As a reminder, I wrote in my previous article that…
I showed in the previous article that, despite the decision by Ben Bernanke when he took up his post as chairman of the Fed in February 2006 to stop the publication of data on the total money supply M3 in the United States, it is possible to use another concept to highlight the relationship between changes in the money supply held by Americans and changes in real GDP…
In fact, this money supply held by Americans is equal to the sum of the monetary aggregate M2 (whose figures are still published by the Fed) and money market mutual funds (MMMF).
The increase in this money supply held by Americans leads to a fall in real GDP, and vice versa, which has been true over the long period since these data have been published by our friend Fred from Saint Louis.
More specifically, it is the variation in what I call the free money supply, which is the difference between, on the one hand, the variation (from one year to the next in percentage terms) in this money supply defined by the sum of the monetary aggregate M2 and deposits in money market funds (MMMF), and on the other hand (minus) the variation in real GDP, which causes an inverse reaction in real GDP.
However, there was still a significant difference between the data based on the M3 money supply and the entity constituted by the M2 monetary aggregate and money market mutual funds (MMMF).
Logically, this difference corresponds to the overall cash flow of companies Corporate net cash flow, CNCF code.
Indeed, the curve representing the entity made up of the M2 monetary aggregate, money market mutual funds (MMMF) and Corporate net cash flow (CNCF) coincides with that of the M3 money supply 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 confirmed: the entity constituted by the M2 monetary aggregate, money market mutual funds (MMMF) and Corporate net cash flow (CNCF) is indeed identical to that of the M3 money supply.
For information, the representation of these three entities shows that it is mainly the M2 monetary aggregate that generates the bulk of the increase in the money supply after 2020…
Document 2:
… which is confirmed by the representation of the evolution of each of these entities over the long period,
Document 3:
This law of the free money supply is therefore perfectly respected using the data of this entity made up of the M2 monetary aggregate, money market mutual funds (MMMF) and Corporate net cash flow (CNCF) for the period covered by these statistics from 1976 to the end of 2024…
Document 4:
… and these curves are in line with those obtained from the M2 monetary aggregate alone,
Document 5:
The difference between the variations in the free money supply calculated with this entity made up of the M2 monetary aggregate, money market mutual funds (MMMF) and Corporate net cash flow (CNCF) and the M2 monetary aggregate is small and the conclusions that can be drawn from it are identical.
Document 6:
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The analysis of the variations in the money supply in circulation in the United States defined on the basis of this entity made up of the M2 monetary aggregate, money market mutual funds (MMMF) and Corporate net cash flow (and also to a certain extent those of the M2 monetary aggregate) therefore makes it possible to reliably predict the variations in real GDP.
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