What Is The Money Supply?
The United States money supply is the amount of currency and coins that are issued, and are currently in circulation, by the Federal Reserve and the Treasury of the United States. This also includes a variety of deposits at commercial banks and other financial institutions. In 2004, the money supply was counted to measure more than $1.333 billion, which included currency and checking account deposits. Add the savings accounts and it topped $6.275 billion. One more measure that included more funds easily exceeded more than $9.275 billion. There are three measures of money, and each of these corresponds to those.
The first measure is a narrow measure of money as it functions for a means of exchange, noted as M1. The second measure, known as M2, reflects the stored value of money and its function to be valuable in storage. M3, which is the third measure, covers everything that closely relates to money and can be substituted for it, including credit accounts.
There is no exact definition of money, other than it is that which is a form of spendable means within an economy. This has varied from gold and silver to paper money, and even now to checking accounts and savings accounts.
The money supply is important because money is used in almost all economic transactions. It is largely blamed for the effect on the economy, and can often make or break a society as a whole. Increasing the money supply serves to lower interest rates, which then leads to investment increases. Putting more money into the hands of consumers makes them feel wealthier and causes them to spend more money, which helps the economy to prosper. It is all a vicious cycle, in reality. Money is spent to give people money so that they can spend money, allowing the government to have a better economy where they can spend more money. And on the cycle goes as we see especially today with the recent Economic Stimulus package signed by President Obama.
Stock market prices will rise, and business will increase, increasing the demand for goods. When things are not going well and the public awaits inflation, there are often raises in interest rates that will offset the decline of the economy due to this inflation. If the supply of money fails, then it is adios to the economy.
Take a look at the United States right now. No one has money to lend or spend, and no one can find money to borrow. Jobs are being lost, mortgage loans are defaulting, and the biggest banks in the country are begging the government to save them from their own demise. So the government pumps money into the banks, which boosts the economy and provides more money to the consumer, and the cycle starts all over again. The money supply is an ever-changing means of measuring an economy and its relevant success and stature.
While the economy collapses and government keeps spending more of your money, maybe it’s a good idea to invest in gold coins.