Sometimes it’s good to reread stuff!

[Rich Toscano]

[quote=sdduuuude]Is inflation related to the money supply or the rate of change in money supply ?[/quote]

Just focusing on the money->inflation relationship (ie disregarding other things like velocity etc etc), the rate of inflation would be related to the rate of money supply growth, and the price level (not its rate of growth, the actual price level) would be related to the money supply.

[Rich Toscano]

[quote=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%5B/quote%5D

Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)

That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.

[Rich Toscano]

[quote=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%5B/quote%5D

Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)

That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.

[Rich Toscano]

[quote=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%5B/quote%5D

Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)

That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.

[Rich Toscano]

[quote=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%5B/quote%5D

Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)

That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.

[Rich Toscano]

[quote=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%5B/quote%5D

Yes, Noland is fantastic imho. Though in this case I think he is more describing the fight between the Krugman types and the austerity types, basically saying that they are arguing over the wrong thing (ie which of their plans will help economic growth better, when in fact the actual topic should be, how do we prevent a crisis in our currency and debt?)

That said, the inflation vs deflation debate is for the most part a waste of time because the participants are usually using a different vocabulary from one another and it’s all cross-talk.

[Eugene]

[quote]The money was never “in” the stock market. To the extent you “pulled [money] out” of the stock market, that means that you sold your stocks — which means that someone else took money from their bank account and gave it to you in exchange for your stocks. It just moved from their bank account to yours.[/quote]

That is true, but that money may have been in circulation before, you drew it out of circulation and parked it in a savings account with no intention to spend it in foreseeable future.

[quote]
Regarding the concept of circulation, how is money in a checking account any more “in circulation” than money in a savings account? In fact, depending on how you are defining it, money is never really in “circulation” — that is to say, it goes immediately from one owner (in their bank acct or whatever) to another.[/quote]

Let’s step back a bit. What causes inflation? Inflation occurs when demand for products at a given price level exceeds supply. Why would growth in money supply have the potential to drive inflation? Because rising money supply means more money in consumers’ hands chasing the same quantity of products, but only if they have that money (it does not sit in bank reserves somewhere) and they are willing to spend that money. Money that sits in savings accounts does not contribute to consumer demand and has no effect on price levels.

By analogy, raising the number of cars in the country can lead to more traffic, higher utilization of freeways, more gasoline tax collection, etc. but only if the increase in that number is not outweighed by the increase in the number of cars standing on cinder blocks in people’s backyards.

[quote]they define money as anything that is immediately redeemable at par. So savings accounts would count, but money markets would not (bc money markets are in fact debt instruments). [/quote]

That’s basically M2 less small time deposits:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2MSL&s%5B1%5D%5Brange%5D=10yrs

It’s a little better than pure M2, but has the same problems.

Instead of looking at abstract money indices, it’s better to look at the amount of money people earn, and that (up to the fluctuations in velocity and saving preferences) would give you a real picture of changes in “true” money supply and inflation:

(don’t forget to subtract 1%/year to adjust for population growth)

[Eugene]

[quote]The money was never “in” the stock market. To the extent you “pulled [money] out” of the stock market, that means that you sold your stocks — which means that someone else took money from their bank account and gave it to you in exchange for your stocks. It just moved from their bank account to yours.[/quote]

That is true, but that money may have been in circulation before, you drew it out of circulation and parked it in a savings account with no intention to spend it in foreseeable future.

[quote]
Regarding the concept of circulation, how is money in a checking account any more “in circulation” than money in a savings account? In fact, depending on how you are defining it, money is never really in “circulation” — that is to say, it goes immediately from one owner (in their bank acct or whatever) to another.[/quote]

Let’s step back a bit. What causes inflation? Inflation occurs when demand for products at a given price level exceeds supply. Why would growth in money supply have the potential to drive inflation? Because rising money supply means more money in consumers’ hands chasing the same quantity of products, but only if they have that money (it does not sit in bank reserves somewhere) and they are willing to spend that money. Money that sits in savings accounts does not contribute to consumer demand and has no effect on price levels.

By analogy, raising the number of cars in the country can lead to more traffic, higher utilization of freeways, more gasoline tax collection, etc. but only if the increase in that number is not outweighed by the increase in the number of cars standing on cinder blocks in people’s backyards.

[quote]they define money as anything that is immediately redeemable at par. So savings accounts would count, but money markets would not (bc money markets are in fact debt instruments). [/quote]

That’s basically M2 less small time deposits:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2MSL&s%5B1%5D%5Brange%5D=10yrs

It’s a little better than pure M2, but has the same problems.

Instead of looking at abstract money indices, it’s better to look at the amount of money people earn, and that (up to the fluctuations in velocity and saving preferences) would give you a real picture of changes in “true” money supply and inflation:

(don’t forget to subtract 1%/year to adjust for population growth)

[Eugene]

[quote]The money was never “in” the stock market. To the extent you “pulled [money] out” of the stock market, that means that you sold your stocks — which means that someone else took money from their bank account and gave it to you in exchange for your stocks. It just moved from their bank account to yours.[/quote]

That is true, but that money may have been in circulation before, you drew it out of circulation and parked it in a savings account with no intention to spend it in foreseeable future.

[quote]
Regarding the concept of circulation, how is money in a checking account any more “in circulation” than money in a savings account? In fact, depending on how you are defining it, money is never really in “circulation” — that is to say, it goes immediately from one owner (in their bank acct or whatever) to another.[/quote]

Let’s step back a bit. What causes inflation? Inflation occurs when demand for products at a given price level exceeds supply. Why would growth in money supply have the potential to drive inflation? Because rising money supply means more money in consumers’ hands chasing the same quantity of products, but only if they have that money (it does not sit in bank reserves somewhere) and they are willing to spend that money. Money that sits in savings accounts does not contribute to consumer demand and has no effect on price levels.

By analogy, raising the number of cars in the country can lead to more traffic, higher utilization of freeways, more gasoline tax collection, etc. but only if the increase in that number is not outweighed by the increase in the number of cars standing on cinder blocks in people’s backyards.

[quote]they define money as anything that is immediately redeemable at par. So savings accounts would count, but money markets would not (bc money markets are in fact debt instruments). [/quote]

That’s basically M2 less small time deposits:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2MSL&s%5B1%5D%5Brange%5D=10yrs

It’s a little better than pure M2, but has the same problems.

Instead of looking at abstract money indices, it’s better to look at the amount of money people earn, and that (up to the fluctuations in velocity and saving preferences) would give you a real picture of changes in “true” money supply and inflation:

(don’t forget to subtract 1%/year to adjust for population growth)

[Eugene]

[quote]The money was never “in” the stock market. To the extent you “pulled [money] out” of the stock market, that means that you sold your stocks — which means that someone else took money from their bank account and gave it to you in exchange for your stocks. It just moved from their bank account to yours.[/quote]

That is true, but that money may have been in circulation before, you drew it out of circulation and parked it in a savings account with no intention to spend it in foreseeable future.

[quote]
Regarding the concept of circulation, how is money in a checking account any more “in circulation” than money in a savings account? In fact, depending on how you are defining it, money is never really in “circulation” — that is to say, it goes immediately from one owner (in their bank acct or whatever) to another.[/quote]

Let’s step back a bit. What causes inflation? Inflation occurs when demand for products at a given price level exceeds supply. Why would growth in money supply have the potential to drive inflation? Because rising money supply means more money in consumers’ hands chasing the same quantity of products, but only if they have that money (it does not sit in bank reserves somewhere) and they are willing to spend that money. Money that sits in savings accounts does not contribute to consumer demand and has no effect on price levels.

By analogy, raising the number of cars in the country can lead to more traffic, higher utilization of freeways, more gasoline tax collection, etc. but only if the increase in that number is not outweighed by the increase in the number of cars standing on cinder blocks in people’s backyards.

[quote]they define money as anything that is immediately redeemable at par. So savings accounts would count, but money markets would not (bc money markets are in fact debt instruments). [/quote]

That’s basically M2 less small time deposits:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2MSL&s%5B1%5D%5Brange%5D=10yrs

It’s a little better than pure M2, but has the same problems.

Instead of looking at abstract money indices, it’s better to look at the amount of money people earn, and that (up to the fluctuations in velocity and saving preferences) would give you a real picture of changes in “true” money supply and inflation:

(don’t forget to subtract 1%/year to adjust for population growth)

[Eugene]

[quote]The money was never “in” the stock market. To the extent you “pulled [money] out” of the stock market, that means that you sold your stocks — which means that someone else took money from their bank account and gave it to you in exchange for your stocks. It just moved from their bank account to yours.[/quote]

That is true, but that money may have been in circulation before, you drew it out of circulation and parked it in a savings account with no intention to spend it in foreseeable future.

[quote]
Regarding the concept of circulation, how is money in a checking account any more “in circulation” than money in a savings account? In fact, depending on how you are defining it, money is never really in “circulation” — that is to say, it goes immediately from one owner (in their bank acct or whatever) to another.[/quote]

Let’s step back a bit. What causes inflation? Inflation occurs when demand for products at a given price level exceeds supply. Why would growth in money supply have the potential to drive inflation? Because rising money supply means more money in consumers’ hands chasing the same quantity of products, but only if they have that money (it does not sit in bank reserves somewhere) and they are willing to spend that money. Money that sits in savings accounts does not contribute to consumer demand and has no effect on price levels.

By analogy, raising the number of cars in the country can lead to more traffic, higher utilization of freeways, more gasoline tax collection, etc. but only if the increase in that number is not outweighed by the increase in the number of cars standing on cinder blocks in people’s backyards.

[quote]they define money as anything that is immediately redeemable at par. So savings accounts would count, but money markets would not (bc money markets are in fact debt instruments). [/quote]

That’s basically M2 less small time deposits:

http://research.stlouisfed.org/fred2/graph/?chart_type=line&s%5B1%5D%5Bid%5D=M2MSL&s%5B1%5D%5Brange%5D=10yrs

It’s a little better than pure M2, but has the same problems.

Instead of looking at abstract money indices, it’s better to look at the amount of money people earn, and that (up to the fluctuations in velocity and saving preferences) would give you a real picture of changes in “true” money supply and inflation:

(don’t forget to subtract 1%/year to adjust for population growth)

[jpinpb]

Rich – I was being very simple in my “circulation” comment. Money being spent in the economy. Not money available. So maybe I’m misusing the word “circulation” in the finance world. Maybe the right word is “velocity”?

As Eugene says, money in consumers’ hands and spending the money. That explanation makes some sense to me. Unless the money is printed AND spent (circulated?) then you have inflation.

Sorry, Rich. Every time I think I got it, I just get more confused.

[jpinpb]

Rich – I was being very simple in my “circulation” comment. Money being spent in the economy. Not money available. So maybe I’m misusing the word “circulation” in the finance world. Maybe the right word is “velocity”?

As Eugene says, money in consumers’ hands and spending the money. That explanation makes some sense to me. Unless the money is printed AND spent (circulated?) then you have inflation.

Sorry, Rich. Every time I think I got it, I just get more confused.

[jpinpb]

Rich – I was being very simple in my “circulation” comment. Money being spent in the economy. Not money available. So maybe I’m misusing the word “circulation” in the finance world. Maybe the right word is “velocity”?

As Eugene says, money in consumers’ hands and spending the money. That explanation makes some sense to me. Unless the money is printed AND spent (circulated?) then you have inflation.

Sorry, Rich. Every time I think I got it, I just get more confused.

[jpinpb]

Rich – I was being very simple in my “circulation” comment. Money being spent in the economy. Not money available. So maybe I’m misusing the word “circulation” in the finance world. Maybe the right word is “velocity”?

As Eugene says, money in consumers’ hands and spending the money. That explanation makes some sense to me. Unless the money is printed AND spent (circulated?) then you have inflation.

Sorry, Rich. Every time I think I got it, I just get more confused.

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