02/22/24 11:37 AM EST

Monetary Stimulus Policies Unsustainable

Below is a chart and brief excerpt from today’s Market Situation Report written by Tier 1 Alpha. If you’re interested in learning more about the Hedgeye-Tier 1 Alpha partnership, there’s more information here.

The monetary base is the total amount of a currency that is either in general circulation in the hands of the public or the commercial bank deposits held in the central bank's reserves. It is an indicator of the liquidity available in the banking system and often serves as a key target for central banks' monetary policy.

As of December 2023, the United States monetary base stood at approximately $5.827 trillion, marking an increase from the $5.732 trillion observed in the previous month. This figure represents a significant 7.79% increase from the $5.406 trillion reported a year earlier. Over the past 12 months, there has been a noteworthy expansion of $420 billion in the monetary base, which has primarily been driven by an increase in bank reserves.

While this increase in the monetary base is not categorized as quantitative easing (QE) due to certain mechanical differences, such as the way it impacts the central bank's balance sheet and the broader economy, the pattern is reminiscent of the monetary stimulus measures undertaken in the aftermath of the Global Financial Crisis, as well as post-Covid stimulus. Such measures involve the central bank purchasing financial assets to inject liquidity into the economy.

With all this interventionist easy money, it's hard to imagine the sustainability of these policies; it's also hard to imagine an economy absent the sugar high.

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