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Economics 101 and the money supply

gamecockcat

All-SEC
Oct 29, 2004
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It's amazing how leaders on both sides of the aisle have no clue about basic economics. One of the first rules of econ 101 is supply and demand. When the supply of money (as measured by M1 by the Fed) is greater than the demand, prices will rise. I see it every day in the Denver area re: housing prices. Many people moving to CO from states with higher real estate prices (CA, IL, NY, etc) and they have extra cash to burn so it's not unusual to see homes sell for 20+% higher than the list price - all cash offers. We've seen it on a national level where the $15/hour minimum wage has led to higher prices, in many cases, the rise in prices exceeding the rise in wages due to minimum wage increases.

Just read an article that looked at the money supply since Jan 2020 (straight from the Fed website, no conspiracy theory: https://fred.stlouisfed.org/series/WM1NS ). At the beginning of 2020, the total amount of dollars in circulation was $4.02 trillion. In January 2021, $6.7 trillion. In November of 2021, the amount in circulation was $20.35 trillion. 80% of all dollars in circulation were printed in the past 2 years, basically. And, in order to fight the 'Putin Price Hike', some in Congress are calling for more spending. MORE spending to fight inflation? SMH.

BTW, government revenues remain at about $4.3 trillion while spending in fiscal year 2020 (Trump's last full year) was $6.6 trillion. Spending last fiscal year (ending in Sept 2021) was $6.8 trillion. And, again, they're talking about spending MORE. There's a new bill in the House proposing giving away $100/mo per person in a household as long as gas remains above $4/gallon. No discussion about where the money's supposed to come from. No discussion about fixing the SUPPLY of oil/gas to lower prices. Just let's give away more money.

The pure stupidity of our leaders is astounding. Some of us were appalled by $1 trillion annual deficits first run up by Obama. Well, he looks like a miser compared to the past 2-3 years (yes, Trump was a big spender, too - not just Democrats). Where does it end?
 
My company’s stock price since the start of the Pandemic is up 200% Record breaking profits all over the place. Jeff Bezos is probably close to being the richest man in recorded human history.

People are struggling to put food on the table all over this country. War in Europe is threatening the world politically and economically. We got more and more people arguing over stupid shit that doesn’t matter and not willing to let people just be and live their lives.

They got us right where they want us and they know exactly what they’re doing.
 
M1 has increased, but a HUGE majority of that increase came due to a rule change on savings accounts, which are now included in M1. See that huge spike in May 2020? Below the chart, they explain the definition of M1 changed in May 2020. You also misread the chart, or mistyped your years. You number for Jan 2021 is wrong - it was already at $18M at that point.
 
A recession is likely in our not too distant future because of the way things have played out on the economic front. Inflation is a problem, along with a lot of other things … be that wage growth, rising housing costs, energy costs, commodities, materials, labor supply, etc … I suspect we are going to have a year or two of a flat market in order for things to normalize into the economy. Not looking forward to going thru that again.
 
A recession is likely in our not too distant future because of the way things have played out on the economic front. Inflation is a problem, along with a lot of other things … be that wage growth, rising housing costs, energy costs, commodities, materials, labor supply, etc … I suspect we are going to have a year or two of a flat market in order for things to normalize into the economy. Not looking forward to going thru that again.

We're about to build a house, too. And we can't wait any longer. We're just going to have to be like one of those families that bought in 2006/07, and we'll just have to eat it.

Usually very good with my financial decisions, and can normally wait. I've wanted to buy AFTER the market has crashed for 6 months.. but yeah, times about up.
 
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We're about to build a house, too. And we can't wait any longer. We're just going to have to be like one of those families that bought in 2006/07, and we'll just have to eat it.

Usually very good with my financial decisions, and can normally wait. I've wanted to buy AFTER the market has crashed for 6 months.. but yeah, times about up.

Supply is insanely low. That’s one of the main factors. It’s not “crashing”. You were literally saying the same thing like 2 years ago.
 
Supply is insanely low. That’s one of the main factors. It’s not “crashing”. You were literally saying the same thing like 2 years ago.

I'm not saying the market IS crashing at all. I'm saying I've been waiting (or maybe hoping) it would crash.

The last thing I want to do is buy a house now and have the estimated value drop 20 to 30% when (or if) the market does crash, and have to wait several years for it to get back to normal.
 
I'm not saying the market IS crashing at all. I'm saying I've been waiting (or maybe hoping) it would crash.

The last thing I want to do is buy a house now and have the estimated value drop 20 to 30% when (or if) the market does crash, and have to wait several years for it to get back to normal.

The inventory is at record lows. The costs for builders to build and inflation will keep increasing prices. Rent keeps going up, private equity firms are offering all cash offers and growing by the day with home purchases, people need more space with more work from home, as well as moving to more places, there are 45 million millennials and growing every year wanting to buy. I could go on for hours. This is nothing like the housing crash of 2008. Nothing. Prices might level off or dip 5% with the average 30 year fixed rate at 4.7 and rising right now, but as a buyer your still going to pay as much with the interest rate making up the difference of reduced price. It’s certainly not going up 19% like last year, but it’s not falling 30% either. Scared money doesn’t make money brah. We’re currently building a house so I’ve been very invested in the housing market, it’s not crashing.
 
The inventory is at record lows. The costs for builders to build and inflation will keep increasing prices. Rent keeps going up, private equity firms are offering all cash offers and growing by the day with home purchases, people need more space with more work from home, as well as moving to more places, there are 45 million millennials and growing every year wanting to buy. I could go on for hours. This is nothing like the housing crash of 2008. Nothing. Prices might level off or dip 5% with the average 30 year fixed rate at 4.7 and rising right now, but as a buyer your still going to pay as much with the interest rate making up the difference of reduced price. It’s certainly not going up 19% like last year, but it’s not falling 30% either. Scared money doesn’t make money brah. We’re currently building a house so I’ve been very invested in the housing market, it’s not crashing.

I agree with all that, as someone else who bought 3 years ago, landlords on the side, and is also looking into building. I guess I'm just more curious where we go from here. Can prices really stay this high for 5 years and beyond? Then two metrics that alarm me a bit are 1. the immense spike in housing costs like we've never seen before and 2. housing starts as high as they've been since 2006, and before that, the mid 80s.

Maybe waiting isn't the right call, but I don't think anyone knows what the next economic crash will look like, as no one ever had an idea of what the last ones wound up to be.

Wages aren't going up, inflation is through the roof (realized and unrealized) and house prices are sky rocketing.. something has to give at some point. Now maybe that doesn't drop housing costs much.. but there has to be a crash somewhere.
 
Supply is insanely low. That’s one of the main factors. It’s not “crashing”. You were literally saying the same thing like 2 years ago.
I have a theory that the supply will start correcting itself in the next decade as boomers die off. It seems most people are overlooking the amount of real estate that generation owns.

We are definitely in a contemporary shortage though. The biggest issue in the future will be energy costs, and a lot of those boomer houses are going to be oversized.
 
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Inflation is too many dollars chasing too few products. Not sure how people think the amount of spending we've been doing by creating money isn't having an impact on inflation. I got the argument when we were selling bonds, but nobody is buying bonds now except the FED. Every dollar we go over now is just being printed. Its not CHina or the EU buying our debt to get .25% interest.
 
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Inflation growth of 7%ish is over after March. The baseline of YoY in April 2021 is too high. Also product is starting to build up in a lot of areas of the economy. It's still behind in some, but the supply chain is unclogging. Also gas prices may seem to be inflationary, but they crowd out spending on a lot of other things. I believe also that for at least a couple months tax revenue has exceeded spending at the federal level so money is being removed from the economy. Anecdotally clothing is being discounted for the first time in over a year right now. That tells me people are at least slowing their spending a bit.

Wouldn't be surprised if we see a huge pullback in the housing and auto markets in the end of this year going into next due to interest rates and a slowing economy. That could lead to some negative inflation numbers by December into early 2023 for the same reason the last year's numbers have been high. The baseline was off.
 
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Still waiting for some of that trickling down to happen. Any minute now...
The policies we're pursuing currently are not trickle down. Not sure trickle down works as originally thought but you can't borrow yourself out of a recession. Ask all those folks with maxed out CCs for confirmation.
 
My company’s stock price since the start of the Pandemic is up 200% Record breaking profits all over the place. Jeff Bezos is probably close to being the richest man in recorded human history.
Musk passed cue ball Bezos last year. Bezos lost $38 billion in his divorce a couple years ago and hasn't quite recovered. 🤪

 
Still waiting for some of that trickling down to happen. Any minute now...
Since a major aggregate supply contraction has been the primary contributor to this situation, it stands to reason aggregate supply growth will solve the problem. Increasing aggregate demand while aggregate supply decreased simply poured gasoline on the fire.

I haven't looked at tve labor force participation rate, but my intuition is that it is still relatively low - making the low unemployment rate misleading
 
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Since a major aggregate supply contraction has been the primary contributor to this situation, it stands to reason aggregate supply growth will solve the problem. Increasing aggregate demand while aggregate supply decreased simply poured gasoline on the fire.

I haven't looked at tve labor force participation rate, but my intuition is that it is still relatively low - making the low unemployment rate misleading
Of course your entire premise assumes the people that wanted it but it wasn't available will still want it once the supply spigot opens back up. Even if they did then a buying binge ensuing would be inflationary in an already inflationary environment so long as people still have a little money in their pockets which would suggest your fears about a misleading unemployment rate are either incorrect or moot, at this point.
 
Of course your entire premise assumes the people that wanted it but it wasn't available will still want it once the supply spigot opens back up. Even if they did then a buying binge ensuing would be inflationary in an already inflationary environment so long as people still have a little money in their pockets which would suggest your fears about a misleading unemployment rate are either incorrect or moot, at this point.
How?

Assuming aggregate demand is sufficient to bring about full employment GDP is hardly revolutionary, Jean Baptiste Say threw it down in 1803.

If the LFPR is "too low" and therefore actual employment is low while the unemployment rate itself is low, I'm neither incorrect nor moot. Instead that is another inflationary pressure that is restricting aggregate supply. The factors impacting aggregate demand are still strong (Consumption, Investment, Government Expenditures, Net exports) though as the Fed raises rates Investment will be expected to fall.

If you're positing that consumption will now fall, that should be anti-inflationary and actions that increase aggregate supply should further relieve inflation while countering the recessionary impact of the AD decrease.

 
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