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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

#121

Post by zwaps »

alexpetralia wrote: post #100
eldavido wrote: post #98

Earlier quoted context omitted.

Google the term "liquidity preference". It's generally understood to be a function of real GDP and interest rates. GDP up = more demand for currency to be able to transact. Lower rates = holding cash has less opportunity cost (there are fewer opportunities to invest in other things with higher yield).

This appears to be a theoretical term. Is there any empirical chart that demonstrates this, or more generally, "money demand"?

There is no non theoretical way to measure demand and supply separately from market data. All prices, for example, already include not only costs, but expectations of demand.

You need data that includes so called demand shifters or demand multipliers, to estimate the supply and vice versa.

That is, if you observe a supply independent shift of demand, you can use that measure of to identify supply parameters. Even if you di this non parametrically, you implicitly impose a model.

Supply and demand is one of the origin problems of the theory of statistical identification and causal analysis.

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

#122

Post by conanbatt »

0x008 wrote: post #113
conanbatt wrote: post #90

Earlier quoted context omitted.

The standard definition of inflation is the general increase of prices. If only a subset of items increase in price, it's not really inflation. It is tempting to say that you can have asset inflation while other assets deflate, but it's not consistent with the general topic of inflation that implies the currency gets devalued. If the government said that it would collect a special tax to all goods but stocks of 1$, i…

But then we would never have inflation because not all goods will increase in price at the same time. It takes time until money trickles down through the system doesn’t it ?

Not all goods, but generalized. Stocks are a fraction of spending.

High inflation economies have also seen a surge in pricing in housing, relative to other parts of the economy.

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

#123

Post by 0x008 »

conanbatt wrote: post #122
0x008 wrote: post #113

Earlier quoted context omitted.

But then we would never have inflation because not all goods will increase in price at the same time. It takes time until money trickles down through the system doesn’t it ?

Not all goods, but generalized. Stocks are a fraction of spending. High inflation economies have also seen a surge in pricing in housing, relative to other parts of the economy.

But you said if only a subset of items increases in price it is not inflation by definition?

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

#124

Post by tylerhou »

alexpetralia wrote: post #95
tylerhou wrote: post #52

Earlier quoted context omitted.

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. 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…

Can you expand on the "high demand for dollars"? Is this from foreign investors in the form of FDI? Do you mean domestic investors (in which case I'd ask if borrowers and stock issuers are really demanding dollars, as opposed to merely accepting supplied dollars at very cheap rates)? Edit: According to this link, it would appear the foreign demand for dollars has declined? https://www.marketwatch.com/investing/index/…

The demand for dollars is internal to the US. Both businesses and consumers pay for things with expected future cash flow — for example, they pay their rent with their income (whether from customers or from a job). Or they took out loans with the expectation that they could pay the monthly payment with that cash flow.

When that cash flow stops — people stop eating out at restaurants, or consumers lose their jobs — they need cash (dollars) to pay their obligations. The supply of money is the same — the same number of dollars exist — but the demand is higher now.

Essentially, everyone is getting margin called all at once. If there is no intervention, businesses and people that are in sustainable & healthy in the long-term go bankrupt and fire workers, and our society loses a lot of organizational capital.

We don't want a short term shock (a pandemic) to hurt our long term growth. To avoid that, the Fed injects some money so that the supply can meet the demand. Then businesses can borrow money to pay their employees (and their rent), plus we don't fall into a deflationary spiral.

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

#125

Post by tylerhou »

georgeplusplus wrote: post #111
tylerhou wrote: post #52

Earlier quoted context omitted.

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. 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…

>>>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. The argument is that the textbook definition of the way inflation is described has become detached from reality. people are undoubtly affected and suffering by the price increases in the asset marke…

How are stonks going up causing people to suffer? (Besides distributional issues.) People can still buy food and water, which is the primary objective.

Also, the Fed can't change asset prices without slowing growth. Is that desirable?

> dollar has dropped 10% against a basket of the largest foreign currencies.

No reasoning from a price change. Another explanation for the drop in the dollars value is decreased demand. And since CPI is still stable, more likely IMO that it's a decrease in demand.

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

#126

Post by tylerhou »

CyberRabbi wrote: post #115
tylerhou wrote: post #52

Earlier quoted context omitted.

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. 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…

What makes you think there is high demand for the dollar? I don’t see anything that indicates that.

2020 saw all-time highs for both corporate bond & equity issues. That's clear demand for capital.

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

#127

Post by conanbatt »

0x008 wrote: post #123
conanbatt wrote: post #122

Earlier quoted context omitted.

Not all goods, but generalized. Stocks are a fraction of spending. High inflation economies have also seen a surge in pricing in housing, relative to other parts of the economy.

But you said if only a subset of items increases in price it is not inflation by definition?

Yes.

I'm saying assets have had relative changes of value in high inflation economies, where everything is going up.

Say a bag of rice is 100, housing is 1000. In a 100% inflation scenario, it goes to 200 and 2000, but when you look at prices it is 200 and 3000. This points to two effects: inflation + relative price changes.

It's an informal argument against the notion that there is "asset inflation" because of dollar printing. Economies with high inflation have seen "asset inflation" even with all prices increasing. It points to a typical change in demand.

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

#128

Post by disambiguation »

ac29 wrote: post #102
Ericson2314 wrote: post #42

Earlier quoted context omitted.

The fact that housing is more like stocks than bread is what's fucked up.

Everyone rich or poor can only eat so much bread, but you can always buy more stock or real estate. Supply is harder to increase as well.

not too long ago i remember there was backlash against investors buying up real estate (i think the example was london) and then just sitting on the investment. The houses weren't being used for housing, but as stocks.

I'm sure if it wasn't for the fact that bread expires we would see it traded like stocks too.

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

#129

Post by CyberRabbi »

tylerhou wrote: post #126
CyberRabbi wrote: post #115

Earlier quoted context omitted.

What makes you think there is high demand for the dollar? I don’t see anything that indicates that.

2020 saw all-time highs for both corporate bond & equity issues. That's clear demand for capital.

Hasn’t the aggregate demand for the dollar really just stayed more or less flat, all other things equal? The “lack” of capital people/businesses are facing is not due to relative dollar scarcity in the market but inability to perform the functions that get dollars to flow.

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

#130

Post by ric2b »

CyberRabbi wrote: post #115
tylerhou wrote: post #52

Earlier quoted context omitted.

Mainstream economists know that CPI isn't accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods. 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…

What makes you think there is high demand for the dollar? I don’t see anything that indicates that.

Yup, if that was true interest rates should be going up, right?
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