US Monetary Supply

[Ivan Shatov]

Reaching the limits of my understanding of what money is.

The current healthcare / economic crisis is being described as a crisis of liquidity. The Hoover Institute did a video interview with Kevin Warsh, who basically endorses this view.

The Fed printed $6T in new bills that is entering the monetary supply and the US GDP was around $20T last year. Doesn't that mean everything is worth 30% (or 23%) less than it was a month ago? Or does it mean assets will depreciate at some point in the future? Or does it mean nothing changes?

Put more simply, what is the relationship between the value of an asset and the monetary supply? Isn't money supposed to represent purchasing power, doesn't the existence of more of it decrease the value of all assets?

 

[A Cardboard Box]

The only reason printing new money causes inflation like that is if people don't buy it. That's why they printed new money.

The USD is the most reliably stable currency in the world, so when the global economy took a shit everyone dumped their local currencies to buy up USDs because they knew it would weather the storm, which caused a liquidity crisis because there were no more dollars to go around. Because of this the Fed printed a shit ton of money that was effectively sold before it was even printed. There is no inflation crisis because it wasn't like everyone just got an extra 30% of their current money, there are just more people with US Dollars.

In fact the USD has gained a significant amount of strength since this started.

 

[Ivan Shatov]

The only reason printing new money causes inflation like that is if people don't buy it. That's why they printed new money.

The USD is the most reliably stable currency in the world, so when the global economy took a shit everyone dumped their local currencies to buy up USDs because they knew it would weather the storm, which caused a liquidity crisis because there were no more dollars to go around. Because of this the Fed printed a shit ton of money that was effectively sold before it was even printed. There is no inflation crisis because it wasn't like everyone just got an extra 30% of their current money, there are just more people with US Dollars.

In fact the USD has gained a significant amount of strength since this started.

Yeah, they just announced the value of the USD and AUD both increased 1%.

Doesn't the release of new currency represent economic expansion?

I get that the money is already accounted for, what I don't get is how supply relates to real world value. If there's 100,000 units of currency in the world, and I own something that is worth 25 of those units, it's value could be expressed as 0.00025% of the total supply. If we suddenly double the total supply, the value would now be half that amount measured as a part of the total.

Pretty sure the example I just gave doesn't represent the actual function of money relative to total supply, or that the share is simply insignificant relative to the whole. Would appreciate it if someone could explain how I'm wrong.

 

[A Cardboard Box]

Yeah, they just announced the value of the USD and AUD both increased 1%.

Doesn't the release of new currency represent economic expansion?

I get that the money is already accounted for, what I don't get is how supply relates to real world value. If there's 100,000 units of currency in the world, and I own something that is worth 25 of those units, it's value could be expressed as 0.00025% of the total supply. If we suddenly double the total supply, the value would now be half that amount measured as a part of the total.

Pretty sure the example I just gave doesn't represent the actual function of money relative to total supply, or that the share is simply insignificant relative to the whole. Would appreciate it if someone could explain how I'm wrong.

Price is determined by supply and demand, it is totally irrelevant in regards to total money supply.

 

[Your Weird Fetish]

Price is determined by supply and demand, it is totally irrelevant in regards to total money supply.

Is not money itself affected by supply and demand?

 

[A Cardboard Box]

Is not money itself affected by supply and demand?

Yes.

 

[Ivan Shatov]

Is not money itself affected by supply and demand? - Yes.

So a dollar is only worth a dollar if someone else will exchange other currencies for it at that value. Is that what we're saying?

 

[Y2K Baby]

America is the global paypig.

 

[Your Weird Fetish]

So a dollar is only worth a dollar if someone else will exchange other currencies for it at that value. Is that what we're saying?

How can value be real if our money isn't real?

 

[Niggernerd]

How can value be real if our money isn't real?

Theres an easy test. Throw it around the wailing wall and see how feral gods chosen peoples get. If they rub their hands it's good to go.

 

[Consenticles]

The only reason printing new money causes inflation like that is if people don't buy it. That's why they printed new money.

The USD is the most reliably stable currency in the world, so when the global economy took a shit everyone dumped their local currencies to buy up USDs because they knew it would weather the storm, which caused a liquidity crisis because there were no more dollars to go around. Because of this the Fed printed a shit ton of money that was effectively sold before it was even printed. There is no inflation crisis because it wasn't like everyone just got an extra 30% of their current money, there are just more people with US Dollars.

In fact the USD has gained a significant amount of strength since this started.

Cant stress enough how great of a post this is.

Destroys the commie argument that adding more money to the economy lessens the value. Just common sense here. I wish I could give you reddit gold, but alas, we are not faggots who use reddit.

 

[A Cardboard Box]

So a dollar is only worth a dollar if someone else will exchange other currencies for it at that value. Is that what we're saying?

Fiat currency is fickle. Money works because people believe it works. A federal reserve note is basically a piece of paper saying the government promises that the dollar is worth a dollar, and that the government is good for that dollar. Everyone agrees the government is good for it so it works.

Edit: currency strength is relative. A strong dollar means it is stronger relative to other currencies. Basically other countries would prefer to have dollars over the Congolese Seashell or whatever so they will sell more goods to get fewer dollars. This is both good and bad. A strong currency means it is cheaper to buy goods and your citizens can afford cheap consumer products. It is bad because having a strong currency means other countries will have to pay relatively more for goods produced in your country. This is why China artificially devalues its currency: because their entire economy is based around selling shit. This is also why the US carefully controls how many T-Bills (Treasury Bills, basically these are what people are buying when they are buying "dollars." They are not literally buying dollars they are buying T-Bills which represent dollars) are in circulation. Too few and the dollar goes on a tear and countries that are regular importers of American goods like Japan and Europe will buy less shit or buy alternative shit. Too many and the US dollar will deflate and Americans will end up paying more for consumer goods which is bad for consumer confidence and the economy. There's a happy medium.

There's an economic warfare strategy called "running" a currency where you buy billions or even trillions in another currency over years and then sell it all at once, causing a surplus and heavily devaluing a currency overnight, because supply outstrips demand. The good thing about the US being number one means that 1. The USD will always be in demand and 2. Other countries want to sell shit to the US so they will absorb the shock by buying up excess T-Bills even if they don't want them just so the US dollar remains strong and they can continue to sell shit to us. In the mid 80s China did just this by dumping $100 billion (like half a trillion today) into the open market in minutes in an attempt to fuck the US, and Japan bought them all up because the Japanese economy was virtually based around selling us shit and if the dollar collapsed the US wouldn't buy their shit.

 

[Y2K Baby]

Cant stress enough how great of a post this is.

Destroys the commie argument that adding more money to the economy lessens the value. Just common sense here. I wish I could give you reddit gold, but alas, we are not faggots who use reddit.

Shut up, pinko.

 

[Another Pretty Kiwi User]

Price is determined by supply and demand, it is totally irrelevant in regards to total money supply.

So, basically, if everyone believes really hard in the power of the dollar, it will continue to rain down its holy blessings upon us!

 

[Ivan Shatov]

Fiat currency is fickle. Money works because people believe it works. A federal reserve note is basically a piece of paper saying the government promises that the dollar is worth a dollar, and that the government is good for that dollar. Everyone agrees the government is good for it so it works.

Edit: currency strength is relative. A strong dollar means it is stronger relative to other currencies. Basically other countries would prefer to have dollars over the Congolese Seashell or whatever so they will sell more goods to get fewer dollars. This is both good and bad. A strong currency means it is cheaper to buy goods and your citizens can afford cheap consumer products. It is bad because having a strong currency means other countries will have to pay relatively more for goods produced in your country. This is why China artificially devalues its currency: because their entire economy is based around selling shit. This is also why the US carefully controls how many T-Bills (Treasury Bills, basically these are what people are buying when they are buying "dollars." They are not literally buying dollars they are buying T-Bills which represent dollars) are in circulation. Too few and the dollar goes on a tear and countries that are regular importers of American goods like Japan and Europe will buy less shit or buy alternative shit. Too many and the US dollar will deflate and Americans will end up paying more for consumer goods which is bad for consumer confidence and the economy. There's a happy medium.

There's an economic warfare strategy called "running" a currency where you buy billions or even trillions in another currency over years and then sell it all at once, causing a surplus and heavily devaluing a currency overnight, because supply outstrips demand. The good thing about the US being number one means that 1. The USD will always be in demand and 2. Other countries want to sell shit to the US so they will absorb the shock by buying up excess T-Bills even if they don't want them just so the US dollar remains strong and they can continue to sell shit to us. In the mid 80s China did just this by dumping $100 billion (like half a trillion today) into the open market in minutes in an attempt to fuck the US, and Japan bought them all up because the Japanese economy was virtually based around selling us shit and if the dollar collapsed the US wouldn't buy their shit.

What a fascinating explanation. Everything I knew about economics was wrong.

 

[Lemmingwise]

Cant stress enough how great of a post this is.

Destroys the commie argument that adding more money to the economy lessens the value. Just common sense here. I wish I could give you reddit gold, but alas, we are not faggots who use reddit.

It's just more borrowing. As soon as they start selling dollars inflation will go up heavily. That ability to inflate american dollar more and more is put into foreign hands.

Nothing to worry about, I'm sure.

 

[Your Weird Fetish]

All these posts just amount to value isn't real but civilization chases some strange consensus-value for every single exchange that it can never actually reach. Money is how we measure this imaginary value we can't get. But since people just cannot NOT trade shit, it becomes subjected to the same forces it's trying to measure.

 

[Mad Asshatter]

It prints new money, while taking old, worn bills out of circulation. So while it might have made 'more,' the total amount probably didn't increase all that much.