Why investors should not be worried about the expansion of the money supply causing inflation in four easy charts.

[theworthyapprentice]

@curiousspring This is equivalent to you being in a plane with an excited daredevil pilot confidently explaining physics and aeronautical engineering to you while he pulls back on the stick to gain altitude while heading out over the sea with no concern at all that the fuel tank is low.
He's not wrong technically, but the complete set of laws fundamentally governing the entire situation are only guaranteeing your future doom.

That 'increase in asset prices'? Much of it dumped into speciulative assets unused by society? With with no underpinning demand defining it except by the investors?
Yeah yeah that increase. I'd like to know much more about inflation models if that pile of money had been forced to stay in the money supply, don't you?

You can push down the bubble underneath the bedsheets and make it move around, but as it keeps getting bigger while your government girlfriend keeps giggling with you, that fart is gonna come out and the sheets will be flat again.

 

[1990lsjs]

@theworthyapprentice Its not a bubble, money is losing its value. This is what a crash of the dollar looks like

 

[theworthyapprentice]

@1990lsjs Well.... What I'm pointing out is that money would have lost a lot more value if it hadn't avoided doing so by being poured into mostly-useless asset values, which are in a bubble, because for a lot of those assets, there is no underlying demand other than by the investor. Look up the vacancy rates of high end real estate in metropolitan cities globally, for one example. All that asset creation is just too much money looking for a safe place to hide that isn't in cash.
So there is basically a huge asset bubble right which is also hiding money losing it's value.
This hidden inflation bubble is currently present in every large currency, not just the dollar.

 

[loverofchrist69]

@theworthyapprentice The way I see it is the asset bubble is showing money losing it's value not hiding it. inflation is hiding it because inflation is defined as being CPI and CPI is measuring things in a way to hide money losing its value. So inflation is not a measure of how money is losing value.

 

[1990lsjs]

@theworthyapprentice Ok, that I agree with. Sony = Not a bubble. Speculative shit that will 'change the future'; yes thats a bubble

 

[theworthyapprentice]

@1990lsjs Mmmm.... I'm not sure the hidden inflation bubble is limited to irrational speculation.

What percentage of SONY stock is rational investing based on the value of SONY and its future revenues, and what percentage of it is large players just wanting to diversify out of cash that has been printed as much as toilet paper? If it's 70% large players just wanting out of cash not really caring about SONY's fundamentals.... that's pretty much a hidden inflation bubble no differently than mostly empty luxury condos in every metropolitan city.

I guess I'm saying, government can print money irresponsibly, and that *can* occur without an immediate consumptives inflation, it can go temporarily into prices going up for cash-dodging assets to avoid consumptive inflation. So basically the natural forces of consumer inflation temporarily go into cash-dodging asset price increases. And then the government/New says : "Hey look there's no inflation!" or "Inflation is transitory, and look how high the stock market and real estate market is!" and.. really, the fundamental value of those non-cash items based on fundamental need and demand is way lower than what it's been pushed up to be because of people dodging future inflation losses by doing *anything* but hold cash.

Printing money can be non-inflationary, especially if a modern economy efficiently lubricates the printed money into cash-dodging assets, but this can go on for only a limited amount of time. Just because your modern economy is well lubricated doesn't mean it avoids the laws of economics.

Also the pent up forces in the artificially higher priced assets don't just magically go away.

The fart is gonna come out.

 

[caleb22]

@1990lsjs It is a bubble because people are buying crap including spacs, nfts, some sketchy crypto tokens, anything they can put money on

 

[resjudicata]

@1990lsjs Crash relative to what? Y'all tripping if you think the rest of the world didn't print money out their ass for covid. The USA is in a relatively good position because the govt gave the bare minimum of social benefits.

 

[1990lsjs]

@resjudicata Relative to how many dollars it takes to buy a house

 

[resjudicata]

@curiousspring Investors benefit from inflation as stocks get bought up more than any other asset class. I disagree with the sentiment that increased money supply doesn't lead to inflation. It does. It just doesn't go lead to inflation across the board. Money goes into things that make sense, and people only need to eat so much, having more money doesn't change the amount they eat, so food prices don't get the brunt of it. You can always benefit from owning more stocks or crypto or real estate so that is where a lot of the inflation ends up. Education as well. Luxury vehicles. Now with increased money supply and supply chain shortages, inflation will be seeping into those more protected areas like food, used cars, rent, etc. Investing into companies is simply absurd at some of the valuations were seeing. It would take half a lifetime to see a return on a lot of these stocks if you were to buy the whole company outright.

 

[sggpas]

@resjudicata This is it, having to buy a house for 30% more means your real dollars don’t go as far….inflation

 

[anoop506]

@curiousspring While this is all true its important to explain why because it makes sense intuitively that more money in the economy equals inflation, but the truth that the newly created money isn't in the economy its in the banking system in the form bank reserves. When the fed does QE the goal is to increase bank reserves which aren't loaned out and are only loaned in between other banks, or in other words the interbank system. If the fed floods banks with reserves but if the banks don't lend to counteract this, no money is really created because it isn't circulating in the economy chasing goods. This is really why M2 means nothing without the velocity of money which hasn't gone up since Y2k and GFC not because demand hasn't reached pre GFC but because the nature of the banking system has changed. Note this is a very simplistic explanation, I give a more detailed explanation of M2 and M1 to ikickdaBass below.

 

[vnct0000]

@anoop506

If the fed floods banks with reserves but the banks don't lend to counteract this, no money is really created because it isn't circulating in the economy chasing goods

Let's inverse this.

If the bank reserves were greatly reduced would banks lend the same amount of money? Seems unlikely.

 

[anoop506]

@vnct0000 Sound counter intuitive, but it is true here are some sources to look into this further

https://fred.stlouisfed.org/series/TOTRESNS

https://www.bloomberg.com/news/arti...nks-keep-lending-less-and-less-of-their-money

https://www.nytimes.com/2020/08/04/your-money/mortgage-loans-credit-cards-coronavirus.html

 

[madikana]

@anoop506 Exactly. All the new dollars are tied up in the financial system, making the rich richer and not contributing to GDP. This results in inflation which decimates the middle class and makes the poor poorer. Ban the Fed.

 

[anoop506]

@madikana Eh not exactly, here is a copy paste from another comment I made to sorta explain the increases to the money supply. M1 is basically physical cash and demand deposits plus other checkable accounts. M2 is basically M1 plus savings deposits, the reason M1 and M2 increased so drastically in 08 and covid was because due to lower intrest rates the banks profit margin becomes thinner increasing the volume of loans, this increases the money supply because when a bank creates a loan it essentially is lending against its reserves which it only has 10% on average of its outstanding loans essentially creating new money by making these loans assets and creating a deposit on it liability accounts increasing M1 and M2. And the same thing goes for consumers, as rates fall the demand for loans increases and the demand for checking account deposits rise all increasing both M1 and M2 money supply. M2 and M1 aren't good indicators of inflation because all they relate to is deposits in banks not anything to do with actual money in circulation. M2 and M1 don't include bank reserves, the monetary base or M0 is what includes bank reserves. I actually like the fed rather unpopular opinion but without them there is no doubt in my mind that cobid and 08 would have been far more severe, the feds job as a lender of last resort is very important.

 

[curiousspring]

@anoop506 So increases in m2 are net of bank reserves.

 

[anoop506]

@curiousspring Not exactly, what includes bank reserves is what's called the monetary base or the base money supply. M1 money supply is physical currency, demand deposits and other checkable accounts. M2 is basically M1 plus savings deposits, the reason M1 and M2 increased so drastically in 08 and covid was because due to lower intrest rates the banks profit margin becomes thinner increasing the volume of loans, this increases the money supply because when a bank creates a loan it essentially is lending against its reserves which it only has 10% on average against its outstanding loans, essentially creating new money by making these loans assets and creating a deposit on it liability accounts increasing M1 and M2. And the same thing goes for consumers, as rates fall the demand for loans increases and the demand for checking account deposits rise all increasing both M1 and M2 money supply. M2 and M1 aren't good indicators of inflation because all they relate to is deposits in banks not anything to do with actual money in circulation and how it's going to be spent in the economy. This is probably pretty confusing and I totally get it, the banking system is very confusing so if ypu don't get it that'd totally fine l, but you are correct that M1 and M2 are separate from inflation and don't necessarily cause it and I'm not surprised the statistics support this.

 

[resjudicata]

@anoop506 Nope.