FEDERAL RESERVE STATISTICS SHOW THAT 11% OF THE MONEY SUPPLY IS IN BILLS AND COINS, COMPARED TO ONLY 8% 30 YEARS AGO.
What the heck should this mean to me? Is it inflation??
Well, we know that inflation really shouldn’t be our concern because in 1988, thirty years ago, inflation was at 4.5%. Today inflation is at 2.4%. Does this surprise you? Well, it might because the news harps on inflation every time they talk about the Federal Reserve potentially raising interest rates. We’ve got to dig in further than the news reports to really understand what is happening with our money.
Maybe society really isn’t going cashless?
I do believe we are finding unique ways to be cashless, digital wallets for example, but I am not sure we are that much more cashless than we used to be. On the surface, these numbers suggest we are not decreasing the cash we carry in our wallets. That’s a good thing. Our next generation needs to see us use cash and visually understand how money transactions work and impact our daily decisions. Please keep using cash!
Maybe it’s M2 that’s not growing as fast as the bills and coins in circulation?
So, the Federal Reserve groups the money supply into different levels and we used the group called M2 as the value for the U.S. money supply. It includes checking and savings accounts, money market accounts, money market mutual funds, travelers’ checks, CDs less than $100,000, and other checkable deposits. There are also values for M0, M1, and M3 (and a couple others if you want to get technical but why confuse the matter).
It could be that the M2 value didn’t grow as fast as the circulating bills and coins. I would suggest that with interest rates decreasing dramatically since 1988 (around 7.75% fed funds rate in 1988 to today 1.91%) would cause people to pull money out of their near 0% interest rate bank accounts and just hold it in bills or put it under the mattress!
Nonetheless, it’s kind of fun to see where money is moving in society and our perception of what is happening to it. Remember, don’t believe everything you see on the surface. Dig in and learn something! This is what makes you more confident about money and your decisions to use it to your advantage.
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