Looks like the bitcoin comment got killed, but I want to revive an interesting point at the heart of it:
Big monetary swings like this do bolster the case for it as an inflation-resistant value store...like gold (or stocks), both of which have risen quite a bit this year.
Ive come to regard gold as super-bitcoin. In theory they could be considered similar as value stores and hedges against the economy, but BTC is just way too volatile and unreliable.
Maybe in a generation or two things will be different, but at that point do we need both? Right now I'd say gold is much safer, but long term BTC is much more convenient. The comparison reinforces y opinion that BTC, despite it's relative ease of transaction, is more like an asset than it is like money.
If you want to see, can click the gear in the upper right on the site. Then format. Then check the log box. No URL scheme, unfortunately, or I'd link it for ya.
(1) Gives an incentive to deploy money. "Use it or lose it." This stimulates investment and consumption.
(2) Some prices are "sticky down," like wages; people respond much better to nominal wage increases than pay cuts. Inflation lets these prices be adjusted down more easily if needs be.
(3) Stealth tax, not only on the holders of dollar-denominated wealth but also because inflation (a) pushes people into higher tax brackets and (b) creates more taxable "capital gains". If you're a politician, it's nice to be able to pass repeated tax cuts, even as government expenditures continue to grow as a fraction of GDP.
All that said, relatively stable price levels are important. Without them, contracts get tricky, particularly around inventory or agreements into the future.
Edit: Indeed. M1's definition:
"M1 includes funds that are readily accessible for spending. M1 consists of: (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) traveler's checks of nonbank issuers; (3) demand deposits; and (4) other checkable deposits (OCDs), which consist primarily of negotiable order of withdrawal (NOW) accounts at depository institutions and credit union share draft accounts. Seasonally adjusted M1 is calculated by summing currency, traveler's checks, demand deposits, and OCDs, each seasonally adjusted separately.
I agree with this line of argument for the 2008 era quantitative easing! But my read is that M1 explicitly excludes bank reserves, so the M1 created can't be locked-up reserves, right?
Gosh, you are right (and I'm completely wrong). I've royally messed up my money definitions. What I meant by M1 was actually M0... Or the base money supply. It also seems that each country uses the same MX symbols but they mean different things in different countries. I've got the graphs on the FED website now and it seems that bank deposits have increased a shit load. Probably due to the recent "stimulus" measures.
It seems the FED did increase base money supply - it's balance sheet size went up by around 3 trillion dollars at the start of 2020 - and bank deposits have subsequently increased quite a lot (M1 and M2 gone up) and this is probably due to the stimulus measures because either way the money ends up in someone's bank account. I think also some of it is probably due to risk averse businesses maxing out their credit lines to get them through the lockdowns... so we'll see an increase in M1/M2 there as well.
So whilst the first part of my original comment was wrong because of the incorrect definitions and reasoning, I think the second part accidentally remains true, in that we should, in theory, start to see inflation increase and from that point you would expect the FED to start removing excess reserves from the system and tightening things up a bit.
Totally understandable! hah I did like three loops through the different definitions to straighten myself out before I got the confidence to reply back. Tricky and inconsistent definitions indeed.
I'd also like to celebrate that we can have learning exchanges like this on HN! That's awesome. Thanks for all the great things you've brought to the conversation rojeee!
Plus, nothing like that with a dose of zero-indexed irony :) Looks like CS isn't alone in the zero-indexed world.
Sorry about that! Yes, I agree, it's quite nice to be able to have such conversations.
If you want to learn more about the modern monetary system I would recommend doing Perry Mehrling's - "Economics of money and banking" course. It's on Cousera but some of the lecture notes are available here [0]. Thoroughly recommend it! Cheers
Definitely a good factor to know about, but there's also been a huge surge in things like Monetary Base (currency in circulation+reserves) [0]. Looks to me like there's a lot of (effectively) money printing behind this, not just an artifact of M1's definition?
Wouldn't that be more likely just a large increase in reserves? We know reserves are higher. There also seems to be a shortage of currency in circulation due to COVID affecting the ability to print new bills as old bills come in.
I'm posting this because I was shocked when I saw this graph. I hadn't previously appreciated just how much of an unprecedented explosion in the money supply there'd been this year.
In particular, it seems to quantify a lot of potential for long run inflation and a very expansionary monetary policy move required to prop up the economy during the pandemic. But I'm not an expert here; I'm hoping we can put our heads together. I'd be very curious to hear general discussion and insights into the dynamics. Let's go, community of systems thinkers :)
While the M1 measure of money shows the change most dramatically, other ways of looking at the same data (dollars printed, M2, MZM, etc.) seem to tell the same story. There have also been some news articles written, but I thought that for HN, we'd go directly to the numbers.
One of the angles that I haven't seen discussed yet is that an increase in the money supply is a reasonable response to a significant decrease in the velocity of money. With stores closed, services shuttered and experiences unavailable, people are holding onto money longer, and it's changing hands less. If money is changing hands less (lower velocity) you need more money in the system to enable the same amount of commerce.
Once the economy starts back up again, the fed could reduce the money supply in line with the increasing velocity.
Money velocity has fallen during the pandemic, but not significantly. Money velocity has been gradually falling anyway for quite a while. Goods purchases are off the charts right now, there aren't enough ships to haul the goods in and aren't enough ports for the ships to offload in.
Absolutely! Countering the deflationary pressures to keep price levels stable (and fixed contracts reasonable), would be another way of looking at it, I think. They're doing their job!
The question is, politically, can they be so responsible in contracting the money supply thereafter? Hopefully!
The fed doesn't gift money to anyone. To decrease money supply, all they have to do is reduce the amounts of reserves available to banks and sell back the bonds they have been buying feverishly and wait for any remaining loans to come due.
Now the government can gift money, but they must either use tax revenues and/or borrow by selling treasury bills - which can be to the public or the fed can buy them - but in either case, they must be paid back.
On the other hand, inflation is great for shafting the labor class, so at least we're going to put most of the pain on the people who are least capable of retaliating against the government; and they'll blame the rich anyways.
> Previously, the Fed said its definition of price stability was to aim for 2 percent inflation, as measured by the Personal Consumption Expenditures price index. It described that goal as “symmetric,” suggesting that it was equally concerned about inflation falling below or above that target.
>In the new version of the statement, the Fed says it “will likely aim to achieve inflation moderately above 2 percent for some time” after periods of persistently low inflation. Fed Chair Jerome Powell called this strategy “a flexible form of average inflation targeting”—which Fed officials are calling FAIT—in an August 2020 speech at the Fed’s Jackson Hole conference.
>Average inflation targeting implies that when inflation undershoots the target for a time, then the FOMC will direct monetary policy to push inflation above the target for some time to compensate. With this new approach, the Fed hopes to anchor the expectations of financial markets and others that it can and will do what’s needed to get and maintain inflation at 2 percent on average over time.
Keep in mind that “inflation” as defined by the fed doesn’t count food, energy and asset prices. Who can live a day without eating food, using energy for driving or powering appliances and finally paying for a place to live.
Basically I paid $76 at KFC the other day to feed 6 people. Inflation is here already but it doesn’t show up in the fed numbers.
My friend and I hacked on something like this for a while, and eventually got something pretty accurate for measuring heart rate. Shipped on iOS as [0].
It did indeed require a lot of additional tweaks and benchmarking. Honestly don't think any part of our original algorithm or the tricks in the paper made it into the final version. Just doing a Fourier type thing works rarely (~20%), but the principle does work; you can get it working ~90% of the time. That said, I'd be surprised irregular heartbeat were doable in a short recording period. But I'd love to be surprised!
Big monetary swings like this do bolster the case for it as an inflation-resistant value store...like gold (or stocks), both of which have risen quite a bit this year.