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Mentioning M2 without mentioning the accounting change that completely changes the graph starting May 2020 is very odd. Of course the percent change is large wh
by simonsarris 5y ago
Mentioning M2 without mentioning the accounting change that completely changes the graph starting May 2020 is very odd. Of course the percent change is large when you start measuring a different thing from before.
The simplest explanation of accounting change can be found here: https://www.collaborativefund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/ https://www.collaborativefund.com/blog/the-fed-isnt-printing...
But the St Louis fed also publishes a disclaimer at the bottom of their graph about it: https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
- karagenit 5y agoAre you sure that's correct? If I'm reading the article you linked correctly, they basically decided to count savings accounts as M1 instead of M2. But since M1 is included in M2... this shouldn't change the total value of M2? So all of the increases in M2 were actually due to printing of more money (among other things).
- thebean11 5y agoWouldn't counting savings as M1 allow the bank to create additional M2 due to fractional reserve?
- karagenit 5y agoI don't think so. When the pandemic hit, the fed made the reserve ratio 0% for all accounts, so counting savings accounts as M1 wouldn't really change how much money banks could lend. However, even under normal circumstances (transactional accounts have a reserve ratio of 10%, other accounts have a reserve ratio of 0%) counting savings accounts as transactional (M1) would actually increase the reserve requirement for banks, decreasing the amount they could loan and therefore decreasing M2 overall.