Hi Dr. Murphy,

Can you explain the dips in the graph?
 

Should we be focused on the monetary base at all, though, given the tiny size of the monetary base as compared to the size of the U.S. economy? $2.1 trillion sounds like a lot of money, but is approximately the same size as the financial assets held by J.P. Morgan Chase, which is just one bank. Then the question arises of mercantilist money flows -- how much of this monetary base is held domestically? In short, I'm not sure how useful the MB statistic is absent additional information such as flow of funds.

BTW, John Williams at ShadowStats.com publishes an estimate of M3 that shows M3 in actual contraction. The question is, is that as more accurate estimate of actual supply of money and money equivalents than MB? I don't have an answer to that question, but I do think that an overfocus on monetary base -- where the entire monetary base is only half of the $4T in housing value lost in the slump -- is like focusing upon a speck of dirt on your windshield. You can miss the bigger picture out your windshield that way.