The chart below plots three widely used indicators of the US money supply: TMS, MZM, and M2.


M3 was widely used, although the Fed stopped publishing M3 around the time Bernanke got in. ShadowStats attempts to recalculate it.

Defining those terms:

TMS is the currency component of M1, total checkable deposits, savings deposits, U.S. government demand deposits and note balances, demand deposits due to foreign commercial banks, and demand deposits due to foreign official institutions.

M2 is defined as total cash in circulation (outside banks) and balances in the domestic currency on accounts of resident non-financial organizations and individuals.

MZM is equal to M2 less time deposits, plus all money market funds. It measures the supply of financial assets redeemable at par on demand.

M3 is M2 + all other CDs (large time deposits, institutional money market mutual fund balances), deposits of eurodollars and repurchase agreements.

There is no end to the debate as to which money supply indicator is best. Some commentary:

The Mystery of the Money Supply Definition (pdf)
Mish's Global Economic Trend Analysis: Money Supply and Recessions
On the Money Supply definition Issue - Mises Economics Blog

While I didn't always think so, I recently changed my mind and now favor MZM as the most meaningful indicator.

Of the indicators noted above, only MZM has declined in the latest calculation. In any event, the conditions we're seeing now -- strong demand for US Treasuries, rising US dollar, declining global equities markets -- are indicative of a deflationary environment. Traders can play it accordingly, though I personally still think we will see a resumption of an inflationary environment within 36 months.