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> US money supply more than doubled, but the balance in most people's bank accounts and wallets didn't double. The doubling went to actors who don't spend it, driving velocity down.

Note that this was done in response to the velocity going down for reasons unrelated to the money supply, and largely because the government completely dropped the ball on fiscal stimulus so the central bank was left pushing the one lever it has, even though the circumstances were such that that lever was obviously not well suited to move the economy in the intended direction.

Personally I think this is fairly obvious too. If the government prints a whole bunch of dollars and gives them to somebody who will just put them in a Scrooge McDuck vault so that they can dive in to them the net impact on inflation will be nil.

Less obvious is the strong dampening effect that industrial slack has on inflation. Printing more dollars can mean more cars get shifted off the lot instead of the same cars going for a higher price.

Yes, agree that it gets way more complicated. But the point remains that nobody has control over the supply lever with a cryptocurrency, and that causes problems for the value of the currency.

> M0 quadrupled in 10 years: https://imgur.com/a/L9mDx

Presumably the demand and market forces have changed for the dollar in that time. If the central bank doubled the supply in one day, don't you think that would have an (approximately) halving impact on the value?

Here's a way to think about it using simple identities.

1) Nominal GDP = Money Spent

2) Nominal GDP = Price Level * Real GDP

3) Money Spent = Money Supply * Velocity

Therefore

4) Price Level * Real GDP = Money Supply * Velocity

So if supply doubles but velocity halves while real GDP remains constant, then there's no effect on prices.

Economists call this "pushing on a string".

The Federal Reserve increases the money supply when it buys securities like Treasury bonds and collateralized mortgages.

This puts more money in the hands of banks, brokers, and wealthy investors who used to own Treasury bonds and collateralized mortgages and now they own money instead.

Banks, brokerages and wealthy investors don't spend money as fast as regular people do. The money sits idle in savings and bank reserves.

That drives the velocity of money down as supply increases, and it's exactly what happened over the last 10 years: https://imgur.com/a/dtVJq

As M2 supply doubled, velocity dropped a lot. That's why the value of a dollar didn't halve even though the supply doubled, tripled, or quadrupled depending how you measure it.

So, would that mean, if this low velocity money where to engage with crypto currencies, it would be distributed to regular people who would actually spend it? Enabling the equivalent of helicopter money?

So if the Fed was somehow able to increase money supply by getting money into the hands of the average consumer rather than wealthy individual and institutional bond holders, monetary policy would be more effective?

Monetary policy is just not that effective, overall. The Fed is not putting money into anyone's hands. It's just making bank balance sheets replace higher-interest paying asserts (Treasury bonds) with lower-interest paying assets (bank reserves) in the hopes that more lending will happen. But it won't. Fiscal policy is necessary. http://neweconomicperspectives.org/2012/01/mmp-blog-31-funct...

But that's not an answer to my question. I'm asking if - regardless of how policy is being executed now - money were distributed throughout the economy, would that accomplish the goals of monetary policy more effectively than the way it is traditionally carried out?

Distributing money to the economy = fiscal policy.

It does answer your question - what you're misundestanding is that "distributing money throughout the economy" is fiscal policy, not monetary policy. That's what the OP meant by "fiscal policy is necessary" and "the government dropped the ball on fiscal policy". The Federal Reserve, as a body, and monetary policy in general by extension, does not posses the tools to enact fiscal policies.

EDIT: oops didn't see OP already clarified.

But monetary policy is also injecting money into the economy. Both fiscal and monetary do this, but differ in two ways: the nature of the money injected and the way the injection is performed.

Monetary policy increases the money supply itself through the exchange of money for treasury bonds and relies on banks to distribute this "new" money, while fiscal policy redistributes money that already exists (previously collected through taxes) and gives it to active businesses through government purchases rather than to bond holding institutions.

The interpretation that banks distribute that money is wrong. Banks don't lend out reserves: https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_...

> getting money into the hands of the average consumer

That's basically fiscal policy, and was not implemented much after the initial Obama stimulus (or not at all in Europe, really, due to all the austerity rhetoric by very serious people).

It depends on who gets that pile of shiny new cash!

if they doubled money supply and distributed it 1 for 1 to all current dollar holders then in theory the expected price increases (inflation refers only to money supply amount, despite popular usage) would occur before any of the new dollars were spent into circulation.

if they doubled the money supply, evenly distributed it AND those new dollars were all spent at the same velocity then the expected price increase would certainly happen.

distribution & velocity are huge.

the ability of the new dollars to debase the old dollars only happens when they are spent into the economy.

the first parties to get and spend the new dollars receive the benefit side of inflation/price increases.

these bankers and economists will try to take credit for anything that has a positive twist to it, statistically speaking, but dont be fooled the central banks have very few tools and common sense + gut instinct is your friend when you're living underneath a government instituting financial repression (macroprudental policy).

If they doubled money supply and distributed 1 for 1 to all current dollar holders, lots of debt would get immediately paid off. Unless you are also proposing doubling everyone's debts. But, if not, then this will cause "debt deflation" rather than the inflation you are postulating.

Would debt be immediately paid off though? Would people be able to, considering the overall price increases? And if so, how long until they’re in debt again because they can’t keep up with increased prices (since they spent their printed money to pay their debt?)

> Would debt be immediately paid off though?

Yes. We all know a lot of people with mortgages, student debt, and credit card debt, who if suddenly given a government handout that would double their savings, would immediately pay off their debts. But I can't claim that all debts would be paid.

> Would people be able to, considering the overall price increases?

Of course people would be able to pay off their current balance if you hand them money. What do price increases have to do with this? Prices may go up (or may not), but your current balance on your mortgage and your credit card bill do not. And if people anticipate interest rates going up, that motivates them to pay it off sooner rather than later. But note that there is a lot of fixed-rate debt out there (like mortgages) not affected by interest rate hikes.

> And if so, how long until they’re in debt again because they can’t keep up with increased prices (since they spent their printed money to pay their debt?)

You keep assuming that prices would go up. Prices are determined by supply and demand. It has been claimed on this thread that prices will go up exactly 2x, but this claim has not been substantiated whatsoever. One potential mechanism for this would be a substantial increase in aggregate demand, as a result of the handout, but much of the money would go into paying off debt instead. This is called "debt deflation". So prices might not go up nearly as much as you are claiming they would.

I think that you'll find the author meant that if the number of dollars doubled, with all else held the same, that the currency would go down by roughly half.

M0 doubling over ten years is not surprising if the underlying wealth that it measures also doubled, and doubling in ten years is on the right order of magnitude.

Of course, there are also other factors at play, so it would be unlikely to map exactly to the inverse of supply, but as a good rough first order approximation, it works OK.

> suddenly double

Implying ceteris paribus -- all else held constant. Historical observations are generally not controlled experiments, as we only have one path through time.

> ceteris paribus

OK, so walk us through it. What are the mechanics that transmit the money supply increase to wages and prices?

If the money supply instantly doubled by magically changing Treasury bonds and collateralized mortgages into cash, what would happen?

Cash balances would go up for banks, brokerages and wealthy investors but cash balances would stay the same for most people who don't own these securities.

Would that cause an instant doubling of wages and prices throughout the economy? Or would banks, brokerages and wealthy investors just hold on to their new, bigger balances?

This isn't really about timing, since even if the money supply instantly doubled, you'd probably see velocity instantly cut nearly in half.

If you were to magically split every dollar into two dollar bills, prices would almost immediately double to compensate. That implies that the dollar is now half as valuable.

Not immediately at all.

> cash balances would stay the same

You read the original comment differently than I did. I assumed some magical doubling, as if every dollar bill in someone's pocket duplicated itself.

If you want to play "What If?" I guess we need to figure out if we're magically erasing everyone's memory of their previous holdings. If not, the world would go a bit crazy. Journalists would report it, we'd learn about the existence of magic, etc. So, I guess we'll need to assume that the magic doubling also makes people forget what they had before.

Let's see ... there might be a bit of a wealth effect [0], but if we're saying people don't remember their old balances, would they really perceive themselves as wealthier? This question is just too nonsensical to really pursue. It could be a fun thought experiment, but it's hit the point where I'd rather get some work done instead.

[0] https://en.wikipedia.org/wiki/Wealth_effect

Q: do you believe the govt-published inflation stats are accurate? Or is inflation under-reported by the US government?

No inflation stat is actually "accurate". Each person has its own consumption basket and the rise of prices affects him/zir differently.

In any case -- what matters is that the inflation index of note is wrong in the same exact way every week.

This isn't the nature of economics, it's the nature of numbers. My masters' thesis is about simulating certain physical systems. There we stipulate G=1 and get the fuck on with the real work.