LAKE BLUFF, Ill. (12/23/13)--Money supply has fluctuated significantly in the short-term over the past half-century, according to an independent economic research firm.
Moebs Services released a report last week claiming that the volume of money in the U.S. financial system has changed by an average of 7.5% per quarter since 1959 (Business Wire Dec. 18).
The Lake Bluff, Ill.-based firm attributed the inconsistency to the Federal Reserve's use of asset purchases--"open market" activity--which is currently being employed in the form of quantitative easing. Moebs said that since Congress granted the Fed with asset purchasing authority in 1947, money supply has been inconsistent as the central bank attempts to promote job growth while controlling inflation. Inconsistency, the firm said, has been most pronounced since 1988--throughout the AlanGreenspan and Ben Bernanke eras.
The study measured deposit money broken down into three categories: M1, which accounts for checking deposits; M2, which consists of savings and bonds; and M3, which is made up of uninsured, non-reservable deposits and money market mutual funds. The study did not include currency, and took into account foreign deposits invested in money market mutual funds.
Moebs pointed out that in addition to open market purchases, the Federal Reserve can influence money supply by altering the minimum reserve ratio, changing the rate of interest it charges for wholesale lending, and, as of 2008, by either charging or paying interest on reserves held within the system.
The research firm said that the Fed has used the last option to pay out 25 basis points on reserves, and that charging banks to hold money would stimulate credit markets--a policy, Moebs says, favored by Federal Reserve Governor James Bullard of the St. Louis Federal Reserve Bank.