5 ms·

Good, but still looks like a blip on the nominal chart. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL I wonder, with the econ

Good, but still looks like a blip on the nominal chart. https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL I wonder, with the economy having expanded since 2020, many former hospitality workers now doing better paid office work and lower paid workers seeing significant raises, how many more dollars are "appropriate" to be in the economy now? M1 is currently at 20T, we probably don't want to go back to 4T pre-pandemic, but what number makes sense for limited inflation without recession?

JumpCrisscross 4y ago
> how many more dollars are "appropriate" to be in the economy now? We don’t know. We know money shortages are bad. But quantifying where excess liquidity occurs is unsolved [1]. (We see a variety of optima that defy simple explanation [2].) More solvable: targeting price levels and central bank balance sheet [3]. [1] https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp696.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp696.pdf [2] https://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?end=2020&start=2020&view=map&year=2020 https://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?end=2... [3] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...
mempko 4y ago
Keep in mind, most of that 20T didn't go to regular people. It mostly went to asset price inflation.
- xhrpost 4y ago
  Yea you raise a fair point. What matters is, where are those dollars now? If more so in the hands of rich people, who have a higher propensity to save cash, then those dollars are likely more removed from the economy in a way. Partly why we track Money Velocity as well: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
travisporter 4y ago
Is M2 is basically how many dollars exist in the world?
- jfengel 4y ago
  It depends on how you define "dollars", which is the point of having multiple M measures. M0 is cash, or something you could turn into dollar bills just by asking. M1 adds in checking accounts, which you can treat as dollars just by writing a check. M2 adds in savings accounts, which you can turn into dollars just by asking, but there might be a delay because they don't have the bills on hand. There are more M's out there, which count ever less liquid forms of dollars. All of them are "dollars". You don't think of yourself as having fewer dollars just because you put them in the bank. But if the bank loans out those dollars, you now count the same money twice: you have it, and somebody else has it. The correct amount at each level is not a matter of how many dollars "exist", but how much trade is being accomplished. The Federal Research tries to set a level that encourages more trade, without flooding the market.

JumpCrisscross 4y ago

> how many more dollars are "appropriate" to be in the economy now? We don’t know. We know money shortages are bad. But quantifying where excess liquidity occurs is unsolved [1]. (We see a variety of optima that defy simple explanation [2].) More solvable: targeting price levels and central bank balance sheet [3]. [1] https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp696.pdf https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp696.pdf [2] https://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?end=2020&start=2020&view=map&year=2020 https://data.worldbank.org/indicator/FM.LBL.BMNY.GD.ZS?end=2... [3] https://advisors.vanguard.com/insights/article/thefedsplantoshrinkitsbalancesheetquickly https://advisors.vanguard.com/insights/article/thefedsplanto...

mempko 4y ago

Keep in mind, most of that 20T didn't go to regular people. It mostly went to asset price inflation.

xhrpost 4y ago
Yea you raise a fair point. What matters is, where are those dollars now? If more so in the hands of rich people, who have a higher propensity to save cash, then those dollars are likely more removed from the economy in a way. Partly why we track Money Velocity as well: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

travisporter 4y ago

Is M2 is basically how many dollars exist in the world?

jfengel 4y ago
It depends on how you define "dollars", which is the point of having multiple M measures. M0 is cash, or something you could turn into dollar bills just by asking. M1 adds in checking accounts, which you can treat as dollars just by writing a check. M2 adds in savings accounts, which you can turn into dollars just by asking, but there might be a delay because they don't have the bills on hand. There are more M's out there, which count ever less liquid forms of dollars. All of them are "dollars". You don't think of yourself as having fewer dollars just because you put them in the bank. But if the bank loans out those dollars, you now count the same money twice: you have it, and somebody else has it. The correct amount at each level is not a matter of how many dollars "exist", but how much trade is being accomplished. The Federal Research tries to set a level that encourages more trade, without flooding the market.