If M0 increases but M1,M2,M3 decreases, is that inflation or deflation?

See here for the definition of True Money Supply: http://mises.org/content/nofed/chart.aspx?series=TMS

i have seen disagreements on the definition of inflation posted here and elsewhere. 

i have read a hayek excerpt that calls any increase in money supply inflation. 

an increase m0, which i assume you to mean as paper dollars and coins, according to hayek,   would be inflation.  a reduction in m1 and the other Ms that are composed of dollar (or whatever money unit)  credits to me would be a reduction in credit...and which many in rothbard land would call deflation.  i am pretty sure that would also be considered deflation to hayek as well. 

you may look at it as a whole. 

or when m0 inflates but m1 and friends deflate you can say that currency was inflated but currency-credit was deflated for specificity.

 

 

 

 

 

 

Hm... I thought MZM would be accurate.  I'll have to read about this TMS to find out the differences.

"Money of zero maturity is a measure of the money supply. It is equal to M2 less time deposits, plus all money market funds. It measures the supply of financial assets redeemable at par on demand."

http://en.wikipedia.org/wiki/Money_with_zero_maturity

 

if you think you need to study your tms more.

 

if mzm is true it sounds like m1 plus money market funds...i was told that m1, the checking account portion, contained money that may not be redeemable on demand.  rather a form of credit is nearly always redeemable.

for instance  "in most legal systems, a demand deposit at a bank (e.g. a checking or savings account) is considered a loan to the bank (instead of a bailment) repayable on demand..........If all the depositors of a bank did so (demand) at the same time a bank run would occur, and the bank would likely collapse."

http://en.wikipedia.org/wiki/Fractional-reserve_banking

wikipedia may be wrong.

maybe that will help you and your tms studies.

the post question was if m0 increases yet other M(oney)s decrease....what is that called? 

i dont consider a dollar and a credit-dollar the same.  so my explanation was that there would be M0 (money, iow) inflation and credit deflation. 

 

 

About MZM and TMS. It is interesting that if you go to Mises Economic Data page and draw the historical series of MZM and TMS, you will immediately see that MZM was TMS until early 1980s, when some money market regulations were changed (since then, MZM has increased around 9 % annually and TMS around 7 %). I think that large part of the difference from there onward is caused because TMS doesn't count MMMFs as money because, according to mises.org economic data section, "MMMF shares are excluded from TMS precisely because they represent equity shares in a portfolio of highly liquid, short-term investments which must be sold in exchange for money before such shares can be redeemed." Every Austrian doesn't agree about exclusion of MMMFs. Stefan Karlsson, for instance, defends the position that holdings of MMMF are money de facto because "you can use your holdings in them as a means of payment by for example writing a check on the ground that when you write a check you instruct the fund to sell assets and then the money is transferred to the holder of the check and so money is only transferred, not created." Roger Garrison and Mark Thornton have also found MZM most relevant in some of their writings, but that may be simply because data on MZM is zillion times more easy to access that data on TMS, and because both tend to move in the same direction even in the short run. here is Mises.org economic data page http://mises.org/content/nofed/chart.aspx?series=TMS and here Stefan Karlsson's blog which I highly recommend. http://stefanmikarlsson.blogspot.com/2007/09/how-should-money-supply-be-defined.html

arent all dollars are printed on 'different' pieces of paper?   or are the other Ms a differnt type of dollar?

ie, the treasury/fed/mint make dollars with series numbers, coins etc. but  banks make dollars that are.....readings on a  printed out bank statement???

 

sthomper:

or when m0 inflates but m1 and friends deflate you can say that currency was inflated but currency-credit was deflated for specificity.

I agree.  In fact I think it would be much better if the money supply was defined as M0 only. Basically I think it should be the equivalent of the quantity of gold if we were on a gold standard. If we were on a true gold standard the money supply would be the physical quantity of gold, correct? Not some complicated formula that looks at demand deposits and checking accounts and all that other crap. And it would clear up some misconceptions.

For example the argument is always made that Japan increased their money supply but did not have prices rise. But from what I've read they lowered interest rates, borrowed and stimulated but did NOT print money. Therefore the true money supply did NOT increase and that's one reason they did not see prices rise.

Another argument is that money can be printed with no negative effect because it is merely replacing the credit that was lost. The logic is that since the money supply was lowered from the loss in credit we can make up for it by printing. But this is wrong because the TRUE money supply was not lowered by the loss in credit.

Here's a summary of "how it makes sense to me" :

M0, monetary base or money stock is the true money supply, the sum of all paper bills. The equivalent of the quantity of gold if we were on a gold standard.

An increase in the true money supply (M0) will result in a permanent rise in prices, all things being equal.

An increase in credit (M1,M2,M3) will result in a temporary rise in prices (a bubble), all things being equal.

An increase in the true money supply is probably more damaging since it is a permanent loss in the value of the dollar.

 

 

 

 

 

 

 

 

sthomper:

arent all dollars are printed on 'different' pieces of paper?   or are the other Ms a differnt type of dollar?

ie, the treasury/fed/mint make dollars with series numbers, coins etc. but  banks make dollars that are.....readings on a  printed out bank statement???

 

Most of the time they don't even print it out. It's just numbers on a computer. You can think of a paper dollar as a printed out bank statement.

Dollars are Federal Reserve Notes. Cents are coins. The rest of Mwhatever are dollar denominated assets.

> If M0 increases but M1,M2,M3 decreases, is that inflation or deflation?

I think that depends who you ask. I don't think you will get a unanimous verdict on that one.

> Personally I think M0 is the "true" money supply because it is more or less permanent.

Maybe "true" but according to "The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics" in the UK M0 represents only 3% of the total money supply (is that M3 or M4? I can't remember). So a doubling of M0 would not have as dramatic an effect of the cost of goods in shops as one might have expected, at least in the short term... but what will then happen in the longer term is another (more complex) issue.

 

i was looking at economagic.com and

for 2006 to 2007 the adjusted money base in usa (which i understand to be mostly comprised of 'hard money'  bills and coinage, iow) - went from 828 billion to about 848 billion dollars.  a yearly addition of 20 billion dollars of currency.  if i have the money definition correct, that is.

m2 ( i was told was a money supply containing a fair amount of credit-dollars) during the same period went from about 6750 billion to 7100 billion dollars.  minus 20 billion dollars in currency, that seems to me to be about 330 billion dollar addition in the 'M-moneys' at the end of the year.

so if i have this right (and if the info i have read is true), there was a 20 billion dollar increase in currency and 330 billion dollar increase in credit (i guess pyramided on the increase in currency). 

i guess it is the disparity between plain old money (albeit govt paper money) increases and the pyramided-credit formulas that extend from the base-money that so-called austrians link to the described business cycle.

i am still unclear on many of the money-prices-goods issues.

 

 

mickanomics:

Maybe "true" but according to "The Grip of Death: A Study of Modern Money, Debt Slavery and Destructive Economics" in the UK M0 represents only 3% of the total money supply (is that M3 or M4? I can't remember). So a doubling of M0 would not have as dramatic an effect of the cost of goods in shops as one might have expected, at least in the short term... but what will then happen in the longer term is another (more complex) issue.

But I think M1,M2,M3 are all derived from multiplying M0. All things being equal doubling M0 should make prices double.

If credit (M1,M2,M3) and money printing (M0) were the same thing you could print all the money you wanted to replace loans in default. That violates the basic economic law of getting something for nothing.