Writes Declan McCullagh:

For my CBS News column this week, questioning the extent of the credit crisis and the desirability of a Detroit bailout, I was able to get a copy of the only-available-to-clients Celent report that Reuters wrote about.

I thought your readers may be interested in the last two pages of the report, which weren’t mentioned in the Reuters article. Celent calculates that the M0 money supply “has recently increased at a pace never seen before in US history,” and has increased as much in the last 90 days as it has in the last 83 years.A Brief Look at the Money Supply

We finish our report by examining some of the policy impacts that have become visible over the past few weeks. Figure 27 shows the most basic measure of money supply in the US, M0, which is also referred to as the monetary base. This measure of money supply consists of currency in circulation and bank reserves held at the Federal Reserve. As can be seen from this chart, there has been an entirely unprecedented increase in the money supply. By the week of 3 December 2008, the money supply was a staggering $630 billion, or 74% higher than it was during the week of 3 September 2008. An increase of this size in the past took on the order of a decade.

Such an increase in the monetary base should be cause for alarm, and would normally be seen as an indicator of a pending bought of hyperinflation. There may, however, be more benign explanations. On 9 October, the Federal Reserve started paying interest on banks’ reserves held at the central bank. This certainly has made the holding of reserves more attractive to banks, which shifted more of their funds into reserves.

If banks are holding far higher reserves simply in response to the appeal of receiving interest from the Federal Reserve, then there is little cause for concern. However, this action does merit some further explanation from the Federal Reserve. Normally, when a central bank wishes to stimulate greater lending by banks, it encourages banks to reduce reserves, not increase them, since reserves funds are bank funds that would otherwise be available for lending.

A thorough analysis of the recent increase in the monetary base is beyond the scope of this report, and is a topic for further research. However, one might be excused for thinking that the frequent comparisons with the Great Depression of 1929 are not the most apt. Perhaps the economic crisis in the Weimar Republic some seven years earlier could provide a better comparison.