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Author Topic: Money Supply Growth Has Never Been As High As It Is Today  (Read 328 times)
Hydrogen
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October 16, 2020, 10:11:10 AM
Merited by The Pharmacist (1), teosanru (1)
 #1

Quote
With the Federal Reserve and Congress pushing stimulus efforts to new heights, some investors are keeping a close eye on a surge in the U.S. money supply for signs of inflation’s long-awaited return.
We have never observed money supply growth as high as it is today
With a litany of metrics showing rapid growth in the value of money waiting in banks and other liquid accounts, investors from Ray Dalio to Paul Tudor Jones have warned that the era of tepid price rises may be coming to an end.

“It’s fair to say we have never observed money supply growth as high as it is today,” Morgan Stanley chief U.S. equity strategist Mike Wilson wrote this week.

The “Fed may not be in control of Money Supply growth which means they won’t have control of inflation either, if it gets going,” he added.



There are several different ways economists measure the size of the U.S. money supply that are generally classified with the letter “M,” such as M0, M1 and M2.

The broad M2 measure includes cash, checking deposits, savings deposits and money market securities. Because of its wide definition, economists and investors tend to watch changes to the M2 supply as an indicator of the total money supply and future inflation.

More money, more inflation?

As underscored by Wilson, the year-over-year percent change in the M2 supply is now north of 23%. To put that in perspective, year-over-year growth in the M2 money supply had never exceeded 15% until 2020, according to Fed records dating back to 1981.

Normally characterized by slow, steady growth, the M2 supply has grown 20% from $15.33 trillion at the end of 2019 to $18.3 trillion at the end of July.

“The risk of higher inflation may be greater than it’s ever been, too,” Wilson wrote. “While this hasn’t shown up in back end rates yet, the very sharp move higher in breakevens [bond market inflation expectations] and precious metals suggest higher inflation may be on its way.”

That seemed to be the opinion of longtime hedge fund manager Paul Tudor Jones, who in May said that his concerns over inflation and dollar depreciation prompted him to invest in both bitcoin and gold.



Though the differences between bitcoin and gold are many, Wall Street has for weeks chased both assets as hedges against inflation and a relatively safe place to keep wealth during a volatile year.


Gold, one of 2020′s best trades, on Wednesday burst through historic resistance at $2,000 an ounce to reach a new record. Between the Covid-19 pandemic and inflation expectations, gold has gained nearly 35% this year, far ahead of the S&P 500′s 3%.

“If you take cash, on the other hand, and you think about it from a purchasing power standpoint, if you own cash in the world today, you know your central bank has an avowed goal of depreciating its value 2% per year,” Jones said in May. “So you have, in essence, a wasting asset in your hands.”



The source of this M2 expansion and these inflation concerns isn’t necessarily a mystery.

Congress and the Fed have worked in tandem to combat the negative economic effects of Covid-19 with an unprecedented cocktail of fiscal spending, near-zero interest rates and subsidized loan programs.

Those efforts, largely designed to help businesses keep workers on payrolls and ease the impact of layoffs, have been applauded for keeping consumer spending afloat in recent months.

But between a prodigal Congress and an empowered Fed, critics argue that “printing money” to juice the economy could backfire and cause a spike in prices. Banks are still stuffed to the gills with reserves that could, in time, flow into the economy through credit and loans.

“Congress is now the critical player in driving money supply growth with the Fed fully committed to doing whatever it takes,” Wilson wrote. “This is very different from the post [financial crisis] era when aggressive monetary policy was unmet with a willing borrower and spender. We think this poses a greater likelihood for inflationary pressures to build.”

Need for speed

But while an expanded money supply may set the stage for inflation, the relationship between M2 and inflation has been debatable over the years. Some, like PGIM Fixed Income economist Nathan Sheets, said he’s taking a wait-and-see approach.

Sheets, who served in the U.S. Treasury Department until 2017, said investors were also worried about inflation in the aftermath of the financial crisis. Those fears, he said, ultimately did not come to fruition.

“Rates were very low and central bank balance sheets (and money creation) had surged. But the liquidity then sat in the banking system—including as excess reserves at the Fed,” he wrote in an email. “Money creation must translate into increased lending and spending in order for it to be inflationary.”

The idea that money creation won’t necessarily generate inflation is centered on yet another economics concept known as the velocity of money.

The velocity of money is, very simply, the rate at which money is exchanged in an economy. High money velocity is usually associated with a healthy economy with businesses and consumers spending money and adding to a country’s gross domestic product.

But the velocity of money can slow during recessions as corporations and families elect to save more of each dollar they earn. Demographic changes, such as an older population, also tend to curb the velocity of money.

According to Sheets, the Fed can go to extreme lengths to flush the economy with cash and bolster the M2 supply. But if businesses and customers aren’t inclined to spend the added dollars, the cash will almost invariably wind up sitting idle, not contributing to GDP or inflation.

That may be a partial explanation as to why the U.S. hasn’t seen headline inflation numbers increase despite the rise in M2 supply in recent months.

The Labor Department’s latest report on core consumer prices showed the index down for a third consecutive month in June for the first time since 1957. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge, increase 0.9% on a year-over-year basis in June, the smallest advance since December 2010.

“Inflation has been held down by some deep structural factors, including aging demographics and high debt levels — which have restrained aggregate demand and pressures on prices,” Sheets wrote in an email. “Workers have struggled to get higher wages, and firms — competing against the so-called ‘Amazon price’ — have had little capacity to raise their prices.”

“My expectation is that these forces are likely to continue on the other side of the virus,” Sheets wrote. “In response, central banks will remain highly stimulative, but hitting 2% inflation targets on a sustained basis is going to be a challenge.”

https://www.cnbc.com/2020/08/05/the-ballooning-money-supply-may-be-the-key-to-unlocking-inflation-in-the-us.html


....


Bitcoin was mentioned positively in this article as a legitimate hedge against inflation similar to gold (bolded).

Summary

  • the year-over-year percent change in the M2 supply is now north of 23%. To put that in perspective, year-over-year growth in the M2 money supply had never exceeded 15% until 2020, according to Fed records dating back to 1981.
  • Normally characterized by slow, steady growth, the M2 supply has grown 20% from $15.33 trillion at the end of 2019 to $18.3 trillion at the end of July.
  • The “Fed may not be in control of Money Supply growth which means they won’t have control of inflation either, if it gets going,” Morgan Stanley writes.
  • Economist and former Treasury official Nathan Sheets counters that if businesses aren’t inclined to spend, the larger money supply may do little to fan inflation.

The following point is very interesting:

Quote
“Rates were very low and central bank balance sheets (and money creation) had surged. But the liquidity then sat in the banking system—including as excess reserves at the Fed,” he wrote in an email. “Money creation must translate into increased lending and spending in order for it to be inflationary.”

The mainstream media acknowledges the US monetary supply is growing at its fastest rate since the 1980s. Inflation is becoming a legitimate concern. Savvy investors are putting their money in gold and bitcoin in an effort to avoid having their wealth be devalued.

This scenario is one that has been mentioned and discussed on this forum countless times over the years. I wonder what people think of this.

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October 16, 2020, 10:26:03 AM
Merited by The Pharmacist (2), teosanru (1)
 #2

Yes this is one of our most dire concerns. The huge money supply needs a strong back support , the country must be able to tolerate it , but unfortunately due to the pandemic I don't believe that they can keep this up for long.

The Inflation is bound to affect not only the people but the country as a whole , but I do believe it's going to be worse for the nations who rely on import, even of basic things like flour and vegetables.

Quote
The countries that are heavily relying on imports food are Mexico, Japan, S-Korea, Egypt. With the exception of China, the proportion of the globally imported food for most other countries is relatively small (usually less than 20%)..
{Taken from google}

So these countries will be worst hit eventually.

The zero interest rates aren't helping actually, people are taking loans more and eventually they would have to pay off somehow, it might stimulate economic activity for a while but unfortunately right now every country is at a peak.

We need more job creation.
More production of foods and other resources in the countries themselves.
Better and cheaper healthcare facilities right now.
Free distribution of masks and gloves , because I have seen shops selling masks for 0.5$ -1$ , unaware that this would just cause more problems.

We need to go though this pandemic without loosing the value of the printed money.

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October 16, 2020, 11:10:19 AM
 #3

If I ever understand as little as 1% of what they’re talking about, I think they’re telling people to keep spending money, keep borrowing more money, keep taking more loan, and that will fix the inflation miraculously.

Quote
Economist and former Treasury official Nathan Sheets counters that if businesses aren’t inclined to spend, the larger money supply may do little to fan inflation.

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October 16, 2020, 12:30:23 PM
 #4

Ar the same time bitcoin just halved.

This is why it is calling so much attention now, and its price is higher than normal

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October 16, 2020, 12:34:15 PM
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History never repeats itself, but it rhymes. Debt-based money and unpayable debt as a result had leaded to the crisis ones.

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October 16, 2020, 04:05:33 PM
 #6

If I ever understand as little as 1% of what they’re talking about, I think they’re telling people to keep spending money, keep borrowing more money, keep taking more loan, and that will fix the inflation miraculously.

Quote
Economist and former Treasury official Nathan Sheets counters that if businesses aren’t inclined to spend, the larger money supply may do little to fan inflation.

That quote was a description of the relationship between fiscal policies, GDP growth and inflation. During a recession, just as this one, banks adopt policies to cushion the effect and turn the eonomy around. Injecting cash into the market can function to increase productivity boosting the GDP, it can also lead to inflation; However, all of these factors are dependent on the circulation of money being pumped into the market. If stimulus checks sit around as savings in banks, it does not influence inflation and also doesn't help the economy.

This suggests why the cash injection which has been going into the market may not increase inflation as most people fear. The pandemic has created an unconducive environment for production, reducing the velocity of money flow and conversely reducing its effect on inflation. This is why I think countries would feel the effect of money printing at a time in the future when the economy has recovered and all those idle money returns to circulation.





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October 16, 2020, 04:48:01 PM
 #7

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some investors are keeping a close eye on a surge in the U.S. money supply for signs of inflation’s long-awaited return.

Inflation's return?  Where has it been?  Hope it had a nice trip.  I hadn't realised it was absent.   Roll Eyes

If anyone is under the impression it's a "return", I can't help but think they just haven't been paying attention.  Governments and retailers are doing everything to try and mask the issue, but that doesn't mean it isn't there.  We've had "shrinkflation" with food portions getting gradually smaller so they can charge a similar amount for less food.  We've been flirting with ZIRP and NIRP for some time now.  And, generally, it still feels like the prices for most goods and services is steadily rising.

I think instead of "long-awaited return", what they actually meant was "sudden but predictable acceleration".

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October 16, 2020, 06:38:10 PM
 #8

If I ever understand as little as 1% of what they’re talking about, I think they’re telling people to keep spending money, keep borrowing more money, keep taking more loan, and that will fix the inflation miraculously.

Quote
Economist and former Treasury official Nathan Sheets counters that if businesses aren’t inclined to spend, the larger money supply may do little to fan inflation.

That quote was a description of the relationship between fiscal policies, GDP growth and inflation. During a recession, just as this one, banks adopt policies to cushion the effect and turn the eonomy around. Injecting cash into the market can function to increase productivity boosting the GDP, it can also lead to inflation; However, all of these factors are dependent on the circulation of money being pumped into the market. If stimulus checks sit around as savings in banks, it does not influence inflation and also doesn't help the economy.

This suggests why the cash injection which has been going into the market may not increase inflation as most people fear. The pandemic has created an unconducive environment for production, reducing the velocity of money flow and conversely reducing its effect on inflation. This is why I think countries would feel the effect of money printing at a time in the future when the economy has recovered and all those idle money returns to circulation.

Yup in a laymen term, bank can control everything, we are all under the mercy of their policing.

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October 16, 2020, 06:44:26 PM
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It is quite true that when politicians decide on the faith of the economy and not the economists, things usually do not look good for that nations economy. Not only because economists know economy better than politicians, because that is not always true, if the politician is considering the best interest of the public (rarely ever happens unfortunately) and economists thinks of their rich friends, that means politician "may" make a better decision.

The real reason is the fact that fed knows the big rich whales and if there is anything that is done by politicians to upset them that fed is against, that means those whales could hurt the economy more than the stimulus or anything else could help the world. Hence, I think networking and knowing what would upset the markets is a big deal too.


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October 16, 2020, 08:38:38 PM
 #10

The mainstream media acknowledges the US monetary supply is growing at its fastest rate since the 1980s. Inflation is becoming a legitimate concern. Savvy investors are putting their money in gold and bitcoin in an effort to avoid having their wealth be devalued.

This scenario is one that has been mentioned and discussed on this forum countless times over the years. I wonder what people think of this.

I hadn't remembered that inflation was so high in the early 80s. Different circumstances, but it's interesting to note what happened back then: a double dip recession in G7 countries. A short-lived recession followed by a short-lived recovery, followed by a deeper and more painful downturn. I've been pondering whether the current recession will end up the same, given the V-shaped recovery in the markets, the fundamental uncertainty about the pandemic, and the monetary policies being enacted in reaction to it.

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October 16, 2020, 08:42:12 PM
 #11

That quote was a description of the relationship between fiscal policies, GDP growth and inflation. During a recession, just as this one, banks adopt policies to cushion the effect and turn the eonomy around. Injecting cash into the market can function to increase productivity boosting the GDP, it can also lead to inflation; However, all of these factors are dependent on the circulation of money being pumped into the market. If stimulus checks sit around as savings in banks, it does not influence inflation and also doesn't help the economy.

This suggests why the cash injection which has been going into the market may not increase inflation as most people fear. The pandemic has created an unconducive environment for production, reducing the velocity of money flow and conversely reducing its effect on inflation. This is why I think countries would feel the effect of money printing at a time in the future when the economy has recovered and all those idle money returns to circulation.
Personally I think we are headed to a scenario similar to what happened to Germany after World War I, during that period of time the government got out of the gold standard and began printing money like crazy but people fearing for their futures saved every single penny and inflation did not occur, but then when the war ended and they lost, there was huge inflation as people finally decided to spend their money only to find out that it bought almost nothing, I think the inflation we are experimenting is very low compared to the amount of money being printed which means that most people are storing that money for a rainy day but once it is clear that inflation may not be under the government control that is when we will see the true inflation generated during this pandemic and on the decades before it.


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October 16, 2020, 10:44:22 PM
 #12

Inflation is becoming a legitimate concern. Savvy investors are putting their money in gold and bitcoin in an effort to avoid having their wealth be devalued.
It's been a concern for a while now, but for whatever reason we haven't seen rampant inflation (Venezuela, Zimbabwe, and one or two other countries aside) yet.  I'm not sure why that is, because this out-of-control money printing has been going on for years now, and interest rates have been near zero for about as long.  But just because the inflation tidal wave hasn't hit our shores yet doesn't mean it's never going to.

This sort of makes me wonder if this is the reason why corporations like MicroStrategy and some others have been buying bitcoin to keep on hand in lieu of cash.  To me, that seems like an incredibly unorthodox move for any publicly traded company--but it could well be the case that they see the disaster coming from a vantage point that the rest of us don't have access to.

These are crazy numbers, Hydrogen.  It might be a good time to be buying both bitcoin and gold, but I'm still not comfortable with what might be on its way.

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October 16, 2020, 11:03:14 PM
 #13

Inflation is becoming a legitimate concern. Savvy investors are putting their money in gold and bitcoin in an effort to avoid having their wealth be devalued.
It's been a concern for a while now, but for whatever reason we haven't seen rampant inflation (Venezuela, Zimbabwe, and one or two other countries aside) yet.  I'm not sure why that is, because this out-of-control money printing has been going on for years now, and interest rates have been near zero for about as long.  But just because the inflation tidal wave hasn't hit our shores yet doesn't mean it's never going to.

This sort of makes me wonder if this is the reason why corporations like MicroStrategy and some others have been buying bitcoin to keep on hand in lieu of cash.  To me, that seems like an incredibly unorthodox move for any publicly traded company--but it could well be the case that they see the disaster coming from a vantage point that the rest of us don't have access to.

These are crazy numbers, Hydrogen.  It might be a good time to be buying both bitcoin and gold, but I'm still not comfortable with what might be on its way.
Other than few countries thats been mentioned we don't get to see inflation in such a higher level. In these countries uncontrolled money printing has lead to inflation, in some countries the treasury funds and the emergency funds kept as reserve is being distributed to make better money flow. With the shut down of industrial sectors the entire money circulation is being stopped. Governments try to overcome with similar plans, but those aren't effective for the common man.

Maybe in future governments can also take the stand of holding bitcoin same as the publically trading companies have done to keep up their market value.


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October 17, 2020, 12:44:36 AM
 #14

Inflation is becoming a legitimate concern. Savvy investors are putting their money in gold and bitcoin in an effort to avoid having their wealth be devalued.
It's been a concern for a while now, but for whatever reason we haven't seen rampant inflation (Venezuela, Zimbabwe, and one or two other countries aside) yet.  I'm not sure why that is, because this out-of-control money printing has been going on for years now, and interest rates have been near zero for about as long.  But just because the inflation tidal wave hasn't hit our shores yet doesn't mean it's never going to.

Places like Venezuela are in a very different situation. They have an extremely homogeneous economy that is completely dependent on oil exports at high enough prices. They are also targeted by crippling economic sanctions. They are also characterized by rampant institutionalized corruption which goes hand in hand with excessive money printing (right into their own pockets) which obviously erodes confidence in the currency. The same situation applies to Zimbabwe. We're also talking about very different degrees of money supply expansion when comparing Zimbabwe and the US.

Undeveloped and emerging economies also simply don't have the luxury of money printing the way the US does. The nature of the global financial system is such that there is always robust global demand for USD, particularly because there is so much dollar denominated debt in the world. There is no such demand for fledgling currencies issued by small, weak governments. In comparison, there is quite a lot of faith in the US government and in the US economy, as the largest economy in the world.

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October 17, 2020, 02:12:16 AM
 #15

Unfortunately, the urgent need for more and more money is there. So the Fed cannot just easily pull out a considerable amount from the circulating supply into thin air in order to somehow counter the incoming huge inflation wave. It is imperative during this pandemic to try to keep the economy afloat in whatever means necessary despite the fact that stores are closing, companies retrenching, others even declaring bankruptcy, people losing their job, and so forth.





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October 17, 2020, 05:55:10 AM
 #16

Unfortunately, the urgent need for more and more money is there. So the Fed cannot just easily pull out a considerable amount from the circulating supply into thin air in order to somehow counter the incoming huge inflation wave. It is imperative during this pandemic to try to keep the economy afloat in whatever means necessary despite the fact that stores are closing, companies retrenching, others even declaring bankruptcy, people losing their job, and so forth.
The growth in the amount of money supply has always indicated the inevitability of inflation growth. The current inflation can be very strong and lead to a rather severe economic crisis. This has been discussed periodically for a long time. The onset of the second wave of the coronavirus pandemic has again sparked talk of an economic crisis. If it does come, it is possible that the crisis could have a positive effect on the popularity and demand for cryptocurrency. We also talk about this for a long time, but we do not have such experience yet. This may be the first global economic crisis during the existence of a cryptocurrency.

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October 17, 2020, 06:21:25 AM
 #17

This money supply growth will lead to inflation only in the US stock and asset markets(in the form of price bubbles).Consumer inflation in the USA will most likely stay low at around 2%.
Gold price might hit the moon(above 2K USD),but I have doubts that Bitcoin will follow that trend and hit a new ATH.At some point,the FUD "machine" will start shitting over Bitcoin and the BTC price will hit a wall.


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mariah.sadio
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October 17, 2020, 06:25:48 AM
 #18

Government find new solution for the crisis. However, this will make the situation even worse in the next years. Inflation will burn this money sooner or later

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October 17, 2020, 04:13:00 PM
 #19

Money supply definitely made a leg up compared to trend of last 10 years. But this is not all. Right now we are at start of second wave. Lock downs will only start and again last for few months. No way by any miracle that not happen. Miracle we need is to get vaccine before 3rd wave. If we get hit by 2ed wave and few months of lock down in spring we will really be doomed. Well everyone that is hedged in Bitcoin will of course be fine. Everyone else a big Sad


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ilovealtcoins
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October 18, 2020, 06:19:41 AM
 #20

The more money they print, the harder it is to liquidate the entire money they've printed. The value of the US dollar will certainly decrease compared to other currencies. We need to accept our current economies and reform them in new ways even though it takes time, every time we print more money runs the risk of crumbling the economy.
Printing more money only makes the rich richer and the poorer. People are exploited when their money is in their wallets, printing more money just makes things more inflationary. There will come a day when the situation is irreversible and forced to convert to another currency.





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