8 ms·
Money Creation: 344% in the Last 12mo (Fed, M1, $)
- bondarchuk 6y agoPreviously: https://news.ycombinator.com/item?id=25828461 https://news.ycombinator.com/item?id=25828461
- mjfl 6y agoConsidering the last post it was 70% and has apparently increased 5-fold since then, is this something to worry about?
- bondarchuk 6y agoThe way M1 is calculated was changed retroactively although I don't know how exactly.
- SECProto 6y agoThere's something funny going on with the title of the other post - the chart in the link shows it jumping from 4000 to 16000 in April/May of 2020. So there hasn't been a sudden increase in the last month. But I don't know what any of this means, so I'll let more knowledgeable others weigh in
- bondarchuk 6y agoThe title was correct then, as you can see on archive.org: http://web.archive.org/web/20210221170918/https://fred.stlouisfed.org/series/M1 http://web.archive.org/web/20210221170918/https://fred.stlou...
- epistasis 6y agoThe fear is that excessive money creation would create inflation. However, there's no sign of that happening any time soon. Given all the other massive massive shocks to the system, it doesn't seem that 350% was too much.
- cptskippy 6y ago> The fear is that excessive money creation would create inflation. However, there's no sign of that happening any time soon. Wouldn't it be more accurate to say that it accelerates inflation. Inflation doesn't happen in fits and spurts, it's on going and has been happening well beyond my entire life.
- joshstrange 6y ago> Wouldn't it be more accurate to say that it accelerates inflation. Inflation doesn't happen in fits and spurts, it's on going and has been happening well beyond my entire life. Amen. I'm so tired of hearing "X might cause inflation" as if I haven't dealt with inflation for my entire life. Finding a non-bias source for "True Inflation" (aka, not the government who benefits from lower inflation because it directly impacts GDP) is hard but even using the government's numbers inflation is just shy of 100% (92.1%) since I was born, I will be 30 years old next month. That's ridiculous.
- godelzilla 6y agoFortunately it's too much money for capital to spend on food and other inflatable necessities, so it's mostly going to pump up stocks, etc. No problem! :/
- legym 6y agoFrom what I read, it sounded like a lot of the money was printed but fell into areas of the economy where it didnt get distributed. i.e large corporations
- airhead969 6y agoIt seems to me that investing in REITs and TIPS, and taking out huge fixed-rate loans now (where possible) on necessary capital assets or borrowing cash to invest would be a wise investment strategy.
- xwdv 6y agoIndeed, there has never been a better time to take out long term fixed-rate loans. In several years when inflation kicks in these loans will be much easier to pay off in future dollars. REITs, maybe not so much. Stocks in growth companies are still a better bet right now.
- godelzilla 6y agoIt depends on whether your stocks are being propped up or whether your unlivable wage is being devalued or whether you care about unsustainable pyramid schemes.
- ordinaryradical 6y agoI don’t understand how that graph cannot represent some kind of crisis in the making. Is there really a way to walk back from this without blowing up the dollar?
- clint 6y agoTake it from the rich people who have primarily hoarded all that money, and give it to poor people who are on the brink of death.
- hpoe 6y agoThat doesn't suddenly change the amount of stuff there is to buy though.
- hanniabu 6y agoNo but it makes it more affordable, which increases spending, which improves the economy, which combats inflation. Or maybe we should continue the "trickle down economy" that has worked so, so well.
- ars 6y agoMore people buying things makes them less affordable, not more. (At least until supply adjusts.) I'm not understanding your logic - it seems backward to me. Also we have never actually done "trickle down", it's a bogyman people like to trot out, not something actually done.
- lun4r 6y agoThat surely would be a quick way to turn it all into inflation
- pkulak 6y agoOnly redistribute half of it.
- 6y ago
- rootusrootus 6y agoPerhaps worth reading along with this: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
- peregrine 6y agoThis should be the link. Sharing a link to a graph with minimal context, might as well be spam/misinformation.
- bondarchuk 6y agoWhen that article was posted, M1 money supply for feb. 1 of this year was still listed as 6.8 trillion, a 70% increase vs. 1 year ago. Right now it's almost 3x as much. Although it does look like the graph in that article has been updated automatically as well.
- nostrademons 6y agoM1 has become basically a meaningless category. The Fed blog post says that their April 24 change to Regulation D allows banks to remove the 6 tx/month limit on savings and money market accounts, which classifies them as M1. The growth in M1 since April has largely been banks changing their policies and their reporting strategies. Sure enough, the rapid growth in M1 starts on April 24, and M1 is now about $1B less than M2 (roughly $18B vs. $19B). We should be looking at M2, which has grown by about 25% ($15-19T): still a big story, but nowhere near as dramatic as this graph.
- habitmelon 6y agoDefinitely. The M2 supply grew by about $4T last year, from $15T to about $19T, it's a lot, but it's about one annual federal budget in normal years. $4T is like 20% of GDP, not nothing, but not hyper-inflationary. The question is will M2 grow by 20% per year, or is this a one-off?
- Splendor 6y ago> On the other hand, it’s not immediately clear what advantage there is from the bank’s perspective in relabeling savings accounts as transactions balances. Does anyone have any insight into why banks would relabel their savings accounts?
- endisneigh 6y agoCan anyone explain what would practically happen if the "Money stock" went back to last year's levels 6 months from now abruptly? Can that happen? If not, what's the implication of the increase? Assuming it's bad, how can an average person protect themselves from the negative effects? Should we be buying stock in stable Chinese companies? Bitcoin?
- eloff 6y agoHow would that occur?
- phdelightful 6y agoThe government could tax money and then "disappear" it.
- eloff 6y agoLet me rephrase that, how could that occur credibly. The government, much like us, won't throw away money intentionally.
- phdelightful 6y agoMy first reply was already a bit outside my wheelhouse. I agree it seems...unlikely. Hopefully someone will chime in.
- aluminum96 6y agoIf you're truly concerned about inflation, two of the best assets to weather it are gold and real estate.
- derriz 6y agoFor that to happen would require banks to call in massive amounts of loans suddenly - most loans are not structured in a way that would allow the banks to do that - the repayment schedule is fixed or provides discretion to the borrower rarely to the lender.
- christiansakai 6y agoI'm just thinking with the unemployment high as of it is now, this would be no problem? When our situation gets back to normal then this would be a problem. Please correct my line of reasoning here.
- zoba 6y agoHow does unemployment relate to this?
- christiansakai 6y agoWith unemployment, the velocity of money decrease. Non essential goods like tech is deflationary over time, but food and rent is not. The rich few can absorb costs whether it is food, rent or tech, but the poor and unemployed mass can only absorb so much, and they will use it for rent and food, but not other non essential goods. Therefore no inflation. i.e, grocery price might increase but an iPad will still cost the same.
- ChrisBland 6y agoHigher Unemployment = More people chasing fewer jobs = salary should fall Lower Unemployment = More jobs chasing fewer people = salary should rise If the cost of labor does not rise due as it absorbs the previously unemployed workers in to the labor force, it blunts the inflation effect for goods and services as those costs don't get passed on to the consumer
- bwasti 6y agoA popular post on r/wallstreetbets[1] summarizes Michael Burry’s thesis that CPI (consumer price index) is unaffected as long as inflation isn’t directly impacting consumers of the bag of goods that make up CPI. When there are fewer jobs, these consumers aren’t able to influence the prices of these goods (because they aren’t being paid inflated wages), and the metric commonly used to evaluate inflation is unchanged. [1] https://www.reddit.com/r/wallstreetbets/comments/lr8h1v/why_father_burry_is_calling_the_big_short_20_i/ https://www.reddit.com/r/wallstreetbets/comments/lr8h1v/why_...
- gzu 6y agoNo one is paying bills right now due to COVID relief. Q4 alone saw $32B of missed student loan, $7B in missed rent and $14B of missed mortgage payments. Pent up roaring 20's demand and hyperinflation?
- isoskeles 6y agoWhat were those numbers pre-covid?
- orange_joe 6y agoFrom what I understand debt as a percentage of disposible income has gone down during the pandemic. [1]. personal savings rates have also increased significantly[2]. I think people are underestimating the benefits of the pandemic assistance (particularly in the form of increased unemployment insurance) [1] https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP [2] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT
- iandanforth 6y agoHow does this not equate directly to inflation? That is, if the law of supply and demand is real, how does this not immediately decrease the value of each dollar that I hold? Looking at this chart makes me feel 3x poorer. Even if there is hysteresis in the system under what economic theory does the discrepancy between supply and price not correct itself?
- bluedevil2k 6y agoIf there’s more stuff to buy, then prices wouldn’t change for the existing stuff. Additionally, if most of the additional money isn’t spent, only saved, it wouldn’t spark inflation.
- hanniabu 6y ago> How does this not equate directly to inflation? It is, just look at equities and real estate prices. This shows that the current definition of inflation is inaccurate.
- rafale 6y agoIt's inflation, by its very definition. Your dollar is already being devalued. It can buy less SPY shares than before.
- granzymes 6y agoAh yes. SPY appreciation, that famous measure of inflation.
- vmception 6y agowhen comparing all equities pricing metrics to interest rates, they are not nearly as overvalued its like there is one information source where everyone just yells about P/E ratios from the 1980s, and then there is this other unknown wealthier group (or just the aggregate market) that is using P/E/YIELDS and completely calm
- ralusek 6y ago
- epa 6y agoThe Fed does not create money. Banks create (expand) money by lending. The fed has purchased corporate bonds and swapped them for more liquid securities (treasury securities/M1). The Fed wants you to think there is inflation, so you get scared and "lock in" your pricing on homes/cars/etc. This activity stimulates the economy.
- rmah 6y agoThat all depends on what you mean by "money". And this is the root of the problem for people not neck deep in the financial system in evaluating metrics about the financial system. This is why there are different numbers for different definitions of "money". M0, MB, M1 M2, etc. Each measures how much "money" there is in the system, but for different definitions of "money". BTW, when the fed lends to banks or purchases bonds, they do, in fact, create money. Just not M0. Depending on where the sellers put the money, you will see an increase in MB, M1 or M2.
- janaagaard 6y agoIs it possible to see the chart with a logarithmic y axis? I think this would be a better representation of how this has evolved.
- hakesdev 6y agoIMHO, M2 (also called "Broad Money") is a more pure indicator of money creation. Specifically the combination of M2 and M2 velocity. Board money supply grew ~30%+ in 2020. The reason we probably didn't see more inflation is because M2 Velocity was down ~30%. If we see velocity start to pick up with M2 increasing, expect consumer price inflation. M2: https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2 M2 Velocity: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V Lyn Alden is very instructive on this topic: https://www.lynalden.com/money-printing/ https://www.lynalden.com/money-printing/
- dalbasal 6y agoGood link. It's rare that macro/monetary comes together with a good clear writing style. What she's doing is harder than it looks. Saved. That said, as someone who studied economics circa 2005... I think confidence in monetary theories is in long term decline. Money supply affects X. X causes Y. But... "money supply" is hard to define. Hence M1/M2 categories and other complexities. X & Y are also hard to define. Money supply sometimes causes Y without affecting X. Hence Alden's need to distinguish between private from corporate wealth or debt. Hence her list of non-monetary deflationary causes... each one of which may be more impactful than money supply... even if we could be confident in our understanding of money supply. We're kind of at a place where there is no useful theory. There are some very broad, almost universal theories. Print enough money and inflation will happen eventually. But, these tell us almost nothing about the margins. At the margin, we don't even know how to quantify money printing, money supply... or even inflation. I'm not saying we shouldn't listen to economists, just that we need to realize the shades of uncertainty at play. Alden seems to have her points of interest in all the right places. Inflation is not one thing, and that's relevant. Central bankers actually matter. Lots of "outside factors" affect inflation directly, without acting on the money market directly. Last, speaking of definitions, there's a difference between what she is trying to do (macroeconomic theory for the purpose of asset speculation) and "academic" macro. Here definition of inflation doesn't need to correspond to actual inflation in prices that people pay for stuff. It just needs to correspond to investable asset inflation.
- PragmaticPulp 6y agoM2 money supply also includes M1 money supply. The reason we don’t see the same step function increase in M2 supply is that this chart is really just showing that some components of the money supply are now classified as M1 instead of just M2. The HN editorialized headline is basically false. Look to M2 to understand what’s going on here, as stated in the above comment.
- citilife 6y agoIt's worth noting, they started taking savings accounts into account just last month. Frankly, this conflates what exactly is going on. This probably is a better graph: https://fred.stlouisfed.org/series/M1REAL https://fred.stlouisfed.org/series/M1REAL Essentially, showing the money supply adjusted by the consumer price index. Also velocity is currently down dramatically: https://fred.stlouisfed.org/series/M1V https://fred.stlouisfed.org/series/M1V What does all this mean? If / When velocity picks up we're in for a hell of a ride. Inflation is going to be steep, UNLESS they pull money out of the market. Which is quite possible.
- mediaman 6y agoThe St. Louis Fed has additional detail on this misleading statistic. There are several measures of money supply, but two count for the most in this discussion. The poster chooses M1. This is all transaction deposit accounts: i.e., your checking account. M2 includes M1, but adds savings accounts and money market funds. These are very similar to checking accounts, but used to have limits on the number of checks you could write each month. Banks had to have reserves for M1, but not for M2. That limit on the number of checks per month was eliminated in 2020. Banks were essentially free to classify accounts as either transaction accounts (M1) or money market/savings accounts (M2). Most all the banks have lots of excess reserves, so it doesn't really matter which one they choose. So where is M2? Contrary to the excitable headline in this post, M2, which includes M1 and is a better overall indicator of cash sitting around, is up by about 25%. Still a significant number, but nothing like 344%. https://fred.stlouisfed.org/graph/?g=BlLz https://fred.stlouisfed.org/graph/?g=BlLz
- cryptica 6y agoWhen I see this, I think communism is inevitable. So much injustice has been done. How can the system possibly self-correct in a fair way without some radical intervention? The only way to make it fair would be to abolish property rights and allow people to make arbitrary claims against any property. Maybe cryptocurrency groups will be able to claim ownership of property based on the size of their groups. There needs to be some kind of fluidity of ownership to counter the injustice of having given asset holders so much free cash. Just printing more money is not going to make it fairer; it will do the opposite because asset holders are just using it to buy up all assets. Most jobs today involve people getting paid to support the interests of asset holders, not to deliver value to society. Human potential is being wasted on such a large scale, it's criminal.
- sudhirj 6y agoSo what does one do about this? Buy more index funds? Or gold? Or both?
- h2odragon 6y agoBuy land, and invest in the means to defend and hold it. Don't worry about followers yet; get good water, good food storage, and good defenses in place first. There will be plenty of recruits ready to work for food when you need them.
- sudhirj 6y agoEh, no. I’m not charismatic enough to handle my own post apocalyptic cult. Just want to how this relates to equity and asset pricing.
- anewaccount2021 6y agoIts amazing how glib HN is on this issue, naively assuming that it can all be painlessly unwound at some point in the future. If it were painless and harmless to print money on this level, we'd have been doing it since quitting the gold standard. There's no free lunch.
- jchook 6y agoSo, M1 skyrocketed when regulations changed to categorize savings accounts as part of M1 (and remove the 6 transaction limit). M2 has risen 33% since Sept 2019.
- howmayiannoyyou 6y agoUSD printing is offset by declines in velocity/circulation. see: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V If USD sits idle as FX reserves at the Bank of China in Apple's balance sheet, its inflationary impact is minimal. Same applies to excess reserves at banks. see: https://fred.stlouisfed.org/series/EXCSRESNS https://fred.stlouisfed.org/series/EXCSRESNS Similarly, capital controls in certain countries further serve to reduce USD velocity, and increase the prices of instruments (eg. BTC) and assets (eg. Copper) that have some ability to circumvent capital controls. see: https://tradingeconomics.com/china/capital-flows https://tradingeconomics.com/china/capital-flows That said, CoV19 hit the global supply chain hard and there are inflationary pressures across a number of categories due to production declines. Short term inflation is a real possibility, reinforced by the lag between an increase in purchasing demand and supply capacity growth. The Fed can soak up excess liquidity and the 344% can be cut in half without much fuss. The USGOV can withstand a temporary increase in rates because it is also sitting on a unprecedented cash reserves. see: https://fred.stlouisfed.org/series/GDTCBW https://fred.stlouisfed.org/series/GDTCBW tl;dr ... Money supply is one sensational chapter in a complex and less emergent story.