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Comment by imsd | Hacker News Reader

> When people spend a lot, it gets removed from circulation.

Taking a look at M2 going back to the early 80s, I see no indication of money being removed from circulation. In fact, it appears to be ever skyrocketing higher.

Source: https://fred.stlouisfed.org/series/M2

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This is not entirely surprising though as the policy is inflation (just enough of course, but never deflation). Inflation is seen as required and desirable, so we should expect the money supply to gradually expand with such a policy, except in cases of economic shock (as in 2020) when it expands more. The problem with such stimulus though is that it becomes very hard to withdraw and asset prices get farther and farther away from any rational valuation based on future returns.

I suspect what is happening is that a handful of high net worth people and companies are accumulating massive hoards of cash at a loss to themselves (relative to gold, real estate...); they do it for the sole purpose of 'doing their bit' to maintain the current economic order; they're avoiding big sudden short term losses by taking on smaller but more long term continuous losses via inflation.

Do you have a citation for your claim?

Generally when large funds like Berkshire hold cash it's because they're expecting a downturn and want to snap up assets on the cheap.

What difference does that make? If the inflation rate is a well controlled 2% that means reducing the supply has not yet become necessary. It's not been necessary, and that's fine, that doesn't mean it won't be necessary in the future, or that the action cannot be taken. I'm explaining the theory.

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