Money Creation: 70% in the Last 12mo (Fed, M1, $)
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Money Creation: 70% in the Last 12mo (Fed, M1, $)
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Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#2Hey HN Friends,
I'm posting this because I was shocked when I saw this graph. I hadn't previously appreciated just how much of an unprecedented explosion in the money supply there'd been this year.
In particular, it seems to quantify a lot of potential for long run inflation and a very expansionary monetary policy move required to prop up the economy during the pandemic. But I'm not an expert here; I'm hoping we can put our heads together. I'd be very curious to hear general discussion and insights into the dynamics. Let's go, community of systems thinkers :)
While the M1 measure of money shows the change most dramatically, other ways of looking at the same data (dollars printed, M2, MZM, etc.) seem to tell the same story. There have also been some news articles written, but I thought that for HN, we'd go directly to the numbers.
Thanks for taking a look!
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#3Hey HN Friends, I'm posting this because I was shocked when I saw this graph. I hadn't previously appreciated just how much of an unprecedented explosion in the money supply there'd been this year. In particular, it seems to quantify a lot of potential for long run inflation and a very expansionary monetary policy move required to prop up the economy during the pandemic. But I'm not an expert here; I'm hoping we can…
Fed finally changed the long held monetary policy.
What do changes in the Fed’s longer-run goals and monetary strategy statement mean? https://www.brookings.edu/blog/up-front/2020/09/02/what-do-c...
> Previously, the Fed said its definition of price stability was to aim for 2 percent inflation, as measured by the Personal Consumption Expenditures price index. It described that goal as “symmetric,” suggesting that it was equally concerned about inflation falling below or above that target.
>In the new version of the statement, the Fed says it “will likely aim to achieve inflation moderately above 2 percent for some time” after periods of persistently low inflation. Fed Chair Jerome Powell called this strategy “a flexible form of average inflation targeting”—which Fed officials are calling FAIT—in an August 2020 speech at the Fed’s Jackson Hole conference.
>Average inflation targeting implies that when inflation undershoots the target for a time, then the FOMC will direct monetary policy to push inflation above the target for some time to compensate. With this new approach, the Fed hopes to anchor the expectations of financial markets and others that it can and will do what’s needed to get and maintain inflation at 2 percent on average over time.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#4The FRED® Blog
What’s behind the recent surge in the M1 money supply?
https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#5When your only weapon is a printer...
I guess they have bonds and interest rates too...
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#6The FRED® Blog What’s behind the recent surge in the M1 money supply? https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
Indeed!
Definitely a good factor to know about, but there's also been a huge surge in things like Monetary Base (currency in circulation+reserves) [0]. Looks to me like there's a lot of (effectively) money printing behind this, not just an artifact of M1's definition?
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#7Kings used to coin money, hand it out to the army and then collect taxes from the entire population that was paid in the same coin.
The Fed creates dollars, hands it out to bankers and then the US gov't collects taxes from the entire population in the same dollars.
Same strategy, different masters.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#8Kings used to coin money, hand it out to the army and then collect taxes from the entire population that was paid in the same coin. The Fed creates dollars, hands it out to bankers and then the US gov't collects taxes from the entire population in the same dollars. Same strategy, different masters.
Continuing the analogy: Those coins used to be pure precious metals but whenever a king needed to coin more moneys than precious metals he could afford, he would engage in "money creation" by turning up the percentage of some non-precious metal.
Same strategy, different execution.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#9Kings used to coin money, hand it out to the army and then collect taxes from the entire population that was paid in the same coin. The Fed creates dollars, hands it out to bankers and then the US gov't collects taxes from the entire population in the same dollars. Same strategy, different masters.
There is difference.
King wanted the value of money stay stable or increase.
Fed wants to reach 2% average inflation target but it keeps failing.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#10Hey HN Friends, I'm posting this because I was shocked when I saw this graph. I hadn't previously appreciated just how much of an unprecedented explosion in the money supply there'd been this year. In particular, it seems to quantify a lot of potential for long run inflation and a very expansionary monetary policy move required to prop up the economy during the pandemic. But I'm not an expert here; I'm hoping we can…
One of the angles that I haven't seen discussed yet is that an increase in the money supply is a reasonable response to a significant decrease in the velocity of money. With stores closed, services shuttered and experiences unavailable, people are holding onto money longer, and it's changing hands less. If money is changing hands less (lower velocity) you need more money in the system to enable the same amount of commerce.
Once the economy starts back up again, the fed could reduce the money supply in line with the increasing velocity.