Monetary Watch January 2011: Money supply firing on all cylinders?

``... for the first time in some time the money supply is starting to fire on all cylinders. The Federal Reserve’s QE II asset purchase program which began in November means $600 billion in covered money substitutes – a net $75 billion per month through at least June 2011 – and, holding all other things constant, the same in bank reserves. Private banks who are already sitting on $1 trillion in reserves owing to the Federal Reserves QE I asset purchase program are now levering up, creating uncovered money substitutes at double digit rates. That’s what we would call a money supply that is starting to fire on all cylinders.''