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  1. I’m very much a novice when it comes to macro economics but I’m trying to understand how liquidity is tightening in the US when M2 money supply has increased by ~$200 Billion over the last 6 months. Is deficit spending essentially creating money faster then the fed is destroying it?

    1. Hi Eric,

      Thank you for your comment/question.

      The answer is that M2 no longer adequately measures Liquidity in the US because it does not incorporate the money that has accumulated on the liabilities side of the Fed’s balance sheet as “Reverse Repurchase Agreements, Others”.

      This was explained in a recent Macro Watch video called “Liquidity Is Tightening. Watch Out!” Here’s a link to the blog that describes that video:


      According to the St Louis Fed, M2 is up $90 billion from its low on May 1st. But Reverse Repos, Others are down $561 billion.

      In addition to that, the money locked away in the Treasury General account has increased by $450 billion since the end of May. That has also drained liquidity.

      If this is really a subject that interests you, please consider subscribing to Macro Watch.

      With kind regards,


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