Sometimes it’s good to reread stuff!

[sdduuuude]

Is inflation related to the money supply or the rate of change in money supply ?

[pencilneck]

Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:

“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.

I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”

http://www.safehaven.com/article/17675/quantitative-easing-two

[pencilneck]

Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:

“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.

I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”

http://www.safehaven.com/article/17675/quantitative-easing-two

[pencilneck]

Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:

“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.

I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”

http://www.safehaven.com/article/17675/quantitative-easing-two

[pencilneck]

Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:

“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.

I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”

http://www.safehaven.com/article/17675/quantitative-easing-two

[pencilneck]

Doug Noland’s latest puts a good perspective on this inflation/deflation discussion:

“And I find myself increasingly frustrated by the ongoing “inflation vs. deflation debate.” With today’s low level of consumer price inflation, those arguing that deflationary forces are the paramount systemic risk now dominate policy dialogue. Most tend to be inflationists. Most argue for additional stimulus and see little risk in such activist policymaking.

I see risks altogether differently. We are in the late-phase of a multi-decade historic Credit Bubble. The greatest risk at this point is that massive issuance of non-productive governmental debt foments a crisis of confidence at the very heart of our monetary system. The top priority must be to ensure that such a devastating outcome is avoided – and at significant unavoidable cost. It is imperative that we as a nation come to the recognition that real financial and economic pain must be endured to protect the long-term viability of our monetary system. The inflation rate is not the key issue. And efforts to try to inflate our way out of structural debt problems are a lost cause. We must instead move forcefully to rein in our deficits and avoid further debt monetization in order to protect the soundness of our money and Credit – or else risk a financial crash.”

http://www.safehaven.com/article/17675/quantitative-easing-two

[EconProf]

Yep, “velocity” of the money supply, or the rate at which it changes hands, has slowed considerably, thus offsetting the growth in money supply, however measured.
The original monetarist, Milton Friedman, claimed velocity was fairly constant over time, which led him to state that money supply growth over a certain range of 2 to 4 percent or so each year, would lead directly to inflation. As Mish has so abundantly shown, this has not happened and is not about to happen. Too bad Milton is no longer around to defend, or explain, his thesis.

[EconProf]

Yep, “velocity” of the money supply, or the rate at which it changes hands, has slowed considerably, thus offsetting the growth in money supply, however measured.
The original monetarist, Milton Friedman, claimed velocity was fairly constant over time, which led him to state that money supply growth over a certain range of 2 to 4 percent or so each year, would lead directly to inflation. As Mish has so abundantly shown, this has not happened and is not about to happen. Too bad Milton is no longer around to defend, or explain, his thesis.

[EconProf]

Yep, “velocity” of the money supply, or the rate at which it changes hands, has slowed considerably, thus offsetting the growth in money supply, however measured.
The original monetarist, Milton Friedman, claimed velocity was fairly constant over time, which led him to state that money supply growth over a certain range of 2 to 4 percent or so each year, would lead directly to inflation. As Mish has so abundantly shown, this has not happened and is not about to happen. Too bad Milton is no longer around to defend, or explain, his thesis.

[EconProf]

Yep, “velocity” of the money supply, or the rate at which it changes hands, has slowed considerably, thus offsetting the growth in money supply, however measured.
The original monetarist, Milton Friedman, claimed velocity was fairly constant over time, which led him to state that money supply growth over a certain range of 2 to 4 percent or so each year, would lead directly to inflation. As Mish has so abundantly shown, this has not happened and is not about to happen. Too bad Milton is no longer around to defend, or explain, his thesis.

[EconProf]

Yep, “velocity” of the money supply, or the rate at which it changes hands, has slowed considerably, thus offsetting the growth in money supply, however measured.
The original monetarist, Milton Friedman, claimed velocity was fairly constant over time, which led him to state that money supply growth over a certain range of 2 to 4 percent or so each year, would lead directly to inflation. As Mish has so abundantly shown, this has not happened and is not about to happen. Too bad Milton is no longer around to defend, or explain, his thesis.

[Eugene]

[quote=jpinpb]Rich – the chart you linked is M2 – Money stock. That’s what’s actually in circulation?! Then why are we not seeing inflation right now?[/quote]

It’s not exactly “in circulation”. If you have $10,000 sitting in an interest-bearing bank account that you pulled out of the stock market in 2007, that money is part of M2. Truth is, we don’t have any perfect measures of money in circulation, because the distinction between checking accounts (in circulation) and savings accounts (not in circulation) became too blurred.

That said, if we use M2 and we adjust for population, we’re only “missing” about 10% of inflation over the last 3 years, probably because of changes in consumers’ thriftiness.

[Eugene]

[quote=jpinpb]Rich – the chart you linked is M2 – Money stock. That’s what’s actually in circulation?! Then why are we not seeing inflation right now?[/quote]

It’s not exactly “in circulation”. If you have $10,000 sitting in an interest-bearing bank account that you pulled out of the stock market in 2007, that money is part of M2. Truth is, we don’t have any perfect measures of money in circulation, because the distinction between checking accounts (in circulation) and savings accounts (not in circulation) became too blurred.

That said, if we use M2 and we adjust for population, we’re only “missing” about 10% of inflation over the last 3 years, probably because of changes in consumers’ thriftiness.

[Eugene]

[quote=jpinpb]Rich – the chart you linked is M2 – Money stock. That’s what’s actually in circulation?! Then why are we not seeing inflation right now?[/quote]

It’s not exactly “in circulation”. If you have $10,000 sitting in an interest-bearing bank account that you pulled out of the stock market in 2007, that money is part of M2. Truth is, we don’t have any perfect measures of money in circulation, because the distinction between checking accounts (in circulation) and savings accounts (not in circulation) became too blurred.

That said, if we use M2 and we adjust for population, we’re only “missing” about 10% of inflation over the last 3 years, probably because of changes in consumers’ thriftiness.

[Eugene]

[quote=jpinpb]Rich – the chart you linked is M2 – Money stock. That’s what’s actually in circulation?! Then why are we not seeing inflation right now?[/quote]

It’s not exactly “in circulation”. If you have $10,000 sitting in an interest-bearing bank account that you pulled out of the stock market in 2007, that money is part of M2. Truth is, we don’t have any perfect measures of money in circulation, because the distinction between checking accounts (in circulation) and savings accounts (not in circulation) became too blurred.

That said, if we use M2 and we adjust for population, we’re only “missing” about 10% of inflation over the last 3 years, probably because of changes in consumers’ thriftiness.

[Author]

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