Finster clear your mail box. M3 per capita.

[Sapiens]

--------------------------------------------------------------------------------

Bart, Finster,

In a prior post Finster mentioned something about defining inflation as a ratio of the money stock to population. Here are some charts from Bart's data.


The first chart is M3 growth, at 6.95% per annum for 107 years.

The second chart is the per capita dollar decline at 5.27% per annum for the last 107 years.

The third chart is the population growth at 1.29% per annum.

The final chart is the growth of M3 per capita at 5.58% for the last 107 years.

Well Finster, you are right. No wonder the Fed is keeping the prime rate at 5.25% that is close to the dollar decline per annum per capita for the Federal Reserve Monetary Unit by under two basis points!

What do you gentlemen think? Let me know your thoughts.

Also, thanks again for the data Bart.

Cheers,

-Sapiens

gmsapiens(at)yahoo.com

[Finster]

Re: Finster clear your mail box. M3 per capita.

--------------------------------------------------------------------------------

Bart, Finster,

In a prior post Finster mentioned something about defining inflation as a ratio of the money stock to population. Here are some charts from Bart's data.


The first chart is M3 growth, at 6.95% per annum for 107 years.

The second chart is the per capita dollar decline at 5.27% per annum for the last 107 years.

The third chart is the population growth at 1.29% per annum.

The final chart is the growth of M3 per capita at 5.58% for the last 107 years.

Well Finster, you are right. No wonder the Fed is keeping the prime rate at 5.25% that is close to the dollar decline per annum per capita for the Federal Reserve Monetary Unit by under two basis points!

What do you gentlemen think? Let me know your thoughts.

Also, thanks again for the data Bart.

Cheers,

-Sapiens

gmsapiens(at)yahoo.com
[charts]

I second the thanks to Bart for data. He's helped me find some of the most important data I use.

And FWIW, I reaffirm money stock per capita as a definition for inflation. I don't use it directly, just because of the serious problems in figuring out exactly what the money stock is. Instead, I use various market prices and rates to get at it indirectly. What more, this gives us a sort of cross-check on inflation, since Bart has particular expertise in matters of money stock and that gives us an independent path to compare with.

In fact, Sapiens, that's basically what you've done here, in pitting money stock per capita against price-derived inflation. That they give us commensurate answers does indeed give us added confidence that we are barking up the right trees ...

Curious, BTW, as to where your "Dollar Decline" data come from ... it bears more than a passing resemblance to my FDI ...

[Sapiens]

Re: Finster clear your mail box. M3 per capita.

I reaffirm money stock per capita as a definition for inflation. I don't use it directly, just because of the serious problems in figuring out exactly what the money stock is.

Finster, the insight is exactly that: Monetary Unit per Capita. Now, what is the Monetary Unit? It includes everything in it, i.e., e.g. Currency, bank credit, commodity money, receipt money, fiat, blips.

Now, for example, let's say as of today we have 1000 m.u. per head, then the following day the bank extends credit for 1000 m.u.s' Then we have 2000 m.u.s' per head, for an increase of 100% inflation. Clearly this is not evident immediately, since the additional units need to be spent into circulation and exchanged for goods and services. But technically the m.u, just lost 50% of its value per head. The benefits of the expansion 1st accrue to those in line that have access to the credit or m.u. expansion. The losers? Savers and those that trade their labor as their only asset.

Thanks for the insight Finster, it has enabled me to continue my work on some models I had stalled on.

Cheers,

-Sapiens

[Finster]

Re: Finster clear your mail box. M3 per capita.

Finster, the insight is exactly that: Monetary Unit per Capita. Now, what is the Monetary Unit? It includes everything in it, i.e., e.g. Currency, bank credit, commodity money, receipt money, fiat, blips.

Now, for example, let's say as of today we have 1000 m.u. per head, then the following day the bank extends credit for 1000 m.u.s' Then we have 2000 m.u.s' per head, for an increase of 100% inflation. Clearly this is not evident immediately, since the additional units need to be spent into circulation and exchanged for goods and services. But technically the m.u, just lost 50% of its value per head. The benefits of the expansion 1st accrue to those in line that have access to the credit or m.u. expansion. The losers? Savers and those that trade their labor as their only asset.

Thanks for the insight Finster, it has enabled me to continue my work on some models I had stalled on.

Cheers,

-Sapiens

Thanks for the kind words, Sapiens. The problems with money supply are not obvious to all. It's just that when money supply experts like Bart manage to arrive at similar conclusions on theoretically sound principles, the temptation to take it as an affirmation is hard to resist ...

[c1ue]

Re: Finster clear your mail box. M3 per capita.

The benefits of the expansion 1st accrue to those in line that have access to the credit or m.u. expansion.

I would agree that access to new money enables potential benefit, but you are making the assumption that the potential will actualize as opposed to being mis-invested or over-consumed. This will be true for some but not for all.

The losers? Savers and those that trade their labor as their only asset.

I agree with the labor idea, but savers will only lose if they do not deploy their savings in areas which will keep up with inflation.

Someone who hides cash under the mattress will likely not do well, but someone else who buries PMs could have a very different situation. Similarly those who hold income producing investments - cash positive rental real estate, goods production/factories, etc would probably do just fine.

My question is how a high inflation scenario affects the FIRE sector longer term.

Certainly in the beginning, F and I have been benefitting from leverage with RE also gaining from increased credit in turn increasing demand.

My guess?

Longer term the lack of physical goods production capability would seem to hurt F & I - because production costs (outside of labor) + physical commodities will likely scale most closely with inflation for necessities. Or put another way - the milkman never has to eat dry cereal.

In this later stage, F would be squeezed by credit contraction - the flip side of the previous leverage gain - because there simply will be less demand for credit due to the inability of debtors to keep up payments much less acquire new debt.

'I' would be hit by growing replacement costs not commensurate with income growth.

RE would then be hit also by the credit contraction truck coupled with prices that have escalated out of affordability.

I am looking at the South American inflation crises as inspiration.

After the Argentina IMF default and peso devaluation with attendant hyperinflation, real estate dropped 50%.

Argentina's government froze bank accounts allowing the larger banks (with international exposure) to survive, but a lot of the smaller ones did not as their deposit base was inflated away while loan demand completely evaporated.

5 years later, real estate prices are starting to approach pre-2002 levels again, but of course ignoring the years of inflation in between.

[Sapiens]

Re: Finster clear your mail box. M3 per capita.

My question is how a high inflation scenario affects the FIRE sector longer term.

C1ue, it already has, this is because FIRE has already modified the borrowers’ behavior. What I mean is that people have begun to consume less in order to service their debt. I am currently tracking this down for hard data. But from the moment FIRE debt service affects and inhibits the physical economy, it’s the beginning of the end.

LaRouche has a function, see here:



You can read about it here: http://www.new-federalist.com/other/..._3curv_us.html

-Sapiens