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Graph of the Week 4/30/2012: Monetary Base

Last week the FOMC (Federal Open Market Committee) met and in their announcement said "the Committee expects to maintain a highly accommodative stance for monetary policy." To illustrate what a highly accommodative stance looks like, the Graph of the Week shows the level of the monetary base from1990 to the present.

Monetary Base

The monetary base is the amount of currency outside the Federal Reserve system, plus all deposits held by depository institutions as reserves at the Fed. When I was in school studying economics in the (cough, cough) late 70's and early 80's, the monetary base and the other monetary aggregates were carefully scrutinized. Why? Too rapid growth in the money supply would set off inflation. This isn't the place to go into a whole explanation of monetary theory (maybe there should be an essay called "The Quantity Equation and All That") but lets just say that growth like this would have set off the hyperinflationary alarm bells. (Well, those alarms are going off in some places, but not at FOMC meetings, apparently.)

The jumping-off point, as you may have guessed, was September 2008, at the time of the Lehman Brothers failure.

 

Graph of the Week Index

 

 

 

 

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