I wonder, with the economy having expanded since 2020, many former hospitality workers now doing better paid office work and lower paid workers seeing significant raises, how many more dollars are "appropriate" to be in the economy now? M1 is currently at 20T, we probably don't want to go back to 4T pre-pandemic, but what number makes sense for limited inflation without recession?
> how many more dollars are "appropriate" to be in the economy now?
We don’t know. We know money shortages are bad. But quantifying where excess liquidity occurs is unsolved [1]. (We see a variety of optima that defy simple explanation [2].)
More solvable: targeting price levels and central bank balance sheet [3].
Yea you raise a fair point. What matters is, where are those dollars now? If more so in the hands of rich people, who have a higher propensity to save cash, then those dollars are likely more removed from the economy in a way. Partly why we track Money Velocity as well:
https://fred.stlouisfed.org/series/M2V
It depends on how you define "dollars", which is the point of having multiple M measures.
M0 is cash, or something you could turn into dollar bills just by asking.
M1 adds in checking accounts, which you can treat as dollars just by writing a check.
M2 adds in savings accounts, which you can turn into dollars just by asking, but there might be a delay because they don't have the bills on hand.
There are more M's out there, which count ever less liquid forms of dollars.
All of them are "dollars". You don't think of yourself as having fewer dollars just because you put them in the bank. But if the bank loans out those dollars, you now count the same money twice: you have it, and somebody else has it.
The correct amount at each level is not a matter of how many dollars "exist", but how much trade is being accomplished. The Federal Research tries to set a level that encourages more trade, without flooding the market.
The dollar is stronger, which means that imports are cheaper and exports to other countries are more expensive for those that are buying American goods.
You are both right. With unchanged demand for imports, then the total value of imports in USD would be the same, but a stronger dollar would affect the relative demand for imports vs domestic commodities in reality given basic supply and demand assumptions.
But the point is still correct that you would have to adjust for the relative change in currency prices to know whether the amount of stuff we are taking in from abroad has really changed or not.
There are two ways to measure the "strength" of the dollar.
One is comparing it to goods and services (consumer prices). The other is comparing it to other currencies (DXY). I guess these two factors have varying influence on imports and exports, but I suspect DXY is the more relevant in this case.
So, I suspect my focus has been wrongly on the money supply, as opposed to the supply relative to other currencies, with DXY having almost reached the 2002 maximum in October 2022. So, I thank you for insisting.
(This is the raw price levels, so inflation is the derivative of this graph).
The most recent month of data (Oct - Nov) has been pretty flat. But the previous few months, (Sep - Oct, Aug - Sep) is still a higher change than normal.
I don't think that one data point is enough to declare inflation is back to normal.
Can confirm. Amazon's warehouses have been absolutely packed lately, sellers have have been complaining about inbound shipping limits for most of Q4. This is despite Amazon growing warehouse capacity by a huge amount in 2021 and having plenty of excess capacity earlier in 2022. Also, the lead times at our factories in Asia are the shortest that they've been since the pandemic began.
https://fred.stlouisfed.org/graph/?g=YrsY