Eurodollar University Episode 164, Part 3: What’s Wrong W/Money Velocity Is What’s Wrong About Money Supply
164.3 Economists Can’t Define Money nor Observe Velocity
———Ep 164.3 Summary———
M1 and M2 once informed central bank decisions. But the monetary aggregates were so narrowly defined that they were, in effect, mere keyholes that offered policymakers an unsatisfactory, and often-enough misleading, peek into the great monetary hall.
———Ep 164.3 Topics———
00:00 INTRO: How to define money? What is money velocity? The worldwide surge in M2 and M3.
00:50 Simon Newcomb, economist, developed the “equation of societary circulation”.
02:35 Newcomb was writing during an age when shocking depressions roiled economies.
05:20 Interest rates should moderate imbalances in money supply and/or its distribution.
06:19 The equation of exchange is fatally flawed, in multiple ways.
07:58 “M” wasn’t properly defined. “V” wasn’t constant. So M*V = P*Q isn’t much to go by.
09:32 In the 1970s the velocity of M surged, or at least, it appeared to (it didn’t really).
11:39 In the 1990s the velocity of M surged, or at least, it appeared to (it didn’t really).
14:28 Morgan Guaranty’s estimates of M were understated and were far greater than M3.
17:42 There was a surge in M2 supply in 2020. Is that inflationary? Does M2 matter?
20:42 OUTRO: An equation that balances money and economy is a nice idea but not practical.
———Ep 164.3 References———
We Can’t Depend On the Ms, Which Only Produce Bad Vs: https://bit.ly/3wZexRA
Is M2 The Money Behind Inflation? If Not, What Is (Or Isn’t)?: https://bit.ly/3DAH5n1
Alhambra Investments Blog: https://bit.ly/2VIC2wWlin
RealClear Markets Essays: https://bit.ly/38tL5a7
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Jeff Snider, Head of Global Investment Research for Alhambra Investments. Illustrations by David Parkins, swine satire. Audio and video editor, The Terence. Logo design by pixelist Lisa Jiang. Master of ceremonies, Emil Kalinowski. Podcast intro/outro is “Different Days” by Chill Cole found at Epidemic Sound.
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