As measured by CPI blah blah blah. Lost interest at that point.
My biggest cost is housing and house prices grow hugely as banks create credit primarily secured on domestic and commercial property. But of course, houses and other assets are not part of the inflation measure.
M2 why? Serious question. I thought M4 was the flavour these days.
Derryl Hermanutz Laughing_Gnome • 5 days ago Right on. Money supply growth causes asset price inflation (first real estate, then stocks); not consumer goods price inflation (CPI inflation, that economists call "inflation"). Asset prices can be inflating to the moon, but as long as the price of Corn Flakes is stable, economists see "no inflation".M2 is essentially checking account balances and cash outside banks. Though many small buy-sell transactions are conducted with cash, the vast bulk of buy-sell is conducted by transferring deposit account balances from payer to payee deposit accounts, via check, debit card, online banking, wire transfer, etc.Governments print and mint the cash money supply, but cash enters the economy via the central/commercial banking system. Central banks buy cash from the government and pay by typing a spendable credit into the government's central bank account. Commercial banks buy cash from the central bank, and pay with a debit to their reserve account balance. You buy cash from your commercial bank, and pay with a debit to your deposit account balance. Rserves are banking system money. Deposits and cash are 'the economy's" money supply.Bank lending, and bank purchases of government securities (bills, notes, bonds), "creates" the deposit account money supply, which is about 95-97% of all money that exists. Banks create, and debtors borrow and spend, the deposit account money into existence. Payees -- e.g. people who sell real estate to mortgage debtors -- earn and now "own" the new deposit account money. Most deposit account money ends up earned by people who keep the deposit account balances as their long term savings, which simply removes that money out of circulation in the economy's spend-earn stream.M2 is the "circulating" money supply -- cash in people's wallets and business's cash registers and safes; and people's and business's checking account balances in their bank accounts.People, corporations and institutions transfer some of their savings out of their deposit accounts in the commercial bnanking system, into their brokerage accounts in the savings-funded capital markets financial system where the savings become "capital" and savers become capitalist "investors". Capital markets investors typically buy already existing assets like stocks and bonds that are bought-sold and re-bought/re-sold in the secondary markets.Primary dealer commercial banks create new deposits in government bank accounts, to pay for their purchases of new issues of government debt. Governments typically transfer the new deposit balances out of their commercial bank accounts, into their central bank accounts, and spend the commercial bank-created money out of their central bank accounts. Primary dealers then sell most of the bonds into the secondary markets where central banks, non-primary dealer commercial banks, and "you" buy bonds as investment assets. Central and commercial banks create the money they use to pay for their asset purchases. Non-banks buy assets with money we have earned and saved.Stock-issuing corporations only get the money from stock sales when they issue new stock at IPOs and subsequent events. The brokerage through which you buy stocks is the secondary market. Stock sellers get the money that is paid by stock buyers.About 17% of the total US$ money supply has been transferred into the capital markets financial system where the savings exist as cash balances in brokerage accounts that are loaned into the short term money markets. This part of the money supply is not spent-earned by buyers-sellers in the "real" producer-consumer economy. This money circulates in the capital markets, among buyers-sellers of previously existing investment assets.Savings account balances -- up to 60% of all money -- are the uncirculating part of the money supply. Banks don't lend or invest their depositors' account balances. Every bank loan and asset purchase is funded by the bank's creation of a new deposit to pay for its purchase of a private debtor's new interest-bearing loan account balance, or a government debtor's new interest-bearing bill, note of bond ("bond") debt.Most bank credit (the deposit account money supply: a "loan" created as a credit that adds to the borrower/debtor's spendable checking account balance) is created to finance debtors' asset purchases, not their consumer spending. Banks create buy-money that adds to demand for already existing assets like houses, stocks and bonds (bonds, in the international carry trade). Adding demand money into asset markets enables asset owners to sell their relatively fixed supply of assets at higher prices.Bank credit expansion inflates asset prices, not CPI prices. E.g if you bought a Las Vegas bungalow in 1975 for $30k, you could have sold it in 2005 for maybe $500k, all because banks keep creating more and more money to fund their asset-backed ("mortgaged") real estate lending. Sellers of price-inflated assets (like real estate) might spend some of their capital gains on consumer purchases, which adds some secondary CPI inflation.Commercial bank credit expansion -- not government money-printing -- inflates the money supply. The primary inflation from money supply (M2) inflation is asset price inflation. During the 2000s, banks and mortgage originators created trillions of new dollars to finance the real estate bubble. Real estate sellers earned and now own all those trillions as their savings account balances and brokerage account cash balances and asset valuations. Asset valuations have been inflated to historic highs -- and interest rates and asset yields have inversely been pushed to historic lows -- by all those investible savings looking to earn a return.The "global savings glut" inflates a global asset price bubble, and keeps it inflated because where else is all that investible money going to go? Low yields are better than no yields from holding cash, or almost zero interest on savings account balances. Which doesn't stop rich people and corporations from holding trillions of savings in offshore bank accounts, to avoid paying taxes, and to avoid being bailed-in to bailout the structurally insolvent commercial banking system.
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