U.S. Money Supply Hits Historic $22.1 Trillion Amid Fiscal Dominance

The U.S. money supply has reached a historic high of $22.1 trillion, surpassing previous peaks even during the COVID-19 stimulus era. This increase marks a significant moment in economic history, as the M2 money supply has begun rising again after a rare contraction earlier this year.

In July, M2 grew by 4.8% year-over-year, the fastest rate since early 2022. The growth is attributed to a combination of massive government spending, the Treasury draining its cash reserves, and the Federal Reserve stepping back from aggressive tightening measures.

This resurgence in the money supply echoes trends seen in 2020 when M2 surged before inflation became evident. Economists are now observing a situation referred to as fiscal dominance, where substantial government spending overshadows the central bank"s efforts to manage interest rates or the overall money supply.

The implications of this trend could be significant, as it raises questions about future inflation rates. As previously reported, the velocity of money can play a critical role in determining how quickly inflation may manifest, potentially leading to economic instability if not carefully monitored.