Federal Reserve

The Federal Reserve (FED) publishes weekly and monthly data on two 'money supply' measures in the U.S. economy in two categories M1 and M2.

* M1: The total amount of M0 (cash/coin) outside of the private banking system plus the amount of demand deposits, travelers checks and other checkable deposits

* M2: M1 + most savings accounts, money market accounts, retail money market mutual funds, and small denomination time deposits (certificates of deposit of under $100,000).

As recently as 2006, they also tracked the money supply within the M3 category, but discontinued publishing this data as they felt it "did not convey any additional information about economic activity compared to M2". (Federal Reserve Bank of New York) In addition, there are other categories the Federal Reserve tracks, along with multiple other reports which determine its overall monetary policy for the U.S. economy. (Federal Reserve Bank of New York)

As of November 17, 2011 the Federal Reserve reported that the U.S. dollar monetary base was $2,150,000,000,000. This was an increase of 28% in 2 years. The monetary base is only one component of money supply. M2, the broadest measure of money supply, increased from approximately $8.48 trillion to $9.61 trillion from November 2009 to October 2011. This is a 12.9% increase in U.S. of M2. (Federal Reserve, 2013)

Monetary policy and money supply fluctuate based on actions taken by the FED as a condition of the current economic reports they receive. If the Federal Reserve sees that inflation is increasing above their projected target rate they will raise the Fed Funds rate to influence banks decisions to slow the amount of money flowing into the overall market place. If the FED see conditions weakening in the overall economy they will lower rates to help increase the flow of money in the marketplace, by influencing banks to lend dollars so they can make a better return on their excess reserves. Recently, the FED has inserted more money into the economy by buying US Treasuries, or more recently mortgage backed securities from US financial institutions, businesses, or individuals. Their intent was to give banks more money in their reserve accounts to lend to borrowers and in theory help stimulate the overall economy.

Banks have been reluctant to lend money to consumers and businesses due to the effects of the 2008 financial crisis. While the Federal Reserve has tripled the monetary base since 2008 through the various Quantitative Easing ("QE") programs, the banks have primarily parked their reserves and excess balances in the amount of $1.5 trillion at the Federal Reserve rather than lending it to consumers and businesses. This was not the intent of the QE programs implemented by the Board of Governors at the Federal Reserve. A vast majority of banks are still dealing with their excess real estate inventory that caused problems in the first place. Simply put, banks would rather hold reserves safely at the Fed instead of lending money out in a struggling economy loaded with risk. The opportunity cost of holding reserves is low, while the risks in lending or investing seem high. Thus, at near-zero rates,