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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 rel

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 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y ago
GFC was a tiny blip in comparison, it hardly registers; https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL

ObserverNeutral 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y 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 5y ago

GFC was a tiny blip in comparison, it hardly registers; https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL