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Money Supply Continues to Climb
A few weeks ago I pointed out that the Fed had brought inflation down from 9+% in June of 2022 by reducing the money supply. But by October 2023 – in response to a tanking stock market- those reductions stopped and the money supply began to grow again. The latest figures – released yesterday – indicate that the money supply continues to grow.
The Fed had been trying to lubricate the economy and the market with a growing supply of dollars while keeping inflation tamped down by relatively high interest rates. But now, after cutting interest rates, does this increasing money supply reignite inflation? Milton Friedman tells us that inflation is always a monetary phenomenon. We are going to find out.
Published in General
Need to inflate the economy for the election- just like we need to keep releasing gasoline from the strategic petroleum reserve until the 1st week of November.
Monetary velocity also factors into the price equation…what are the trends on that?
I think FJB already emptied the reserve.
Only half- he has time to finish the job- or rather Jill does.
In any case, it’s not filled with gasoline. Oil from the reserve still has to be refined, which takes a while.
And our refining capacity isn’t what it should be either.
foRCInG uS tO uSE goVErNmENt moNEY mAKes ouR lIvEs betTEr
“2%” inFlAtIoN mAKeS ouR lIveS bEtTer
Did you hear Harris bable with her interview with Stephanie Ruhl? All of that would be cured if we would switch to deflation. If we had private money, it would be constant deflation all of the time.
They have no idea what they are doing. Fractional reserve banking is falling apart.
They just want to blame it on Trump.
If they actually hold them to maturity the unrealized losses don’t matter.
Those are big losses. Nothing bad better happen, in the meantime. The Austrian’s are against fractional reserve banking in favor of full reserve banking. It’s not that big of a deal to do it.
I also have a quote about how they changed FDIC bank insurance when Silicon Valley Bank blew up but I can’t find it this second.
This is the quote:
That was from Simon Mikhailovich, but it’s behind a paywall.
https://www.grant-williams.com/podcast/the-grant-williams-podcast-simon-mikhailovich/
Look at all of the gratuitous bailing out they did of the investment Banks and the wealthy in 2008. Who’s better off for that? The Bush administration was pushing an “ownership society”and got all these people into homes and it was a disaster. ACORN was literally at the signing ceremony at the White House of the Bush administration when they pushed this stuff.
It’s inflationism, and they don’t know how to resolve it, and we can’t anymore because the whole system would fall apart without it.
This is an epic interview if you’ve never heard it before.
Forgive my ignorance, as I have been trying to understand economics for a long time now. When you say the “Fed is increasing the money supply,” does that mean they are printing money out of thin air to cover some of the National Debt, and then that money gets circulated into the private economy?
Whenever I try to look up how much money our government prints “out of thin air,” all I get from Internet search results (not only on Google but on Duck Duck Go, Bing, etc) are articles about how the government does the physical printing of paper money and coins. I guess I don’t know the correct term for what I call “printing money out of thin air.”
I’m not an expert, but the printing mostly comes from the fractional reserve banking system. if they lower the interest rate, this makes pro forma financial statements look better and they get loans. Of course the Fed also directly buys all kinds of crap they shouldn’t be buying.
Then everybody that just wants to have a savings account gets screwed.
Try searching for “monetizing the debt”
A way to boost the money supply is for the government to buy its own debt. No need to physically print money its just bookkeeping entries. The money to buy the debt is created from nothing.
Forcing down interest rates makes businesses replace people with automation and computers.
Unless they were constantly forcing down rates to create inflation, the whole federal government would fall apart.
Now they buy the debt of the government.
The whole system is fundamentally, structured under debt growth.
Then they cheapen the debt. Then they produce more debt.
Then everybody whines about populists and socialists.
These days it’s often ‘monetizing the debt.’ That is some securities transaction where the Fed takes in US Treasuries from member banks and pays in newly created electronic money. The bank selling securities gets a credit to their acct at the Fed in money that didn’t exist before. That’s more or less “out of thin air”
Thanks for the suggestion. “Monetizing the debt” seems like one of those leftist euphemisms meant to make it sound less harmful, but whatever. I do know that a lot of the actual “printing” of money is not physical at all, but just invented as “electronic credits.” Is there a governmental accounting of how much they “invent” each year? And where can I find such statistics? I would think this would be an incredibly large issue for Republicans during a critical election year with high inflation, but I don’t think I’ve heard Trump or anybody else bring this issue up.
Thanks! Your comment came in while I was responding to Terence Smith. Is this the only way they create new money out of thin air? Or is there another method, too?
I heard that the strategic oil reserve cannot be refilled, because the government does not have environment permits to fill it up. This is because it was created before the EPA existed.
The Fed loaned money (up to twice face value) to any bank with paper losses on US government debt. Banks help banks.
You can derive monetary velocity from the money supply and price levels. I think what you would see is that during early Covid, the government bazooka-ed money into the economy and a lot of sat in banks: money supply went up and velocity went down. When people started spending again, prices went up and the money supply went down. You can see all this in the savings rates charts. The money supply is back on trend.
This makes sense. It was insanely foolish to let the thing go down for political reasons. Same thing for not filling it up when oil was $20 a barrel. The Democrats stopped it.
I have a lot of gold. lol
What would happen if we didn’t have central banks? We would be in constant deflation because that’s what economics does.
Central banks are simply to back up banks at a penalty rate when they get a run on the bank. They aren’t supposed to push the economy around and grow the government with inflation.
We could have full reserve banking without inflation. Everybody would just put more money down on everything before they got a loan.
I think the ultimate problem is, it gives us collectively geopolitical power, but we sure as hell don’t manage the side effects of inflation very well.
There are two kinds of money. One is money proper (“base” money); the other is credit money: IOUs for money proper.
The New York Fed creates all the base money. (The total amount is called the Monetary Base, or “MB”. The value is published regularly. Let me know if you can’t find it.)
The process could not be simpler. They invite bond dealers on their list of about 20 Primary Dealers to an auction every week or two. The Fed hosts buy Treasury Securities and other IOUs from the low bidder. They wire-transfer the funds to the Primary Dealer’s bank account.
Voila! They wire-transfer 10,000,000 for a 6 month Treasury Bill to Goldman Sachs’s Commercial bank account and now there is 10,000,000 more in the Monetary Base! That is how the Fed creates money.
Who owns the increased Base money? Simple again: the Commercial bank where Goldman Sachs had the money deposited owns 10,000,000 dollars more of it, lock, stock and barrel. If you want to know how much base money Wells Fargo Bank owns, simply look at their Balance Sheet. They have to tell you, by law.
Warning: Pretty much nothing you ever read will tell you these basic facts. The reasons are
— ignorance (repeating conventional wisdom rather than researching and learning the facts);
— a desire to impress you with complexities and jargon, rather than explain
— emotions take precedence over the desire for truth
—a political agenda that supersedes the desire to teach others; and
— the lack of ability to understand money. People who present themselves as experts very often do not even know the difference between base money and bank credit money!
No, it has more to do with the physical limitations of the salt caverns where oil is stored. The SPR and EPA are both creations of the Nixon Administration.
Aren’t they using a new/different SPR location now anyway? Or was that just for natural gas or something?
The history of recessions and panics from the founding to the establishment of the Fed says otherwise. The only aspects we can count on are: political miscalculation, irrational exuberance and self dealing.
I’m not necessarily a supporter of the Federal Reserve as operated today or even as promised by the progressives who created it. But it could be the least worst alternative.