As of September 21, M2 totaled $18.6 trillion. That’s right, trillion with a “T.” To put this in perspective, economic output (i.e. GDP) in the U.S. before COVID-19 hit was $21.4 trillion. Despite a once-in-a-generation economic shock ushered in by the worst global pandemic in 100 years, the amount of M2 circulating through the economy is up an astounding $3.6 trillion (or 24%) year-over-year!
This is remarkable considering the lost wages and economic activity during this recession. Of course, the approximately $5-6 trillion in total monetary (Fed) and fiscal (Congress) stimulus over the last several months may have something to do with it.
While we should be thankful that such stimulus arrived quickly, the economy has reached a conundrum. While everyone would like it to recover sooner, simply throwing a lot more cash at the problem doesn’t appear to be the best solution. Judging by that extra $3.6 trillion of cash sitting on the sidelines, much of the stimulus either went to people who do not need it or who aren’t willing to spend it at the moment.
Although Washington is currently in a stalemate regarding how many trillions more to spend on the next round of stimulus, the dollar amount is not the most important factor in the long run.
WHAT IS LACKING IS CONFIDENCE, NOT CASH
Many consumers are hunkered down due to reduced incomes or are simply not spending as much money on the things they normally enjoy, such as travel and eating out. Uncertainty over the impending presidential election, Congress, and/or Supreme Court nominee certainly isn’t helping business confidence, either. Our economy seems to be in a “holding pattern” until the virus is defeated, both medically and politically.
American confidence has been shaken. Blame it on COVID, Chinese and Russian hackers, police brutality, protests, sub-par political leadership (on both sides), or whatever else.