

higher rates and higher inflation we are

likely to see unexpected consequences

this year as a result of trying to

centrally plan an economy nobody

expected the money supply to decline for

the first time since 1948 like it has

during recessions and depression of the

past similarly nobody expected the money

supply to start to increase again at the

end of 2023 on top of all that nobody

expected that interest rates would stay

this high for this long and that the

market would actually stop pricing in

rate Cuts yet here we are it's not so

much that they're kicking the can down

the road it's more that they're pushing

a snowball down a snowy hill the problem

continues to get bigger and bigger until

it becomes so big that they cannot stop

it fortunately for you and I we don't

have to be vulnerable to the crashes and

the consequences of their poor planning

with proper financial education we can

not only be protected against these

crazy Market times but we can also

profit from it if you haven't already

joined hery Financial University to do

just that you're missing out I invite

you to join link is in the description

below as always thank you so much for

watching have a great day