Money Supply

The money supply is the total quantity of money available in an economy, tracked in tiers: M0 or the monetary base covers physical currency and bank reserves, M1 adds demand deposits, and M2 adds savings deposits, small time deposits, and retail money market funds. US M2 expanded by roughly 40 percent between early 2020 and early 2022, the fastest surge in the modern data.

Why it matters

Over long horizons, sustained money supply growth in excess of economic growth shows up as some combination of consumer price inflation and asset price inflation, though the timing and channel vary. The 2020 to 2022 episode was a live demonstration: an unprecedented expansion of M2 was followed by the worst consumer inflation in four decades, reviving attention to monetary aggregates that policymakers had long deemphasized. Watching money supply also clarifies what a currency is: a unit whose quantity is a policy variable, adjustable without limit by the institutions that issue it.

In the gold vs bitcoin debate

Money supply growth is the yardstick both camps use to indict fiat currency, and each asset answers it differently. Gold's supply grows about 1.5 to 2 percent per year and cannot be accelerated by decree, only by mining economics. Bitcoin's supply schedule is fully specified through the year 2140 and its issuance rate now sits below gold's. Comparing the three curves, fiat aggregates, gold stock, and bitcoin issuance, is the quickest visual argument for why scarce assets attract savers. The Federal Reserve publishes the aggregates in its H.6 release, which makes the dilution of the monetary unit a matter of public record.