Monday, May 23, 2005

Inflation and The Real Estate Bubble

According to the United States Federal Reserve's historical data the money supply (as measured by M3) has increased as follows:

January 1959, the money supply stood at $292 billion
January 1970 - $618 billion
September 1975 - $1,145 billion
January 1980 - $1,826 billion
August 1982 - $2,396 billion
April 1986 - $3,310 billion
January 1990 - $4,092 billion
May 1995 - $4,476 billion
January 2000 - $6,605 billion

As of April 2005, the money supply stands at $9,616 billion

M3 is the broadest measure of money; it is used by economists and the Fed to estimate the entire supply of money within an economy.

Note that between Jan. 1959 and April 1986 (26 years 4 months) the Federal Reserve increased the money supply by $3,018 billion.

But between Jan. 2000 and April 2005 (5 years 4 months) the Federal Reserve increased the money supply by a like amount: $3,011 billion.

Certainly the value of a dollar has changed over 46 years. However, this does make one wonder if the Federal Reserve is goosing the money supply and causing asset inflation and a real estate bubble.

For example, seeing a cozy 600 square foot studio condo in Greenwich Village, New York, selling for $795,000 seems a little bubbly.

The Great Inflation Illusion: A Historic Perspective [Doug Wakefield/, May 20, 2005]
History of US Money Supply [Federal Reserve]

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