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US M2 Money Supply Hits Record $22.6 Trillion, Stoking Dollar Value Concerns

Source

Doohyun Hwang

Summary

The US M2 money supply reached a record $22.6 trillion, adding to concerns over the dollar’s declining value.
A sharp rise in the M2 money supply can lift risk-asset prices, including cryptocurrencies, by expanding market liquidity.
Still, the war between the US and Iran, higher-for-longer interest rates, and inflation concerns could offset the liquidity effect, leaving it uncertain whether investors will shift into risk assets.

Forecast Trend Report by Period

The US money supply has climbed to a record, adding to concerns about the dollar’s eroding purchasing power.

The Kobeissi Letter wrote on April 10 that US M2, a broad measure of money supply, rose 4.8% from a year earlier to $22.6 trillion in February. The increase marked a 24th straight month of gains and the highest level on record.

That is about $700 billion above the previous peak in March 2022, just before the Federal Reserve began raising interest rates in earnest. Since the 2020 pandemic, M2 has expanded by a total of $7.1 trillion. That means roughly $1.2 trillion of liquidity has been added to the market each year on average.

Since 2000, US money supply has grown at an average annual rate of 6.2%, the Kobeissi Letter said. “The US dollar is losing purchasing power at a historic pace,” it wrote.

M2 refers to the total amount of money in circulation, including cash, short-term deposits and money market funds. A sharp increase in M2 typically boosts market liquidity, providing support for risk assets such as cryptocurrencies.

Still, the recent war between the US and Iran remains a variable. Delayed interest-rate cuts and renewed inflation concerns could offset the impact of added liquidity if geopolitical risks keep borrowing costs elevated. That makes it unclear whether the increase in M2 will immediately translate into stronger demand for risk assets.