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

Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to demand as well. In times of high demand for dollars (like right now), the supply of money (the M1) needs to increase to for the price of a dollar to not rise.

In other words, stock prices normalized to the M1 has the same amount of meaning as stock prices normalized to the number of loaves of bread the country produces, or the number of cars. It's nonsense — you're comparing a price to a metric that only takes into account half of the equation (only supply)!

Sidenote: When the price of a dollar rises, that's deflation; when it falls, that's inflation. That's also why "asset price inflation" isn't precise — inflation measures the change in price of a currency, not an asset. Maybe individual assets go up or down in price, but that happens in response to consumer demand shift. The Fed's mandate is to manage inflation, which is affected by changes in aggregate consumer demand. Therefore, Congress delegated it tools to influence consumer demand as a whole, but not tools to shift demand from one asset to another.

The phenomenon you're observing is: the Fed's monetary policy helps the US grow, which benefits corporations and increases stock prices. The only way the Fed can prevent that is to... stop the economy from growing by letting our currency deflate? Which sounds bad? I.e. the Fed can't do anything to shift consumer demand, short of causing a recession.

TD;DR: If you think stonks are overvalued, then blame Congress, not the Fed. They're the ones who have the power to change that without causing a recession.

[0] https://www.brookings.edu/blog/up-front/2017/12/07/the-hutch...

> I still don't see how the CPI is factoring this in, do you?

Because value = acceptable opportunity cost = foregone utility

And CPI measures (in closest approximation of any measure) changes in the prices of goods that provide direct rather than instrumental utility. Presuming monetary expansion affects prices but not, in first order effects, production possibilities and relative worth of non-money goods, a consumer price deflator is the most sensible kind of value deflator (one might still contest details of the construction of the CPI, of course.)

If you double every persons account, yes. If you do it through interest rates, you need to pay attention to the Cantillion Effect. The Cantillion Effect states that money flows from people who have it to things that those people want to buy.

If you give money to rich people who have already reached capped consumption, they won't then go out and buy more apples. They will choose to save it(as they know with an ever-growing money supply, if they save it in assets they will have more buying power when they choose to spend it), and therefore investments will rise in price while consumption goods will stay the same price.

This is exactly what the fed has done. The more wealth inequality there is, the less the fed has control over inflation.

Yeah, “there is no asset inflation” doesn't seem to actually be a common belief.

“Asset inflation is different in kind than consumer price inflation and not what normal people discussing inflation care about” is more common.

I'm not sure why monetarily-driven asset inflation would be an issue at all, unless one expected the driving monetary force to not merely be removed (returning to a more typical long-term pattern of asset price changes), but undone (such that the current overall lift above the prior long-term trend would be unwound before returning to the prior long-term slope.) Producing a monetarily-driven transient bubble.

It's not implausible that that could occur under some circumstances, but I'm not aware of any evidence that there would be anyway of distinguishing circumstances that might indicate it. Certainly, there's no obvious reason to assume such a monetary bubble is the normal case with monetarily-driven asset inflation.