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Measuring The Money Supply: There Is A Better Way


Readers Report

MEASURING THE MONEY SUPPLY: THERE IS A BETTER WAY

As for the complaint that the money supply isn't growing sufficiently ("Memo to Democrats: Read Alan's lips," Top of the News, Aug. 3), it's time for critics to wake up to a fact that the Fed finally realized: M2 doesn't really reflect what is happening with money. But M1 does, and it has been soaring since last August! It must be apparent that billions of dollars have been flowing out of M2 categories of CDs, money market funds, and savings accounts into stocks and bonds via transaction balances (M1). So there's plenty of money around, not to mention a speedup in velocity, and sooner or later, business activity will pick up. By the way, long-term interest rates won't fall much more as long as investors expect inflation to average 3% to 4%--and it will, at the least.

Edward R. McMillan

Senior Vice-President/Chief Economist

Rainier National Bank

Seattle


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