Speaking of money market funds.

Early Thursday, in “Money Musings,” I mentioned the ~$8 trillion in “sideline” cash parked in MMFs yielding anywhere between 3.25% and 4%.

I used to cover weekly MMF flows, but that became a wholly monotonous task: Every “update” was more or less the same as money fund AUM continued to swell. As noted, AUM now sits at roughly $8 trillion.

There are two points worth reiterating on a lazy, late-summer day amid limited news flow. First, that giant cash pile’s still throwing off a significant amount of income, where “significant” means about $300 billion.

The figure above, from SocGen, gives you some historical context for those payouts. We’re only slightly off the peak near $350 billion.

That cash flow likely goes some way towards explaining why the US economy’s so resilient. According to ICI data, retail money funds are sitting with around $3 trillion in assets across government and prime products. The implied payouts are multiples of what households fortunate enough to have meaningful sums parked in money funds were receiving prior to the Fed’s 2022 hiking campaign. (Those products paid out next to nothing in the decade following the GFC, when yields were glued to the lower-bound.)

In addition to funding discretionary purchases in the upper-half of the “K,” that sideline cash is likely being deployed into equity and bond funds, albeit not quickly enough to run down overall MMF AUM.

“Not only are more people moving money into investments accounts, but the amount being transferred has risen significantly and regularly exceeds the pandemic peak that was bolstered by [stimulus checks],” SocGen noted.

The figure gives you a sense of the impact on the trajectory of AUM in passive investment vehicles, particularly ETFs.

“More money is being directed towards passively-run equity, accompanied by continuing redemptions from traditional equity mutual funds,” the same SocGen note went on. “Since 2022, there have been stable inflows into bond funds and ETFs as yields have become more attractive.”

As it turns out, MMF AUM didn’t actually need to fall in order for equity and fixed income products to enjoy the ancillary benefits of higher cash flows from normalized interest rates. Like goods and services for sale in the economy, those products are being purchased steadily and predictably commensurate with monthly payouts on sideline cash balances.