Originally posted by jay.mo
i would like it get a little more in this m1 m2 m3, thing what are they,
Here you go, growth of each of these money types (except M0/1?) is far greater than the growth of the economy or production at any time. With banks
holding funds, today in the crunch... m2-m3 isn't readily available... i.e credit and loans... banks want M0-1 to boost their balance sheets because
of the toxic credit investments they hold if they don't have the physical cash to offset these losses, they're bankrupt... here in the UK you'll
have noticed that banks are advertizing for savers, not borrowers.
They need to improve their fractional reserve ratio by holding more cash or raising more capital. Money is scare hence no credit.
M0: Physical currency. A measure of the money supply which combines any liquid or cash assets held within a central bank and the amount of physical
currency circulating in the economy. M0 is the most liquid measure of the money supply. It only includes cash or assets that could quickly be
converted into currency.
M1: Physical currency circulating in the economy + demand deposits (i.e. checking account deposits). This is a measure used by economists trying to
quantify the amount of money in circulation. M1 is a very liquid measure of the money supply, as it only contains cash and assets that can also be
used for payments.
M2: M1 + time deposits, savings deposits, and non-institutional money-market funds. M2 is a broader classification of money than M1. Economists also
use M2 when looking to quantify the amount of money in circulation and trying to explain different economic monetary conditions.  M2 is a key
economic indicator used to forecast inflation.
M3: M2 + large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. This is the
broadest measure of money commonly used and is used by economists to estimate the entire supply of money within an economy.
The different forms of money in government money supply statistics arise from the practice of fractional-reserve banking. Whenever a bank gives out a
loan in a fractional-reserve banking system, a new type of money is created. This new type of money is what makes up the non-M0 components in the
M1-M3 statistics. In short, there are two types of money in a fractional-reserve banking system:
central bank money (physical currency)
commercial bank money (money created through loans) - sometimes referred to as checkbook money
In the money supply statistics, central bank money is M0 while the commercial bank money is divided up into the M1-M3 components. Generally, the types
of commercial bank money that tend to be valued at lower amounts are classified in the narrow category of M1 while the types of commercial bank money
that tend to exist in larger amounts are categorized in M2 and M3, with M3 having the largest.