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How 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 dolla

How 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 ago
If 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 ago
It's inflation, by its very definition. Your dollar is already being devalued. It can buy less SPY shares than before.
- granzymes 6y ago
  Ah yes. SPY appreciation, that famous measure of inflation.
  - vmception 6y ago
    when 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
It does. Real estate in many places has nearly doubled. Stocks are up to ridiculous heights. As is crypto. Silver doubled. All during a pandemic. There are only a handful of businesses which actually grew in value (purely online, Amazon, etc) during the pandemic, as well as some genuine increase in real estate value due to pandemic shuffling, but my take is that everything else is inflation. If you have seen your stocks rocket up in the last 12 months, you're seeing a graph of what you would have lost had you held cash. The thing is that it's not inflation that will necessarily translate immediately to consumer goods, because the markets for consumer goods are not as quick to respond, as well as the fact that much of this inflation went directly to the very wealthy, whose access to funds hardly impacts the price of consumer goods to begin with.
Voloskaya 6y ago
> How does this not equate directly to inflation? Creating inflation is the goal.
PragmaticPulp 6y ago
The M1 money supply now includes components that were previously only counted in M2: > This suggests that the rapid acceleration in M1 since May 2020 is mainly from money moving out of the non-M1 components of M2 into M1, rather than reflecting any acceleration in the demand for transaction balances. Look to M2 for a better understanding. I’m not sure why this graph was posted without context.
thebean11 6y ago
All the inflation happened in assets, not consumer goods, because all the stimulus went to rich people and companies.
jorblumesea 6y ago
It's because much of this money doesn't end up in the pockets of the average person to spend. One of the unintended consequences of QE is uneven distribution. Bill Gates makes 100k more, what does he do? Probably buys more equities. Average person gets 20k, that money is used to buy essentials, service debt, buy things. Real inflation has been tame over the past 15 years for precisely this reason.
- reedjosh 6y ago
  Thinking about this statement. The inflation rate causes rich people to get richer since they have assets and the poor get pushed further and further from being able to own assets. > Real inflation has been tame over the past 15 years for precisely this reason. I don't like this use of `Real inflation.` Maybe nominal inflation as viewed by the poor. Real inflation should include the ability of poor/middle class to buy assets as well.
bob33212 6y ago
It does, your dollars in 2019 could buy an average house, those dollars in 2025 will only buy a lower end house. This is nothing new though. A new car cost $800 in 1940. So if you held all your money in cash you missed out on buying a new car. Now all you can buy is a new bike.
throw0101a 6y ago
Because inflation is caused by more than money supply: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati... It is also related to (at least) the velocity of money: * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money Which has been declining in the US for a decade or two, and which has dropped off a cliff since the pandemic started: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V Further: "inflation" can mean many things. A rate of 20% would be very annoying, but a rate of (say) 5% would be manageable. Runaway inflation is more generally caused by a political system that has collapsed ((civil) wars) or mismanaged (Zimbabwe).

bluedevil2k 6y ago

If 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 ago

It's inflation, by its very definition. Your dollar is already being devalued. It can buy less SPY shares than before.

granzymes 6y ago
Ah yes. SPY appreciation, that famous measure of inflation.
- vmception 6y ago
  when 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

It does. Real estate in many places has nearly doubled. Stocks are up to ridiculous heights. As is crypto. Silver doubled. All during a pandemic. There are only a handful of businesses which actually grew in value (purely online, Amazon, etc) during the pandemic, as well as some genuine increase in real estate value due to pandemic shuffling, but my take is that everything else is inflation. If you have seen your stocks rocket up in the last 12 months, you're seeing a graph of what you would have lost had you held cash. The thing is that it's not inflation that will necessarily translate immediately to consumer goods, because the markets for consumer goods are not as quick to respond, as well as the fact that much of this inflation went directly to the very wealthy, whose access to funds hardly impacts the price of consumer goods to begin with.

Voloskaya 6y ago

> How does this not equate directly to inflation? Creating inflation is the goal.

PragmaticPulp 6y ago

The M1 money supply now includes components that were previously only counted in M2: > This suggests that the rapid acceleration in M1 since May 2020 is mainly from money moving out of the non-M1 components of M2 into M1, rather than reflecting any acceleration in the demand for transaction balances. Look to M2 for a better understanding. I’m not sure why this graph was posted without context.

thebean11 6y ago

All the inflation happened in assets, not consumer goods, because all the stimulus went to rich people and companies.

jorblumesea 6y ago

It's because much of this money doesn't end up in the pockets of the average person to spend. One of the unintended consequences of QE is uneven distribution. Bill Gates makes 100k more, what does he do? Probably buys more equities. Average person gets 20k, that money is used to buy essentials, service debt, buy things. Real inflation has been tame over the past 15 years for precisely this reason.

reedjosh 6y ago
Thinking about this statement. The inflation rate causes rich people to get richer since they have assets and the poor get pushed further and further from being able to own assets. > Real inflation has been tame over the past 15 years for precisely this reason. I don't like this use of `Real inflation.` Maybe nominal inflation as viewed by the poor. Real inflation should include the ability of poor/middle class to buy assets as well.

bob33212 6y ago

It does, your dollars in 2019 could buy an average house, those dollars in 2025 will only buy a lower end house. This is nothing new though. A new car cost $800 in 1940. So if you held all your money in cash you missed out on buying a new car. Now all you can buy is a new bike.

throw0101a 6y ago

Because inflation is caused by more than money supply: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati... It is also related to (at least) the velocity of money: * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money Which has been declining in the US for a decade or two, and which has dropped off a cliff since the pandemic started: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V Further: "inflation" can mean many things. A rate of 20% would be very annoying, but a rate of (say) 5% would be manageable. Runaway inflation is more generally caused by a political system that has collapsed ((civil) wars) or mismanaged (Zimbabwe).