Monday, September 3, 2012

The Fed Is Growing the US Money Supply, So What?

As speculation grows surrounding the upcoming September 13th 2012 Fed meeting and whether or not there will be another round of quantitative easing to boost the economy, it is interesting to stop for a moment and examine how the M1 money supply has evolved over the past 30 years.

This chart provided by the St. Louis Fed gives a good glimpse at how the M1 money supply has evolved in the recent decades. It simply shows the money stock at the end of each month since August 20th 1982 in billions of dollars.

As they say, a picture is worth a thousand words and I thought it would be interesting to have a visual representation of how far we have come since the 2007 financial crisis. The last two rounds of quantitative easing have almost doubled the M1 money supply in as little as 4 years. One only has to wonder what will be the long term effect of going from 1.4 trillion to 2.4 trillion USD on the dollar. Even if it is currently the world reserve currency, it is obvious the US Dollar is bound loose value in the coming years. How is your portfolio positioned assuming such a scenario? Soon enough the world will notice that they are getting less and less value for their US Dallar holdings. Food for tought....