We’ve taken to following a measure of money supply that adds together M2 and the only surviving component of M3: institutional money funds. As you can see below, it has been falling since June of 2009 and is now down year-over-year. Money supply spent all of 2009 in a deceleration pattern, a period in which we had actual CPI deflation, a rare event. Since the peak in June of 2009, this measure of money supply has dropped $314 billion from a peak of nearly $11 trillion.
On Friday, I wrote about my deflationary interpretation of the CPI number and stirred up a pretty intense debate over at Seeking Alpha.
Over the weekend, the boys over at Annaly Capital discussed their unique way of looking at the inflation/money supply picture:
This chart shows the rare deflationary forces that are currently at work. This is the broadest measure of the money supply currently available and its declining for the first time since the great depression. If that doesn't scream deleveraging I don't know what would.