Welcome to Money for the rest of us. This is a personal finance show on money, how it works,

how to invest it, and how to live without worrying about it. I'm your host, David Stein. Today is

Episode 539. It's titled, Resilient Wealth in an Era of Infinite Money. Recently, I got an email

from a listener that asked, if the U.S. had a fixed money supply,

how would assets behave? Now, money supply is the amount of physical currency, think U.S.

dollars bills, coins. It is checking and savings account balances at banks and credit unions, and

it's retail money market mutual funds. These are savings vehicles that invest in short-term

government bonds, treasury bills, and with the Federal Reserve. Now, this is just one definition

of the money supply. That would be M2. And that's one of the

challenges when we say, well, what if the money supply is fixed? What's included in the money supply?

I wrote about this in our email newsletter last week as I tried to look at the growth in the

money supply with M2 over $22 trillion right now in the U.S.

That's the highest level ever. Back in March 2020, it was $16 trillion and half that amount

about a decade or so ago. But it's not a perfect measure of the money supply because, for example, there are U.S. dollars floating

around overseas that are not included in the official M2 measurement.

Now, what we know about the money supply is it does need to grow.

And this listener's question is, what if it doesn't grow? Or we could say, what if it

doesn't grow fast enough? There's something called a negative money shock. And that occurs when

there's not enough money in the economy to facilitate transactions. We saw this in Venezuela during their period of hyperinflation.

There wasn't enough money around. People were paying for parking with granola bars. If there's a

negative money supply shock, and so there's not enough money relative to the amount of goods

available is you get prices falling.

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