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First off, I'm not an economist, I'm just trying to understand how the global monetary system actually works, so I might get some things wrong here.

The US M2 money supply has been growing for the past 6 months and I'm struggling to understand why. All the metrics I usually look at seem to indicate a shrinking money supply. The balance sheet of the Federal Reserve is shrinking which means they are reducing their assets and thereby taking reserves out of the system (Quantitative Tightening). The reverse repo has been relatively stable over the last 6 months. The Treasury General Account also has been relatively stable over that time period. This all makes me wonder where that increase in M2 is actually coming from. Is it just the banks lending more money? But aren't they constrained by the amount of bank reserves in the system? Or is it foreign governments reducing their USD holdings? Which charts do I need to look at to understand where this increase in M2 is coming from?

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US doesn't have reserve requirements anymore since late 2010s. It is virtually impossible to trace this to specific source from macro data.

The lending in US did increase so it could be partially due to increased lending. Another reason is the increase in currency in circulation, which is controlled by the treasury.

However, due to endogenous nature of broader money supply its not really possible to track where every single dollar comes from, but I believe the above, likely explains great portion of recent increase.

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  • $\begingroup$ These two charts only show an increase of about 30 and 24 billion USD while M2 has increased by over 400 billion USD since February 2024. $\endgroup$
    – user142
    Commented Oct 2 at 13:58
  • $\begingroup$ @user142 yes but as explained in my answer there is no way to get 1:1 correspondence. For example, when loan is created that increases money supply but as the money is spent and deposited that again increases money supply. Similarly, that increase in currency endogenously increase also demand for lending from non-banking institutions that does not show on that statistics. Furthermore, I do not have data for all types of lending by banks, I showed data for consumer lending, and just assumed other lending will follow same pattern (which is not crazy unreasonable assumption). In case you look $\endgroup$
    – 1muflon1 ♦
    Commented Oct 2 at 14:04
  • $\begingroup$ for answer that will explain every single dollar, I am afraid that is literally impossible. There isnt some simple accounting correspondence between these aggregates. $\endgroup$
    – 1muflon1 ♦
    Commented Oct 2 at 14:05
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    $\begingroup$ “Loans and leases in bank credit” on the Fed H8 report table 3 has increased by about 150bn since Feb 2024. $\endgroup$
    – dm63
    Commented Oct 3 at 11:07

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