Sometimes it’s good to reread stuff!

[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.

[Arraya]

Growth in money supply IS inflation. Though, definitions of money supply can differ dramatically. Stay away from prices, it muddies the water and can mean too many things.

[Arraya]

Growth in money supply IS inflation. Though, definitions of money supply can differ dramatically. Stay away from prices, it muddies the water and can mean too many things.

[Arraya]

Growth in money supply IS inflation. Though, definitions of money supply can differ dramatically. Stay away from prices, it muddies the water and can mean too many things.

[Arraya]

Growth in money supply IS inflation. Though, definitions of money supply can differ dramatically. Stay away from prices, it muddies the water and can mean too many things.

[Arraya]

Growth in money supply IS inflation. Though, definitions of money supply can differ dramatically. Stay away from prices, it muddies the water and can mean too many things.

[Rich Toscano]

OK, I misunderstood you JP.

There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.

The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.

Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.

Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.

Hope that helps.

[Rich Toscano]

OK, I misunderstood you JP.

There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.

The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.

Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.

Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.

Hope that helps.

[Rich Toscano]

OK, I misunderstood you JP.

There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.

The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.

Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.

Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.

Hope that helps.

[Rich Toscano]

OK, I misunderstood you JP.

There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.

The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.

Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.

Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.

Hope that helps.

[Rich Toscano]

OK, I misunderstood you JP.

There are two different things, the amount of money, and the so-called “velocity” at which it is spent. If you multiply those two things together, you get the total amount of spending.

The monetary aggregates eg M2 do not make any attempt to measure velocity. They measure the money that is out there for spending. Whether it is spent, and how fast, is another question.

Many things can affect velocity such that, all other things equal, the same amount of money in the economy could lead to different rates of spending, and different rates of inflation. For instance, if people are more cautious and worried about the future, they would tend to increase the amount they wanted to save, which would reduce velocity (that’s happening right now). An example of something that might increase velocity would be concerns about the future purchasing power of the currency, which would encourage people to spend the money faster than they would have otherwise.

Both are important things to consider in your analysis. The reason that I have tended to focus more on money supply is that the various factors that influence velocity tend to be more short-lived, whereas changes to the money supply are more enduring. This is why money supply is a big factor in long-term inflation prospects, even if it is overwhelmed by velocity considerations over shorter timeframes.

Hope that helps.

[CA renter]

[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]

I think we are seeing massive inflation right now.

If the Fed/govt hadn’t printed trillions of dollars into existence and backed/bought trillions of dollars worth of “toxic” securities, what would prices of stocks, bonds, residential and commercial RE, commodities, etc. look like right now? IMO, *that* is where prices would be without all the various forms of stimulus and intervention.

The fact that prices literally whipsawed back from 2009 lows (and they were probably heading lower from there) and still remain at these high levels, even though our “real” economy is showing record weakness, is evidence of massive inflation, IMHO.

When prices are higher than they should be, due to massive amounts of stimulus and intervention (even if they are lower than during the peak of the largest credit bubble in the world’s history), that is inflation.

[CA renter]

[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]

I think we are seeing massive inflation right now.

If the Fed/govt hadn’t printed trillions of dollars into existence and backed/bought trillions of dollars worth of “toxic” securities, what would prices of stocks, bonds, residential and commercial RE, commodities, etc. look like right now? IMO, *that* is where prices would be without all the various forms of stimulus and intervention.

The fact that prices literally whipsawed back from 2009 lows (and they were probably heading lower from there) and still remain at these high levels, even though our “real” economy is showing record weakness, is evidence of massive inflation, IMHO.

When prices are higher than they should be, due to massive amounts of stimulus and intervention (even if they are lower than during the peak of the largest credit bubble in the world’s history), that is inflation.

[CA renter]

[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]

I think we are seeing massive inflation right now.

If the Fed/govt hadn’t printed trillions of dollars into existence and backed/bought trillions of dollars worth of “toxic” securities, what would prices of stocks, bonds, residential and commercial RE, commodities, etc. look like right now? IMO, *that* is where prices would be without all the various forms of stimulus and intervention.

The fact that prices literally whipsawed back from 2009 lows (and they were probably heading lower from there) and still remain at these high levels, even though our “real” economy is showing record weakness, is evidence of massive inflation, IMHO.

When prices are higher than they should be, due to massive amounts of stimulus and intervention (even if they are lower than during the peak of the largest credit bubble in the world’s history), that is inflation.

[CA renter]

[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]

I think we are seeing massive inflation right now.

If the Fed/govt hadn’t printed trillions of dollars into existence and backed/bought trillions of dollars worth of “toxic” securities, what would prices of stocks, bonds, residential and commercial RE, commodities, etc. look like right now? IMO, *that* is where prices would be without all the various forms of stimulus and intervention.

The fact that prices literally whipsawed back from 2009 lows (and they were probably heading lower from there) and still remain at these high levels, even though our “real” economy is showing record weakness, is evidence of massive inflation, IMHO.

When prices are higher than they should be, due to massive amounts of stimulus and intervention (even if they are lower than during the peak of the largest credit bubble in the world’s history), that is inflation.

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