Wednesday, October 13, 2021

Myth-Busting: Money Printing Must Create Inflation, By Nicolas Rabener

Some investors are betting on inflation to follow the spike in the money supply in 2020. While this is possible, the money supply has been increasing for more than a decade but inflation has fallen consistently over the same time period.


The UK data highlights a strong positive correlation between the BOE’s balance sheet, money supply, and inflation between 1947 and 1995. But thereafter, the relationships broke down. Money supply and inflation still moved in tandem, but the central bank activity seemed largely irrelevant


Further Thoughts

Similar analysis on the eurozone reflects the same trend: Central bank money printing is largely irrelevant to money supply and inflation.


Given their typical mandate to create moderate inflation, the all-powerful central banks seem quite powerless. Or they are simply fighting forces they cannot overcome: namely, the negative demographics and negative productivity growth that contribute to low economic growth.


Should investors worry about the mass money printing by central banks? Certainly. It has distorted financial markets and inflated prices across asset classes. But perhaps this simply leads to lower future returns rather than higher inflation.


CFA Institute 


"Myth-Busting: Money Printing Must Create Inflation | CFA Institute Enterprising Investor"


 Myth-Busting: Money Printing Must Create Inflation, By Nicolas Rabener



15 comments:

Matt Franko said...

What is you peoples obsession with “myth!”?

NeilW said...

It uses fewer characters than 'legend'

Peter Pan said...

Saga-busting separates the men from the boys (and women from the girls)...

Matt Franko said...

Neil myths are useful or valuable teaching stories in literature…

Why would you want to “bust” them?

Peter Pan said...

Economists want to be viewed as scientists?

Matt Franko said...

We don’t have myths in Science.. whether busted or not busted…

Peter Pan said...

Google 'science myths'... 173 million results...

Peter Pan said...

Money printing... 6 billion 160 million results...

Matt Franko said...

Well yes that is why things are so fucked up…

Matt Franko said...

See this excerpt:

“ It has distorted financial markets and inflated prices across asset classes. But perhaps this simply leads to lower future returns rather than higher inflation.”

He has 3 things going on there… he’s got “prices” he’s got “returns” and he’s got “inflation” …

When to me it appears he is talking about the same thing..,

Peter Pan said...

He's talking about related concepts.

Taken in context, he's expressing uncertainty. "When I squeeze this balloon, this part may bulge out, but sometimes this other part over here may bulge out."

Matt Franko said...

PV = mRT

lastgreek said...

Wrong. It's...

PV=nRT

Yes, you got the number of variables right (4, and "R" is a constant), but the symbol for moles is "n," not "m."

Also, I hate the phrase "negative demographics." What negative demographics? Before I finish typing this bloody sentence,the world's population will surpass 7.754 billion. Freakin' ants!




Matt Franko said...

https://durhamcollege.ca/wp-content/uploads/Thermodynamics-Basic-Concepts.pdf

“ If you use this value of R, then technically the formula should be written as pV = mRT, where m represents the mass of air in kg”

Engineers use mass I think the physicists use moles….

Peter Pan said...

Chemists use moles; moles use their nose.