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M2 Update: 10th Consecutive Increase, And Some Troubling Trends

Courtesy of Tyler Durden

In the week ended September 13, M2 rose to a fresh all time record, just above $8.7 trillion, representing the 10th consecutive increase in the broadest monetary aggregate tracked by the Federal Reserve, during which time $115 billion in new liquidity has been injected in the US economy. Additionally, since the 2010 M2 lows recorded oddly enough on April 19, around the time when the S&P peaked for 2010, there has been $235 billion of money injected into M2.

Yet a peculiar observation arises when one looks at the components of the M2 – the bulk of the individual pieces of M2 (and M1 by definition) declined: there were W/W drops in Demand Deposits, Other Checkable Deposits, Savings Deposits at Thrifts, and especially Small Denomination Time Deposits, offset only by Savings Deposits at Commercial Banks. Now that is rather troubling, because the former list represents products used by the “less than wealthiest” to park their money. It appears that in the prior week (and throughout 2010), what’s left of the middle class continues to actively withdraw its saved up money, but the net effect was offset by increased deposits into Commercial Bank savings deposits: traditionally capital storage reserved for the richer (due to the relative immobility of the capital: the vast majority of Americans for whom money does not grow on trees, prefer to have instant access to their deposits). This makes us wonder: is the trend seen in the stock market being replicated in the bank deposit realm? Are the lower and middle classes actively withdrawing money from banks, even as the wealthiest 1% continues to deposit? No wonder then that Huffington’s campaign to punish the TBTF’s by extracting their deposits is not working.

The weekly capital reallocation in the various M1-M2 components can be seen below. Pay particular attention to the blue bar: that is the Savings Deposits at Commercial Banks weekly total, and YTD amounts to $316 billion, even as total M2 has increased by “only” $220 billion. Indeed, the biggest outflow has been the Total Small Denomination Time Deposits, or the place preferred by the less than uberwealthy to store their money.

This also fits perfectly with the recently discussed theme of increasingly more of America performing hardship withdrawals and premature terminations from their pension funds, discussed previously here. Just how much of America is living paycheck to paycheck?

A summary view of the historical change in M1 and M2.


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