How Eased Is Thine Quantity

5 01 2013

Federal Reserve

I’m looking over my queued up list of news stories and URLs that I’ll cover in tomorrow’s wrap-up.  I think I’ll get one out of the way right now.

Rush talked about some nut professor who will go unnamed, simply because we all know, (and this nut professor knows) his proposal is pure SVNT (shock value nut talk).  And he knows it because he, like everyone else with a brain, knows it will never happen, and that the only reason he’s “proposing” it is to become a celebrity.  It’s this business about striking $1 trillion platinum coins and using that to “pay” the deficit.

But in thinking about this non-story, I wondered what the real money supply is these days.  For a long time, the metric referred to in the vernacular of economics education as M0 (M-Zero), but not officially by the Fed (their official name for it is some long acronym), which is defined as all the American paper and coin currency in common circulation, wasn’t even $1 trillion, so a single $1 trillion coin would more than double it.  But to my shock, it wouldn’t do that now:  While M0 was only around $800 billion as late as the fall of 2008, before  you-know-what happened, thanks to several rounds of quantitative easing, it now stands at about $2,700 billion ($2.7 trillion).

People are claiming that things aren’t that bad, because DJIA is now riding at about the same 13k it was in the summer of 2008, pre-crash.  Yeah?  So what?  Does 13k in an America with $2.7 trillion of open currency and coin floating around mean the same thing as 13k in the America of yore with only $0.8 trillion ibid.?  It’s actually scary that with more than three times as much physical currency floating around out there, that your oh-so-important metric based on the current selling prices of mostly long-ago issued shares of common stock of the thirty given large publicly traded corporations that some cigar-munchers in some room deem currently “important” can only get back to par.  What’s more scary is that everything isn’t more than three times as expensive as it was in September 2008 — A lot is significantly more expensive, but not everything is literally (2.7/0.8) = 3.375 times more expensive.  But that must mean one or more of several things:  (1) Things are about to get more expensive, and it’s just taking time for the increased money supply to work its way through the economy, (2) “Official” CPI is artificially low, (Duh, when Social Security checks and tax brackets are indexed to CPI, do you think the Feds/Fed have a big incentive to nuance/lie it down as far as possible?), (3) There are other economic factors why there are things that are not yet or will not eventually become 3.375 times more expensive than they were in 9/08, (4) M0 is not the be-all end-all metric of money supply:  Ron Paul actually thinks M3 is a better “real” metric for money supply, and M3 is all “M0″ coin/currency floating around plus banks’ deposits with the Fed plus checking accounts plus travelers checks plus savings accounts plus almost all money market funds and mutual funds plus almost all certificates of deposit, if my memory serves.  Since the financial crisis, M3 has increased, but not at the same ridiculous rate as M0.

So, maybe an extra $1 trillion coin wouldn’t be the uber-disaster I would otherwise fear.  Though it doesn’t mean it’s at all desirable.

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4 responses

5 01 2013
Puggg

$2.7 trillion in money out there. What will it be when we dredge the bottom of fountains?

7 01 2013
Puggg

You’re probably still right that all this talk about a $1 trillion coin is SVNT. But I’m seeing a headline article about it complete with an artistic banner on Fox News’s website.

7 01 2013
countenance

Just took a look, and read the underlying article. I won’t link to it so as not to give the nuts the publicity they want. But…

(Unnamed nut) also claims the coin wouldn’t cause “massive inflation” anyway, “because we wouldn’t have a gigantic injection of new money” — just money Congress has already allocated.

Duh stupid, a budget allocation and money supply are two different things. Not just apples and oranges, more like apples and worms. You don’t need M0 to be anywhere close to your annual government budget. Like I said, the pre-FinCrash M0 was $800b. Was the planned Federal budget for FY08 far more than $800b? Yes. That unnamed nut should crack an econ book and learn about this amazing little concept called “velocity of money.”

The reason why unnamed nut is technically right in that “we wouldn’t have a giant injection of new money” is for the reason I stated in this post, because M0 has already been quantitatively eased to 3.375x pre-FinCrash.

8 01 2013
Tuesday Wrap-Up « Countenance Blog

[...] Krugman has shifted course and is now on the Trillion Dollar Coin Nutbar [...]




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