Money stock is a measure of the supply of money in a particular level of the economy.
M1 is banknotes/Coins in circulation + travelers checks + demand deposits
M2 is M1 + savings deposits + money market deposits
Their respective velocities measure how often money (M1/M2) is spent in a given time.
Hypothetical example: 9/20: John bought a coffee from Jill for $5, then Jill bought shoes from Andrew (with the same $5), then Andrew bought fruit from Paul (with the same $5).
9/20 M = $5 9/20 Velocity of M = 3
Post-recession-America has seen an increase in M1/M2 along with a decrease in the velocity of M1/M2.
It isn't a coincidence that the money supply started behaving abnormally after the FED dropped the federal funds rate close to zero.
When the FED is making unprecedented policy decisions; the people should expect unprecedented results.
On Thursday (9/8) the Federal Reserve released their plan for a financial crisis. They will institute a "countercyclical-capital-buffer"; simply put, they plan to increase reserve requirements.
Increased reserves are likely to reduce the number of bank insolvencies, but they also reduce the amount of money banks can lend. This policy decision could hurt consumers/business owners who have become reliant on debt to function.
The United States is more reliant on debt than at any point in history.
LINK TO SOURCE ARTICLE
Asset Price Bubble
Federal Reserve Bubble
Treasury Bonds and LIBOR
Rucker, Patrick. "Federal Reserve Says It May Ask Banks for Extra Capital in a Crisis." Reuters. Ed. Leslie Adler. Thomson Reuters, 08 Sept. 2016. Web. 09 Sept. 2016.
The United States is in an asset price bubble.
Asset Price Bubble Checklist
1. Rapid Acceleration of Asset Prices
2. Overheated Economic Activity
3. An Uncontrolled Money Supply
4. Uncontrolled Credit Expansion
The United States meets all the criteria, being flagrant offenders of 3 and 4.
The economic situation in the US mirrors the Japanese Asset Price Bubble (wiki link) to an alarming extent. Years before the economic decline started, the Japanese government implemented aggressive fiscal policy (increased public investment) and expansionary monetary policy (dropped their interest rate).
The US has the same fiscal/monetary policy stances.
From 1989 to 1994 the NIKKEI 225 Index grew from $10000 to $38916 (231%). Economic deflation started draining the economy in 1991 and lead Japan into economic struggles for nearly 20 years (1991-2010). The first ten are commonly known as the lost decade, the full time period known as the lost score.
The S&P 500 keeps setting new all-time records, the price is the highest it has ever been in history.
All Time High - $2175 - 7/22/2016
Why are interest rates still close to 0%?
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