Thursday, August 27, 2015

How much money there is?

I cannot tell you exactly how much money there is in the world, but I can give you an acceptable estimation.

M1 is a figures that shows the total money supply in U.S. dollars figures. Let's be careful here, it only shows that money in circulation (paper and coins) and checkable deposits (bank accounts and financial institution accounts). In other words, all available money to be used.

So, the figure as for 2015-02-16 is 2,986.2 billion dollars.

(Source: http://research.stlouisfed.org/fred2/series/M1/)

In fact, it's a lot of money. However, if you're familiar with figures like the current GDP you may think there's something wrong. I would address some misconceptions:

  • GDP is the total market value of the goods and services domestically produced. That means, what people are willing to pay.
  • Money runs through a circular flow. This means that a dollar spend today in burgers, tomorrow can be spent in a home. It's the same dollar. In other words, a dollar can purchased many things in several transactions.
  • The Federal Reserve has an important influence in the total money supply through different tools that manipulate rate of interest. It can decrease the money supply or increase. 
  • Why do they not solve my financial problems? Although it may be easy to think that printing money can be a solution to poverty, money cannot be printed because it causes inflation.
M1 is the must useful figure to know how much money there is...

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