Re. How M1 is calculated, are traveler's checks really still a thing?
Money Creation: 70% in the Last 12mo (Fed, M1, $)
41–50 of 53 posts
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#42Earlier quoted context omitted.
Can someone ELI5 why we want inflation?
Because if you're the US Government and you owe China a trillion dollars[0] you want those dollars to be worth as little as possible when it comes time to pay. This is why real treasury yields (yields adjusted for inflation) are negative[1]. The US runs a ~$300bn/year trade deficit with China, and historically the Chinese have been counteracting this by buying US debt and foreign assets. [0] https://ticdata.treasury.…
China currently has $3T of foreign reserves. To see the trend click the max button on the graph:
https://tradingeconomics.com/china/foreign-exchange-reserves
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#43Earlier quoted context omitted.
"the fed could reduce the money supply" What is your proposed mechanism for this? On the other hand, inflation is great for shafting the labor class, so at least we're going to put most of the pain on the people who are least capable of retaliating against the government; and they'll blame the rich anyways.
I believe the idea is to raise interest rates so people will hoard more money reducing the supply in circulation.
That won't reduce the supply, it will slow the expansion of supply, unless bankruptcies go into a chain reaction.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#44Earlier quoted context omitted.
Can someone ELI5 why we want inflation?
That is a very interesting question that I have never seen a satisfactory answer to. I suspect there is some broad-based misinterpretation of the Paradox of Thrift [0]. If everyone has enough that they don't need to work any more, then the economy will start signalling to people to stop producing resources because they aren't needed (by lowering prices and reducing production). Rather than making the obvious connecti…
The reason we prefer inflation is because there is a history of wild swings going from boom to bust. We do not level out at a spot where people have “enough” and retire but instead the economy swings into deep recession and people can’t feed themselves and go homeless.
Around the early 1900s we discovered that with careful application of stimulus we can even out these cycles and soften their impact - an innovation that has dramatically reduced human suffering over the past 100 years.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#45Earlier quoted context omitted.
That is a very interesting question that I have never seen a satisfactory answer to. I suspect there is some broad-based misinterpretation of the Paradox of Thrift [0]. If everyone has enough that they don't need to work any more, then the economy will start signalling to people to stop producing resources because they aren't needed (by lowering prices and reducing production). Rather than making the obvious connecti…
The reason we prefer inflation is because there is a history of wild swings going from boom to bust. We do not level out at a spot where people have “enough” and retire but instead the economy swings into deep recession and people can’t feed themselves and go homeless. Around the early 1900s we discovered that with careful application of stimulus we can even out these cycles and soften their impact - an innovation th…
As arguments go, that one is unpersuasive:
1) People still can't feed themselves and go homeless, countries that have inflationary policy sill generally have well developed welfare policy. It also isn't obvious that purposefully increasing the price of food and housing is helping, the bar of evidence for such an unintuitive claim is higher than "it's just obvious, trust me".
2) There was a different monetary system in the early 1900s. The lessons learned about it might not apply to a fiat system. Lending, credit & and the nature of money all work differently now.
3) If the problem was wild swings, then the lessons to be learned were in how to moderate the booms. There needs to be a bit more explanation about how increasing the money supply does that, and whether it dampens the booms more than it helps the busts. Smoothing the cycle is a mistake if it lowers trend growth.
4) Lack of evidence cited. "we discovered" is handwaving the important part. I suspect that is like "discovering" means in the political sense where politicians lie about something obvious as cover for a policy that they want.
5) Ignoring technological innovation and all the oil that has been used over the last 100 years. It is likely that the dramatic reduction in human suffering is totally unrelated to inflation policy.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#46Earlier quoted context omitted.
The reason we prefer inflation is because there is a history of wild swings going from boom to bust. We do not level out at a spot where people have “enough” and retire but instead the economy swings into deep recession and people can’t feed themselves and go homeless. Around the early 1900s we discovered that with careful application of stimulus we can even out these cycles and soften their impact - an innovation th…
As arguments go, that one is unpersuasive: 1) People still can't feed themselves and go homeless, countries that have inflationary policy sill generally have well developed welfare policy. It also isn't obvious that purposefully increasing the price of food and housing is helping, the bar of evidence for such an unintuitive claim is higher than "it's just obvious, trust me". 2) There was a different monetary system i…
We actually had a rare experiment to revalidate this in the 2008 recession. The US went with money printing and inflation while the EU chose austerity. The result was the EU suffered a prolonged and deep multi-year recession while the US had one of the longest growth periods in its history.
Economics as a field has lots of issues with respect to lack of validation. But this is one of its major successes and is repeatedly backed by empirical evidence.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#47Earlier quoted context omitted.
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 com…
Also how will it extract the money already created from circulation? I find that extremely implausible.
The fed doesn't gift money to anyone. To decrease money supply, all they have to do is reduce the amounts of reserves available to banks and sell back the bonds they have been buying feverishly and wait for any remaining loans to come due.
Now the government can gift money, but they must either use tax revenues and/or borrow by selling treasury bills - which can be to the public or the fed can buy them - but in either case, they must be paid back.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#48Kings 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.
But the fed is not "giving" money to banks. They are loaning it to them. It has to be paid back with interest, albeit very low interest.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#49The 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? [0] https://fred.stlouisfed.org/series/BOGMBASE
Wouldn't that be more likely just a large increase in reserves? We know reserves are higher. There also seems to be a shortage of currency in circulation due to COVID affecting the ability to print new bills as old bills come in.
Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)
#50The FRED® Blog What’s behind the recent surge in the M1 money supply? https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
tldr, they think a large portion of the growth is due to a regulation change in April that is causing banks to report savings accounts and other similar accounts in a category that is counted as M1. Graphs indicate that M2 growth is more steady, even though M1 is a component of M2. Which indicates that it is basically just being redistributed from M2 to M1.