5 ms·

It's not the prices people are necessarily scared with, it's the rate of increase. It's higher than was anticipated. What's also concerning is that the veloci

It's not the prices people are necessarily scared with, it's the rate of increase. It's higher than was anticipated. What's also concerning is that the velocity of money is really low while M2 money supply is very high. If the velocity picks up we could be in a world of hurt.

throwawaygh 5y ago
This post and its parent hit the nail on the head. Levels aren't particularly worrisome. High, sure, not scary high. However, you should still be worried. Just not about current prices. It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.
- podgaj 5y ago
  But you’re mistaking inflation for the rate of inflation growth. The rate of inflation growth is horrible right now.
  - throwawaygh 5y ago
    > But you’re mistaking inflation for the rate of inflation growth. You mean... like... a first derivative? What am I mistaken about? I literally said literally exactly this: >> It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared. (and, in fact, it's not just the rate of inflation but also several other related rates of change and rates of rates of change and stocks of things that can fuel changes in those rates, but engaging in that nuance seems a bit fruitless given that you seem to be literally repeating my own point back to me while thinking you're disagreeing with me.) > The rate of inflation growth is horrible right now. yes thanks for repeating my point for me.
    - curryst 5y ago
      There's really not a need to be that hostile. They probably misread; I did too at first. I thought you were referring to financial derivatives.
tbabb 5y ago
Maybe a stupid question, but if the velocity goes up, couldn't/wouldn't the Fed contract the supply? It seems like having large supply is desirable/correct when velocity is low.
- ignasheahy 5y ago
  Of course they would try to do it - first of all raising interest rates. However they are basically trapped now and it's questionable if they can still control situation. With current debt levels it might be extremely hard to raise rates or sell instruments they hold that were bought with printed money (to take off liquidity of the market). On top of that I would say all the rich and influential are well positioned for high inflation so it's speculation but I wouldn't bet that Fed will choose hard recession scenario...
- ItsMonkk 5y ago
  No. We live in a fiat currency world where every dollar is allowed to leverage 10x. This means that every dollar defaulted on results in the destruction of 10 dollars. Even during the housing crash of 2008, the money supply didn't contract because the government was forced to keep the money supply constant, and if they did not it would lead to cascading failures that would destroy the currency entirely. Allowing the money supply, given all of the moral hazard we've shown so far, would be suicide to the economy. The Fed's next step is to slow down this inflation, and they will do so by raising rates. The Fed's dot plots shows that they will reach the rate of the 30Y Treasury bill sometime around 2024, but with this data they might bring that up to 2023. This will, like every single other time they set the Fed Funds Rate above the 30YT, cause a recession 6 months afterwards, which will bring down the inflation pressures. Problem resolved? That's totally standard, and not yet the true problem. The problem is after that. Once we reach that recession the Fed quickly drops the interest rate and that brings us out of the recession. But interest rates are already so low, we've already pumped so many dollars into the system, that it might not cut it. We might get cascading failures, we might get stuck in a depression. This might be the end of the long-term debt cycle.
  - tbabb 5y ago
paganel 5y ago
> the velocity of money is really low For those curious (like I was) about the exact numbers for that I quickly found this chart [1] from the St Louis Fed that strongly demonstrates OP's point. Only partially related to this, the sustained downward trend starting with about 2006 is really interesting, I'm wondering if there are any (relatively) recent papers written about this phenomenon. [1] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- ItsMonkk 5y ago
  M2 * M2V = GDP With GDP being mostly the same trend it has been this chart is just tracking the surge in M2.

throwawaygh 5y ago

This post and its parent hit the nail on the head. Levels aren't particularly worrisome. High, sure, not scary high. However, you should still be worried. Just not about current prices. It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.

podgaj 5y ago
But you’re mistaking inflation for the rate of inflation growth. The rate of inflation growth is horrible right now.
- throwawaygh 5y ago
  > But you’re mistaking inflation for the rate of inflation growth. You mean... like... a first derivative? What am I mistaken about? I literally said literally exactly this: >> It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared. (and, in fact, it's not just the rate of inflation but also several other related rates of change and rates of rates of change and stocks of things that can fuel changes in those rates, but engaging in that nuance seems a bit fruitless given that you seem to be literally repeating my own point back to me while thinking you're disagreeing with me.) > The rate of inflation growth is horrible right now. yes thanks for repeating my point for me.
  - curryst 5y ago
    There's really not a need to be that hostile. They probably misread; I did too at first. I thought you were referring to financial derivatives.

tbabb 5y ago

Maybe a stupid question, but if the velocity goes up, couldn't/wouldn't the Fed contract the supply? It seems like having large supply is desirable/correct when velocity is low.

ignasheahy 5y ago
Of course they would try to do it - first of all raising interest rates. However they are basically trapped now and it's questionable if they can still control situation. With current debt levels it might be extremely hard to raise rates or sell instruments they hold that were bought with printed money (to take off liquidity of the market). On top of that I would say all the rich and influential are well positioned for high inflation so it's speculation but I wouldn't bet that Fed will choose hard recession scenario...
ItsMonkk 5y ago
No. We live in a fiat currency world where every dollar is allowed to leverage 10x. This means that every dollar defaulted on results in the destruction of 10 dollars. Even during the housing crash of 2008, the money supply didn't contract because the government was forced to keep the money supply constant, and if they did not it would lead to cascading failures that would destroy the currency entirely. Allowing the money supply, given all of the moral hazard we've shown so far, would be suicide to the economy. The Fed's next step is to slow down this inflation, and they will do so by raising rates. The Fed's dot plots shows that they will reach the rate of the 30Y Treasury bill sometime around 2024, but with this data they might bring that up to 2023. This will, like every single other time they set the Fed Funds Rate above the 30YT, cause a recession 6 months afterwards, which will bring down the inflation pressures. Problem resolved? That's totally standard, and not yet the true problem. The problem is after that. Once we reach that recession the Fed quickly drops the interest rate and that brings us out of the recession. But interest rates are already so low, we've already pumped so many dollars into the system, that it might not cut it. We might get cascading failures, we might get stuck in a depression. This might be the end of the long-term debt cycle.
- tbabb 5y ago

paganel 5y ago

> the velocity of money is really low For those curious (like I was) about the exact numbers for that I quickly found this chart [1] from the St Louis Fed that strongly demonstrates OP's point. Only partially related to this, the sustained downward trend starting with about 2006 is really interesting, I'm wondering if there are any (relatively) recent papers written about this phenomenon. [1] https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

ItsMonkk 5y ago
M2 * M2V = GDP With GDP being mostly the same trend it has been this chart is just tracking the surge in M2.