18 months ago, the Treasury and the Fed embarked on unprecedented measures to save the US economy from collapse.  On Friday, Treasury reported that repayments of TARP exceeded loans for the first time. So I got to thinking:  did the much-vaunted monetary policy strategy have much to do with the stabilization?

First, a quick refresher from my “Monetary Policy is Working–A Little” post back in November 2008:

1. 1. The Fed did everything it could to fuel the money supply¹  in late 2008.  In 2 months, it increased the base money supply by 43%

      

   2. The Fed’s efforts dwarfed analogous (but much smaller) efforts after 9/11 to keep the economy from tanking:

      

   3. At the time, everyone understood that, while the Fed could increase the base money supply, it can only effect “narrow money,” and it would take a while for the broader money supply (including credit) to feel the impact.

So, what were the results. ::drum roll::

You will be forgiven for thinking that the results are a whole lot of nothing.  They basically are:  a completely unprecedented, roughly $1.5 trillion increase in the money supply, and zero noticeable impact?! What gives?  Our expectations.  ed note 7/5/2010:  stay tuned for a post explaining why the Fed’s printing money didn’t work.

I’ll close with one more interesting statistic:  thanks to the John Williams at Shadow Government Statistics, we can track an old friend.  For the past three months, M3, the broadest measure of the money supply, and a statistic no longer tracked by the Fed, has been growing increasingly slowly.  Just this month, it stopped growing altogether.   M3 contains all of the money supply measured by M2 but also includes all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

What’s going on here?  Unfortunately, it is clear that the Fed’s monetary expansion simply didn’t result in a broader money supply increase. In fact, there was a contraction. One could argue that the money multiplier was therefore negative.

ed note 7/5/2010: stay tuned for a post about why monetary base expansion worked better in China than the US.

1. For an excellent explanation of all these money supply measures, see http://www.shadowstats.com/article/money-supply. [↩]