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Economy

Signals From The Money Supply

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By Douglas A. McIntyre Updated Published
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Since the start of the financial crisis the Federal Reserve has grown the money supply with incredible speed.  Inflation hawks have been crying bloody murder.  To be sure, the amount of dollars in the system has increased dramatically.  Since Q1 2005 M1 and M2 have grown about 21% and 30% respectively.  However, this have been offset by a nearly commensurate decline in the amount dollars get around, or velocity.  The charts below show both the growth rates of the money supply as well as the velocity of money since Q1 2005.

Money Supply Growth Rate, Q1 05 through Q3 09:

M1 and M2 Growth Rate

Velocity Growth Rate, Q1 05 through Q3 09:

M1 M2 Velocity Growth

Perhaps the most interesting thing to come out of yesterday’s economic data was that the decline in velocity seems to be coming to an end.  If the trend reverses we are likely to see renewed growth in the price level, which may trigger FED tightening sooner rather than later.

Garrett W. McIntyre

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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.

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