Update for data for the month of May 2025, which is the most recent data published to date…
As a reminder, I wrote in my previous articles that despite the decision by Ben Bernanke to stop publishing data on the M3 money supply in the United States when he took office as Fed chairman in February 2006, it is possible to use another concept to highlight the relationship between changes in the M3 money supply held by Americans and those in real GDP…
In fact, this total money supply in the United States, which I denote M3r (with an r to indicate that this money supply is revised), i.e. held by Americans, is equal to the sum of the monetary aggregate M2 (the figures for which are still published monthly by the Fed), money market mutual funds (MMMF), and corporate net cash flow (CNCF).
To simplify, an increase in this M3r money supply held by Americans leads to a decline in real GDP, and vice versa, which has been true over the long term, since these data have been published by our friend Fred in St. Louis.
More precisely, it is the change in what I call the free money supply M3r, which is the difference between, on the one hand, the change (year-on-year in percentage terms) in this money supply M3r defined as the sum of the monetary aggregate M2, deposits in money market mutual funds (MMMF) and corporate net cash flow (Corporate net cash flow, CNCF), and, on the other hand, (minus) the variation in real GDP (year-on-year in percentage terms), which causes an inverse reaction in real GDP.
Indeed, the curve representing the money supply M3r consisting of the monetary aggregate M2, money market mutual funds (MMMF) and Corporate net cash flow (CNCF) coincides with that of the money supply M3 for the period prior to 1990, and these two curves tend to converge in 2006 after a certain divergence.
Document 1:
The accuracy of my approach is therefore ultimately confirmed: the money supply M3r, consisting of the monetary aggregate M2, money market mutual funds (MMMFs) and corporate net cash flow (CNCF), is indeed identical to the money supply M3 as published by the Fed until February 2006.
For information, the representation of these entities shows that it is mainly the monetary aggregate M2 that generates most of the extraordinary increase in the money supply after 2020, as shown by the dotted line, which logically extends the trend that should have been that of the monetary aggregate M2…
Document 2:
… which is confirmed by the representation of the evolution of each of these entities over the long term, with deposits in money market mutual funds also experiencing an extraordinary increase, while corporate cash flows have been declining since the beginning of 2025.
Document 3:
This law of free money supply M3r is therefore perfectly respected when using data from this money supply M3r, which consists of the monetary aggregate M2, money market mutual funds (MMMF) and corporate net cash flow (CNCF) for the period covered by these statistics from 1976 to May 2025, the latest figures published to date by the Fed,
Document 4:
The fifth-order polynomial curves clearly show, on the one hand, the alternating opposition between changes in real GDP and changes in the free money supply M3r and, on the other hand, their unchanging opposition since the 2000s due to the persistence of monetary hypertrophy, which has never been resolved!
Document 5:
A close-up of the period beginning in January 2000 clearly highlights this law of free money supply M3r and, above all, shows that this free money supply M3r continues to increase (by 4.62% year-on-year), which means that real GDP growth (+1.1% year-on-year) is also continuing to decline and will plunge into negative territory in the very near future… which has already happened in the first quarter of 2025 compared to the previous quarter!
Document 6:
Data published at the end of June on corporate cash flows show that they fell in the first quarter of 2025 compared to the previous quarter by $172 billion, which has the effect of reducing the increase in the free money supply M3r and therefore, paradoxically, the decline in real GDP in the future!
In fact, the increase in free money supply M3r was 4.82% according to previously published figures, compared with 4.62% currently, see my previous article on this subject.
The arithmetic trend lines for year-on-year changes in GDP (at 2%) and M3r (at 4%) are almost parallel (with a very slight convergence) with an axis of symmetry at 3%.
Document 7:
The curves representing the money supply M3r are consistent with those obtained from the single monetary aggregate M2,
Document 8:
Zoom in on the period at the beginning of the 21st century,
Document 9:
The difference between the changes in the free money supply M3r calculated using this entity consisting of the monetary aggregate M2, money market mutual funds (MMMF) and corporate net cash flow (CNCF) and the variations in the monetary aggregate M2 alone can be significant, but it is currently low and the conclusions that can be drawn are identical because these variations always occur in the same direction.
Document 10:
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The analysis of changes in the money supply in the United States, defined on the basis of the free money supply M3r, consisting of the monetary aggregate M2, money market mutual funds (MMMFs) and corporate net cash flow (and also, to a certain extent, using data from the monetary aggregate M2 alone), therefore makes it possible to reliably predict changes in real GDP.
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The data on money market mutual funds (MMMFs) are those coded MMMFFAQ027S. Click here to access them.
Real GDP data for the second quarter of 2025 are estimated by iteration to be slightly lower (by $30 billion) than in the previous quarter. Current GDP is estimated at €30,200 billion, in line with data from previous quarters.
The data for the first quarter of 2025 for money market mutual funds (MMMF) and corporate net cash flow (CNCF) are those published by the authorities and reported by our friend Fred de Saint Louis.
Click here to read my article in French on this subject.
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