Overview:

The data represents the M1 and M2 money supply from the year 1959 to 2023. The M1 money supply typically includes physical currency and coin, demand deposits, travelers’ checks, and other checkable deposits. M2 money supply includes M1 plus savings accounts, time deposits below $100,000, and balances in retail money market mutual funds.

Key Observations:

1. Steady Growth (1959-2019): From 1959 to 2019, both M1 and M2 money supplies showed a consistent increase. The percentage change in M1 and M2 also remained positive, indicating a growing economy.

2. Significant Spike in 2020: There was an unprecedented increase in the M1 money supply in 2020, with a 232.4% change from the previous year. M2 also saw a significant rise of 19.1%. This could be attributed to various factors, including economic policies, stimulus packages, or responses to global events such as the COVID-19 pandemic.

3. Continued Growth in 2021: In 2021, the M1 money supply increased by 51.6%, and M2 increased by 16.3%. While this growth is substantial, it’s less aggressive than the spike observed in 2020.

4. Sharp Decline in 2023: A significant drop is observed in 2023, with M1 decreasing by 38.6% and M2 by 35.3%. This sharp decline is unusual and could be indicative of economic contraction, policy changes, or other significant events impacting the money supply.

5. Decade-wise Analysis:

   • 1960s: The decade started with a slight decrease in M1 but saw consistent growth in both M1 and M2 throughout the decade.
   • 1970s: This decade experienced steady growth, with both M1 and M2 almost tripling by the end of the decade.
   • 1980s: The growth rate of M1 and M2 was substantial, especially in the early ’80s.
   • 1990s: The growth rate slowed down compared to the ’80s but remained positive.
   • 2000s: The early 2000s saw moderate growth, with a significant spike in 2008 and 2009.
   • 2010s: The decade started with a steady increase, with a noticeable jump in 2020 and 2021.
   • 2020s: The data for this decade is incomplete, but the sharp decline in 2023 stands out.

Potential Implications:

• The sharp increase in the money supply in 2020 and 2021 could lead to inflationary pressures if the supply of goods and services doesn’t match the increased money supply.

• The significant drop in 2023 might indicate economic contraction, which could have implications for employment, GDP, and overall economic health.

• Policy changes, global events, and economic interventions could be factors influencing these drastic changes in the money supply.

Conclusion:

The M1 and M2 money supply data provides valuable insights into the economic health and policies of a country over the years. While the data shows consistent growth for most years, the significant fluctuations in recent years (2020-2023) warrant a deeper investigation into the underlying causes and potential implications for the economy. For part 1: here.

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by: Lindsay Alston