re: The money supply is shrinking

How many times did you say to yourself over the last 14 years, "QE is gonna come back and bite us in the A$$ hard at some point."

quote:

---

How many times did you say to yourself over the last 14 years, "QE is gonna come back and bite us in the A$$ hard at some point."

---

It feels like it's getting to a point where the FR is losing control.

Anyway, I don't know if anyone remembers but in 2009 the American Recovery and Reinvestment Act of 2009 was passed. It was a stimulus package for about $800 billion. It was supposed to be a stimulus package in addition to the existing budget.

That $800 billion has never been removed and has just been rolled into continuing resolutions year over year since 2009 with COLA adjustments added.

quote:

---

That's a complex question but to help you have a basic understanding, in economic systems with lending elements there is something called a money multiplier. A simple example will help to illustrate it.

DarthRebel is in a two person economic system and has $10.
He puts the $10 in the bank. The bank is required to actually hold in reserve 30% of the deposit in this example, $3
The bank lends out to your evil twin $7. The total amount of the money supply is now $17. You have $10 on the books with the bank, your evil twin has $7. The money supply was multiplied by the lending action.

That's a very, very basic illustration of how the money supply grows and is calculated. To shrink it, you can increase the reserve amount, raise the cost of lending, or do several other systemic actions that will lower the money multiplier, the acutal money supply, or both.

In this case, the decrease is likely tied to many, many variables, but the tightening is designed to head off inflation. The easiest action to see is the raising of the fed funds rate over the past few years. Hope that helps just a bit.

---

I'm a retired Econ Professor. This is the elementary version of the money multiplier effect and it's accurate.

The problem we have right now is that we do need to shrink the money supply to keep the value of the dollar up. But the powers that be think Ukraine and every other 3rd world country needs our help more than we need our help.

And honestly we are kind of fricked. If we decide to tighten the money supply it slows the economy down. In theory we raise interest rates to combat inflation that is a byproduct of an accelerated economy. I don't see a fabulous, accelerated economy anywhere. Do ya'll? So we are just raising interest rates in an attempt to stop inflation but the inflationary pressure isn't coming from a heated economy.


And yes, Elon is absolutely correct.

quote:

---

A big factor, and I don't know what percentage this is, contributing to inflation is energy policy. This administration wants high energy prices especially high O&G prices so they can make the transition to green energy more economically competitive.

---

This is what the did with the Euro when nobody wanted it. Except in reverse.

They don't give a frick if inflationary policy hurts us or not. It doesn't impact them at all. But they are dumb as frick. Show me a household of 4 making $45,000 a year that can afford an electric car.

quote:

---

If you had to pick the three ish key sources of inflationary pressure (right now), what would they be??

---

Continued printing of money in an unnecessary capacity

Artificially inflated costs of energy in order to swap to green energy

Shitty supply chain that causes shortages. Shortages cause demand. Demand causes prices to inflate.

quote:

---

hitty supply chain that causes shortages. Shortages cause demand. Demand causes prices to inflate.

---

I feel like this is a big one that doesn't get as much attention as it should, esp since it hurts everyone (global).