[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...