4 ms·

Is this trying to say that the primary destination of new dollars is cryptocurrency?

PragmaticPulp 6y ago
It’s trying to imply that the dollar is collapsing and everyone is rushing for the exits, which isn’t true by any other measure. These arguments are dishonest because they treat Bitcoin as a dual currency/asset but then only compare to the M2 money supply (currency) while ignoring the total wealth of the United States (including assets). These arguments also confuse quantitative easing with traditional government debt spending, and they ignore that the stimulus money is designed to fill gaps in the economy left by COVID, in which case inflation would be negligible (although I think the US is overshooting that target) They also ignore the fact that crypto isn’t the only exit for holders of USD looking to avoid inflation. They can invest in stocks or assets (crypto is a narrow subset of this), or they could exchange into the currency of another nation.
- shuckles 6y ago
  Counter-point: the US government added $2.2T more dollars, yet they are almost as good at buying commodities and other goods and services today as they were a year ago. Furthermore, the market expectation of their goodness, as determined by Treasury Inflation-Protected Securities, is quite strong. That seems like almost the opposite of dollar holders rushing for the exits!
pmayrgundter 6y ago
I don't know, but I think the destination is primarily the stock market for the past year. Maybe some also went to bitcoin. - Fed open market operations: $2.8T introduced over 9 month by the Fed in 2020[1]. - Stock market (DJIA) run-up in 2020: $2.2T [2] I don't think this can be just correlation, even on the simplest reading of how the Fed OMO works, but there is debate about this[3]. [1] https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1. I believe M1 money is a good proxy for the Fed's open market operations that would go towards the kind of asset purchases that would increase stock equity valuation. I'd appreciate any feedback on this [2] DJI went from $22k on Mar 1 2020 -> $30k, for an $8k change by end of year. DJI had a market cap of $8.3T when it was at $29k Dec 2019[2.1], so 8/29=0.27. 27% of 8.3T = $2.2T. [2.1] https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average [3] https://economics.stackexchange.com/questions/12226/does-the-federal-reserve-buy-and-sell-stocks https://economics.stackexchange.com/questions/12226/does-the...
- shuckles 6y ago
  I'm having trouble following your logic for [2]. Prices are decided on the margin whereas M1 is a metric of total assets, which is a cumulative measure. As a thought exercise: if I owned the entirety of $DJI, and you bought $2.2T of $DJI from me, M1 would be unchanged (your money is now held in deposit at my bank account), and the market cap of $DJI would be determined entirely by our transaction price. By what mechanism do you relate the two?
  - pmayrgundter 6y ago
    I mean it in the usual supply/demand sense: more money => higher prices.[1]. The Fed OMO directly drives prices level/inflation. Look at the series below... the 10 year break even inflation rate[2] looks almost exactly like the stock market since the crash, but they weren't in sync before. Ofc, it's primarily being used to shore up the value of the 10-Year Treasury Constant Maturity Rate bond [3], which would otherwise look like [4]. But I think the money supply pressure effects both, and the relative quantities are on par, so seems like the pieces fit to me. [1] https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/ https://www.investopedia.com/insights/what-is-the-quantity-t... [2] 10-Year Breakeven Inflation Rate: https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE [3] 10-Year Treasury Inflation-Indexed Security, Constant Maturity: https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 [4] 10-Year Treasury Constant Maturity Rate: https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS10

It’s trying to imply that the dollar is collapsing and everyone is rushing for the exits, which isn’t true by any other measure. These arguments are dishonest because they treat Bitcoin as a dual currency/asset but then only compare to the M2 money supply (currency) while ignoring the total wealth of the United States (including assets). These arguments also confuse quantitative easing with traditional government debt spending, and they ignore that the stimulus money is designed to fill gaps in the economy left by COVID, in which case inflation would be negligible (although I think the US is overshooting that target) They also ignore the fact that crypto isn’t the only exit for holders of USD looking to avoid inflation. They can invest in stocks or assets (crypto is a narrow subset of this), or they could exchange into the currency of another nation.

shuckles 6y ago
Counter-point: the US government added $2.2T more dollars, yet they are almost as good at buying commodities and other goods and services today as they were a year ago. Furthermore, the market expectation of their goodness, as determined by Treasury Inflation-Protected Securities, is quite strong. That seems like almost the opposite of dollar holders rushing for the exits!

pmayrgundter 6y ago

I don't know, but I think the destination is primarily the stock market for the past year. Maybe some also went to bitcoin. - Fed open market operations: $2.8T introduced over 9 month by the Fed in 2020[1]. - Stock market (DJIA) run-up in 2020: $2.2T [2] I don't think this can be just correlation, even on the simplest reading of how the Fed OMO works, but there is debate about this[3]. [1] https://fred.stlouisfed.org/series/M1 https://fred.stlouisfed.org/series/M1. I believe M1 money is a good proxy for the Fed's open market operations that would go towards the kind of asset purchases that would increase stock equity valuation. I'd appreciate any feedback on this [2] DJI went from $22k on Mar 1 2020 -> $30k, for an $8k change by end of year. DJI had a market cap of $8.3T when it was at $29k Dec 2019[2.1], so 8/29=0.27. 27% of 8.3T = $2.2T. [2.1] https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average https://en.wikipedia.org/wiki/Dow_Jones_Industrial_Average [3] https://economics.stackexchange.com/questions/12226/does-the-federal-reserve-buy-and-sell-stocks https://economics.stackexchange.com/questions/12226/does-the...

shuckles 6y ago
I'm having trouble following your logic for [2]. Prices are decided on the margin whereas M1 is a metric of total assets, which is a cumulative measure. As a thought exercise: if I owned the entirety of $DJI, and you bought $2.2T of $DJI from me, M1 would be unchanged (your money is now held in deposit at my bank account), and the market cap of $DJI would be determined entirely by our transaction price. By what mechanism do you relate the two?
- pmayrgundter 6y ago
  I mean it in the usual supply/demand sense: more money => higher prices.[1]. The Fed OMO directly drives prices level/inflation. Look at the series below... the 10 year break even inflation rate[2] looks almost exactly like the stock market since the crash, but they weren't in sync before. Ofc, it's primarily being used to shore up the value of the 10-Year Treasury Constant Maturity Rate bond [3], which would otherwise look like [4]. But I think the money supply pressure effects both, and the relative quantities are on par, so seems like the pieces fit to me. [1] https://www.investopedia.com/insights/what-is-the-quantity-theory-of-money/ https://www.investopedia.com/insights/what-is-the-quantity-t... [2] 10-Year Breakeven Inflation Rate: https://fred.stlouisfed.org/series/T10YIE https://fred.stlouisfed.org/series/T10YIE [3] 10-Year Treasury Inflation-Indexed Security, Constant Maturity: https://fred.stlouisfed.org/series/DFII10 https://fred.stlouisfed.org/series/DFII10 [4] 10-Year Treasury Constant Maturity Rate: https://fred.stlouisfed.org/series/DGS10 https://fred.stlouisfed.org/series/DGS10