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The ballooning money supply may be the key to unlocking inflation in the U.S.

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Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#181

Post by api »

jfengel wrote: post #158
freeone3000 wrote: post #115

Earlier quoted context omitted.

Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.

That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index. The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy mu…

All the QE since 2007 has also caused massive inflation in real estate, and it's ongoing. Housing is actually rising in some markets in spite of record unemployment and a high risk of many mortgage defaults.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#182

Post by api »

neilwilson wrote: post #160
darawk wrote: post #109

Earlier quoted context omitted.

Creating bank reserves absolutely creates money. Bank reserves are the fulcrum around which bank leverage ratios operate. Yes, they can margin treasuries to borrow reserves from other banks, and in that sense, they are fungible. But the total amount of bank reserves in the system at any one time is still what bounds the total amount of money creation that can happen via leverage. Increasing the absolute amount of ban…

Reserves have nothing to do with the amount of bank lending. Only the price of such lending. https://onlinelibrary.wiley.com/doi/abs/10.1111/pbaf.12249

Doesn't reducing the price of lending tend to lead to more lending?

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#183

Post by pedro_hab »

skybrian wrote: post #155
pedro_hab wrote: post #106

Earlier quoted context omitted.

This is the new definition, in old dictionaries inflation was defined as increase in money supply. Using products to measure inflation, is a terrible mistake in my estimation, because cost has been falling, so stable prices don't mean no inflation. It just means the governments got wise to just take what they can get without being noticed.

It was once thought that the money supply was directly related to inflation, but they were never the same thing. The classic equation was MV = PY, and M (the money supply) and P (the price level) are different . They are only proportional (according to this equation) if everything else remains the same. In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we…

I think we agree on the point, but disagree in the definitions.

Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties.

My point is more on the government saying it needs inflation, when even without price increases inflation might be happening.

We have increasing productivity, cost has been falling, so if prices stay fixed, therefore no price inflation, the people are still paying more than they should.

The value of things have been falling, but prices haven't.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#184

Post by megaman821 »

chrischattin wrote: post #93
nickles wrote: post #66

Earlier quoted context omitted.

> Food, shelter and transportation aren't included in the CPI. This is wrong. Food, shelter, and transportation are all included in the basket used to compute CPI. [0] > The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, housing, apparel,…

I should have been more specific. Certain rents are included, but house prices are not. Gasoline and bus fairs are included, but the cost of buying a car is not. And, various food items are seasonally adjusted in a favorable manner. Over time, the index has changed in a manner that grossly underestimates the inflation the average person experiences.

If you did include houses and cars, how would you account for their general improvement over the years? My grandpa used to get rid of his vehicles as the approached $50k miles. They were just too unreliable and costly repairs were right around the corner. Today even junky cars can make it to $150k. They use less fuel, they have better comfort, and they can just do more in general with tech inside them. So if the value the car provides goes up 4x but it's price goes up 2x, what is its contribution to inflation?

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#186

Post by marketingPro »

apsec112 wrote: post #12

People keep predicting inflation, but it remains stubbornly below the Fed's target rate of 2%, which is itself low compared to 20th century averages. https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...

Do not use CPI as it doesn't take into account technology improvement and outsourcing.

I'd take the big mac index over CPI.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#187

Post by throw0101a »

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

> The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money.

> When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere.

The money in my saving (or chequing) account is just a number in the bank's account somewhere, but it is still "money" that I have with them. Similarly the Federal Reserve is a bank account for the banks: so your bank (BoA, Chase, Wells Fargo, etc) has money at the Fed just like I have have money at (e.g.) Citibank.

Otherwise, your statement "the Feds buys assets" makes no sense: with what exactly does the Fed buy the assets if not money? "Money" in the modern economy is (1) a means of exchange, (2) a unit of account, and (3) a store of value. In this case we are using (1). Just because the "money" is in digital form does not change its essence.

> […] so swapping a US Treasury with cash is just turning one type of money into another; no net creation.

Can US Treasury bills be used for reserve calculation purposes? Because if they cannot, then the higher reserve accounts mean that banks would be able to create more loans (assuming they can find borrowers).

While reserve holdings and T-bills may have similar net values, each may be have restrictions on how they can be used in various circumstances, which could have knock-on effects.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#188

Post by RobertoG »

pedro_hab wrote: post #176
RobertoG wrote: post #127

Earlier quoted context omitted.

You can't define inflation as you want. Inflation is an government official indicator with a very clear meaning.

I didn't define as I want to, I pointed to the fact that the meaning in old dictionaries used to be increase in money supply. My point doesn't depend on this tho, measuring inflation by rising prices isn't ideal, because you will be measuring multiple things at once, and only the people lose in that case. Prices can rise and fall for multiple reasons, and knowing why helps to fix it. If the price goes up because of a…

>>"Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers. "

Governments have the fiscal capacity to keep the economy going. Is your theory that, for instance, the USA economy would be better without the government stimulus?

When the economy goes bananas, if it's not sustained by the government, not only will be suffering of a big part of the population but the destruction of physical capacity and knowledge in the economy.

This is not the 19th century, that idea that the economy on its own works perfectly should be debunked by now.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#189

Post by aidenn0 »

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

If you were to change "US Treasuries" to "British Pounds" everything you state about liquidity &c. remains true, but it's perhaps more clearly creating new dollars that weren't there before.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#190

Post by leg100 »

scsilver wrote: post #97
vkou wrote: post #55

Earlier quoted context omitted.

For t -> ∞, a prediction that the stock market will correct in the future will always hold true. The question is, will it correct to levels below its current ones? If you have an answer to that, you can make a lot of money.

I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I've got 30 more years until I get out of the market, might as well hedge against the dollar, only take out a bit to get a down payment on a home in a nice area, and try to catch the capitalist wave. If you stayed in through 2008 till now, you'd be doing perfectly fine. If you had to take out…

> I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes.

I'll take a punt. At some point inflation will take root, and when it does the fed will be in a bind.

Hell, the fed has already been digging away at pensions with their 40 year long put. Pensions funds struggle now to find a positive yield that meets their liabilities.

And homes will at some point come under attack. Perhaps only when everything else is gone, perhaps not. They're a sitting target.

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