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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 th
by 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 agoI 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