40% of US dollars in existence were printed in the last 12 months
twitter.com
twitter.com
Before May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other checkable deposits (OCDs), consisting of negotiable order of withdrawal, or NOW, and automatic transfer service, or ATS, accounts at depository institutions, share draft accounts at credit unions, and demand deposits at thrift institutions.
Beginning May 2020, M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts). Seasonally adjusted M1 is constructed by summing currency, demand deposits, and OCDs (before May 2020) or other liquid deposits (beginning May 2020), each seasonally adjusted separately.
> […] the modification of Regulation D in late April has effectively rendered savings accounts almost indistinguishable from checking accounts from the perspective of depositors and banks. Accordingly, the composition of M2 between M1 and non-M1 components conveys little economic information.
* https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
Most of the dollars are only a abstract entry in a database, not a piece of paper.
Increasing the total dollars (bills + coins + database + whatever [1]) would be very bad.
Increasing only the number physical tokens that people sometimes use to exchange abstract dollars is probably only a rounding error.
More than that, the "dollars" created by the Fed are really reserve deposits which are given to financial institutions who have accounts with the Fed. Those reserves are only useable in the inter-bank system that the Fed runs and cannot enter the 'real' economy.
The "money" of the economy is created by private banks through loans out of thin air—no Fed required:
> In many market based systems such as the USA, the money supply is essentially privatized and controlled by private banks that compete to create loans which create deposits (money). Contrary to popular opinion, governments in such a system do not directly control the money supply nor do they create most of the money.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
Most transactions are done with digital transfers by crediting and debiting accounts. Once your loan is approved your account is credited and *poof* money that you can use is created.
The abstract amount of increase was more than 400%. 40% is paper or real inflation locked in.
A safer way of doing that is to get a large, long term, fixed rate loan, and use it to buy some real asset. You know, like, say, a house. With a long term fixed rate mortgage. Has that become more popular than usual recently?
For bonus points, at whose expense is this happening?
https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
https://fred.stlouisfed.org/series/M1SL
Of course that doesn't give the whole picture. There are other relevant metrics beyond M1.
from the Q&A page linked at the bottom:
> Recognizing savings deposits as a transaction account as of May 2020 will cause a series break in the M1 monetary aggregate. Beginning with the May 2020 observation, M1 will increase by the size of the industry total of savings deposits, which amounted to approximately $11.2 trillion
It does not show the vast leap M1 does - and mostly because the M1 metric itself has changed - not the underlying amount of money in the world.
I mean that M1 jump in "real" numbers would mean a creation of 16 Trillion dollars - insane
There's a relation between the two:
> Economic growth tends to have a natural deflationary effect, even if the supply of money does not shrink. Some evidence of this phenomenon can be observed in the technology sector, where innovations and technological advancements are growing faster than inflation; currently, the prices of televisions, cellphones, and computers tend to be falling. [https://www.investopedia.com/ask/answers/070615/what-correla...]
Your parent posts are right. The definition of M1 changed. The "omg so much printing in the last year" folks are literally taking two different definitions that are $16 TRILLION dollars apart due to the change in Reg D and conflating them.
As you say, there are other relevant metrics; I don’t know those metrics, I just know they must exist.
You can just look at the weblog post about the M1 money supply change as well:
> […] the modification of Regulation D in late April has effectively rendered savings accounts almost indistinguishable from checking accounts from the perspective of depositors and banks. Accordingly, the composition of M2 between M1 and non-M1 components conveys little economic information.
* https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
The tl;dr from that thread that there is a jump in M1 from a change in what counts as M1/not M1, making that chart very misleading from a glance. https://fred.stlouisfed.org/series/M2SL is a lot less misleading - but of course that's the point.
https://fred.stlouisfed.org/series/WALCL
https://fred.stlouisfed.org/series/BOGMBASE
If you want more detail you should probably first learn the basics of "money".
Where as it looks like congress has spent ~$4.5T fighting covid in the last year and that's before looking at fed balance sheet increases of ~$3.5t.
So we have solidly spent more than WW2, almost double in a year or covid relief, a lot of which was fed balance sheet expansion(ie printed money)
I independently came up with this but it looks like others have made the same observation
https://www.chicagotribune.com/opinion/commentary/ct-opinion...
In fact the CT makes the claim that covid relief has almost equaled the cost of all American wars combined.
Pretty mind blowing.
So in terms of the income of the average US man[1] in 1940 the WW2 cost was double the nominal number alone.
[1] The source above explicitly says man, not person, so presumably the median household income was even less than half of today's numbers.
M0 money supply in late 2019 was about 3.5 trillion. Today it's about 6.5 trillion. That's not locked in inflation, that's just money sitting in accounts.
M1 from 2017 to late 2019 was around 5 trillion. Maybe a slight increase over those years. Today it's about 20 trillion. So about 400%? That's hyperinflation coming if nothing is done to fix it. Technically this is out of the hands of the government but there are things they can do to fix this.
M2 is where we are locked in. Again late 2019 we're in the 1.5 trillion area. Today we're about 2.1 trillion. That's roughly 40% inflation locked in.
The 40% won't come all in 1 year, but 5% inflation at the moment certainly isn't covering it. 0.25% fed funds rate is also tremendously lacking.
OC later writes:
> The lesson is to convert dollars to assets ASAP
Ya. Because runaway inflation. Any day now. Just like after the last bailout [2009].
"Inflation, consumer prices for the United States" https://fred.stlouisfed.org/series/FPCPITOTLZGUSA
Not.
Look at the prices of housing, education, and medical care if you want to find inflation. The 3 things everyone wants are the 3 the consumer price index doesn't include ;)
CPI: https://www.bls.gov/opub/hom/cpi/data.htm
PCE: https://www.bea.gov/resources/methodologies/nipa-handbook
If you've gone to buy a house, put a kid through college, or experienced a large medical event, you understand the proxies in CPI are misleading. The same outlets claiming inflation isn't a problem also talk about the runaway markets for each of those.
More objective than your appeal to anecdotal evidence.
What's a better metric? Spending power?
Riffing on the inflation hawk trope: inflation should lead to higher wages. That hasn't happened. So I'm on board with criticisms of increasing money supply while wages remain stagnant.
Coin is minted. Paper is printed. Fiat money that exists as digital record of accounts is neither minted nor printed (though frequently metaphorically referred to in the latter way), but created in credit transactions.
Yes, this is more true. Though in my mind, when the Fed does it, it kinda feels like it's minting money. But my analogy doesn't hold.
What triggered me is the "big govt just printing money" trope. As though there's printing presses somewhere spewing currency, worth less than the paper it's printed on.
Yet another tedious zombie idea.
How does the credit transaction brings money into the system?
But then the question becomes: when the loan is paid back, is the money “destroyed” (less interest)?
Yes, of course. Interest too. Money in a non-central bank account (or actual coins and bills) is just a number written in the bank ledger. If you borrow money from the bank, the bank just has to increase the number written in your account (and thus creates money). When you pay it back the bank just decreases it (and thus destroy money). And when you pay the interest, the bank also destroy the money by decreasing that number.
Of course, the bank needs to make sure it will not default on its central bank account if you do transfer that money to another bank/into cash, but since those are mostly symmetrical the bank is able to lend much more money than it has in its central bank account. And worst case scenario, another bank may lend them some central-dollars (and if they don't, you get an interbank lending crisis).
The bank you cash it at takes $1M out of their vault. If this results in them having too little in the vault for expected needs, they take action to replenish it.
As for that net, when banks send/receive money from each other, they do not transact in shipments of cash, they transact with electronic money -- reserves. Bank A and Bank B have accounts at a reserve bank in their area. The reserve banks in turn are part of the Federal reserve system, networked together. Thus just as a deposit is a liability of a regular bank, a reserve is a special kind of deposit that is the liability of the reserve bank -- the central bank. And just as households are the deposit holders of regular banks, other banks are the deposit holders of the reserve bank.
Fun Fact 1: It is illegal for individuals to hold an account at the Federal Reserve. Only banks are allowed to do this. See https://www.federalreserve.gov/faqs/does-the-federal-reserve...
There has been a push to open this system up to more retail banking instead of forcing people to use private banks.
Fun Fact 2: Before the creation of the Federal Reserve System, private Reserve banks sprung up -- banks for banks. These banks were also called "clearinghouses" because banks would settle each other's liabilities there without the need for pairwise settlement (n is better than n(n+1)/2). Then when banking crisis hit, it obviously put great strain on the clearinghouse, which led to the creation of the Federal Reserve, to replace the private reserve banks. The Federal Reserve could not run out of money because its liabilities were legal tender. One of the most famous private reserve banks was the Suffolk Bank of Boston. See also https://en.wikipedia.org/wiki/Suffolk_System
Going back to our story, let's say the net is 1 million dollars on a given day. Then one bank transfers 1 million of dollars of reserves to the other bank, which just consists of the reserve bank marking up one account and marking down the other account.
What happens if Bank A doesn't have 1 million of reserves to spare? Well that depends on whether Bank A believes the situation is temporary or permanent. Banks hire liquidity management professionals for this reason. These are the people, like weathermen, that look at historical cash flow patterns and use statistics to try to minimize overall bank expenses. Cash pays no interest, but you pay a penalty if you need to borrow it. Reserves pay very little interest and you pay the same small penalty. So banks want to minimize holdings of both cash and reserves while maintaining smooth operation.
If the reserve shortfall is believed to be temporary, then Bank A borrows the reserves from other banks in the overnight market. That overnight interest rate is the rate that the Federal reserve targets.
Making sure that the entire banking system as a whole has enough reserves is the job of the Federal Reserve, which adds reserves to the banking system by purchasing bonds, and removes reserves by selling some of the bonds it purchased previously. Assuming the overall banking system has enough reserves, there will be some other bank in the system with excess reserves that is willing to lend to Bank A at the policy rate.
If the Bank believes the reserve deficiency is longer lasting, the bank can tap the longer term funding markets by selling more commercial paper, or a longer term bond, or it can sell off some marketable asset (point being to go short something). This is again the job of professionals that manage the overall position of the bank. By means of going short something of longer duration, the bank will increase inflow from some other bank (the bank that provides financial services for the purchaser of the asset), and so will increase its own reserve holdings back to the level required.
In the extreme case of some financial market disruption in which you can't sell assets to the private market, the bank could show up at the discount window of the Federal reserve and borrow money from the Fed, collateralized by some qualifying asset such as a government insured bond), and of course at a penalty rate. Again, banks want to avoid doing this but it's there as a last resort.
Bottom line, banks don't send each other trucks filled with cash in pairwise relationships, they centralize their deposits in a clearinghouse and that handles reserve management. None of this interbank settlement requires cash. Banks do not get cash from each other.
The use of vault cash is purely for purposes of customer demand. When a customer wants cash, the bank opens the vault. When the bank has excess cash, the bank sells some of the cash for reserves. When the bank has too little cash, it sells some of the reserves for cash. So banks can convert electronic reserves to physical cash, and that is where you get the trucks carrying cash from the government to the bank in a hub and spoke system rather than point to point.
Cash is used only outside the banking system, to provide currency to bank customers.
Money is destroyed in the sense that nobody has a positive balance at the end of the loan but when you add all negative and positive account balances together you end up with $0 so money doesn't really "exist" in a way that can be "destroyed".
They create it from the air.
They note the debt on one side and the balance on the other when they issue a loan.
Via reserve requirements and coordinating interbank lending:
That money is a liability for the bank and effectively a claim on your debt. It's like someone threw all the bonds in a blender and created $0.01 mini bonds. It's actually not much different from an investment fund with the huge caveat that the USD is a shared medium and has a mandatory insurance scheme.
In fractional reserve banking banks do not take your deposits and give them to someone else. That should be obvious, because your deposits don't disappear, they are only gone once you spend them. The central bank also gives banks as many reserves as they need so deposits themselves aren't the limiting factor in money creation. It is capital requirements that limit loan creation.
You should think of banking and money as an accounting system where regulations are intended to keep the banks alive, not to limit money creation as a goal in itself. It's the central bank's job to limit money creation and thereby limit inflation.
Your chart says otherwise. You're looking at the inflation percentage chart, which is almost always positive.
Prices look like this: https://fred.stlouisfed.org/series/CPALTT01USA661S
No one cares about the Fed's muh "consumer prices". No one cares how much the price of furniture or museum tickets or televisions or cigarettes is changing (which together count for over 1/3 of the index, btw)
Now do rent. Or real estate. Or education. Or food.
That's true but the funny part is that people misunderstand it in an especially contrived way. A companies job is to increase its net worth to make profits for its investors. A government's job is to increase its net worth to provide public services to its citizens.
The goal behind investments is to achieve an increase in your net worth. Whether you spend your own money or borrow money doesn't really matter, the point is that you make the investments that you think you need. Businesses should invest for obvious reasons. Governments should invest too but in traditional areas like infrastructure, health care or education.
Businesses do not do "austerity" full stop. They borrow heavily to grow. Households do not do austerity either, they borrow heavily to buy real estate. Strangely enough it is governments that should do austerity and be responsible and stop investing for future benefits. It's basically just anti government rhetoric.
When a $250k/year household borrows $2 million to buy a house nobody bats an eye even though that household has a 800% debt to household income ratio.
When you see a physical dollar bill , the federal government, specifically the Beaureu of engraving and printing, printed that money.
Which is however not what people mean when they say printing money in this context. In that case they are talking about monetary policy, generally old-school OMO or recently it's variation QE which expands the feds balance sheet with recently created money ( ie they print the money digitally to expand their balance sheet)
Banks engaging in fractional reserve lending does increase the money supply but economists and the financial press do not refer to this as printing money, they refer to it as lending.
And finally the "the government isn't a household" argument has grains of truth but is also incredibly trite and fails to understand the many ways in which they are accountable to the same forces a household is accountable to.