In our last update on money supply — using the “Austrian” measure of money supply developed by Murray Rothbard and Joseph Salerno — we found that money supply growth hit a 46-month high of 11.2 percent in October.

Growth has moderated since then, however, with year-over-year growth in US dollars dropping to 10.3 percent in November and 8.8 percent in December.

This change somewhat follows a change in M2 over the same time period as M2 growth hit a multi-year high of 7.5 percent in October, but fell to 7.3 percent and 7.0 percent in November and December, respectively.

The Rothbard-Salerno measure of money supply tends to see bigger swings than M2, and in this case the bigger swing is due partially to continued changes in US Treasury deposits at the Fed, which is not included in M2. In October and November, these deposits hit new highs unprecedented in scope, with total growth in October topping 500 percent. As described by the Atlanta Fed, “These deposits are roughly akin to the Treasury’s checking account, which is to say the amount held in the account is determined by the Department of the Treasury based on its needs.”

During the 2008-2009 period of historically large stimulus spending, Treasury deposits reached unprecedented growth levels. In late 2016, we saw some of the highest growth levels seen since 2008-2009, and this has helped to drive up money supply totals.

With the Trump administration’s focus on fiscal policy stimulus — including large increases in military and infrastructure spending (plus the proposed border wall) Treasury spending looks to increase again the near future, and this would likely contribute to ongoing increases in money totals.

What is the significance of this in relation to the business cycle?

Historically, periods of significant decline in the money supply have preceded periods of economic recession. This was the case in the period before the 1990-1991 recession, the 2001-2002 recession, and the 2008-2009 recession. with money supply growth at or above 8 percent right now, however, this does not point to a recession in the immediate future. As with any economic indicator, however, it’s impossible to guess when the current trend may substantially change.