Correlation between M1 and M2

23 set 2020

There are lot's of people claiming that an expansion of the balance sheet (M1) does not lead to an inflation of the monetary supply (M2) since the additional reserves created by the Fed can't be spent by the primary banks that receive them. This fails to account for the fact that the financial institutions that sold the bonds to the primary banks (who in turn sold them to the Fed) did receive spendable currency, and that there are less debt instruments on the market after the purchase than before, creating the space for companies to issue further debt. This chart demonstrates that a significant correlation between the two does in fact exist.

23 set 2020

Nota

This chart is useless since M2 includes M1, so you should actually compare M1 with M2-M1.