Subnostr

My take: the Fed knows that runaway expansion of M2 would be the end of the dollar as we know it. So they are trying mightily to bring M2 back to the long term trend line.

If current trends continue, they’ll have done so around June 2024. The bond market feels this, even if they don’t say it in so many words. The market is already pricing in a 50% chance of rate drops at that time.

jimbocoin 🃏 2y ago

To see why 2020 has played out so differently from 2008, take a look at the asset side of the Fed balance sheet. In principle, this should track M2. Every dollar is a Fed liability, so the Fed assets should match up.

Fed assets grew markedly in both 2008 and 2020, but only the latter caused growth of M2 and thus price inflation. Why? Because in 2008, the Fed printed money stayed in the banking sector. Gun shy commercial banks, newly free of their toxic assets, sat on their Fed balances. The money never hit the broader economy, and so the goldbugs’ predicted hyperinflation never materialized.

But in 2020, the money went out to regular people as a stimulus checks. Those checks directly increased M2, leading to the predicament we are now in.

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Discussion

Hazey 2y ago

If you followed what was happening in late 2019 and early 2020, with the Fed backstopping overnight repo agreements, surpassing $1T (unheard of), it was clear (to me) that we had another 2008 on our hands. Then Lo! a pandemic, how convenient. And it was suddenly "obvious" trillions needed to be spent dealing with it. So I think a majority of that money still went to banks.

jimbocoin 🃏 2y ago

Ya, I remember.

I’d have to combine the M2, monetary base (MB) and Fed total asset charts to figure out how much of the 2020 injections went where. The answer is in there somewhere. 😅

SMS 2y ago

👊🏻

SMS 2y ago

What, jimmy?

😉

You have how?

SMS 2y ago

London bridge is burning down like a fucking clown.

Hazey 2y ago

Why do they even publish the data, and how trustworthy is it? Like changing M1 by adding savings during massive printing seemed like intentional timing to obfuscate it. But since they're the ultimate authority and will never be audited, why don't they just lie instead of doing shenanigans?

jimbocoin 🃏 2y ago

For the M1 thing I don’t blame them, personally. The definition of a “savings account” (excluded from M1) was an account that earned interest and had limited withdrawals. People’s savings accounts, prior to 2020, met this requirement. After 5 or 6 withdrawals in a month, you had to pay a penalty.

In May of 2020, the Fed declared that people could make unlimited withdrawals from savings without penalty. With that rule change, suddenly everyone’s “savings” accounts counted in M1, causing that metric to go vertical.

In response, the Fed created an updated M1 metric which dropped the limited withdrawal requirement. The reason I don’t blame them is that the limited withdrawal requirement worked fine as an M1/M2 discriminator until it suddenly didn’t.

Don’t get me wrong. I don’t like the Fed. I’m in favor of abolishing the Fed entirely. I just don’t blame them for the M1/M2 discontinuity in May of 2020, specifically. It could have been handled better, but I don’t think it was an intentional deception.