Velocities of M2 & MZM

I wrote a post about the velocity of M2 money supply. There were comments that the M2 money supply is a dying indicator. Well, let’s look…

There are 3 indicators for the money supply, M1, M2 and MZM. M1 is the narrowest. MZM is the broadest. M2 is in the middle.

“M1 is the money supply of currency in circulation (notes and coins, traveler’s checks [non-bank issuers], demand deposits, and checkable deposits). A decreasing velocity of M1 might indicate fewer short- term consumption transactions are taking place. We can think of shorter- term transactions as consumption we might make on an everyday basis.
The broader M2 component includes M1 in addition to saving deposits, certificates of deposit (less than $100,000), and money market deposits for individuals. Comparing the velocities of M1 and M2 provides some insight into how quickly the economy is spending and how quickly it is saving.
MZM (money with zero maturity) is the broadest component and consists of the supply of financial assets redeemable at par on demand: notes and coins in circulation, traveler’s checks (non-bank issuers), demand deposits, other checkable deposits, savings deposits, and all money market funds. The velocity of MZM helps determine how often financial assets are switching hands within the economy.” (from notes in FRED)

Here we compare the two broadest measures, M2 with MZM, year over year % change.

m2 mzm

If  you squint, you might see the difference in this business cycle. ¯\_(ツ)_/¯

The bottom line is that the general velocity of money supply is declining throughout this business cycle. That is a continual drag on prices and output.