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Comment by sp527 | Hacker News Reader

This is not how money works and I've seen so many people make deeply flawed arguments because they misunderstand it. Money flows continuously and is only at rest when it's held in vehicles like bank accounts, money market funds, and bank reserves.

When you increase the money supply dramatically, that money is in circulation, and various factors determine its average velocity. There's also a multiplier effect in the form of debt created on top of base money. But the key point is that almost all money is continuously flowing through an economy. Incidentally, disincentivizing people from leaving money at rest for too long is precisely why it's important for a currency to be inflationary.

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Aren't these points orthogonal? Yes, money flows when it's not parked somewhere, but when a lot of people use extra cash for unproductive speculation it tends to make current or future recessions worse. What is needed is deliberate investment of time, money and effort building a prosperous future, not throwing surplus income at shiny things and hoping it magically multiplies.

> Aren't these points orthogonal?

No they are not orthogonal. You seem to still not understand. What happens to the money used to buy an unproductive speculative asset? The answer is it keeps moving and, in fact, on average it probably continues to move very quickly so long as it's stuck in speculation limbo. Hence, on average, it doesn't stay trapped in speculation limbo for very long. It's a brief detour, not a destination.

Ok, can you help me understand? Are you saying direct stimulus is not a big factor in the recent inflation? If not, what is?

And would you say it's a good thing for the circulation you describe to float free of productive activity? I would say, sure, for a little while and in moderate amounts. But if allowed to expand without bound and continue indefinitely it risks untethering minds and markets from the material foundations that make it all possible in the first place

I look at money as renewable energy and yes you absolutely would prefer that energy be channeled into more productive uses. Whatever would maximize collective human flourishing. But the overarching point I'm trying to make here is that rapidly expanding the money supply will cause problems. Congress and the Fed pumped money into the economy with reckless abandon and now we're paying the price.

While it's true that too much money can cause an overheated economy and inflation, I think it still remains to be seen how much of our current inflation problem is due to increased demand or simply supply restrictions. After all, all the major ports in the US are still back logged and not back to normal. The cost to ship a container from China to a west coast port went from $7k to $20k in the last 2 years and it is just now starting to go back down a little bit.

> Money flows continuously and is only at rest when it's held in vehicles like bank accounts and money market funds.

It isn’t at rest when it is in bank accounts, either. A large percentage of that is loaned out.

> also a multiplier effect in the form of debt created on top of base money

> why it's important for a currency to be inflationary

Money is created when people take out loans right? (like for a home or car, or when a buisness takes out a loan for capex)

So if the population contracts (i.e. the boomers start dying) doesn't that mean there should a contraction of money supply since fewer people will exist to take out loans?

I think what you're asking is whether money can be destroyed and the answer is yes. For example, if the Fed allows debt instruments it holds to be paid down. What matters, of course, is the relative rate of money creation vs money destruction.

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