Did the Fed Stop Reporting the Money Supply (M2)? Why Inflation is Coming Back

“Inflation is not a problem for this time as near as I can figure. Right now, M2 [money supply] does not really have important implications. It is something we have to unlearn.” — Jay Powell, Fed Chairman

Reports are circulating that the Federal Reserve has given up on reporting the money supply because it’s a misleading guide to economic growth and price inflation.

The broad-based M2 has been growing at double-digit-percentage rates for several years — M2 is up by 25% in the past year — yet price inflation (Consumer Price Index) is still hobbling along at 2% a year.

Last week, Fed Chairman Jay Powell said he has given up on the money supply as an indicator of the economy and inflation.

Is monetarism dead?

I checked into the rumor that M2 is no longer being measured by the central bank, and found that they have discontinued the standard M2 data on a weekly basis, and have substituted this new M2 measure on a monthly basis. Click here for more details.

This new measure, “M2SL,” still shows a dramatic rise in money-supply growth in 2020 and 2021.

Based on the price action of treasury inflation-protected securities (TIPS), inflationary expectations are rising.

Robert Mundell, Father of the Euro and Supply-Side Economics, R.I.P.

“The ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood… Sooner or later, it is ideas, not vested interests, which are dangerous for good or evil.” — John Maynard Keynes (1936)

Last week, Nobel prize economist Robert Mundell died at the ripe old age of 88. He won the Nobel prize in 1999 for being both the Father of the Euro and the Father of Supply-Side Economics. He was a giant in the economic landscape.

Last month, over 800 economists voted in our poll, “Which four economists belong on Mount Rushmore?” (we’re holding our FreedomFest conference there July 21-24).

Supply-Side Economics Wins (in the 1980s)!

Mundell was not eligible since he was still alive. Several economists, such as Art Laffer (of Laffer Curve fame) voted for him anyway. “Bob Mundell changed the world all for the better. I loved him dearly and believe him to be the greatest economist of at least the past century.”

In the inflationary 1970s, Mundell advocated a unique strategy to get us out of the malaise of stagflation (slow growth and high inflation): impose tight money to control inflation and cut taxes to stimulate production. Thus, was born “supply-side economics.”

That’s exactly what Ronald Reagan did when he became president. He cut taxes and tightened credit in the early 1980s. Reaganomics proved to be a big success as we entered a period of recovery and low inflation (and even lower interest rates).

Meeting Mundell in Chicago

I met Mundell back in January 2012 going to the American Economic Association (AEA) meetings in Chicago, home of the famed Chicago School of Milton Friedman. I wrote at the time:

Meeting Robert Mundell in Chicago in 2012.

“I did get a chance to interview free-market economist and Nobel Prize winner Robert Mundell. We were on the same flight together to and from New York. He was appalled by the ‘crude’ Keynesians [Paul Krugman, Larry Summers] at the AEA meeting who advocated all-out inflationary policies.

“What about the future of the euro and the Eurozone?” I asked. Mundell is considered the father of the euro. “Some countries, like Greece, will have to default on their debt, but the euro is here to stay, and the EU will survive,” he predicted.

Mundell, no doubt, would reject out of hand Robert Barro’s op-ed in yesterday’s Wall Street Journal that the euro be disbanded. (If Barro’s prediction came true, it would wreak havoc in the global stock market.)”

Mundell has been proven right, so far. The euro has survived Brexit and the Greek debt crisis. A European Union makes economic sense to have one large area where labor, capital and money can move around efficiently, all under one currency. As Spanish economist Jesus Huerta de Soto notes, the euro acts like the gold standard to provide stability and price competition in the eurozone.

That’s the genius of the United States of America. It’s the largest “free trade” zone in the world and is one reason it and the dollar have dominated the world economically.

Who Are the Most Influential Economists?

This July, we will announce what four economists belong on Mount Rushmore at a special session at FreedomFest. You will be surprised at who the winners are.

As far as the most influential, they would definitely have to include these “Big Three in Economics”:

18^th Century Choice: Adam Smith, the Scottish economist who wrote “The Wealth of Nations” in 1776 — a declaration of economic independence. He advocated free trade and a “system of natural liberty.” He is considered the father of modern economics.

19^th Century: Karl Marx, the German economist and philosopher, considered the most vociferous critic of capitalism ever. Despite the collapse of the Soviet central planning model, his theories of exploitation, alienation and inequality have had a devastating impact throughout the world and still are popular in universities and political institutions.

20^th Century: John Maynard Keynes, the British economist, is considered the most impactful economist in the 20^th century since the Great Depression. Both Republican and Democratic presidents have pursued Keynesian “big spending” policies to stimulate the economy, leaving a legacy of slow growth, the welfare state and excessive national debt.

What About the 21^st Century?

The fourth most influential economist is up for debate. It could be Mundell. It could be Keynesians Paul Krugman or Joe Stiglitz.

I nominate Milton Friedman in my book, “The Making of Modern Economics” with a title he loved: “Milton’s Paradise: Friedman Leads a Monetary Counterrevolution.”

Friedman made many positive contributions. He brought back the importance of monetary policy: how to get inflation under control and bring interest rates down. He made the case for eliminating the draft and encouraging school choice.

 Understand How the Economy Works in One Book

Want to read the thrilling episodes of the great economic thinkers and how they changed the world? Get a copy of my book, “The Making of Modern Economics.” John Mackey, CEO of Whole Foods Market, says, “Mark’s book is fun to read on every page. I’ve read it three times, and recommend it to all my friends.” The retail price is $49, but you pay only $35. I autograph all copies and mail them at no extra charge if mailed inside the United States. To order go to www.skousenbooks.com.

Milton Friedman said it best: “All histories of economics are BS — Before Skousen!”

Special Sessions at FreedomFest

We’re planning some special events at this year’s FreedomFest, July 21-24, at the Rushmore Civic Center.

I will moderate a special panel/debate on this question, “Who deserves to be on the ‘Mount Rushmore of Economists’?” Who are the most influential economists? Who advocated the soundest economics?

Our panelists will be Steve Moore (Heritage Foundation), Deirdre Nansen McCloskey (the University of Illinois at Chicago), Barbara Kolm (Austrian Economics Center) and Mark Perry (American Enterprise Institute). Let the debate begin!

We are also planning a debate on Murray Rothbard’s “Conceived in Liberty” series on the Constitution — did it guarantee limited government and increase government power?

Bitcoin is all the rage this year. Has it replaced gold as the ultimate inflation hedge? Adrian Day will moderate this debate.

We will also have a fiery debate between John Mackey (Conscious Capitalism) and Yaron Brook (Ayn Rand Institute) about “Profits — is that All that Matters?”

Plus, the mock trial: “Was the Lockdown Necessary to Stop the Pandemic?” with Tom Woods as the judge.

This year’s FreedomFest is going to be bigger and more influential than ever before, with over 1,600 people already registered. As John Fund (senior writer, National Review) says, “FreedomFest doesn’t just ride the wave, it invents the wave.” He and 200 other movers and shakers (including Eagle financial gurus Jim Woods, Hilary Kramer and yours truly) will meet this July 21-24 in Rapid City, South Dakota, near Mount Rushmore.

Special Thanks to Subscribers

I thank all those subscribers who have signed up for our private meeting in South Dakota on Thursday, July 22. Glad to hear that 222 of you are coming so far! The meeting will take place at the historic Alex Johnson Hotel in Rapid City, South Dakota, where six presidents have stayed, including Ronald Reagan.

We have split the private meeting into two groups, so we can accommodate all the subscribers who wish to attend. Each subscriber (or couple) will receive a 2021 American Eagle silver dollar and a numbered, autographed copy of the new 10^th anniversary of “The Maxims of Wall Street.” I will also have a special surprise guest at our private meeting you won’t want to miss.

Use code EAGLE50 to get a $50 discount on the regular conference fee. Special discount for students and young professionals. Go to www.freedomfest.com, or call Hayley at 1-855-850-3733, ext. 202.

Fly there, drive there, bike there, RV there, be there!

You Blew it!

U.S. Mint Blunders in Redesigning American Eagle Silver Dollar

It’s not often that the U.S. Mint releases a perfectly designed silver dollar, but the American Eagle Silver Dollar is a gem.

It has all the ideals of America inscribed in the one-ounce legal tender coin. On the front side, a portrait of Lady Liberty, the motto “In God We Trust” and the rising sun, Ben Franklin’s favorite symbol of America.

On the backside, it has 13 stars representing the original colonies, and the American bald eagle, carrying the ribbon “e Pluribus Unum” and the arrows in one claw (representing war) and palm leaves in the other (representing peace).

The eagle is perfectly symmetric, far better than the obverse side of the official gold coin.

But, for some odd reason, the U.S. Mint decided that it needed to make a change. Now, it’s just an eagle landing on a branch. It is pretty lame and no longer symmetric. What a shame. You can’t improve upon perfection.