Economics Questions

Re: Non correspondence between CPI and money supply growth.

Think Blue — Mon, 25 Jan 2010 00:17:21 GMT

bandodger:

<comment by bandodger>

Uhm, you still don't understand the concept, do you. By the way drsteelwood, are you also user 33n119w? <Mod Edit: yes he is the ban-dodger>

Even if you don't accept the concept, how exactly is using a "what-if" scenario considered lying?

Re: Non correspondence between CPI and money supply growth.

Think Blue — Sun, 24 Jan 2010 18:46:37 GMT

bandodger:

<comment by bandodger>

Heh. I doubt you're even aware what a counterfactual is, but I'm going to help you out here:

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

Re: Non correspondence between CPI and money supply growth.

scineram — Sun, 24 Jan 2010 15:16:44 GMT

The money supply exceeding the demand for it is the usual definition.

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 14:18:11 GMT

"You can't accurately measure inflation in a meaningful way. "

if you mean inflation as the increase of govt forms of currency....i expect it can be measured pretty close.

many at mises/lrc have called this type of inflation harmful. i assume they arent lying..but i check into it.

you can measure the amount of air that goes into balloon or tire and that seems meaningful.

did you have another meaning for inflation in mind?

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 14:13:15 GMT

There is also a counterfactual problem.

usually in the form of people lying.

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 14:08:12 GMT

i dont know exactly what money measure most directly affect prices.

on would almost think that m3 or the largest measure available would be the one to use.

if the distant money measures are the ones that basically support institutions that have the greatest effect on commodites, transport networks and vital goods and somehow count as assets or as a method of determing financial 'soundness' or investability , while the correlation between the cpi and money supply probably does not exist in any meaningful form....the broad money measure could likely have the greatest effect on prices.

there is 925 billion of currency in circulation and ten times that in other money measures (if correct).

www.economagic.com

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 13:52:35 GMT

as for savings accounts...every one i have ever had let me pretty much withdraw when i wanted...a monthly charge and a small penalty beyond 5 or 8 withdraws - or so.

so to say that they shouldnt be included as money seems wrong.

i used to specifically use my savings account as a money source.

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 13:49:02 GMT

does the time deposit that exists now contain money not accounted for in m1?

again, if i write a check from m1 checking account into an m2 CD is m1 affected?

ie....100 dollars in m1 check account - 50 dollar check written to create CD account - checking account reduced by 50 dollars (m1 is changed here how?) - now there is a 50 dollar CD in existence - 50 dollars in CD is lent in the form of a check - 50 dollar check goes into some other m1 checking account.

i make early withdraw and get penalized 10 percent and get CD check for 40 dollars....from where?

in what way does the CD included in the m2 money measure get counted as beyond m1? is it the fact that contractually the CD 'funds" can be claimed or demanded - though wth penalty or at a discount of sorts?? is this what makes the m2 classification valid?

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 13:22:41 GMT

in our fiat system, it's all fiduciary media really...

do you make a distinction between a physical dollar bill/coins and the fractional reserve 'dollar'?

i mean by frb dollar.....the claimed ~10 percent cash reserve on accounts and what makes up the rest?

Re: Non correspondence between CPI and money supply growth.

Anonymous — Sun, 24 Jan 2010 13:18:29 GMT

Of course, our system...

you mean the united states and the federal reserve and commcercial bank bank system??

Re: Non correspondence between CPI and money supply growth.

Think Blue — Sat, 23 Jan 2010 07:58:14 GMT

There is also a counterfactual problem. If the money supply were to increase by 10% in one year, while the CPI remained at 0% the same time period, this does not necessarily mean a lack of correlation. For all we know, in an alternate history, if the money supply remained unchanged at 0%, the CPI would had dropped -10%.

In this time line, the money supply and the CPI variables would be observable, while the alternate condition for the same two variables would not be observable.

Because there is no increase in the price level, does not necessarily mean a lack of inflation.

Re: Non correspondence between CPI and money supply growth.

ladyattis — Fri, 22 Jan 2010 23:22:32 GMT

The problem with the CPI is that what gets measured and how it is measured are changed *ALL THE TIME.* When my mom was raising my sister housing prices were strictly measured in the CPI and thus inflation was noticed, yet now after the Housing Bubble no one that took care of the CPI ever remarked at the inflation of credit which lead to said bubble. Fancy that...

Re: Non correspondence between CPI and money supply growth.

krazy kaju — Fri, 22 Jan 2010 23:02:43 GMT

First of all, there is lag between money supply growth and CPI.

Secondly, the definition of CPI has changed multiple times over the years to include goods that haven't been included before, exclude goods that were included before, and change the measurement of price changed of other goods, whereas the definition of M3 has always remained the same.

Lastly, it simply isn't possible to accurately measure price changes, due to a dynamic market. How will you measure the price changes for computers, for example? My laptop has more computing power than some supercomputers did in the 1980s. How would you measure that? You would have to measure the increased utility (itself an impossibility to measure) from smaller computers and the fall in prices simultaneously.

Re: Non correspondence between CPI and money supply growth.

meambobbo — Fri, 22 Jan 2010 22:39:56 GMT

33n119w:
do the money market funds and large time deposits mostly get opened or filled with bank credit or fiduciary media?

Bank loans have two sides. The banks get a contract for repayment plus interest, and seizes some collateral upon failure. The borrower gets MONEY. In our fiat system, it's all fiduciary media really...

The bank might be able to sell the loan contract legally, but it's not money. The bank would likely sell it for money. Additionally, few would accept it in exchange for another good, particularly a non-financial good. This is the difference between credit and money. Of course, our system tries to conflate the two.

The borrower can of course spend the money. Whoever receives that money might deposit in a bank as a time deposit. This is the opposite - the depositor holds the credit contract, and the bank can spend the money. They will likely loan it, but conversely they could use it to partially fund their daily operations.

The depositor can try to spend his time deposit, but it would be difficult. More likely, he would trade it for cash. Banks often have the most favorable terms to do so. Small time deposits can be withdrawn without penalty I believe. Large ones might be more difficult, but like the small ones, I believe they are insured by the FDIC.

One of the main differences between credit and money is that credit carries some risk. The main difference is that credit is entitlement to a future good, whereas money is a present good. Insurance and regulations basically remove these elements from certain forms of credit, which makes them more liquid and in some instances useful for indirect exchange.

Market funds are not money, nor are they credit. They are current ownership of a large group of corporate stocks and bonds, managed by a third party. When you buy a fund, you are giving money to the fund managers, who use the money to buy stocks and bonds on the market. No money is created or removed from circulation.

Market funds are designed to constantly yield a positive return, while being liquid. The thing is the funds are not equal. They are not commodities. Individuals will necessarily prefer some funds over others - from a standpoint of risk vs. reward. Thus, there is no common unit of account and using them as common money would prove very difficult.

Yet, since there is an external unit of account, and the funds are quite liquid, they are somewhat suitable for exchange among larger, more financial-savvy institutions.

However, again, government has interfered and backed many such funds in the recent crisis. We should expect to see moral hazard from this. I would expect funds to start taking more risk and offering greater rewards, and more people will start using them like checking accounts, given that there is little risk of loss. Still, I could not see funds start simply transferring ownership of portfolios as payments. More likely they would liquidate some of one portfolio and spend the money on the preferred portfolio of the client - this retains demand for money and does not distort economic calculation.

33n119w:
by not including them, do money supply figures leave off a vast amount of fractional credit creation....credit that is serving some purpose but not entirely as liquid as a checking account?

Well, that's the debate, right? That's why we have M1, M2, M3, MZM, TMS, AMS, M', etc. The Fed also reports on the amounts of consumer, real estate, commercial credit, etc. How much of deposits or other accounts could be considered loans to the bank? If I keep at least $100 in my checking account for a year, is this a loan to the bank?

As De Soto says, loans typically earn interest, have a term, and bear some risk. In real terms, bank deposits do not earn interest, and they have no term, and the government insures them against risk. So are they money? Only if they can be used for common indirect exchange. Now we have to define "common" and "indirect"...

Re: Non correspondence between CPI and money supply growth.

Anonymous — Fri, 22 Jan 2010 19:02:27 GMT

Global supply rose 270 kb/d in December to 86.2 mb/d, on both higher OPEC and non-OPEC output.

Forecast global oil demand remains virtually unchanged at 84.9 mb/d in 2009 (-1.5% or -1.3 mb/d year-on-year) and 86.3 mb/d in 2010 (+1.7% or +1.4 mb/d versus the previous year)

http://omrpublic.iea.org/

if global oil demand has stayed flat and the supply has risen...why are there spikes in commodity prices - as claimed by peesuric? if massive amounts of central bank pumpign was going into projects it woud seem that global oil demand would be pushing upward to. but accordign to the above info (if true) it hasnt. all the while supply increased.