"The hypertrophy (excessive growth) of the M2 monetary aggregate in the United States is considerable: more than $5,000 billion of unearned money still resided in Americans’ accounts at the end of December 2024… It's unsustainable and lethal!
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As a first reminder, healthy money is the cornerstone of Reaganomics, according to Arthur Laffer. This means that ratios of monetary aggregates to current annual GDP (in percentage terms) must not exceed certain limits drawn from observing their evolution since the post-war period for the United States.
The main standard is as follows: the M2 monetary aggregate should not exceed 55% of current annual GDP.
Document 1:
As a reminder, the M2 monetary aggregate consists of the sum of aggregates M1 (positive balances of checking accounts and currency, representing 15% of GDP) and aggregate M2-M1 (deposits in savings accounts, representing 40% of GDP).
However, this ratio has been exceeded since the end of July 2011, with a historic peak of over 90% at the end of June 2020. This occurred because authorities prohibited Americans from working while transmitting more than $6,000 billion to them so they could continue living normally – an obviously historical and manipulative error in public opinion.
Document 2:
As a reminder, evolution of the M2 monetary aggregate since the late 1950s.
Document 3:
A closer look at the amount of M2 from the beginning of the year 2019 shows that the decrease in the amount of the M2 aggregate is only… $79 billion at the end of last February (latest figures published to date) compared to a high reached in April 2022 of… $21.75 trillion, representing only a 0.36% decline, which is negligible relative to the standard.
Document 4:
The major problem that should now pose itself to American authorities is to burst this enormous monetary bubble!
According to statements by Jerome Powell and other former and current FOMC members, the measure that previously allowed bursting such a nascent monetary bubble was (relatively) simple: it sufficed to increase the Fed’s base rate to the point of creating an inversion of the yield curve, which inevitably caused a recession – more or less severe but sufficient to restore healthy ratios.
However, this solution no longer works now because this monetary bubble is too large!
Month-over-month variations in the M2 monetary aggregate have intensified since the beginning of the 2000s with extraordinary amplitudes since 2020, both upward and downward.
Document 5:
A closer look at the period from 2022 to the present shows that the amount of the M2 monetary aggregate increases month after month on a clear upward trend, reaching $93.9 billion last February, latest figures published to date.
Document 6:
Given these extraordinary monthly variations in the M2 monetary aggregate, year-over-year variations are no longer significant.
Document 7:
The velocity of money (the rate at which money circulates), measured from the M2 monetary aggregate, is the ratio between current annual GDP and this M2 monetary aggregate; that is, the inverse of the ratio of M2 to GDP, in percentage terms, see documents 1 and 2 above.
This concept is rarely used because it is difficult to understand. However, the principle is relevant:
the faster money circulates, the stronger the growth, and vice versa.
This velocity of money has been declining since a peak reached in 1997, plunging to a historic low in June 2020 due to those who created this coronavirus story!
Document 8:
The increase in currency in circulation after 2020 is significant but not catastrophic.
Indeed,
the hypertrophy of the money supply does not stem from the reckless use of the printing press but from the distribution of $4,000 billion in the form of bank transfers to many Americans and some of their businesses.
The share of these banknotes relative to GDP is marginal. It has returned to within norms.
Document 9:
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A hypertrophy of the money supply in a nation has the very serious disadvantage of being lethal in the long term because it always triggers a major and lasting crisis, see among others Germany between the two wars and the book by Pierre Jovanovic on this subject: Hitler or the Revenge of the Printing Press!
However, this same hypertrophy of the money supply has the advantage of providing banks with liquidity in the short term so that they can… avoid bankruptcy!
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As a reminder, analysis of monetary aggregates is the best solution for piloting the evolution of an economy within a nation and therefore for understanding the mechanisms that rhythm it.
Ben Bernanke ended the weekly publication of figures for monetary aggregates and the M3 monetary aggregate when he took over as head of the Fed, and Jerome Powell modified the definition of the M1 monetary aggregate, publishing only monthly figures for M2, which remain the only reliable data on this subject.
Ben Bernanke and Jerome Powell have therefore done everything they could
to mislead all monetarists, unknowingly.
Their willingness not to publish all useful aggregates’ figures, claiming that it is not important, means that they are so important… that they refuse to communicate them to the good people!
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Ronald Reagan, in contact with Milton Friedman, had a strong understanding of monetary economics and surrounded himself with competent advisors – the Reaganomics – which formed the basis of his economic policy’s success, allowing for a lasting recovery of America.
This is not the case for the Donald.
**FOMC: Federal Open Market Committee.
