An increase in supply is not a debasement. That is measured post-facto based on its impact. Inflation was strongly negative between 2008 and 2010, hitting an annualized -4% in 2009. [1] The Fed was also making good progress unwinding its balance sheet going into 2020, before COVID hit.

[1] https://tradingeconomics.com/united-states/inflation-cpi

I love all the Austrian Economics (thanks Satoshi!) comments we get in a supposedly data-driven environment.

How does this chart [0] show a debasement of any sort? We were in a 'secular demand stagnation crisis' back then! Is everyone here just too young (oh God) to remember 2012?

https://fred.stlouisfed.org/graph/fredgraph.png?g=LBU7

> How does this chart [0] show a debasement of any sort?

It's the gigantic jump in the blue line almost halfway between 2008 and 2010. A spike in the value of "all assets" is the definition of currency devaluation.

Hey, sorry for not providing more context, the blue line is the Fed's balance sheet and the red line is inflation.

Yes, the Fed's balance sheet skyrocketed, but inflation (the value of money vs. goods & services) remained lower than before that line spiked.

So why did they stop growing their balance sheets then?

Because QE is an active tool to support credit liquidity and they determined that markets were liquid enough to remove that support.

EDIT: And just to be very clear to the 2 people who read this comment, maintaining a balance sheet is still market support b/c you still buy treasuries on the open market to offset the principle of your existing treasuries that reach maturity. So stopping the growth of the balance sheet just means you're not accelerating support. Tapering is the thing that you do if you're worried that your balance sheet is 'debasing' the currency.

> Inflation was strongly negative

It's not clear to me if you're talking about monetary or price inflation.

https://mises.org/library/money-inflation-and-price-inflatio...

> some economists have interpreted price inflation as a desperate method by which the public, suffering from monetary inflation, tries to recoup its command of economic resources by raising prices at least as fast, if not faster, than the government prints new money.

Only the long-debunked Austrian school defines inflation as a function of supply alone. The rest of the world moved on to defining inflation in terms of the measured, real-world change in the purchasing power of money - which comes under pressure from a number of different factors that aren't captured by supply.

For instance, supply chain disruptions making basic goods more expensive and increasing competition for them. Or, zoning policy prohibiting construction of new housing sufficient to meet demand in high-growth metro areas raising the cost of housing. Or zoning policies in suburban areas making housing 2x bigger on average now than in the 1970s. [1]

Defining inflation as a function of supply distracts us from the real-world problems causing broad-based increases in price.

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

> long-debunked

lol.

> Defining inflation as a function of supply distracts us from the real-world problems causing broad-based increases in price.

price is a function of supply and demand already. you don't need to redefine inflation unless you're trying to dupe feeble-minded rubes.

Purchasing power is a function of a whole ton of things, including supply chains. If goods require more inputs or are less efficient to produce that will increase their price. This in turn decreases the relative purchasing power of a dollar. This can happen due to all sorts of externalities, for instance a tax. Or it can go down due to efficiencies in manufacturing technology or biotech. Or, a massive global pandemic leading to supply chain disruptions can cause prices to go up. Or housing can become more expensive because of zoning rules.

The "supply of currency units" is a fundamentally inadequate measure to capture this. It is too simplistic. Nobody takes it seriously except for a small group of very vocal online crackpots because it is so obviously unfit for purpose. [1]

We re-defined it as our understanding grew. The way we update practically any model in the face of new evidence.

Japan single-handedly demolishes the Austrian model. Their M2 supply grew 3X from 1990 to present but inflation remained 0% measured over thirty two years. Prices did not change from 1990 to 2022. [2, 3]

[1] https://www.pragcap.com/understanding-why-austrian-economics...

[2] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI

[3] https://tradingeconomics.com/japan/money-supply-m2

> This in turn decreases the relative purchasing power of a dollar.

you're again conflating price and monetary inflation. and again mixing in somebody else's prejoratives to flavor your discussion of their topics.

here's a link [1]

[1] https://mises.org/library/inflation

No, I'm not. The idea that supply increase is inflation is a rejected Austrian economics concept with no basis in reality.

Yes you are. Watch how i can simplify it for you...

> The idea that inflation is anything other than an increase in the supply of money is an intentionally confounding theoretical device with no basis in reality.

I mean it's straight-up wrong. The M2 supply in Japan tripled since 1990 and prices remained the same. Therefore your model is incomplete.

If you have 1 burger that you'd pay $10 for, and someone makes a second burger, does that make each one worth $5? No, of course not.

> An increase in supply is not a debasement. That is measured post-facto based on its impact.

An increase in supply is always a debasement.

It's true that you might see the following chronology:

1/1/2020: value of the currency measured

6/6/2020: supply of the currency increased

1/1/2021: value of the currency measured; it's higher than it was last year!

But that doesn't mean the issue on 6/6/2020 wasn't a debasement. It definitely was, and the reason it doesn't look that way is your very low-resolution measurement of value. If the supply increase hadn't happened, the value on 1/1/2021 would have been even higher.

An increase in supply alone isn't debasement. A higher supply doesn't imply a lower value, because what you do with that new supply matters. If you mint a $10T coin and throw it under your mattress, then you haven't decreased the value of anything even though the supply has increased dramatically.

This is why we measure, and why Austrian economics fell out of favor decades ago.

See Japan for a concrete example. [1, 2] Their M2 money supply is almost 2.5X higher since 1990 but their CPI is dead flat over the same time period. It's actually seriously problematic for them.

[1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI

[2] https://tradingeconomics.com/japan/money-supply-m2

> If you mint a $10T coin and throw it under your mattress, then you haven't decreased the value of anything even though the supply has increased dramatically.

How has the supply increased in this scenario? What if, instead of minting the coin, you just tell people that you've done so?

The supply of money has only increased if you're able to spend the putative addition to the money supply.

You can tell them all you want, but as Japan shows us, it doesn't actually matter. What matters is what you do with the supply which is why we measure.

Let's focus on the opening question, "how has the supply increased in this scenario?".

I'm sorry I don't understand the question.

Are you asking how supply works in my hypothetical, simplified example where the point I'm trying to make is that new supply in isolation doesn't matter - what you do with it does?

Or as you asking how it happens in the real-world example of Japan, where their supply increased from 400000B JPY to 1200000B JPY between 1990 and present, while everything remained the same price? And how this is seriously problematic in their economy?

You claimed that minting a coin with face value $10T increased the money supply. I'm saying this is not true, because that coin cannot be spent and therefore doesn't contribute to the money supply. It doesn't matter what you write on the coin.

What matters isn't what you do with "money"; it's what you can do with it.

Again, Japan proves you wrong and me right because they 3X'd their money supply and prices stayed exactly the same for 30 years in real and notional terms. Austrian economics does not explain that. Which is why we don't use it.

Tripling the money supply cuts the value of money by a factor of three. Without any exceptions. There is no other possible outcome. That's not even an Austrian idea.

But there are other things that affect the value of money. Tripling the money supply and seeing the value of money stay constant tells you that something else was pulling the value of the yen up at the same time that additional supply was pulling it down.

> Tripling the money supply cuts the value of money by a factor of three. Without any exceptions. There is no other possible outcome. That's not even an Austrian idea.

This is not true, though, haha.

Which is why the Austrian model, which only takes into account the former, is obviously and woefully incomplete - and has been rejected.

I guess you didn't get the memo. The US abandoned the gold standard in the 1930s and with that the US dollar became a fiat currency, i.e. a currency that isn't backed by anything. A fiat currency cannot be debased because it has no "base".

Maybe not to you, but every time the FED prints money, my dollars are worth less. From my POV they’re currently debasing the currency.

If you can buy the same amount with them, then they are demonstrably not worth less.

In 2009 they printed money and dollars were worth more.

So if printing makes dollars worth more, why stop? Or that effect only applied to 2009?

Because supply alone is not what defines the value of money. This is the concrete example of why Austrian economics is a wholly insufficient model.

I think the Austrian school explains quite well the phenomenon, like Newton’s Laws for dynamics.

Now do Japan.