Cash beginning to be mobilized in markets and the real economy

After unprecedented growth in cash held in banks in response to the 2008 financial crisis, the European debt crisis, U.S. debt ceiling panic attack, fear over the Presidential election and the “fiscal cliff” – we are beginning to see billions of dollars start to flow back into the markets and real economy.  Regardless of the destination of money, we can measure on a weekly basis the flow of money into or out of the banking system which I have included in the first chart below. $76 billion flowed out of M1 in the 3 months ended as of mid February.  We have never seen that level of outflow in modern times. That outflow helps explain the strength in the stock market, the strength in the housing market and the better than expected strength in durable goods orders and the recent manufacturing ISM report.  While the flow of cash back into the economy is impressive, the second chart shows that we still have over $2.4 trillion sitting idle in the banks earning virtually zero interest.  There is much more cash available to drive economic growth.  Jeb B. Terry, Sr. March 3, 2013

M1 flows Feb 2013

M1 level Feb 2013

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