Friday, January 15, 2016

An unconventional view of money

Chris Rupe in a Guest Post at Economic Edge:
This is an unconventional view of money...

I have never liked any of the monetary statistics as compiled and named, M0, M1, M2, MZM, etc. I find them too narrowly focused on the liability side of U.S. bank balance sheets. A lot of money is missing in that view. Much of it is obscured by multiplier effects due to the advent of off-balance sheet entities. Some is not counted. Cash held by foreign central banks for example.

The way I see it, all loans must be originated by U.S. banks whether or not they are held on or off balance sheet. This is a distinctly asset side of bank balance sheet view of money. And ALL of this money is accounted for in the Federal Reserve Z.1 as Total Credit Market Debt. So, I have sometimes referred to this statistic as ‘Mtotal’.

I like it. Not sure I get his reasoning. But Total Credit Market Debt gives a very good indication of how far we have stretched our money. Myself, I like to compare it to M1 money, because M1 is the money we can use to pay back debt. That's an important yardstick, I think. I'm glad to see somebody else thinking along related lines.

The post at Economic Edge is an old one. FRED's "Total Credit Market Debt" series TCMDO has since had a name change -- not "debt" now, but "liabilities" -- and, more recently, has been discontinued altogether. I looked at the replacement. See the last graph here.

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