However, one of the oddities of the present situation is the absolutely bizarre shift that occurred in 2008/2009.
Before then the M1 money supply growth more or less tracked CPI growth (inflation)--exactly as classic monetarist theory would suggest. Asset prices as represented by the Dow Jones and S&P 500 indices mo…
However, one of the oddities of the present situation is the absolutely bizarre shift that occurred in 2008/2009.
Before then the M1 money supply growth more or less tracked CPI growth (inflation)--exactly as classic monetarist theory would suggest. Asset prices as represented by the Dow Jones and S&P 500 indices moved more or less independently.
Between 2008 and 2019, however, those relationships inverted. The correlations between the market indices and the M1 money supply growth rates approach 1 (perfect correlation), while the correlation between CPI and M1 growth rates diminishes.
According to Friedman and other monetarists, that can't happen. But it did.
2020 onward is another shift altogether.
These departure points are what allowed the proponents of MMT (Modern Monetary Theory) to advance their insane ideas that money printing was a good idea.
The question that has yet to be resolved is what the "reversion to mean" looks like. We have some idea of what can happen by looking at the bond markets in Japan (which went full MMT long ago). Theoretically, Japan should have melted down long ago, but the yen is still somehow holding on to a sliver of credibility.
What does this mean for the dollar (and, by extension, Treasury debt)? I won't even begin to hazard a guess, although I seriously doubt any of this ends well.
Peter, lots talk about CBDC - BIS, but the FED cannot legally print non-liability fiat money, CBDCs because Congress never authorized that after gold standard ended 1971. Powell knows the FED has a legal problem that could be resolved by consolidating the FED and Treasury, but that would open up the FED's books!
FED's illegal claimed liabilities are equity - assets to the tune of Trillions of dollars.
Frankly, I'm unpersuaded that CBDCs have the power and the inevitability that a number of people ascribe to them.
First, there's the real world experience of the digital yuan. A system as thoroughly totalitarian as China can't get its people to use it much. If China can't make a go of CBDC, I doubt more liberalized political systems will have any great success with them either.
Second, there's a structural problem, particularly with the dollar but to a degree with all the major currencies. Chiefly, as proposed, a "digital dollar" is NOT a "dollar". If it's a different currency, then all the existing currency relationships DO NOT COUNT. In other words, the digital dollar would have to establish its own exchange rate with other currencies--including other digital currencies if/when they came online.
On the other hand, if a "digital dollar" is still a "dollar", then the "digital" aspect is merely a Central Bank "wallet". Privacy concerns aside, the use of such a technology effectively nationalizes all holdings that go into the M1 money supply, which kills off the entire banking industry (without deposits their capital base disappears). Not only are there Constitutional concerns with such a transition, but the unavoidable economic dislocations would be Biblically apocalyptic.
As regards merging the Treasury and the Fed--legally not possible. The Federal Reserve is a system of outwardly private banks, with the nation's commercial banks being members/investors in whichever Federal Reserve bank serves their particular region of the country. To merge the Federal Reserve banks with the Treasury would require the Treasury to purchase outright the Federal Reserve banks, and even if there were a sufficient store of capital to do so, such an outright nationalization of the banking system would never get past the first Constitutional challenge (nor would the Congress go along with the idea because to do so would also destroy all their investment portfolios that hold the bulk of their ill gotten gains).
I suspect you're right.
However, one of the oddities of the present situation is the absolutely bizarre shift that occurred in 2008/2009.
Before then the M1 money supply growth more or less tracked CPI growth (inflation)--exactly as classic monetarist theory would suggest. Asset prices as represented by the Dow Jones and S&P 500 indices moved more or less independently.
Between 2008 and 2019, however, those relationships inverted. The correlations between the market indices and the M1 money supply growth rates approach 1 (perfect correlation), while the correlation between CPI and M1 growth rates diminishes.
According to Friedman and other monetarists, that can't happen. But it did.
2020 onward is another shift altogether.
These departure points are what allowed the proponents of MMT (Modern Monetary Theory) to advance their insane ideas that money printing was a good idea.
The question that has yet to be resolved is what the "reversion to mean" looks like. We have some idea of what can happen by looking at the bond markets in Japan (which went full MMT long ago). Theoretically, Japan should have melted down long ago, but the yen is still somehow holding on to a sliver of credibility.
What does this mean for the dollar (and, by extension, Treasury debt)? I won't even begin to hazard a guess, although I seriously doubt any of this ends well.
Peter, lots talk about CBDC - BIS, but the FED cannot legally print non-liability fiat money, CBDCs because Congress never authorized that after gold standard ended 1971. Powell knows the FED has a legal problem that could be resolved by consolidating the FED and Treasury, but that would open up the FED's books!
FED's illegal claimed liabilities are equity - assets to the tune of Trillions of dollars.
Frankly, I'm unpersuaded that CBDCs have the power and the inevitability that a number of people ascribe to them.
First, there's the real world experience of the digital yuan. A system as thoroughly totalitarian as China can't get its people to use it much. If China can't make a go of CBDC, I doubt more liberalized political systems will have any great success with them either.
Second, there's a structural problem, particularly with the dollar but to a degree with all the major currencies. Chiefly, as proposed, a "digital dollar" is NOT a "dollar". If it's a different currency, then all the existing currency relationships DO NOT COUNT. In other words, the digital dollar would have to establish its own exchange rate with other currencies--including other digital currencies if/when they came online.
On the other hand, if a "digital dollar" is still a "dollar", then the "digital" aspect is merely a Central Bank "wallet". Privacy concerns aside, the use of such a technology effectively nationalizes all holdings that go into the M1 money supply, which kills off the entire banking industry (without deposits their capital base disappears). Not only are there Constitutional concerns with such a transition, but the unavoidable economic dislocations would be Biblically apocalyptic.
As regards merging the Treasury and the Fed--legally not possible. The Federal Reserve is a system of outwardly private banks, with the nation's commercial banks being members/investors in whichever Federal Reserve bank serves their particular region of the country. To merge the Federal Reserve banks with the Treasury would require the Treasury to purchase outright the Federal Reserve banks, and even if there were a sufficient store of capital to do so, such an outright nationalization of the banking system would never get past the first Constitutional challenge (nor would the Congress go along with the idea because to do so would also destroy all their investment portfolios that hold the bulk of their ill gotten gains).