I have always wondered how big my bag of loot would be if we divvied up every single dollar of United States currency equally among the citizens. I’m not talking about dollar bills in circulation; I’m referring to the entire money supply. Before we get to the final number, I will point out that one million dollars presented to you in $100 dollar bills would weigh approximately 22 pounds. Would you need a wheelbarrow to cart away your share of the United States money supply? Let’s find out.
If you have ever taken an economics class, the terms M1, M2, and M3 are probably vaguely familiar. These terms represent the U.S. money supply — or money stock — as it is called by economists and the Federal Reserve. The total of M1, M2, and M3 purportedly represents the total amount of money available in the economy.
M1
M1 refers to the most liquid type of money. It composes currency in circulation, demand deposits, and traveler’s checks. It’s basically the kind of money that you can access to buy goods and services or pay a debt.
M2
M2 (M1 + M2) consists of all of M1, time deposits less than $100k, savings deposits, and balances in money market accounts for individuals.
M3
M3 (M2 + M3) includes all of M2 (which includes M1), large time deposits (over $100k), institutional money market funds, repurchase liabilities issued by depository institutions, and Eurodollars (not to be confused with Euros). Eurodollars are U.S. dollars held on deposit with a bank abroad.
In other words, M1 and M2 reflect the mom and pop side of the economy whereas M3 includes the big boys, financially speaking.
As of March 2006, the Federal Reserve stopped reporting M3. The Federal Reserve said that “the costs of collecting the underlying data and publishing M3 outweigh the benefits.” That means they are trying to save money! I think it is far more likely that they don’t want us to see M3. They further state that M3 “has not played a role in the monetary policy process for many years.”
I find that to be a bit fishy. The total amount of money in our system would have to be meaningful, in which case the Federal Reserve has to be calculating it. However, they are choosing not to report it. I guess we are left to ponder why. If they stopped reporting M1, they could easily say that M1 can be found in M2. Likewise, if they stopped reporting M2, they could say that the data was included in M3. But where are we to find the M3 data? Nowhere. I think that’s the point.
Because the current M3 — or total U.S. money supply — numbers are unavailable, we’ll have to use the last published numbers (March 2006) to get a ballpark idea of how much you and I would put in our pockets if we divvied up the U.S. money supply. As of early 2006, the United States money stock was as follows:
M1 $1.4 trillion
M2 (M1 + M2) $6.7 trillion
M3 (M2 + M3) $10.3 trillion
If we split the $10.3 trillion dollar M3 supply evenly among 305 million Americans, each of us would walk away with about $33,770. Of course, we probably wouldn’t cut checks to babies, so let’s run the numbers by household, assuming roughly 112 million United States households. That number comes to $91,964.
I almost can’t believe the numbers. If we divvied up the entire U.S. money supply, my family walks away with a measly $92k. Something must be missing, as that number is incredibly low. Most folks I know couldn’t even pay off their house and cars for $92k, much less have anything left over to buy necessities.
It turns out that the M1, M2, and M3 figures are flawed. For starters, M1 includes traveler’s checks. When you cash a traveler’s check, money is transferred from American Express, for example, to the holder of the check, but the amount of money in the economy does not change. Including traveler’s checks seems like double-counting to me.
Federal government deposits and Federal Reserve deposits are also excluded from the money supply. If the federal government collects $100 billion in taxes, $100 billion effectively leaves the money supply as it is transferred from M1 (our checking accounts) to the government’s account, which isn’t counted in the money supply. Excluding government and Federal Reserve deposits (which I’m assuming are a lot bigger than yours and mine) does certainly skew the money supply numbers.
As it turns out, the government doesn’t actually tell us how much money is in the United States money supply. It’s simply not reported. Too bad, as I was really looking forward to divvying it up and getting out of debt Dave Ramsey style.
What gives the U.S. dollar its value? The only thing that gives value to the U.S. dollar is the Federal Reserve’s ability to keep the currency stable. Deliberately hiding M3 isn’t exactly bolstering my confidence in the Federal Reserve.
by Wade Young
Mortgage Industry Professionals. Like what you see?
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