pull down to refresh

The Money Supply Continues its Biggest Collapse Since the Great Depression
15 sats \ 2 comments \ @Undisciplined 7 Dec 2023 econ
I have noticed gas prices are much lower than they had been, but shouldn't other prices be coming down noticeably if the money supply is shrinking so dramatically?
The Money Supply Continues its Biggest Collapse Since the Great Depression By Ryan McMaken "The money supply in October fell for the twelfth month in a row, and with the money supply now falling near or below negative 10 percent for the eighth month in a row. But the money supply is still up 32 percent since 2020."
write
preview
related posts
525 sats \ 1 reply \ @Voldemort 7 Dec 2023 freebie
If you believe MV = PY (M = circulating money, V = velocity of money, P = price level, and Y = income/gdp), then prices would necessarily come down if Y is unchanged.
Using MV = PY, it is very easy to see the inflation. Y (GDP) went dow, M (M2) went up, P (inflation) skyrocketed. I will never understand policy makers. I immediately messaged my friends about inflation when I heard the government was going to send checks to people during COVID.
Anyway, It is entirely possible that the reduction in M2 will lead to a price decrease. Alternatively, it could lead to reduction in GDP or a combination of both. Gas has already come down. If P comes down, I would expect it to be seen in leisure goods like hotels and durable goods like cars/appliances first.
https://m.stacker.news/7201
reply
0 sats \ 0 replies \ @Undisciplined OP 8 Dec 2023
Good point about price heterogeneity. My family mostly buys recession stuff anyway, so our consumption bundle isn't likely to see major price declines even if "the price level" comes down.
As an aside, I don't believe MV = PY, because I don't think most of the variables are conceptually well defined. However, one of my favorite sayings is "All models are wrong, but some models are useful." and I do think that can be a useful model.
reply