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When people say that "35% of all USD in existence have been printed in the last 10 months" and point at M1, they're not just talking about physical currency - t

by makomk 5y ago

When people say that "35% of all USD in existence have been printed in the last 10 months" and point at M1, they're not just talking about physical currency - that also includes money in people's bank accounts.

rsj_hn 5y ago
Currency in circulation increased by roughly the amount cited over the last 10 months: https://fred.stlouisfed.org/series/CURRCIR https://fred.stlouisfed.org/series/CURRCIR USD is only printed when banks purchase cash from the Bureau of Engraving in order to meet expected outflows. That cash is purchased with reserves, which are obtained by selling some other asset or going short reserves. The point being, it is demand determined. If people want to hold more cash, they sell one form of cash-equivalent for another which forces the financial sector to adjust the asset side of their balance sheet as well. This cannot affect inflation. In terms of the growth of M1, there are two sources for this growth: 1. reclassification occuring in May 2020, when some MMF were added to the definition of M1. 2. increase in preference for cash holding. Neither can be inflationary.
- CyanBird 5y ago
  > This cannot affect inflation. Increases in money velocity by definition increases inflation risk, this with increased preference to cash and localized liquidity as opposed to financial flows shows a potential increase in consumption and therefore money velocity This alongside Phillips curve suggests an increase in inflationary forces
  - rsj_hn 5y ago
    > Increases in money velocity by definition increases inflation risk OK, but that is just a tautology. What makes you think that caring less about cash versus deposit accounts in a zero rate world is the same thing as, or leads to, increases in money velocity? The last I checked, it is just as easy for me to spend money (and in fact, a bit easier) with one form of cash-equivalent as another, so why would transferring my balance out of a money market fund and into cash affect inflation at all? > This alongside Phillips curve suggests an increase in inflationary forces The phillips curve is notoriously unreliable. If you want to argue that deficit spending which pays people to not work will create a supply shortfall and thus increasing prices, I can get that. But that has nothing to do with these types of portfolio shifts.

by makomk 5y ago

rsj_hn 5y ago

Currency in circulation increased by roughly the amount cited over the last 10 months: https://fred.stlouisfed.org/series/CURRCIR https://fred.stlouisfed.org/series/CURRCIR USD is only printed when banks purchase cash from the Bureau of Engraving in order to meet expected outflows. That cash is purchased with reserves, which are obtained by selling some other asset or going short reserves. The point being, it is demand determined. If people want to hold more cash, they sell one form of cash-equivalent for another which forces the financial sector to adjust the asset side of their balance sheet as well. This cannot affect inflation. In terms of the growth of M1, there are two sources for this growth: 1. reclassification occuring in May 2020, when some MMF were added to the definition of M1. 2. increase in preference for cash holding. Neither can be inflationary.

CyanBird 5y ago
> This cannot affect inflation. Increases in money velocity by definition increases inflation risk, this with increased preference to cash and localized liquidity as opposed to financial flows shows a potential increase in consumption and therefore money velocity This alongside Phillips curve suggests an increase in inflationary forces
- rsj_hn 5y ago
  > Increases in money velocity by definition increases inflation risk OK, but that is just a tautology. What makes you think that caring less about cash versus deposit accounts in a zero rate world is the same thing as, or leads to, increases in money velocity? The last I checked, it is just as easy for me to spend money (and in fact, a bit easier) with one form of cash-equivalent as another, so why would transferring my balance out of a money market fund and into cash affect inflation at all? > This alongside Phillips curve suggests an increase in inflationary forces The phillips curve is notoriously unreliable. If you want to argue that deficit spending which pays people to not work will create a supply shortfall and thus increasing prices, I can get that. But that has nothing to do with these types of portfolio shifts.