[roenxi]

> ...but this effect is very small in aggregate.

The monetary base grew by 25% and velocity of money is approaching 1.0. That isn't small, someone has an insane amount of money staring them in the face and they've done nothing to justify it.

This rather undermines the argument that the 2% inflation target is really there for the benefit of the bystanders. It looks like it is mainly for the benefit of the people enjoying the Cantillion effect.

Unless I suppose all the poor and middle-class people in the US are suddenly wealthy, I suppose. I havn't been keeping up with the stats in the last 6 months.

[arcticbull]

Please cite your source as to why you think there's one person or a group who's disproportionately benefitting and has a huge stash of new money over the last year. Who are they? This is just pure speculation. Do you have a study which quantifies the Canitillon effect?

Likely many people are saving a little bit of extra money because the whole COVID situation is pretty nuts and it's leaving people scared. This has reduced velocity, and printing made up for it. More than likely it's everyone who saved a little extra for the rainy day fund, and everyone got a little extra stimulus.

JPow didn't just walk up to some guy on the street and hand him a check for 25% of the entire US M2 money supply, that's not how this works, and further, concentrated wealth positions like that decrease velocity! That's the effect the Fed is trying to counter! To increase velocity the money has to be disbursed.

There's a case to be made in [1] (Sumner) that the Cantillon effect, while it exists, is irrelevant as it doesn't really matter who gets the money first.

[1] https://mises.org/library/note-some-recent-misinterpretation...

[roenxi]

> This is just pure speculation.

It is the pigeonhole principle. The M2 has gone up by ~25% [0] and population has gone up by about 0.6%. At a given moment someone must control around 25% more dollars, and probably more assuming a quite dis-equal distribution of the new money. Unless the US is bailing out foreigners, I suppose. Doesn't seem like a winning strategy if they want to drive up monetary velocity though.

Probably shareholders are the winners here, if I were going to speculate. It is a bit silly and it doesn't help anyone.

[0] https://fred.stlouisfed.org/series/M2

[rojeee]

M1 can _only_ be held by commercial banks. The banks _only_ use this money to settle transactions between themselves and as eligible reserves. The money isn't used to buy stocks or bonds or whatever. The purpose of an increase in M1 money supply is to incentivise the commercial banks to lend more.

It's not the case that some person has more money because M1 has gone up! Instead, what happens is that as the banks are more willing to lend, people will be able to get credit easier, so more people borrow and that's how money that you and I can use (I assume hardly anyone uses notes and coins anymore) enters the economy. If the banks don't lend because there is no demand for credit, then the increase in M1 has little to no impact on the aggregate money supply. You can see that M1 increased by 25% over the year. Bank deposits only increased by 15% over the year, implying that the increase in M1 didn't have as much as an effect on bank credit as you might imagine.

[arcticbull]

You haven't cited any evidence, you're just speculating.

[roenxi]

It is a mathematical certainty that if the monetary supply went up by 25%, someone has to have 25% more money in an account somewhere.

I'm not sure where this 'no evidence' accusation comes from. It isn't in contention that the monetary supply went up 25%, the population isn't growing at anything near that sort of rate. There aren't many ways to make that work out, mathematically, unless someone (realistically, quite a few someone) have 25% more dollars in an account.

[arcticbull]

What you haven't provided any explanation of is why you think there's a small group of people that suddenly have 25% more money scot free. Read rojeee's explanation above. The burden of proof is on you. That's simply not how it works.

[roenxi]

Inflation is what, 2%? And the velocity of money is around 1. It is hardly speculation to say that the typical doesn't-save consumer hasn't got 25% more money in their account. Someone does.

If you're talking about the "M1 can _only_ be held..." comment, rojeee is wrong. M1 includes physical currency [0], so entities other than commercial banks can hold it. If I substitute M2 for M1 the point is still indecipherable. Eg - "the increase in M1 has little to no impact on the aggregate money supply" - as far as I'm concerned the M2 is the monetary supply so that makes no sense.

> The burden of proof is on you.

M2 went up 25%, Pidgeonhole principle: someone's account is up 25%. Inflation went up 2%: it isn't ordinary consumers. QED.

[0] https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...

[rojeee]

> The monetary base grew by 25% and velocity of money is approaching 1.0. That isn't small, someone has an insane amount of money staring them in the face and they've done nothing to justify it.

Remember that when the FED conducts open market operations to buy securities, what they are doing is swapping central bank reserves for securities. Only banks can participate in this process because only banks can hold central bank reserves. That money doesn't necessarily filter down to us and if it does, it takes a while. I guess that's where the Cantillion effect comes in, apparently. But banks don't just take that money and buy stocks... That's not how it works. The reserves sit on their balance sheet and they are used to settle transactions between banks. The reserves are also make up part of the bank's eligible capital. It is expected that banks awash in central bank reserves are better placed to lend/create credit because of the more favourable financial position and in this chart [0] you can see that M2 money supply (central bank reserves + bank deposits) has increased since the FED start conducting open market operations, which is the desired effect. The M2 money supply has increased because more people like you and me (and companies) are borrowing money to finance purchases.

edit: Amusingly, just realised that I made a logic error in the last sentence above. M2 includes M1 so presumably much of the increase in that chart is an increase in M1. This link [1] better shows what is going on. You can see the increase in M1 but there is also an increase in M2 throughout 2020. You can calculate this yourself by subtracting the number in the M1 column from the number in the M2 column and observe a modest increase - about 15% from Jan 2020 to December 2020. Presumably this is because of the sustained low short term rates and the increase in the M1 money supply via quantitative easing.

[0] https://fred.stlouisfed.org/series/M2

[1] https://www.federalreserve.gov/releases/h6/current/default.h...