The 80% figure has been widely quoted and widely debunked. As I linked (to the Fed) above, they changed the definition of M1 which caused a big one-time jump in the M1 money supply. Yes, you are right that the money supply increased separate from this definitional change. But, the real increase in M1 (excluding the definitional change) does not support the 80% figure.
This is correct. The Fed reclassified savings deposits into M1 in May 2020 — so M1 jumped from ~$1.7T to ~$18T overnight. That’s a definitional change, not money creation. Before 2020, savings deposits were only counted in M2, which is why M2 was always much larger than M1 prior to that point.
From the official sources. About 30% based on the FED figures. When money is printed it doesn’t hit M3 directly. It goes to M0 first as bank reserves and becomes M3 only when distributed by the banks. Regardless even if all of it hit M3 it would still be 30%.
And as I said, either way still a shit load created out of thin air that all needs to go somewhere, which was the whole point of the original discussion.
The numbers matter a lot. I would be very concerned if the stock market was over inflated by $17.4 T (80% of M2) as you say it is. Most of the printed money during QE was accounted for in bank reserves. It was the stimulus (Treasury not the Fed) that made it into the stock market.
Congress approved the stimulus spending in Mar 2020 - Jan 2021 of $5.6T. The QE (money printing) during that period was tied to the initial stimulus approval (Fed buying back issued bonds from investors) which ended up being $4.6T of the $5.6T (which was not close to $17T) mainly through the purchase of MBS’s and Treasuries to keep interest rates close to zero and free borrowing for the government.
Treasury issued bonds → fiscal stimulus hit the real economy ($5.6T) → Fed bought most of those bonds back ($4.6T) to keep rates at zero → most of that printed money stayed as excess reserves at the banks and not flowing into stocks. What most likely flowed into stocks was the fiscal stimulus (Treasury not the Fed) which is not the same as the printed reserves and definitely not $17T.
1 Like
Thanks Zuck for that in-depth and detailed accounting. I love it when a real expert with real facts gets on here to straighten out someone who just stayed at a Holiiday Inn… (-;
I don’t mind folks opinions about this or that, just when they throw out numbers pulled out some troll farm, or some other axe grinder, that’s when it gets personal. Same thing goes for that other forum, numbers are so easy to check, so if you throw them out there, perhaps check them first before hitting send…
1 Like
Troll farm? Your just being nasty because you didn’t sell your precious metals.. Google the question-Google is the one who provided the 80% number, not me. Other overviews say 40-50%. So like I said, either way a shit load of cash created out of thin air. Even 30% is a rediculous amount no?
We can start arguing semantics about the Fed but despite being soneone who is staying at the holiday in I have a pretty good idea of how it works,. You also need to keep in mind fractional lending and how the whole system is based on ever increasing amounts of magic money., all created out of thin air.
Just because the Fed has been doing QT doesn’t mean all of that magic money has disappeared, it’s just means the ever increasing rate of magic money creation is slowed.
Again, a comparison I like to use is compounding interest. If inflation is running at say 7% and then falls back to 3% that doesn’t mean anything has been ‘fixed’ or that the prices have gotten cheaper or returned to ‘normal’. All it means is stuff that was getting stupidly more expensive every year is still stupidity expensive… just now is getting more expensive by a less stupid amount every year.
The money has been created.
I understand how inflation works, a comparison to the previous year’s prices. I also understand that 80% is not 30%, and that the difference is so big, that the numbers cannot even be compared. And yes, still holding my gold and silver coins, made even more on them..
To make your argument, you need to isolate the portion of M2 that is from the Fed printing money, as you put it. Not all M2 growth is from that. Some of it is from economic activity, like banks lending money. When the economy is strong, M2 grows and so, too, does the stock market. Thus, observing that M2 correlates to the stock market is, by itself, not meaningful. They are both reflections of economic activity, in part.
I am not denying that the Federal Government sometimes creates money in the way you are using that phrase. But, you can’t cite the 30% figure as quantification of that. It has been almost 6 years since the start of Covid and the economy has grown quite a bit in that time.
Made more when it’s down nearly 10% and 25% respectively.. OK then…
It seems like your daughter is doing great for here age. It isn’t the amount saved, but the time in the market that matters. Encourage her and make sure she builds up to get the max out of her 401k and invest that HSA account. She will be well on her way to 7 figures by the time she is 40.
QE (the printed reservers) alone don’t hit M2 as the money is “sterilized” i.e an asset swap.. In this case it remained as bank reserves or ON RRP’s. On the stimulus side remember inflation went to 8% at the end of 2022 so how much of the stimulus was taken up paying higher prices as purchasing power of the stimulus was eroded. Also as Ike refers to the purpose of the QE/ stimulus is to get the real economy moving again i.e, to create a real return.
There was a lot confusion after QE1, QE2 & QE3 where some people were expecting really high to hyper inflation. This never happened. All the QE was sitting in reserves and the Fed was paying banks interest to keep the reserves there. IOER (Interest on excess reserves) now called IORB (interest on reserve balances). i.e a key tool they use to control ST interest rates.
1 Like
This is true. My daughter is in her early 40’s. She has only worked at 2 fortune 500 companies since college. Well paid. Frugal. Saves her money. She has over $2 mill currently in her portfolio. Not counting what her husband has saved which is also 7 figures. Max out every tax advantaged option (HSAs, Roths, Qualified Plans, etc.) and let it accumulate and grow. Then you have financial freedom and options in life.
1 Like
Can’t seem to find the AI thread….
Anthropics announcement has rattled markets this week with Cowork and open source plug-in news.
“Technologists suggest Anthropic’s advances will undermine the economics of software development and squeeze specialist providers of AI tools, such as in legal services.”
From the FT. The concern is that sales and marketing departments can now build their own tools using Claude, reducing demand for traditional advertising agencies. The article notes concerns about AI hallucinations, junior developers losing comprehension skills, and the need to verify these tools work reliably in regulated industries. From the free version of the paper.
I said it months ago, AI is going to kill the software industries, and programmers will be whittled down to just a few specialized folks. Seems the markets are getting that message and it’s now a blood bath among most the companies in those spaces. Hardware is going to hang on, but even there many companies are now looking at building their own chips, so Nvidia now seems to be vulnerable too. Good for me, just more money going to the metals and minerals, still got to have something to build all this new stuff…
References the effect that the collapse of crypto will have on things like metals.
1 Like
Over the five years that Kalshi has existed, its thousands of gamblers have proved as accurate on average at predicting certain economic indicators as the highly trained forecasters, a working paper published last month by the National Bureau of Economic Research found. The crowd is also pretty good at predicting interest rate decisions from the Federal Reserve, and even better than the professionals at predicting the rate of inflation.