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Comment by crb002 | Hacker News Reader

M2/Population https://twitter.com/SMT_Solvers/status/1391506520488153091/p...

That is an unprecedented hockey stick.

You’re correct that the recent uptick is unprecedented, but given that the other graph (shared by Nobel prize winning economist) shows no stable relationship between M2 and inflation, why does it matter? He might be wrong and you might be right, but that graph alone doesn’t tell that story.

These morons are trying to pump a certain crypto-token by instilling inflation fears, but since inflation has been a non-issue in the US since the 1970s, they are now trying to shift the focus to the money supply as if it had any relevance at all.

Do you truly believe that printing unprecedented amounts of money will have zero effect on the real value of that money?

Yes, because the Fed is increasing the supply to meet an equal increase in demand.

That hockey stick is neutralized by reverse hokey stick.

Velocity of M2 Money Stock/Population https://fred.stlouisfed.org/graph/fredgraph.png?g=DPfD

https://fred.stlouisfed.org/graph/?g=DPg0 <-- I added the population velocity.

It should be Velocity of M2 Money Stock/Population

not Population/Velocity of M2 Money Stock like you did.

I have no idea why so many people quote velocity but it is an output, not an input.

Saying that velocity is falling when supply isn't interesting or relevant. The question is whether supply is growing in excess of demand (as ever).

Because money which isn't spent doesn't contribute to inflation. It might contribute to inflation, but prices don't increase in reaction to possible buyers, only actual buyers (or the expectation of actual buyers, but that's a short term effect since if the customer doesn't materialize you've still got bills to pay).

Correct, which is why I said you have to look at demand. Velocity tells you nothing, it isn't an input.

Also, you are wrong about prices not increasing "in reaction to possible buyers". If we lived in the fabulous world of rational expectations and flexible prices moving instantly but we don't. Understanding why this isn't the case, ironically, is why we use monetary policy/inflation targeting.

Because it kills the argument that "inflation is always monetary phenomenon."

If prices would always increase when money stock increases, velocity of money would not change.

That's a recent spike, not a hockey stick.

A hockey stick requires far more than just a 30% lift in an anomalous year.

They changed the definition in 2020: https://fred.stlouisfed.org/series/M2

M2/Heavy Truck Sales. Note the huge growth inside a recession of money chasing an industrial sink.

https://fred.stlouisfed.org/graph/?g=DPfB

Interesting but, I don't really think I understand what this is. Would you mind explaining it in lay terms?

It describes a very sharp increase in created money. The poster of the linked tweet is implying this is unique and we will see negative economic effects (like inflation) because of it.

Parent to that tweet is arguing we have not seen those effects despite past federal reserve action and so there is no worry.

The wider context to this conversation is that some people [who?] believe federal reserve policy is flawed and supported by systemic bias in the reporting of economic indicators like GDP.

It's not created money. We didn't just print this money. The money is printed on collateral, that is private industry traded assets for US dollars.

This graph also completely ignores that the US dollar is the de facto reserve currency of the world, so dividing dollars by US population is fairly meaningless in 2021.

The fed is creating money. They buy treasuries with money that doesn’t exist as a way of increasing the money supply.

You mean they are buying assets and thus the money is simply providing liquidity and has tangential value. They aren't just printing it and giving it away, this subtle but significant difference is one of the reasons that money supply and inflation have very little if anything to do with one another.

Yes, buying assets, but basically buying risk-free treasuries that come in inexhaustible quantities. When they make the purchase that money goes directly to the federal government to be spent.

And that money is in competition with others who are buying treasuries, driving down the interest rate (since it’s an auction) and presumably pushing that money to other uses.

So you are right, it’s not “given away”, but it’s a pretty frictionless way for “new money” to enter the financial system. It’s not like the money is put in a bank account and just sits there.

But your point is well taken. There is no “2 + 2 = 4” rule when it comes to money supply and inflation.

If the comparison is with 2008, the answer is that the "money" was created on different sides of the balance sheet for different purposes. (We all remember that banks are effectively statistically multiplexing asset cash against liability deposits, nu?)

2008 the Fed printed $2 trillion asset cash(M0) and used it to buy bad debt off the banks books, and put the debt in a runoff fund. No discernible impact on M2. (well, it stopped it imploding).

2020 Fed prints ~$4 trillion of liability deposits, and hands it out to all and sundry to pay their rents, and support the stock market.

M2 goes vertical. Which it has never done for the US in the last 100 odd years. So this time it will actually be different.

For people that want to understand this better:

“Print” is a misnomer, as only the US Mint prints paper currency and mints metal coins which is a very tiny sliver of the M0 money supply.

So to rephrase what actually happens: “in 2008, the Federal Reserve decided to buy a notional amount of $2 trillion in bonds and debt securities, every time it bought some it created the same amount of new US dollars at the time of transaction which becomes owned by the seller. Increasing the money supply upon payment.”

Its primary mechanism for controlling the money supply and people’s behavior is by purchasing a predetermined amount and category of assets from people. Unless authorized by Congress to do something specific.

Congress does not usually touch the Federal Reserve Act, as the whole point of the Federal Reserve system was to remove politics from management of the money supply. But they obviously can and always could alter the Federal Reserve’s charter and in 2020 they let the Federal Reserve give money directly to individuals in some of the stimulus programs.

> “Print” is a misnomer, as only the US Mint prints paper currency and mints metal coins which is a very tiny sliver of the M0 money supply.

If you're going to be pedantic, the Mint only does coins. The Bureau of Engraving and Printing prints the paper money.

Yes, good catch.

More about breaking down exactly how the Fed's digital dollar ledger updates actually result increasing the money supply.

Despite everyone knowing the "printer go brr" meme being just a colloquialism, I don't think people are really clear on what the reality is. It is Just-In-Time creation of dollars upon transaction.

Yes, don't worry guys. The Federal Reserve has got you covered. And if things get too expensive, you can always just ask for a raise, amirite! :)

Anyway, here's a cash crop chart for corn that has more than doubled in price since last year. Once the cost of making finished products with these crops increase, you can be sure that shop prices will also reflect it. Some of these charts are even growing exponentially.

^1: https://www.barchart.com/futures/quotes/ZCY00/interactive-ch...

If you zoom out to 20 years it shows that back in 2011 the same thing happened; did we have hyperinflation in 2011 or huge price increases in food in 2011?

I didn't say we'd have hyper-inflation. I said we'd have inflation, and the banks are saying that too, btw. What we're seeing now isn't just some seasonal pump, but a huge across the board pump. Of course, if wages also reflect that increase, then there's not much of a problem. But what we're facing today is massive unemployment, and a massive amount of money sitting un-touched in banks, sometimes with negative interest. Negative interest plus more inflation equals less purchasing power for you either way you try to argue. So what we're witnessing now is a massive transfer of wealth. The only thing most normies can hope for, is a higher price on Doge. But yes, if the printing gets out of hand, we'll have hyper-inflation too. Some of these charts are already going exponential.

Since the massive QE is happening in economies around the world,vthere will be some flight to the dollar as well as gold. A lot of money could continue to sit at negative rates. There won't be much impetus for capital investment for a decade. It's hard to say exactly how this will play out month to month, but it is going to be a harrowing.

And there it is. An HN econ discussion with the requisite declaration that hyperinflation is just around the corner.

Its too bad I can't buy futures on hyperinflation not happening when people on HN predict it will.

Haha. Arguably you got a really good entry after Elon Musk dumped Doge. ;)

M2 is a measure of the money supply. There are different measures of the money supply, which roughly speaking are M0 (cash), M1 (M0+current accounts), M2 (M1+savings accounts) and M3 (M2+money market instruments). The fact that they have divided M2 by the population seems a little strange, but basically the graphic shows the amount of "money" (cash+current accounts) per person over a time period in the US.

Per Capita is a pretty common way to normalize a statistic to account for population growth / change right?

Yes, but the money supply is rarely reported in per capita terms. (It's not that it doesn't make sense, it's just unusual.)

There is no one definition of "money". M0, M1, M2, M3, MZM are various metrics which have been proposed over time for trying to track the supply of USD all with varying definitions. M2 is frequently used as the simplest and best general case proxy for "how much USD is out in circulation" in a way that tracks credit + currency.

So saying the M2 is high relative to population means that we have been "printing money" (increasing the USD money supply) at a high rate relative to population.

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