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Qunatitative easing
I buy a $6/year income stream for $100. Ergo the interest rate is 6%. But the Fed doesn’t want my money tied up in that bond. It wants me to go out and buy things I do not want under free market conditions. I prints $110 and gives it to me for my $100 bond. I do This voluntary there is no force or compulsion involved,
The interest rate on these bonds was 6% but it is now 5.45%. The long end of the yield curve has gone down. The Fed is making $6 per year “money-in.”
Agreed so far?
The sum total of all that printing and all that bond buying is illustrated below. In a few short weeks the Fed printed-up a lot more money than every Fed combined in the entire history of the US.
Still agreed?
@7426k sorry. I fixed the atrocious spelling. 
Wooh look at that money machine go right after 2020.
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This spike in M1 is driven by two factors: One is the obvious increase in money supply related to COVID response. More importantly, however, the Fed’s definition of M1 changed in May of 2020 (terrible timing, I agree!). The change pulled large amounts of the M2 into the M1 - as can be seen by the fact that the relationship between the M1 and M2 changed dramatically:
Here is a FRED Blog post about it. Sidebar: How did the world exist before FRED?Savings are now more liquid and part of “M1 money” | FRED Blog.
Which is not to say the rest of your comments are incorrect. There’s a lot of truth in there to my way of thinking (though I may frame it differently). I’ll come back to that when I have some more time over the weekend.
Great to have an informed and entertaining discussion with you again!
Placing M2 and M1 on th same chart does not seem to provide an accurate representation of M2.
Here is M2 alone:
And here is M2 relative to GDP:
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Either way, that is a unprecendent increase. The Fed now owns a ton of bonds on its balance sheet and is making a ton of income. Hmm, so why is it taking net loss after net loss?
Because on the other end it is giving away an even bigger amount to banks. Why would it do that if banks are sturdy and the economy is good?
It “gives it away to banks” because it now pays interest on bank savings accounts (IORB). When “interest rates are high” it pays higher amounts, of course, because the IORB is higher. As interest rates fall (see today!), the amount they pay will be reduced. This didn’t add much to bank reserves between the time it started circa 2009 and the pandemic because the IORB was almost zero, almost all the time.
I think the bump in M2 is the same on both charts. I It’s just an axis problem. The M2 chart(s) certainly make inflation clear, as well as the steep increase in rates that absorbed those increases.
Just one program.
Banks get to lie on their balance sheets and pretend their long-term holdings are worth more than they really are.
They then lend those over-stated assets to the Fed, and the Fed gives them free money to keep them afloat.
$618b and rising. It’s not the size of the lump that kills you. I am not concerned about the total amount, but the fact that it exists at significant levels shows there is trouble out there.
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Why are they doing this if there is no problem?
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Comedian is a conceptual art piece by Italian artist Maurizio Cattelan that consists of a banana duct-taped to a wall:
- The piece is a banana duct-taped to a white wall with silver duct tape
- The first edition of the piece sold for $120,000 at Art Basel Miami.
- In November 2024, It sold again for $6.2 million at a Sotheby’s auction in New York.
