Money-Supply Growth Turns Negative for First Time in 33 Years

Money supply growth fell again in November, and this time it turned negative for the first time in 33 years. November’s drop continues a steep downward trend from the unprecedented highs experienced during much of the past two years. During the thirteen months between April 2020 and April 2021, money supply growth in the United States often climbed above 35 percent year over year, well above even the “high” levels experienced from 2009 to 2013. 

Since then, the money supply growth has slowed quickly, and we’re now seeing the first time the money supply has actually contracted since the 1980s. The last time the year-over-year change in the money supply slipped into negative territory was in February of 1989. At that time, negative growth continued for 12 months, finally turning positive again in February of 1990. 

During November 2022, year-over-year (YOY) growth in the money supply was at -0.28 percent. That’s down from October’s rate of 2.59 percent, and down from November 2021’s rate of 6.66 percent. 

The money supply metric used here—the “true” or Rothbard-Salerno money supply measure (TMS)—is the metric developed by Murray Rothbard and Joseph Salerno, and is designed to provide a better measure of money supply fluctuations than M2. The Mises Institute now offers regular updates on this metric and its growth. This measure of the money supply differs from M2 in that it includes Treasury deposits at the Fed (and excludes short-time deposits and retail money funds).

In recent months, M2 growth rates have followed a similar course to TMS growth rates. In November 2022, the M2 growth rate was -0.03 percent. That’s down from October’s growth rate of 1.25 percent. November’s rate was also well down from November 2021’s rate of 12.40 percent. 

Money supply growth can often be a helpful measure of economic activity, and an indicator of coming recessions. During periods of economic boom, money supply tends to grow quickly as commercial banks make