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Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

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Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#31

Post by dragonwriter »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

> Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decades.

That's assuming, contrary to the motivation for loose monetary policy, that there wouldn't have been deflation without it. It's not loose money produces low velocity but loose money as a reaction to low velocity.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#32

Post by swixi »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

> Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V

A couple questions because I don't understand this very well.

Do we have an idea how much is actually sitting in a bank account vs being put into the market?

And, if people put money into stocks and park it there, wouldn't the velocity still be much lower than it usually is (when people are spending more on goods and services)? My interpretation of what's being shown here is that a large amount of newly "printed" money has gone into the stock market, thereby inflating asset prices. I don't see how low velocity refutes that.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#33

Post by Invictus0 »

deanmoriarty wrote: post #12

I don’t understand this. My current portfolio is, say, 30 times my yearly living expenses. All I care about is that it will continue to grow in a way that stays at/above this ratio, so I will be able to retire early. The pace at which my yearly expenses inflate is much more correlated to CPI than money supply. My expenses haven’t changed much between 2019, 2020 and 2021 (projected), despite the large money printing,…

You are already able to retire.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#34

Post by xiphias2 »

marricks wrote: post #22
choxi wrote: post #6

A lot of people say there’s no such thing as asset inflation [1] and I find that very confusing. Hypothetically, if we add $1T to the economy and everyone invests it into stocks, is that not inflation? I guess economists say it’s not, but it feels like a pedantic argument about assets being “overpriced” not “inflated”. I think our current method of measuring inflation against the CPI is nonsense, the basic premise th…

The general public cares a lot more about the price of bread than the price of Google's stock, so I'd say economists are reasonable on this one. If and when that money injection moves around to affect the price of bread will be quite important though.

My friends mostly care about house / rental prices, not bread or stocks. Rent compared to their salaries is the main thing that they look at when they get a job offer.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#35

Post by JMTQp8lwXL »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

> Money supply does not determine the prices as we have learned over last two decades.

I don't think we can just accept this as fact, based on two decades evidence. The Phillips curve held for much longer for two decades, until it didn't. 2 decades of verified observation cannot be extrapolated into an infinite future.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#36

Post by stephen_g »

Wolfenstein98k wrote: post #4

Oversimplified, but a very good visual representation of the scale of recent money-printing. MMT is being tried in realtime, even as the debate roundly defeats it.

Nonsense. MMT is a theory of how government finance works and interacts with the foreign and private sectors (including money, banking and debt). It’s not something you try.

Overt Money Financing (OMF) is a policy option that MMT opens up, and there are probably shades of that in what’s going on, but I don’t see a whole lot of fiscal or monetary policy that actual MMT economists would say is a good idea.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#37

Post by eloff »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

I find the "Internet economics" argument more compelling than your argument that "Money supply does not determine the prices".

It's intuitive. You increase the amount of money chasing assets, asset prices go up. It's not affecting the price of milk or electronics. But look at land, housing, tuition, medical, stocks, bonds, and gold.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#38

Post by cft »

nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

CPI is determined by M1V , i.e. velocity of M1. Since M1 is already out there, we just have to wait for the V. For now it's parked in the inflated stocks.

Most importantly, without high M1, high M1V is not possible.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#39

Post by nabla9 »

zeckalpha wrote: post #27
nabla9 wrote: post #10

This is very confused "Internet economics" take on the issue. Money in band account that is not used is just a number. As Fed puts more money into the economy, the velocity of money decreases as the money is used less. https://fred.stlouisfed.org/series/M2V Federal Reserve can increase and decrease effective money supply as it pleases. Money supply does not determine the prices as we have learned over last two decade…

Instead of M1, would this make more sense as a currency adjusted chart, with USD against a basket of non-USD currencies (or gold)?

No. The whole premise is flawed. Nominal prices don't determine market valuations.

Economy is a process. Companies are priced against their future cash flows. If you want to get some idea of what is going on, use ratios like CAPE or market cap to GDP.

Re: Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply

#40

Post by dragonwriter »

choxi wrote: post #6

A lot of people say there’s no such thing as asset inflation [1] and I find that very confusing. Hypothetically, if we add $1T to the economy and everyone invests it into stocks, is that not inflation? I guess economists say it’s not, but it feels like a pedantic argument about assets being “overpriced” not “inflated”. I think our current method of measuring inflation against the CPI is nonsense, the basic premise th…

> I think our current method of measuring inflation against the CPI is nonsense,

It's not nonsense for policies that are directly concerned with consumer prices, which most that the CPI (or, more precisely, any of the CPIs, of which there are several) is used for do. We have lots of other inflation measures (, industry specific PPIs, for instance) for other purposes.

> Measuring inflation (or whatever you want to call the difference between an asset's nominal value and it's intrinsic value) is still useful

That's not what inflation is supposed to measure, because that's a nonsense thing to try to measure, because there is no such thing as intrinsic value.

> but the current method of pegging everything against the bag-of-goods in the CPI seems like an overly simplistic model.

How? Consumer prices are final prices. Everything else is instrumental to producing final goods and services.

> The intrinsic dollar value of an asset is its value relative to how many dollars there are

No it's not, and even if it was, that wouldn't make M1 a sensible measure. Why not the actual number of actual dollars there are: monetary base. Or something that better captures the number of effective dollars, M2.

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