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I'm reminded of this article from 2020 [1]: >The United States printed more money in June than in the first two centuries after its founding. Last month the U.

by Jerry2 5y ago

I'm reminded of this article from 2020 [1]: >The United States printed more money in June than in the first two centuries after its founding. Last month the U.S. budget deficit — $864 billion — was larger than the total debt incurred from 1776 through the end of 1979. and this is a good graph of our money supply (M1) [2] The inflation is here to stay. And it will only get worse. Fed's recent 25-basis point rate hike won't do anything to curtail the inflation. [1] https://blog.panteracapital.com/two-centuries-of-debt-in-one-month-pantera-blockchain-letter-july-2020-f876b43448a2?gi=257283f71639 https://blog.panteracapital.com/two-centuries-of-debt-in-one... [2] https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL

jdhn 5y ago
The Fed is 100% stuck, and they know it. The idea that raising rates 25 bps multiple times this year will do anything to inflation is laughable, and the fact that their quantitative tightening is just letting MBS's run off the balance sheet naturally instead of selling them won't do anything towards bringing housing prices down, or even steadying them.
md_ 5y ago
In May 2020, the definition of M1 changed to include savings accounts that were previously excluded. If you look at the “old” series it’s _much_ less alarming: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more.... Federal debt isn’t really directly related to what you are concerned about, since there’s no monetarist argument that issuing more debt itself is inflationary. (If it were, then private debt would also be inflationary, which is nonsensical!) The only reason debt would be inflationary is if it’s bought by the Fed, printing money. But a) we already covered that, with money supply (not as scary as it looks!) and b) the % of debt held by the Fed has only increased slightly (https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadth-of-the-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadt...).
MiroF 5y ago
The deficit is not printing money, because the money is borrowed.
shostack 5y ago
Is this what the initial signs of hyperinflation look like? Are we at risk of seeing that? Paired with geopolitical movements to try and replace the dollar as reserve currency, that feels like it could reach a rather bad tipping point, especially if the US finds itself in a position where it cannot just print its way out.
- md_ 5y ago
  No. The “famous” cases of hyperinflation—Weimar Germany, Argentina, etc—all come with extraordinary political instability as well. I’m not an economist, but it seems to me safe to say that hyperinflation is as much a political phenomenon as it is a monetary one. Now, it’s certainly possible that the US is facing such political risks, what with efforts to disenfranchise large groups of people, entrenched rule-by-minority, and one of the two major parties expressing strong support for anti-democratic ideologies. (See https://carnegieendowment.org/publications/86352 https://carnegieendowment.org/publications/86352, for example.) But when people express concerns about hyperinflation—without mentioning the political component—it’s a bit like having a suspicious growth on your shoulder, and worrying that the diagnosis might come back that you’re not going to be able to walk around shirtless anymore.
  - slowmovintarget 5y ago
    There's no article at that link. I did find the article here: https://www.smerconish.com/exclusive-content/how-can-american-democracy-be-saved https://www.smerconish.com/exclusive-content/how-can-america...
    - md_ 5y ago
      Ugh. Thanks! :)

by Jerry2 5y ago

jdhn 5y ago

The Fed is 100% stuck, and they know it. The idea that raising rates 25 bps multiple times this year will do anything to inflation is laughable, and the fact that their quantitative tightening is just letting MBS's run off the balance sheet naturally instead of selling them won't do anything towards bringing housing prices down, or even steadying them.

md_ 5y ago

In May 2020, the definition of M1 changed to include savings accounts that were previously excluded. If you look at the “old” series it’s _much_ less alarming: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more-liquid-and-part-of-m1-money/ https://fredblog.stlouisfed.org/2021/05/savings-are-now-more.... Federal debt isn’t really directly related to what you are concerned about, since there’s no monetarist argument that issuing more debt itself is inflationary. (If it were, then private debt would also be inflationary, which is nonsensical!) The only reason debt would be inflationary is if it’s bought by the Fed, printing money. But a) we already covered that, with money supply (not as scary as it looks!) and b) the % of debt held by the Fed has only increased slightly (https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadth-of-the-federal-debt/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_campaign=fredblog https://fredblog.stlouisfed.org/2017/03/the-depth-and-breadt...).

MiroF 5y ago

The deficit is not printing money, because the money is borrowed.

shostack 5y ago

Is this what the initial signs of hyperinflation look like? Are we at risk of seeing that? Paired with geopolitical movements to try and replace the dollar as reserve currency, that feels like it could reach a rather bad tipping point, especially if the US finds itself in a position where it cannot just print its way out.

md_ 5y ago
No. The “famous” cases of hyperinflation—Weimar Germany, Argentina, etc—all come with extraordinary political instability as well. I’m not an economist, but it seems to me safe to say that hyperinflation is as much a political phenomenon as it is a monetary one. Now, it’s certainly possible that the US is facing such political risks, what with efforts to disenfranchise large groups of people, entrenched rule-by-minority, and one of the two major parties expressing strong support for anti-democratic ideologies. (See https://carnegieendowment.org/publications/86352 https://carnegieendowment.org/publications/86352, for example.) But when people express concerns about hyperinflation—without mentioning the political component—it’s a bit like having a suspicious growth on your shoulder, and worrying that the diagnosis might come back that you’re not going to be able to walk around shirtless anymore.
- slowmovintarget 5y ago
  There's no article at that link. I did find the article here: https://www.smerconish.com/exclusive-content/how-can-american-democracy-be-saved https://www.smerconish.com/exclusive-content/how-can-america...
  - md_ 5y ago
    Ugh. Thanks! :)