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Comment by nabla9 | Hacker News Reader

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nabla9·

That hockey stick is neutralized by reverse hokey stick.

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

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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.

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.

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