What Is Money?

When Dwight Eisenhower was president, every dollar in America — every checking account, every savings deposit, every money market fund — added up to $286.6 billion. That was January 1959, the first month the Federal Reserve began tracking M2 in its modern form. A family of four in Levittown, Long Island had perhaps $3,000 in the bank. Gas was 25 cents a gallon. A new house cost $12,400.

Today, that same money supply stands at $22.7 trillion. Not billion — trillion. If you divided it evenly across every man, woman, and child in the country, each person’s share would be roughly $66,700. For a family of four, that’s $267,000 of money just... existing. Sitting in checking accounts, savings accounts, money market funds, and certificates of deposit.

M2 is the Federal Reserve’s broadest commonly used measure of money. It includes everything you’d intuitively call “money”: physical currency and coins, demand deposits (your checking account), savings deposits, money market mutual funds, and small-denomination time deposits (CDs under $100,000). It does not include institutional money market funds, large time deposits, or the trillions locked in retirement accounts and brokerage portfolios. M2 is the money that’s available to spend — the economy’s fuel supply.

The seventy-nine-fold expansion of that fuel supply over 67 years is the single most consequential economic fact of the modern era. It shaped the price of every house, every stock, every loaf of bread. It determined whether your wages kept pace with reality or fell behind. It decided whether your savings grew or shrank in real terms. And most people have never looked at the chart.

Not all decades are created equal. In the 1960s, M2 doubled from $287 billion to $590 billion — healthy growth for an economy riding the postwar boom, building interstate highways, and sending men to the moon. Money supply expanded at roughly 7% per year, driven by a growing population, rising incomes, and the natural expansion of bank lending. Nobody worried about it. Nobody even talked about it.

Then came the 1970s, and the conversation changed forever. Between 1970 and 1980, M2 surged from $590 billion to $1.48 trillion — a 151% increase, the largest decade-over-decade expansion in the series’ history. This was the era of Arthur Burns at the Fed, printing money to fund Vietnam and the Great Society simultaneously. Nixon took the dollar off gold in 1971, removing the last physical constraint on money creation. Oil prices quadrupled in 1973 and doubled again in 1979. Inflation hit 13.5%. Paul Volcker would eventually strangle it with 20% interest rates, but the money was already out there. By 1980, there were five times more dollars than there had been in 1959.

The 1980s added another doubling — $1.48 trillion to $3.17 trillion — but this time the character of money was changing. Money market mutual funds, barely a concept in 1970, held hundreds of billions by 1985. Charles Schwab and Fidelity turned savings into an industry. Certificates of deposit proliferated as banks competed for deposits. The composition of M2 was shifting from physical currency and simple bank accounts to a more sophisticated ecosystem of financial products.

The 1990s were remarkable for what didn’t happen. M2 grew by just 47% over the entire decade — from $3.17 trillion to $4.67 trillion. The slowest expansion since tracking began. Greenspan’s Fed kept a tight rein. Federal deficits shrank and eventually turned to surpluses under Clinton. The tech boom generated enormous wealth, but much of it went into stocks rather than bank deposits. By 2000, the money supply relative to GDP was actually lower than it had been in 1990. Economists called it the “missing money” puzzle.

The 2000s and 2010s each added 82% — remarkably symmetrical. But the mechanism was entirely different. In the 2000s, the growth came from normal bank lending (the housing bubble inflated deposits enormously) and then the emergency response to the 2008 financial crisis, when the Fed launched quantitative easing for the first time. In the 2010s, QE2 and QE3 pushed trillions more into the system, and the post-crisis recovery slowly normalized lending. By January 2020, M2 stood at $15.4 trillion — a number that seemed impossibly large at the time.

Then COVID arrived, and made it look quaint.

Between January 2020 and January 2022, M2 grew by $6.2 trillion — a 40% increase in just 24 months. To put that in perspective, it took the entire decade of the 1960s to add $303 billion. It took the inflationary 1970s a full decade to add $893 billion. In 2020 and 2021, America created more money in two years than existed in the entire country in 1990.

The mechanics were straightforward, even if the scale was not. Congress authorized roughly $5 trillion in fiscal stimulus — PPP loans, enhanced unemployment benefits, stimulus checks. The Treasury borrowed to fund those programs by issuing bonds. The Federal Reserve bought those bonds through quantitative easing, adding $4.8 trillion to its balance sheet. When the Fed buys a Treasury bond from a bank, it credits the bank’s reserve account — new money, conjured from a keyboard. The bank then lends or invests that money, and it enters the broader economy as deposits, pushing M2 higher.

The result was a vertical line on a chart that had been a gentle slope for six decades. M2 jumped from $15.4 trillion in January 2020 to $17.1 trillion by April — adding $1.6 trillion in four months. By January 2021, it hit $19.4 trillion. By March 2022, it peaked at $21.8 trillion. Nothing in the 67-year history of this data comes close.

And then something unprecedented happened: M2 actually shrank. Between March 2022 and October 2023, the money supply contracted from $21.8 trillion to $20.7 trillion — a decline of about 5%. This had never happened before in the modern era. Not during the Volcker tightening. Not after the dot-com bust. Not after the financial crisis. The Fed was simultaneously raising interest rates (from 0% to 5.5%) and unwinding its balance sheet through quantitative tightening, draining reserves from the banking system. Higher rates slowed loan demand. Money was, for the first time in living memory, being destroyed faster than it was being created.

The contraction lasted about 18 months before M2 resumed its upward march, reaching $22.7 trillion by February 2026. But that brief episode — and the inflation it followed — reshaped how economists, policymakers, and markets think about the money supply. For decades, M2 had been a sleepy indicator that only monetarists cared about. COVID made it front-page news.

M2 is the money the public sees. But beneath it lies the monetary base (FRED series: BOGMBASE) — the raw material from which all other money is made. The monetary base consists of just two things: physical currency in circulation and bank reserves held at the Federal Reserve. Think of it as the seed corn of the financial system. Banks take those reserves and, through the miracle of fractional-reserve lending, multiply them into the broader money supply.

For half a century, the monetary base grew slowly and predictably. From $50.5 billion in January 1959 to $830.6 billion in January 2008 — a 16-fold expansion over 49 years, averaging about 5.7% annually. It was boring. It was stable. Central bankers liked it that way.

Then Lehman Brothers collapsed in September 2008, and the monetary base doubled in a single year. It went from $830.6 billion in January 2008 to $1.71 trillion in January 2009. The Fed was flooding the banking system with reserves through emergency lending programs and the first round of quantitative easing. By the time QE3 ended in October 2014, the base had quadrupled from its pre-crisis level to $4 trillion. By the COVID peak in January 2022, it stood at $6.1 trillion — seven times the pre-crisis level.

This disconnect between the monetary base and M2 is one of the great puzzles of modern economics. The Fed increased the base by 7x, but M2 only grew by about 3x over the same period. The expected “money multiplier” — the ratio of M2 to the monetary base — collapsed from roughly 9x in 2008 to about 3.7x today. Banks sat on enormous excess reserves rather than lending them out. That’s partly why the massive QE programs of 2009–2014 didn’t produce the hyperinflation that many predicted. The money existed, but it wasn’t moving.

There is something psychologically powerful about round numbers, and M2 has been punching through them at an accelerating pace. It took 16 years to go from $287 billion to $1 trillion (reached around late 1975). It took another 25 years to cross $5 trillion (early 2001). From $5 trillion to $10 trillion took 12 years (early 2013). From $10 trillion to $15 trillion was another 7 years (early 2020).

Then COVID compressed the timeline to absurdity. M2 went from $15 trillion to $20 trillion in just 18 months — January 2020 to roughly July 2021. That single $5 trillion addition was larger than the entire money supply of Germany. It happened while much of the economy was locked down, while restaurants were closed and offices empty. The money piled up in savings accounts because there was nowhere to spend it, which is why the spending explosion of 2021–2022 (and the inflation that followed) caught so many people off guard. The fuel had been stockpiled. It just hadn’t been lit yet.

The current $22.7 trillion is already on its way to $25 trillion, likely within two to three years if current growth rates hold. The next milestone after that — $30 trillion — would probably arrive by the early 2030s. These numbers are so large they resist intuition. But every one of them represents real money in real accounts, backing real economic activity.

This is Episode 1 of a ten-part series that will disassemble America’s monetary machinery piece by piece. M2 is the summary statistic — the final score. But the game is played across a half-dozen interconnected systems that most people never see.

In Episode 2, we’ll examine the velocity of money — how fast each dollar circulates through the economy — and why it collapsed to an all-time low during COVID, partially explaining why $6 trillion in new money didn’t immediately trigger Zimbabwe-style hyperinflation. Episode 3 follows the physical cash: $2.4 trillion in currency floating around the world, much of it in the mattresses and safes of people who will never set foot in the United States.

Episodes 4 through 7 tell the story of the Federal Reserve’s balance sheet — from the $905 billion calm of September 2008, through the QE revolution, the first failed attempt at quantitative tightening, the COVID emergency, and the current $6.7 trillion runoff. Episode 8 dives into bank reserves and the plumbing crisis of September 2019, when overnight lending rates spiked to 10% because the Fed had accidentally drained too much money from the system.

Episode 9 examines the Treasury General Account — the government’s checking account at the Fed — and how its wild swings between $45 billion and $1.8 trillion have become a shadow monetary policy tool that moves markets. And Episode 10 brings it all together in a scoreboard of every metric, where it stands today, and what the aggregate picture tells us about the state of American money.

The story of money is the story of everything. Let’s begin.