A Different View of Inflation
Inflation means growth in the money supply not linked to productivity. One example is when back in 2020 and 2021, the Federal Government mailed Trillions of Dollars directly to the people. The way it’s supposed to work is that a bank would create “new” money in the form of extending credit to a business, and that business would build product, hire people, e.g., drive productivity. A productive society enjoys high employment and stable pricing. Prices often come down in a productive society as the supply of in demand goods and services increases.
Contrast that to today where Trump, Biden and now Trump again want to mail money to the people rather than pay down $40 Trillion of debt. Or compare it to Private Equity firms that receive billions in loans, only to trade assets at ever higher prices without ever really growing those businesses organically, and then pay themselves enormous bonuses directly from bank loan proceeds rather than purely from profitable portfolio company exits.
The chart below shows how the money supply, as measured by M1, has grown as a percentage of GDP. I used nominal GDP in this chart. If I had used “Real” GDP, it would look even worse. We’ve got too much liquidity in the system. The Fed choosing to end “QT” after never really tightening by much is a joke. We ought to be in a “QT” period for quite some time until we get the money supply back down to a normal percentage of GDP.
