M1 has increased massively during the current pandemic. Below is an image from Fred St. Louis. Similar picture emerges from other countries.
According to Fed data, the increase is due to a rapid increase in demand deposits:
These are defined as:
Demand deposits at domestically chartered commercial banks, U.S. branches and agencies of foreign banks, and Edge Act corporations (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float.
- Is this because people are spending less?
- But doesn't money people spend goes to companies' current accounts (demand deposits), which they pay their suppliers and employees ino their current accounts, which they pay their esuppliers and employees into their current accounts, and so on?
- Is it instead explained by money transfers from the government to individuals as part of covid relief measures?