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> There's an important message here: the money expands by that much and inflation is .. 4%? I doubt this comment will age well. Macroeconomic effects don't ha

> There's an important message here: the money expands by that much and inflation is .. 4%? I doubt this comment will age well. Macroeconomic effects don't happen instantly.

MagnumOpus 6y ago
A monetary expansion of similar magnitude happened after the GFC, and inflation didn't rise above this level for a decade... There just isn't that much of a relationship between base money and CPI as Friedman imagined 50 years ago. (Because banks also control credit supply and only give it to creditworthy borrowers... The Fed can drop rates to zero and give banks limitless money and they still won't lend it out to deadbeats.)
- ObserverNeutral 6y ago
  It's a 2 way street. Fed can drop rates to zero but still people are too risk averse and have a negative outlook so they won't seek to submerge themselves with debt.
- missedthecue 6y ago
  2008 GFC is not comparable because QE (buying long term bonds to push down interest rates) does not result in a noticeable increase in the supply of money. Printing money and sending it to people does. Refer to the chart below. https://i.imgur.com/G35HlC9.png https://i.imgur.com/G35HlC9.png
  - 542458 6y ago
    This is why a single chart on imgur is bad and you should go to real sources. The way M2 was calculated changed in May 2020, a fact that should be on every reputable page containing that graph. https://www.federalreserve.gov/releases/h6/current/default.htm https://www.federalreserve.gov/releases/h6/current/default.h... Also in a lot of ways M2 on its own is meaningless (money sitting under a mattress not being used doesn’t affect the economy) - velocity of money is more useful. Of course, inflation is complex and multicausal so this isn’t the whole picture, but it’s more useful than raw M2 supply. https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
    - _dps 6y ago
      Money under the mattress does affect the economy, by changing its owner's willingness to part with a marginal dollar. If I have $1k under the mattress I probably won't risk $100 on a share of CORP. If I have $100k under a mattress, I'm more willing to take a swing.
  - imtringued 6y ago
    Most QE immediately after 2008 was just filling bank reserves. It helps banks but the money is only available to those who borrow. >Printing money and sending it to people does. That money wasn't printed, it was borrowed because the Fed cannot do that. Only the US government can do that. The Fed may have bought treasury bonds but those still have to be paid back.
    - missedthecue 6y ago
      The Fed balance sheet increased by trillions during covid because they were "printing" money to buy treasuries in order to keep interest rates low. That is new money. Trillions of it.
    - dlubarov 6y ago
      > The Fed may have bought treasury bonds but those still have to be paid back. Do you mean that when securities owned by the Fed mature, the Fed will destroy the money that it had created to buy them? In practice, I don't think that has really been happening. They have just been reinvesting proceeds in new securities (at least the principal; they send some (all?) interest to the Treasury). This may change at some point, but so far the Fed has periodically increased its balance sheet while never substantially reducing it [1]. If that continues long term, the Fed's "temporary" money is effectively permanent. [1] https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
- seriousquestion 6y ago
  GFC was a tiny blip in comparison, it hardly registers; https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
pjc50 6y ago
I could go for absolute worst case 5, maybe 6 by this time next year? By which point the central bank will have raised interest rates.
JPKab 6y ago
Absolutely. I studied applied economics. It's been maddening watching economists whom I respect making proclamations (one way or the other) with high degrees of confidence that inflation is or isn't a problem. They have no idea, because anyone who actually knows what they are doing knows that there isn't enough data yet.
- splitstud 6y ago
  Agreed. We do have some data though. We know how much new debt we've taken on in the last 18 months. We certainly won't be able to afford to raise rates to combat any inflation.

> There's an important message here: the money expands by that much and inflation is .. 4%? I doubt this comment will age well. Macroeconomic effects don't happen instantly.

MagnumOpus 6y ago

A monetary expansion of similar magnitude happened after the GFC, and inflation didn't rise above this level for a decade... There just isn't that much of a relationship between base money and CPI as Friedman imagined 50 years ago. (Because banks also control credit supply and only give it to creditworthy borrowers... The Fed can drop rates to zero and give banks limitless money and they still won't lend it out to deadbeats.)

ObserverNeutral 6y ago
It's a 2 way street. Fed can drop rates to zero but still people are too risk averse and have a negative outlook so they won't seek to submerge themselves with debt.
missedthecue 6y ago
2008 GFC is not comparable because QE (buying long term bonds to push down interest rates) does not result in a noticeable increase in the supply of money. Printing money and sending it to people does. Refer to the chart below. https://i.imgur.com/G35HlC9.png https://i.imgur.com/G35HlC9.png
- 542458 6y ago
  This is why a single chart on imgur is bad and you should go to real sources. The way M2 was calculated changed in May 2020, a fact that should be on every reputable page containing that graph. https://www.federalreserve.gov/releases/h6/current/default.htm https://www.federalreserve.gov/releases/h6/current/default.h... Also in a lot of ways M2 on its own is meaningless (money sitting under a mattress not being used doesn’t affect the economy) - velocity of money is more useful. Of course, inflation is complex and multicausal so this isn’t the whole picture, but it’s more useful than raw M2 supply. https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
  - _dps 6y ago
    Money under the mattress does affect the economy, by changing its owner's willingness to part with a marginal dollar. If I have $1k under the mattress I probably won't risk $100 on a share of CORP. If I have $100k under a mattress, I'm more willing to take a swing.
- imtringued 6y ago
  Most QE immediately after 2008 was just filling bank reserves. It helps banks but the money is only available to those who borrow. >Printing money and sending it to people does. That money wasn't printed, it was borrowed because the Fed cannot do that. Only the US government can do that. The Fed may have bought treasury bonds but those still have to be paid back.
  - missedthecue 6y ago
    The Fed balance sheet increased by trillions during covid because they were "printing" money to buy treasuries in order to keep interest rates low. That is new money. Trillions of it.
  - dlubarov 6y ago
    > The Fed may have bought treasury bonds but those still have to be paid back. Do you mean that when securities owned by the Fed mature, the Fed will destroy the money that it had created to buy them? In practice, I don't think that has really been happening. They have just been reinvesting proceeds in new securities (at least the principal; they send some (all?) interest to the Treasury). This may change at some point, but so far the Fed has periodically increased its balance sheet while never substantially reducing it [1]. If that continues long term, the Fed's "temporary" money is effectively permanent. [1] https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL
seriousquestion 6y ago
GFC was a tiny blip in comparison, it hardly registers; https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL

pjc50 6y ago

I could go for absolute worst case 5, maybe 6 by this time next year? By which point the central bank will have raised interest rates.

JPKab 6y ago

Absolutely. I studied applied economics. It's been maddening watching economists whom I respect making proclamations (one way or the other) with high degrees of confidence that inflation is or isn't a problem. They have no idea, because anyone who actually knows what they are doing knows that there isn't enough data yet.

splitstud 6y ago
Agreed. We do have some data though. We know how much new debt we've taken on in the last 18 months. We certainly won't be able to afford to raise rates to combat any inflation.