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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.

#311

Post by jganetsk »

dogman144 wrote: post #228
jfengel wrote: post #158

Earlier quoted context omitted.

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…

It's been a hot, hot minute from my econ degree, but here goes... I believe the big question of "Where is the inflation" has to do with lending excess reserves. The amount banks have to keep in reserve is set, but it changes. They can lend the balance after that, although there's a rate set by the fed that also works as a lending/holding incentive too. "Excess reserves are capital reserves held by a bank or financial…

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

By Standard and Poor's

https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...

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

#312

Post by jganetsk »

RobertoG wrote: post #117
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…

New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money. The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's…

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

By Standard and Poor's

https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...

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

#313

Post by jganetsk »

darawk wrote: post #255
RobertoG wrote: post #117

Earlier quoted context omitted.

New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money. The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's…

Of course the existence of reserves doesn't force a bank to lend. It increases their capacity to lend, which, assuming there is sufficient demand for credit, increases the money supply.

Repeat After Me: Banks Cannot And Do Not "Lend Out" Reserves

By Standard and Poor's

https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...

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

#314

Post by jganetsk »

throw0101a wrote: post #225
nostrademons wrote: post #124

Earlier quoted context omitted.

Bank reserve ratios [1] operate as a percentage, so by creating more bank reserves, you create more money that can be lent out. Say that the reserve ratios requirement is 10%, which it currently is. Then for every dollar it has in reserves, the bank may create $10 in loans. The bank reserves don't themselves circulate as money, but they let the bank create more credit, which does circulate as money. [1] https://www.i…

> Bank reserve ratios [1] For the record, reserve requirements are not universal. Canada, for one, eliminate theirs in 1992: * https://en.wikipedia.org/wiki/Reserve_requirement#Canada The main thing limiting how much Canadian banks can lend out would be to remain profitable: too many loans, to too many bad investment ideas, means losses.

> For the record, reserve requirements are not universal. Canada, for one, eliminate theirs in 1992:

Yes! This!

In fact, not only does the Canadian system have zero reserve requirements... it has near zero reserves.

https://en.wikipedia.org/wiki/Large_Value_Transfer_System

How it works is this:

- Banks send payments in real time. The system does not involve any transfer of assets, but it does require pledging collateral (often government debt). Asset transfers occur outside of the system. For example, if bank A sells a government debt instrument to bank B, then bank B sends a payment to bank A in the system, and then A transfers the instrument to B outside of this system.

- At the end of each day, settlement is done. Each private bank has a net balance at the end of the day. The net balances sum up to zero across the system, and post-settlement, each individual bank must have a net zero balance. In order to do so, they can either send/receive payments from/to another private bank for overnight loans. Or they can deal with the central bank, by having their reserve balance credited/debited, or by getting an overnight loan from the central bank at a rate determined by the central bank. With overnight loans, no assets are transferred... there's just a promise to pay back the next day via sending a payment.

A few notable things about reserves in the system:

- Use of reserves is totally optional. In practice, banks hold very little reserves.

- The quantity of reserves is entirely determined by demand from private banks.

- Reserves are never transferred from one private bank to another. They are only transferred between central bank and private bank.

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

#315

Post by ljosifov »

anm89 wrote: post #246

If anyone is interested in hearing some incredibly knowledgeable and relatively apolitical people discuss this topic check out: https://www.youtube.com/watch?v=B4xcCO9v-Os&t=13s Jeff Snider is the most knowledgeable person I have ever heard speak on international monetary issues.

Yes, that was good.

I like this one too - more general, but I think explains visually well where the reserve accounts (with the Fed or other Central Banks) sit relative to the other components of the system.

"The Landscape of Money (Part 1): State money, bank money & plug-in institutions"

https://www.youtube.com/watch?v=mmWOO7r_NMw&t=6m30s

Written texts - "Understanding the Modern Monetary System"

https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

from pragcap.com I found to be a good explainer.

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

#316

Post by ljosifov »

keeganpoppen wrote: post #299
FooHentai wrote: post #234

Earlier quoted context omitted.

On the one hand, it's a bit of a cyclical argument - The only thing holding together social order is social order. On the other, the same is true of anything which is relied upon on for life and dependent on ongoing financial exchange - Food, water, housing (if you rent). If a lot of excess capital suddenly flooded into those markets and gobbled up stock/pushed up demand, joe average could be priced out. All kinds of…

yeah that's the kind of reasoning that makes me feel better about it-- it's not really clear what kind of shock i would really be expecting to happen in the course of ordinary civilization that would cause this sort of run on life support / life-essential stuff that would also not itself be a bigger cause for concern than the system imploding (e.g. a proletariat uprising or world war would do the trick, but would be…

You are very much right in thinking this.

I lived through collapse and dissolution of one state, civil war, disintegration, and (belated) birth of a new state, with its own currency. The monetary aspect (hyperinflation in the old, change of currency in the new) is only a small part of that. You are correct - in that scenario, there are other things to tend to, more urgent.

I also witnessed that gold did not replace the collapsing currency. Other, non-collapsing currencies took on that role.

USD is safe and sound for as long US is safe and sound. The fiat currency is creation of the state. In collapse, I'd say causality goes 99% state->fiat. Only a small (2nd or 3rd order) effect in the opposite direction.

For the parent - "Hyperinflation – It’s More Than Just a Monetary Phenomenon" by pragcap.com

https://www.pragcap.com/hyperinflation-its-more-than-just-a-...

reads right for me. Even general inflation (= increase in P/y) does not necessarily follow from the exchange equation (M V = P y) and money growth (M). There are other possibilities too, examples discussed in https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr....

To end on a more upbeat note: I also witnessed the hyperinflation tamed, the economy booming, without seemingly much effort and in short period of time. Looking back, I think the most important part is the right diagnosis: where is it coming from. Otherwise the cures end up worsening the disease.

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

#317

Post by neilwilson »

darawk wrote: post #254
throw0101a wrote: post #221

Earlier quoted context omitted.

> Doesn't reducing the price of lending tend to lead to more lending? Theoretically, yes. If loans are 2% instead of 4% then that may induce people to take one up to do some kind of economic activity (start business, renovate house, buy a new car, etc). But it is not guarantee: people may feel too financial vulnerable to take risks with borrowed money. This is where the limits of monetary policy are run it. There are…

Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of lending, which increases the money supply.

"increasing bank reserves decreases the cost of lending"

Only if there is a net margin between what the central bank pays on reserves and what the bank has to pay out on the matching deposits.

Once central bank renumeration gets low, the cost of unsecured deposits matches or exceeds the central bank remuneration because of the draw to cash.

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

#318

Post by ric2b »

notherthrowaway wrote: post #220
jfengel wrote: post #158

Earlier quoted context omitted.

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…

==That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.== It isn’t a given that you need to increase earnings to increase your P/E ratio. The “E” is your Earning Per Share. Buying back shares lowers your denominator and magically in…

> Buying back shares lowers your denominator and magically increases EPS, which drives the price higher.

It also lowers your P, so the net effect should be 0, no?

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

#319

Post by atwebb »

anm89 wrote: post #235
atwebb wrote: post #10

I'm admittedly new to this but there is mention that the supply should double every 10 years, which it looks like it hasn't (or just right at), are we playing catch up? Is the 10 year from an inflation target? 2004 - 2014 was an 80% growth. 2001 - 2011 was 60% growth 2011 it was 9600, today it is around 18k, seems like we're on track to 2021 and playing catchup. What am I not understanding? https://fred.stlouisfed.or…

Any average including 2008-2011, is not a meaningful way to think about what is average historically in terms of US monetary supply. That period was the beginning of a paradigm shift in terms of how the US enacted monetary policy, which was on top of another paradigm shift that had occurred with the Greenspan Era. Which is to say we are in extremely uncharted territory. If you took average measurements of a star in t…

A bit late but that's what I don't understand, there are discussions around the inflating of the money supply in the tail end but it looks like it's just on target and prior was deflationary. This is making an assumption on the target being correct.
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