The steep increase at the end mostly does not reflect a change in economic fundamentals but rather banks relabeling savings accounts as transaction accounts in response to regulatory changes. If you look at M2 instead of M1, the increase disappears.

More info: https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

(Edit: Updated link to a more recent blog post)

Still a huge jump in M2 in Feb 2020: https://fred.stlouisfed.org/series/M2NS

Yes, but this 32% increase was not initially new money in anyone's pocket. The Fed simply replaced some treasuries and other debt on banks' balance sheets with reserves, which don't have to be backed by equity.

This gave banks more wiggle room to sit out the pandemic without reducing lending at the exact wrong time.

So the Fed has done its job on the way down. Now they just have to do their job on the way up as well, or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation.

>>"or this money will eventually end up as new money in someone's pocket (via new loans) and potentially create inflation. "

For that to happen you need enough credit demand in the economy.

It could happen, and, as you say, the Fed would increase the interest rate making reserves less available (credit more expensive), but the number of reserves in the system doesn't cause directly more money in the economy. It depends of the type of recovery.

Agreed, but the difficulty is that the Fed cannot easily distinguish between different kinds of credit demand.

They may justifiably want to keep interest rates low and loans easily available to help businesses and governments roll their pandemic induced debt until they can grow out of it.

But then some other credit worthy borrower comes along and snaps up those cheap loans to buy into some asset market that doesn't need any support.

And where they do have the tools to make that distinction they don't appear to be using them. I don't understand why they keep buying mortgage debt while house prices are already looking dangerously inflated.

Potentially? Seems to me that potential is already being realized.

I don't know how we can possibly know that. There are just too many confounding factors right now.

We had this unprecedented crash that clogged up global supply chains and caused a huge shift in what people are buying. We have massive government spending increases. I don't think it's possible to work out what impact QE is having on inflation right now or whether it will indeed be transitory as the Fed believes.

I still see a curve blasting off at an unprecedented accelerated rate after the jump. And after 2009 doesn't look great either.

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

What matters is the amount of money in active circulation. If salaries all went up 4x then you’d see significant inflation across the board. The fed provides extra liquidity to banks which trickles down to the financial system, which makes stocks go up, and real estate to some extent, but it doesn’t boost the entire economy. Doing 1tn of QE and borrowing 1tn for shovel ready infrastructure spending are not equivalent.

Inflation always lags behind, though, and it’s pretty likely at this point that rising inflation indicators in the coming quarters force the fed to tighten. Opinions are very much divided on this, where many are convinced the fed needs to take drastic action to keep inflation from getting out of control with another financial crisis as a result. The other mainstream view is that we’re only seeing transitory inflation right now and as long as the real economy is healthy we shouldn’t expect inflation to persist and cause carnage.

I believe that's partially because that money is a liability on someone's balance sheet - the fed, the banks, the treasury, companies, consumers etc. As long as the Fed can use its levers to mop up excess liquidity sometime in the future, the excess money supply is not too much of a concern.

Imagine everyone gets 1000 USD loan, freshly printed USD from the government. Money supply just increased by 300billion (assuming it's for US citizens). Does it mean inflation follows? Probably not because people know they have to pay the money back. The price of assets people really need/want or those that are undervalued is going to go up though.

I believe the situation is the same with stocks. They were criminally undervalued for decades (imo still are somewhat undervalued) so additional money supply causes the prices to increase (it's profitable to buy into great opportunity and pay back cheap loan later) but it's only because the assets were very cheap. If they weren't it wouldn't make sense to buy them no matter how much money is around (as you need to pay it back).

What may cause inflation though are programs when you just hand money to people (not as loans but as handouts) as then you just diluted everyone's else money.

What's your reasoning for concluding that stocks were substantially undervalued?

Because another way to read the situation is that stocks are simply the asset of last resort. In a world with no interest, you can't park money in bonds (or CD's etc.) so you've basically got stocks, real-estate and commodities left as options.

Large-scale asset managers are not going to park billions of dollars under the mattress, so basically it has to go to stocks.

No deep analysis on this one. I just think it's a crazy good deal to be able to buy stock of the biggest corporations which lead humanity technological progress, have huge political influence and even at today profit levels return 3-4% per year (in reality much more as a lot of money is invested in research/new projects which are going to be profitable in the future). I think Apple/Amazon/Alphabet/MSFT etc are going make even more in the future and current price is a steal, especially considering those are highly liquid assets with 0 cost of maintenance.

The banking cartel controls where the newly printed money (debt) goes first by controlling interest rates (governments, big banks, stocks, bonds and houses get the best rates near 0%, and Aftermarket and credit card customers get 30%

Because the money supply didn't increase 4x. They changed the definition of M1 to include savings.

The new thinking is money supply/debt vs GDP doesn't necessarily equate to inflation.

Is that the amount of cash circulating right now ? That is terrifying...

Is that massive jump covid related?

I watch this every 6 months or so https://www.youtube.com/watch?v=PTUY16CkS-k

I don't understand the difference but the text below particularly points out a change in measurement in May, 2020. I suppose that's the reason.

No, it's a change in methodology. The "money printer goes brr"-crowd is just unable to digest information.

No, that "crowd" is talking about the 30% increase in a year of M2 money supply, which is unprecedented in US history. The gymnastics going on with the M1 curve don't change that underlying fact, although it does provide a convenient strawman deflection in arguments so less informed people stop at this rebuttal and believe the whole "huge money supply increase" narrative is a hoax.

Yawn, any reason you did not link to the M2 graph at FRED? Maybe, because the bump is also a change in methodology? The money printer has been running for decades, but all of a sudden there is a problem? All that money is stuffed into equities and has no impact on inflation. But who gives a shit if one can talk about Bitcoin instead.

1. It has been linked many times in this thread.

2. No.

3. Not at a comparable rate as is evident from the graph.

4. Are equities and other assets completely disconnected from the consumer economy? Many of the new rich and retirees will cash out or take loans against their assets.

5. Economically speaking Bitcoin is inconsequential in this story. Careful using its proponents as another strawman.

money printer goes brrr