Money Creation: 70% in the Last 12mo (Fed, M1, $) • Hacker News Board

Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)

#51

Post by jjeaff » Wed, Jan 20, 2021, 4:57 AM UTC

secabeen wrote: post #10

Firecracker wrote: post #2

Hey 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 com…

Money velocity has fallen during the pandemic, but not significantly. Money velocity has been gradually falling anyway for quite a while. Goods purchases are off the charts right now, there aren't enough ships to haul the goods in and aren't enough ports for the ships to offload in.

https://fredblog.stlouisfed.org/?s=velocity

Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)

#52

Post by ac29 » Wed, Jan 20, 2021, 7:08 AM UTC

nly wrote: post #38

colejohnson66 wrote: post #12

Earlier 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.…

But ~$21T of the total ~$28T of public debt is held domestically, so if the government wants that debt to be worth as little as possible when it pays it off, US individuals and institutions will be harmed much more than China or other foreign holders.

https://www.treasurydirect.gov/govt/reports/pd/mspd/2020/opd... (source for $28T total debt, your link shows total foreign holdings of ~$7T.)

Re: Money Creation: 70% in the Last 12mo (Fed, M1, $)

#53

Post by roenxi » Wed, Jan 20, 2021, 7:51 AM UTC

jdsully wrote: post #46

roenxi wrote: post #45

Earlier quoted context omitted.

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 repeat…

> ...the US had one of the longest growth periods in its history...

How are we measuring this? Because from 2007 -> 2019 US nominal GDP is up 50% and the M2 was up 102%. I don't think this argument that keeping price inflation contained to assets rather than consumer goods justifies calling it a period of growth. Someone is collecting all this money and it doesn't look like it is people who earn wages.

The US debt/GDP ratios have also crossed lines where there isn't even room to pretend they are going to come down again voluntarily. US debt to GDP is out of control.

The US doesn't look like it is coming out of a long period of growth. If that were true it is surprising how much trouble it is having covering its bills, and giving money to already wealthy asset owners isn't helping.