Money Supply Question for the Economists - Are stimulus funds going into bank accounts and staying there?

[eccieuser9500]

The mafia turns social media influencer to reinforce its brand


"The mafia turns social media influencer to reinforce its brand" https://amp.ft.com/content/285732c9-...2-ce31e09003e6

For mafia experts, Mr Torcasio’s decision to become a social media influencer is an example of how some Italian mafia bosses, who generally maintain a low public profile to avoid attention from the authorities, have embraced a digital strategy to grow their criminal brands.

“The mafia has always been in the business of brand building, and here the medium has changed, but the aims have not,” said Federico Varese, an expert on organised crime at the University of Oxford.

[Texas Contrarian]

.

Originally Posted by Tiny

This means you, Lusty Lad or Captain Midnight.

There's been huge growth in the money supply during the Covid Crisis. M1+M2 has moved up from 19.9 trillion dollars on 3/16/2020 to 25.8 trillion at 12/22/2020.

Over the last 8 months, M1 is up 60% and M2 is up 24%. Taking a comparable period in the 2008/2009 recession, the increases were 8% and 14% respectively. I understand part of the reason for the jump in M1 is that the Fed moved savings accounts from M2 to M1, but regardless both are up a lot.

I realize a lot of this increase was because of the Fed. But does this also mean a good chunk of the stimulus money we're going to have to pay back someday has been going into bank accounts, instead of into, well, stimulus?

And is this a worry when people and businesses start spending again and the velocity of money picks up? Are we potentially looking at inflation down the road?

Very interesting questions, and arguably the most topical of today's macroeconomic debates.


A growing number of analysts and economics journalists are coming around to the view that hugely pumped-up monetary aggregates mean that much higher inflation down the road must surely be baked into the pie. That may be so, especially if helicopter drops of cash into the accounts of tens of millions of non-affluent households occur in the amounts urged by many policymakers today. It would seem that at some point, inflation will arise via blunt force.


But then the follow-up questions generally concern whether any incipient inflation spike will be sustained over time, or turn out just to be a short-lived blip.


Some of the better arguments against the high-inflation narrative have been presented by Van Hoisington and Lacy Hunt (from Austin). About two years ago, I saw a presentation by Lacy Hunt and thought it was one of the most interesting I had ever seen. Rather than just speaking in general terms, he rolled out a whole lot of empirical data and rigorous mathematics. In particular, he spoke at length about the production function and the declining marginal product of debt. A main point was that significant federal debt accelerations in a relatively slow-growth economy are not inflationary, and may in many cases be disinflationary. This is obviously contrary to the assumptions one tends to take for granted after glancing through a McConnell or Samuelson econ textbook of a few decades ago.


Two other key points to consider, in my view:


First, it's far from certain that much of the "new money" that's gone into parking spaces will be brought out and spent into the economy, thus possibly driving inflationary pressures. Many observers think it's much more likely to be saved by households facing uncertainty, or used to pay down credit card and other debt. (This gets back to the "money velocity" issue brought up in another couple of threads over the last few months.) So, what happens to the "surplus money" that's sitting around in banks? Looks to me like a lot of it's going into stuff like relatively low-risk, low-LTV refinancings of cash-generating commercial real estate, development deals, certain types of private equity ventures, and various other stuff. Note that people benefiting from such loans have near-zero MPC; therefore would not spend in such fashion as to drive CPI inflation. The extra liquidity would instead be invested in other assets, thus lifting valuations of various asset sectors -- or, at least, putting something of a floor under them in case there's a downturn. (If it occurs to you that this sort of looks like an updated version of what was referred to long ago as the "horse and sparrow theory" or more recently as "trickle-down economics," you get the idea.)


Second point:


The aforementioned McConnell and Samuelson texts (and many others) discussed the roles of cost-push, wage-push, and demand-pull effects as drivers of price inflation.



One finance blogger recently made the fundamental point that today's economy doesn't work like that of days gone by largely because it's subject to the China price for inexpensive consumer goods and manufacturing inputs, the India price for various internet and tech services ans support, and the Mexico price for final assembly. So neither sellers of goods and services, nor workers, have the negotiating or pricing power to push inflation.


Anyway, i think those are just a few points to ponder when considering inflation risks.


The only thing I would say for certain is that a whole lot of economics and finance textbooks desperately needed to be rewritten!


.

[WTF]

Originally Posted by CaptainMidnight

.




Two other key points to consider, in my view:


First, it's far from certain that much of the "new money" that's gone into parking spaces will be brought out and spent into the economy, thus possibly driving inflationary pressures. Many observers think it's much more likely to be saved by households facing uncertainty, or used to pay down credit card and other debt. (This gets back to the "money velocity" issue brought up in another couple of threads over the last few months.) So, what happens to the "surplus money" that's sitting around in banks? Looks to me like a lot of it's going into stuff like relatively low-risk, low-LTV refinancings of cash-generating commercial real estate, development deals, certain types of private equity ventures, and various other stuff. Note that people benefiting from such loans have near-zero MPC; therefore would not spend in such fashion as to drive CPI inflation. The extra liquidity would instead be invested in other assets, thus lifting valuations of various asset sectors -- or, at least, putting something of a floor under them in case there's a downturn. (If it occurs to you that this sort of looks like an updated version of what was referred to long ago as the "horse and sparrow theory" or more recently as "trickle-down economics," you get the idea.)




.

Which is where one expect it to go if you look at the Trump tax cuts and how it treated these assets!

I'm too lazy to look it up but my memory is still sharp enough.

[oeb11]

Interesting thoughts
Thank you - Tiny and CM!

[Unique_Carpenter]

Ok lieutenant Midnight,

Although I understand your comment of inflation is baked into the pie, note that except for housing purchase costs, that inflation has not hit the consumer yet.
This is the huge issue.
Due to individual spending capability (reduced wages, etc for the lower half of the population), suppliers have simply not yet raised prices much. So not "baked in" but arriving shortly.

I anticipation rather noticeable consumer inflation to hit early summer time as the covid restrictions start getting lifted as population is shot up.

What I'm not thrilled about is Yellen, a former Fed Reserve governor who should know better, proposing another couple trillion in relief spending. That will only make things worse. I'll repeat myself from an earlier comment of mine in this thread where the fall 2020 numbers showed the industrial production is accelerating. This I think is the key metric, as this always happens before "results" get to the consumer level.

And by the way, this is also why I pay attention to the subtleties of that metric for my business clients. For which I am currently on tour to for next few months, to discuss this crap with emphasis applicable to their specific production models.

Last, go back to Lusty's post that has the link to a Fed Reserve article. Although the write is "slightly biased", the charts and numbers indicate exactly the preliminary inflationary factors of what I'm talking about here.

[oeb11]

for the DPST/ccp valued posters"


This image has been resized. Click this bar to view the full image. The original image is sized %1%2.




[Verse 1]
Don't know much about history
Don't know much biology
Don't know much about a science book
Don't know much about the French I took

[Chorus 1]
But I do know that I love you
And I know that if you love me, too
What a wonderful world this would be

[Verse 2]
Don't know much about geography
Don't know much trigonometry
Don't know much about algebra
Don't know what a slide rule is for

[Chorus 2]
But I do know one and one is two
And if this one could be with you
What a wonderful world this would be

[Bridge]
Now, I don't claim to be an A student
But I'm trying to be
For maybe by being an A student, baby
I can win your love for me


[Verse 1]
Don't know much about history
Don't know much biology
Don't know much about a science book
Don't know much about the French I took

[Chorus 1]
But I do know that I love you
And I know that if you love me, too
What a wonderful world this would be

[Verse 2]
Don't know much about geography
Don't know much trigonometry
Don't know much about algebra
Don't know what a slide rule is for

[Chorus 2]
But I do know one and one is two
And if this one could be with you
What a wonderful world this would be

[Bridge]
Now, I don't claim to be an A student
But I'm trying to be
For maybe by being an A student, baby
I can win your love for me


Sam Cooke - Wonderful World

[Unique_Carpenter]

oeb,
Nice face up picture of her.

[oeb11]

Thank You - Good sir

The autocratic authoritarianism of "I know better than anybody" ( despite an AOC IQ equal to a bag of hammers) shows Through!


not to mention the absolute absence of any sense of humor of marxist DPST/CCp minions, acolytes and Their Stalinist leaders.

[Tiny]

Originally Posted by CaptainMidnight

.
Very interesting questions, and arguably the most topical of today's macroeconomic debates.

Nice title. Disinflation - I miss those days. It was so easy to make money. You just buy and wait for P/E's to re-rate. It's hard to find now. Maybe Turkey but the valuations aren't compelling.

Thanks for this, seriously. This is another Captain Midnight classic with practical implications, like your piece on buying value stocks when shares are cheap, like 2008/2009, and holding for the long term. But maybe more useful to someone like me who doesn't have an academic background in economics. I won't go loading up on TIPS and gold mining shares just yet.

[Texas Contrarian]

.

Originally Posted by Tiny

Nice title. Disinflation - I miss those days. It was so easy to make money. You just buy and wait for P/E's to re-rate. It's hard to find now. Maybe Turkey but the valuations aren't compelling.

Thanks for this, seriously. This is another Captain Midnight classic with practical implications, like your piece on buying value stocks when shares are cheap, like 2008/2009, and holding for the long term. But maybe more useful to someone like me who doesn't have an academic background in economics. I won't go loading up on TIPS and gold mining shares just yet.

Well ... I wouldn't go loading up on TIPS and gold mining shares just yet, either. (Or at any other time, for that matter!)

During Zoom conferences with a number of people over the last few days, I have talked with several who won't be surprised if enough porch-drops of cash to non-affluent households creates a "head-fake" appearing to be incipient inflation, but have spoken to no one who believes it will be sustained. The widespread view is that slow growth and very low inflation will persist for years, despite the Fed's stated efforts to stoke the fire by vowing to keep the policy rate pegged to zero and the entire yield curve as flat as possible.

In my view, much of this has to do with the debt accumulation trajectory, which will undoubtedly worsen over the next few years (and it was already bad enough).

Consider ...

The annual debt accumulation run rate for the 12-month period ending February 2020 (before the pandemic) was approximately $1.25 trillion. That's about 6% of GDP, and it's sharply up from 2016-2017. (Obviously, that's what large tax cuts coupled with spending binges will do for you.)

Yet the trend rate of incremental GDP growth (increase over GDP growth from the prior period) rose at a far slower rate than the debt growth. Did this look like a fully healthy economy to anyone?

This gets back to what I mentioned a few weeks ago in another thread: The declining marginal product of debt accumulation. (Recall textbook discussions of the "fiscal multiplier.") When extra debt is loaded onto an already debt-laden, slow growth economy, the velocity of money can fall further.

What will look to many as incipient growth-accompanying inflation will very likely turn out to be a mirage, as the marginal product of debt accumulation falls toward zero.

So, what does the earnest value-seeking investor do? In may case, I am just going to wait -- as long as it takes. While building up my cash reserves.

There will be a recession and severe bear market sooner or later. That may not occur this year or next. Or even within 3 or 4 years. But it will happen. Just look at 100 (or more) years of market history. Some crisis, panic, or "black swan" event will occur.

It's nice to be ready with a war chest at the ready. If the market sells off 20-25%, I'll be making a shopping list. 30-40%, and I'll be ready to jump.

In the event of a 40-50% meltdown (remember, the selloff following the housing crisis saw the S&P 500 plunge 57%), I'll be on it like a fat man on the dessert cart!
.

[Tiny]

Originally Posted by CaptainMidnight

.


Well ... I wouldn't go loading up on TIPS and gold mining shares just yet, either. (Or at any other time, for that matter!)

During Zoom conferences with a number of people over the last few days, I have talked with several who won't be surprised if enough porch-drops of cash to non-affluent households creates a "head-fake" appearing to be incipient inflation, but have spoken to no one who believes it will be sustained. The widespread view is that slow growth and very low inflation will persist for years, despite the Fed's stated efforts to stoke the fire by vowing to keep the policy rate pegged to zero and the entire yield curve as flat as possible.

In my view, much of this has to do with the debt accumulation trajectory, which will undoubtedly worsen over the next few years (and it was already bad enough).

Consider ...

The annual debt accumulation run rate for the 12-month period ending February 2020 (before the pandemic) was approximately $1.25 trillion. That's about 6% of GDP, and it's sharply up from 2016-2017. (Obviously, that's what large tax cuts coupled with spending binges will do for you.)

Yet the trend rate of incremental GDP growth (increase over GDP growth from the prior period) rose at a far slower rate than the debt growth. Did this look like a fully healthy economy to anyone?

This gets back to what I mentioned a few weeks ago in another thread: The declining marginal product of debt accumulation. (Recall textbook discussions of the "fiscal multiplier.") When extra debt is loaded onto an already debt-laden, slow growth economy, the velocity of money can fall further.

What will look to many as incipient growth-accompanying inflation will very likely turn out to be a mirage, as the marginal product of debt accumulation falls toward zero.

So, what does the earnest value-seeking investor do? In may case, I am just going to wait -- as long as it takes. While building up my cash reserves.

There will be a recession and severe bear market sooner or later. That may not occur this year or next. Or even within 3 or 4 years. But it will happen. Just look at 100 (or more) years of market history. Some crisis, panic, or "black swan" event will occur.

It's nice to be ready with a war chest at the ready. If the market sells off 20-25%, I'll be making a shopping list. 30-40%, and I'll be ready to jump.

In the event of a 40-50% meltdown (remember, the selloff following the housing crisis saw the S&P 500 plunge 57%), I'll be on it like a fat man on the dessert cart!
.

OK, throw out everything I wrote in another thread about the idiocy of trying to learn something about markets on a hooker board. Thanks for the thoughts and comments about the effect of more debt on the velocity of money and inflation. It's honestly better than anything I read in the financial press on this.

I agree with your investment philosophy. I've done pretty damn well putting money to work during times like late 2008 and early 2009, and the buys in my personal account during other periods don't work out nearly as well. If I were smart, I'd start taking long term trips to the beach, and just come back whenever there's a recession or war or currency crisis to take advantage of.

[Lucas McCain]

I don't even know what the threshold is for this check and I don't even give a shit enough to give a 45 second google search because I doubt I'll be given shit. I don't give a shit because I don't need it. That chump change won't pay for shit for me. They can keep it or send it to people who actually need it as far as I'm concerned.