5 ms·

M1 Money Stock

50 points by anilshanbhag 5y ago

Qworg 5y ago
Do note the postscript below the graph - in May 2020, they changed how the M1 is calculated, adding all of the savings accounts into it. That explains the giant jump. Is the Fed printing money? Yes. Is it dire? Unknown.
bigpoppa 5y ago
This is fine.
arcticbull 5y ago
I've weighed in a few times on this but it bears mentioning again. This graph is presented strictly without context. Inflation is a function of both money supply and velocity. The M1 velocity graph is basically the mirror image of the M1 supply graph. [1] US domestic savings rates are near all-time highs. [2] The money supply was expanded in order to offset the drop in velocity from Americans putting their money into savings accounts and into the stock market - risking a deflationary spiral. The Fed has tools available at its disposal to contract the supply should velocity go up in order to meet its goal of a steady 2% rate of inflation. [4] They have admitted it may be transiently higher than 2% as the economy re-opens but their goal is an average of 2%, not to avoid spikes. Spikes historically are normal and common. [edit] A good way to conceptualize this is if the Fed printed a $1T coin and gave it to me, then I threw it into a vault and didn't spend it, would that impact the prices in the CPI basket? No, because the supply expanded and the velocity contracted commensurately. This is what's happening around America on a smaller scale as COVID spooked folks into saving. More about the relationship between supply and velocity and inflation here. [3] The "inflation scare" people are talking about now isn't whether there's already secret inflation we're not talking about (although it does come up, it's more of a fringe idea). Rather, whether the Fed's tools to reduce supply are sufficient to offset a big increase in velocity now and moving forward. [1] https://fred.stlouisfed.org/series/M1V https://fred.stlouisfed.org/series/M1V [2] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT [3] https://seekingalpha.com/article/4411210-money-supply-mystery https://seekingalpha.com/article/4411210-money-supply-myster... [4] https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
- throw0101a 5y ago
  > The M1 velocity graph is basically the mirror image of the M1 supply graph. [1] See also M2 velocity: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- teruakohatu 5y ago
  > Americans putting their money into savings accounts and into the stock market. What do savings accounts pay in the USA? We are getting much less than inflation here in New Zealand. A regular savings account might get 0.25% at best, and just 0.90% pa return for a 3 year term deposit (which is an investment not a savings account but short term term deposits are commonly used as pseudo savings accounts in NZ). As for putting money into the stock market, surely that money needs to be spent eventually or moved into bonds, so couldn't the government just stop selling bonds to force spending?
  - rootusrootus 5y ago
    > What do savings accounts pay in the USA? Right now, the best ones are at about 0.5% APY, maybe just a tiny bit higher. 3 year CDs are about 0.8% or so.
- brutusborn 5y ago
  Thanks for the additional nuance, it is a very complex subject. What do you think of the current fear of hyperinflation? When you refer to the Fed's tools for reducing the money supply, do you mean the selling of financial assets? Since the average person has money saved and this is not greatly effected by the financial markets, does it not stand to reason that the Fed has limited power to reduce inflation outside of said financial markets? I.e. the price of things people care about such as food, services and rent will continue to rise even as the Fed sells assets?
  - arcticbull 5y ago
    > When you refer to the Fed's tools for reducing the money supply, do you mean the selling of financial assets? Correct me if I'm wrong folks, but my understanding is the Fed controls the money supply through adjusting fractional reserve lending rates, benchmark interest rates, and through selling purchased assets (mostly T-bills). The US economy is largely debt-driven, and increasing reserve rates means fewer loans are available to create. Increasing interest rates means loans are less attractive. Selling back bonds means that cash leaves circulation.
asperous 5y ago
M2 is a better chart now since they added savings accounts in May 2020 making the M1 misleading and hard to follow. M2 is "M1 plus savings and time deposits, certificates of deposits, and money market funds". Washington post has a good article talking about the cases for and against inflation rising [1]. This chart shows one case for inflation, cases against include supply chain problems, unemployment, and cautious households. [1]https://www.washingtonpost.com/business/with-no-inflation-in-sight-why-the-inflation-debate/2021/03/15/54eeabec-8593-11eb-be4a-24b89f616f2c_story.html https://www.washingtonpost.com/business/with-no-inflation-in...
tingletech 5y ago
with a Federal Reserve Digital Dollar, at least under one proposal, the Fed could, as a matter of monetary policy, just create new dollars directly into everyone's personal Federal Reserve account. Most of the money they created here is still just sitting in big banks and isn't moving around so it does not really add to the velocity of money. If they could hand out all the new money to everyone with like a federal venmo app with USD stable coins that you can convert to cash at an ATM, then maybe they would have another lever to try to meet their 2% inflation goal.
- arcticbull 5y ago
  > Most of the money they created here is still just sitting in big banks and isn't moving around so it does not really add to the velocity of money. I agree that establishing a direct relationship between the Fed and individuals could be a better way to stimulate the economy than expanding the availability and demand for loans and buying bonds, but does it have to be done on the blockchain? Couldn't it simply be handed like any government account, and keyed to, for instance, your SSN? You can then transfer it via ACH/RTP or FedWire to your bank account. I'm open to the idea that a CBDC could be an interesting innovation I'm just not entirely sure what the specific benefit would be here, and would be interested in your opinion.
  - Qworg 5y ago
    There's a chunk of Americans who don't have bank accounts (or could work a government account online), so standard methods may not work for 100% of the population. Also, the Fed is very leery of destroying commercial banking in the US via postal banking or a direct CBDC - I'd expect (if we ever do go that way) for there to a hybrid model. Under that system, banks provide the services to support a digital dollar, while the Fed works through them. As for "why blockchain" - there's no real reason if the Fed is going to do the work/be the source of trust.
  - toomuchtodo 5y ago
    You’d have a traditional deposit account at the Fed. You might even have different types of dollars in your account, one traditional, one “helicoptered” from the Fed they inject, ad hoc or on a cadence, with an expiration date (“use it or lose it”). https://greatdemocracyinitiative.org/document/central-banking-for-all/ https://greatdemocracyinitiative.org/document/central-bankin...
caturopath 5y ago
Two graphs of different things stitched together as if they were one.
- throwawaybutwhy 5y ago
  ...which is an abject failure on the Fed's part. Changing methodology in-flight is kind of dumb. Discontinue the earlier time series and start a new one, don't pretend that apples and lychees are comparable.
etaioinshrdlu 5y ago
Yes, once you understand what caused the spike, spreading this graph without the explanation is basically misleading propaganda.
readthenotes1 5y ago
Lies, damn lies, ... It's not as bad as that graph makes it look. Last April, all the money that was in savings and money market accounts seemingly got transferred to the m1. "...the modification of Regulation D in late April has effectively rendered savings accounts almost indistinguishable from checking accounts from the perspective of depositors and banks. Accordingly, the composition of M2 between M1 and non-M1 components conveys little economic information." 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...

50 points by anilshanbhag 5y ago

Do note the postscript below the graph - in May 2020, they changed how the M1 is calculated, adding all of the savings accounts into it. That explains the giant jump. Is the Fed printing money? Yes. Is it dire? Unknown.

bigpoppa 5y ago

This is fine.

arcticbull 5y ago

I've weighed in a few times on this but it bears mentioning again. This graph is presented strictly without context. Inflation is a function of both money supply and velocity. The M1 velocity graph is basically the mirror image of the M1 supply graph. [1] US domestic savings rates are near all-time highs. [2] The money supply was expanded in order to offset the drop in velocity from Americans putting their money into savings accounts and into the stock market - risking a deflationary spiral. The Fed has tools available at its disposal to contract the supply should velocity go up in order to meet its goal of a steady 2% rate of inflation. [4] They have admitted it may be transiently higher than 2% as the economy re-opens but their goal is an average of 2%, not to avoid spikes. Spikes historically are normal and common. [edit] A good way to conceptualize this is if the Fed printed a $1T coin and gave it to me, then I threw it into a vault and didn't spend it, would that impact the prices in the CPI basket? No, because the supply expanded and the velocity contracted commensurately. This is what's happening around America on a smaller scale as COVID spooked folks into saving. More about the relationship between supply and velocity and inflation here. [3] The "inflation scare" people are talking about now isn't whether there's already secret inflation we're not talking about (although it does come up, it's more of a fringe idea). Rather, whether the Fed's tools to reduce supply are sufficient to offset a big increase in velocity now and moving forward. [1] https://fred.stlouisfed.org/series/M1V https://fred.stlouisfed.org/series/M1V [2] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT [3] https://seekingalpha.com/article/4411210-money-supply-mystery https://seekingalpha.com/article/4411210-money-supply-myster... [4] https://fred.stlouisfed.org/series/FPCPITOTLZGUSA https://fred.stlouisfed.org/series/FPCPITOTLZGUSA

throw0101a 5y ago
> The M1 velocity graph is basically the mirror image of the M1 supply graph. [1] See also M2 velocity: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
teruakohatu 5y ago
> Americans putting their money into savings accounts and into the stock market. What do savings accounts pay in the USA? We are getting much less than inflation here in New Zealand. A regular savings account might get 0.25% at best, and just 0.90% pa return for a 3 year term deposit (which is an investment not a savings account but short term term deposits are commonly used as pseudo savings accounts in NZ). As for putting money into the stock market, surely that money needs to be spent eventually or moved into bonds, so couldn't the government just stop selling bonds to force spending?
- rootusrootus 5y ago
  > What do savings accounts pay in the USA? Right now, the best ones are at about 0.5% APY, maybe just a tiny bit higher. 3 year CDs are about 0.8% or so.
brutusborn 5y ago
Thanks for the additional nuance, it is a very complex subject. What do you think of the current fear of hyperinflation? When you refer to the Fed's tools for reducing the money supply, do you mean the selling of financial assets? Since the average person has money saved and this is not greatly effected by the financial markets, does it not stand to reason that the Fed has limited power to reduce inflation outside of said financial markets? I.e. the price of things people care about such as food, services and rent will continue to rise even as the Fed sells assets?
- arcticbull 5y ago
  > When you refer to the Fed's tools for reducing the money supply, do you mean the selling of financial assets? Correct me if I'm wrong folks, but my understanding is the Fed controls the money supply through adjusting fractional reserve lending rates, benchmark interest rates, and through selling purchased assets (mostly T-bills). The US economy is largely debt-driven, and increasing reserve rates means fewer loans are available to create. Increasing interest rates means loans are less attractive. Selling back bonds means that cash leaves circulation.

asperous 5y ago

M2 is a better chart now since they added savings accounts in May 2020 making the M1 misleading and hard to follow. M2 is "M1 plus savings and time deposits, certificates of deposits, and money market funds". Washington post has a good article talking about the cases for and against inflation rising [1]. This chart shows one case for inflation, cases against include supply chain problems, unemployment, and cautious households. [1]https://www.washingtonpost.com/business/with-no-inflation-in-sight-why-the-inflation-debate/2021/03/15/54eeabec-8593-11eb-be4a-24b89f616f2c_story.html https://www.washingtonpost.com/business/with-no-inflation-in...

tingletech 5y ago

with a Federal Reserve Digital Dollar, at least under one proposal, the Fed could, as a matter of monetary policy, just create new dollars directly into everyone's personal Federal Reserve account. Most of the money they created here is still just sitting in big banks and isn't moving around so it does not really add to the velocity of money. If they could hand out all the new money to everyone with like a federal venmo app with USD stable coins that you can convert to cash at an ATM, then maybe they would have another lever to try to meet their 2% inflation goal.

arcticbull 5y ago
> Most of the money they created here is still just sitting in big banks and isn't moving around so it does not really add to the velocity of money. I agree that establishing a direct relationship between the Fed and individuals could be a better way to stimulate the economy than expanding the availability and demand for loans and buying bonds, but does it have to be done on the blockchain? Couldn't it simply be handed like any government account, and keyed to, for instance, your SSN? You can then transfer it via ACH/RTP or FedWire to your bank account. I'm open to the idea that a CBDC could be an interesting innovation I'm just not entirely sure what the specific benefit would be here, and would be interested in your opinion.
- Qworg 5y ago
  There's a chunk of Americans who don't have bank accounts (or could work a government account online), so standard methods may not work for 100% of the population. Also, the Fed is very leery of destroying commercial banking in the US via postal banking or a direct CBDC - I'd expect (if we ever do go that way) for there to a hybrid model. Under that system, banks provide the services to support a digital dollar, while the Fed works through them. As for "why blockchain" - there's no real reason if the Fed is going to do the work/be the source of trust.
- toomuchtodo 5y ago
  You’d have a traditional deposit account at the Fed. You might even have different types of dollars in your account, one traditional, one “helicoptered” from the Fed they inject, ad hoc or on a cadence, with an expiration date (“use it or lose it”). https://greatdemocracyinitiative.org/document/central-banking-for-all/ https://greatdemocracyinitiative.org/document/central-bankin...

caturopath 5y ago

Two graphs of different things stitched together as if they were one.

throwawaybutwhy 5y ago
...which is an abject failure on the Fed's part. Changing methodology in-flight is kind of dumb. Discontinue the earlier time series and start a new one, don't pretend that apples and lychees are comparable.

etaioinshrdlu 5y ago

Yes, once you understand what caused the spike, spreading this graph without the explanation is basically misleading propaganda.

readthenotes1 5y ago

Lies, damn lies, ... It's not as bad as that graph makes it look. Last April, all the money that was in savings and money market accounts seemingly got transferred to the m1. "...the modification of Regulation D in late April has effectively rendered savings accounts almost indistinguishable from checking accounts from the perspective of depositors and banks. Accordingly, the composition of M2 between M1 and non-M1 components conveys little economic information." 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...