wabuffo

BTW - this is similar to the Federal Reserve system. Banks have reserve account balances at the Fed to ensure that all US payments transactions between banks settle without failure. Of course, the Fed ensures no payment will fail because it backstops the whole thing with unlimited funds. But the DTCC/NSCC is a private clearinghouse set up by the financial institutions who run the markets in order to clear stock transactions and does not have an unlimited source of funds like the Fed. In the end its all plumbing... in one form or another. wabuffo

Think of it as RH must maintain a checking account at the clearinghouse. Because trades take two days to settle, RH has to have its own money (not its customers' money) in a clearing account (as do other brokers who clear for themselves as well as clearing agents) to cover a calculated percentage of the expected cash its customers must deliver two days out to settle and pay for the net buys that were placed at RH with non-RH brokers. This system of settlement balances ensures no settlement fails due to a lack of payment by one of RH's customers (or anyone else's customers). If there is a failure, the cash gets taken first from RH's account (if its one of their customers), second from the clearinghouse itself and 3) from passing the hat to other brokers. That's why other brokers like IB also pumped the brakes on buys - all to reduce settlement balances overall and reduce risk. Peterffy (Chairman of IB) said as much on Thursday night in various business TV interviews. The balance that must be in there varies with numerous factors but clearly one of those factors is exponential growth in order flow at RH. The issue for RH is that they must find their own source of cash to deposit into that account. That's oversimplifying it - but another big factor is a surge in orders limited to a few names whose price, in turn, is very volatile. This is what happened to RH last week. By Thursday RH was being asked by the clearinghouse (NSCC) to add more money in RH's clearing account. Since they didn't have the cash immediately to put in, RH had to stop the buys and only allow sells (since sells reduce the amount RH has to have in its net settlement balance). As RH's settlement balance shifted due to the stop-buy and the capital raise Thursday night, they now had the cash and added it to their clearing account. wabuffo

how many random stocks would you have to buy to approximate the results? 500? 2500? It doesn't seem like a reasonable strategy. I think there are academic studies about diversification that demonstrate that you can achieve 90% of the results of a population of stocks with just 12-18 stocks - especially since here we are talking about a median return equaling the average return. You get to 95% of the population result with 25-30 stocks, etc. Its not that unrealistic to me that a strategy of picking 20 stocks at random from the stock pages on March 31st would've gotten you close to a 100% rate of return - similar to the 4500 equal-weight index. On another board, we run an annual stock picking contest. The spouse of one of our members, picks a "control" portfolio pretty much at random. She wins a few years and always smokes most of the field other years, FWIW. Moving on to cigarbutt's excellent question about how does one pinpoint the timing for deploying this "buy crapstocks" strategy, I have a working theory on that. The macro environment has to be one of large deflationary monetary conditions (not recessionary - though that sometimes becomes the result of the deflationary conditions). The clues are a surge in the demand for US dollars and a drumbeat of not enough good collateral (i.e., US Treasuries). The gold price should also be falling (gold goes up and down all the time - but a falling gold price in the middle of the crisis signals deflation). I can count three times these conditions have happened in my 20 years of investing - a) 2000-2002, b) 2008, and c) 2020. In each case, the dollar surged, gold fell vs the USD and there was talk of not "not enough US Treasuries to go around". The difference between the three is the response of the Fed and US Treasury in each case. We went from a laissez-faire, small footprint in 2000-2002 (because of the surplus, there was actually a fear that there would be no more Treasury debt for collateral lending) to a slightly faster, slightly bigger response in 2008 to a "fire the bazookas at the first sign of trouble" in 2020. When these conditions turn around, the crap stocks go up the most because they feel the heaviest burden from monetary deflation as their large liabilities relative to their profit/equity rise the most in real terms under a deflationary compression. That's why when this topic sprung up in March, it felt like this strategy would get a good test run. wabuffo

Or am I mistaken? Equal weight. Each stock is 1/4500th of the market value of the index at the start of every month (actually more like 1/6000 - I think there are more than 4500 stocks in that index) and then rebalanced the next month. Its a theoretical construct that would be plagued with crazy liquidity and frictional costs. The point is trying to track the results of the average stock where even the tiniest microcap is weighted the same as any other stock. Its a theoretical concept but it is the equivalent of throwing darts at the stock pages at the end of March 2020. wabuffo

The significant differential performance has occurred since around October Mar 30 - Oct 31, 2020: S&P 500 total return +27.8% Wilshire Equal-Wgt 4500 +46.5% I guess it depends what you mean by significant differential... wabuffo

The point of my tongue-in-cheek post wasn't to recommend buying an equal-weight fund. My central point was that once there is a deflationary bust, you: - look for signs that the deflation is over (usually gold price stops falling and starts going up again), and then - you buy a basket of the trashiest microcaps/small caps. - hold for about 10-12 months. It worked in 2003 (after the 2000-2002 bust), it worked in 2009 (after the GFC) and it seems to have worked again in 2020. You don't even have to really do any due diligence because you want diversification via a basket. In fact, trying to pick them using fundamentals is actually a bad idea. If you look at the results of that study that I posted in this thread that did a post-mortem of 2003: - companies with no earnings/loss making companies (+117%) did better than companies with positive earnings (+44%). - companies rated F (poor) for financial health did better (+110%) than companies rated (A) (+55%). It's counterintuitive and hard to actually do in the middle of stocks falling 20-40%, but that's what the data says... so back in late March when the question was asked "how to make the MOST money from the depths of this crisis in March", this was my recommendation. Did I follow it myself? Uhhh - I'll plead the fifth. wabuffo

https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/how-to-make-money-from-this-crash-lessons-from-2008/msg401716/#msg401716 Circling back to this question posed during the eye of the storm in late March 2020. How did my advice of throwing darts at the stock pages of the smallest small caps work out? end of March 2020 - end of January 2021: S&P 500 Tot. Return: + 45.8% 4500 Equal-Weight: +118.4% You're welcome. 8) History not only rhymes, it repeats! wabuffo

Where can I see this information, that he is using margin? I think folks are referring to the borrowings used by Munger to buy the two software companies in 2012 and 2013. https://www.sec.gov/Archives/edgar/data/783412/000143774914011800/djco20130930_10k.htm This is the description here in the 10-K: [click on the image for full-size viewing] And you see the amount on the balance sheet here: wabuffo

Tax rates probably won't go up until next year. And I think most wealthy individuals and corporations will be able to avoid most of the impact. The point is that tax rates matter and the market won't wait until the legislation goes in effect to react to them. The market will handicap their passage and begin to react before they are enacted (say this summer or fall). So then, what is $1 of pre-tax constant annuity-like earnings worth at a 21% federal corporate tax rate and a 3% long-term risk-free discount rate? Answer = ($1 x (1 - .21))/.03 = 26x What is $1 of pre-tax constant annuity-like earnings worth at a 29% tax rate and same discount rate? Answer = ($1 x (1 - .29))/.03 = 23x so 12% lower. Add in a slight backing up of long-term rates (discount rate goes to 4%) and it could be 30% lower (17x). For large domestic payers of US federal taxes like BRK or banks or railroads, this could be bad news (all other things being equal). wabuffo

The thing that worries me is the S&P 500 does not actually look that expensive at around 25x pre-COVID earnings. ... And with interest rates a lot lower ....So you could imagine the S&P 500 going 50% higher perhaps over the next year or two unless the Fed starts tapering or the economic weakness starts to affect the results ... or marginal tax rates on capital gains go up + the corporate Federal tax rate increases..... but I haven't heard any plans for something like that happening,... 8) wabuffo

The dude is using margin. I mean, he can't be too concerned then, right? mmm - he sold enough stock in the Sept Q to basically raise cash to cover 90%+ of the margin loan. Prior to this Q, Munger didn't hold a lot of cash on the b/s. So is he really still on margin? Technically yes, but... wabuffo

strong dollar relative to what? ...other currencies, commodities, gold,...? What is the benchmark for your question? wabuffo

The biggest difference between the late 90s and today is the monetary environment in terms of what ends the 'bubble'. And by monetary environment, I mean the supply of federal government liabilities to the private sector that provide "moneyness" (i.e., currency in circulation + bank reserves + US Treasury debt held by the public - US Treasury debt held by the Fed). from late 1997 til 2001, the US ran a surplus that peaked in early-mid 2001. The effect of this was to put deflationary pressures on the US private sector. You can see this in a FRED chart I built for that period. [click on image for full-screen viewing] You can see that the effect was to reduce the private sector's total Federal govt money liabilities by 15.5%. This effect is mirrored by pulling up charts of the USD vs commodities and currencies during this same time period. Dollars were getting scarce. Here's gold vs the USD: Here's the Euro vs the USD Here's the Canadian Dollar vs the USD (this graph goes the other way, as USD gets stronger, CAD weaker means rising trend line): This was like a blanket descending on equities slowly smothering them. Add in US Treasury yields over 6% (which is an inverse P/E comparison for a DCF calculation) and equities collapsed in Q1, 2000 and didn't hit bottom until Q4, 2002. Today the monetary environment couldn't be more favorable. Here is the chart of Federal government liabilities since 2018 (currency + reserves + Tsy debt held by the public ex amounts held by the Fed). One can see the taking-it-to-11 growth (+22%) in 2021 since the pandemic. And the incoming administration wants more based on their recent pronouncements. And of course, unlike 1999, the yield on the 30-year US Treasury bond is 1.8% today vs 6%-ish back then in terms of the anchor for DCFs. I wonder if most people are going to get caught underestimating the length and strength of this bubble/rally/pick-your-descriptor. At the very least, there aren't the obvious headwinds of 1999 forming against equities today. The only things that I think could emerge as headwinds would be if long-term 30-year yields break out above 4% AND if tax rates on investments/business enterprise go up (both personal capital gains tax rates as well as Federal corporate tax rates). In 1997, personal cap gains tax rates were cut (and later cut again in the early aughts). Just some things to think about in terms of structural issues that affect stock prices. wabuffo

There has also been a structural change on how we should perceive BRK cash pile as well: I would like to point out that Buffett's avoidance of long-term US Treasury bonds starting in 2010 or so in favor of extremely short-term T-Bills has cost BRK a lot of money. As an example, her is the bond table from the 2019 BRK annual report: Look at the fair value gains on the tiny amount of bonds in the five-to-ten year duration bucket (+84%). Imagine what the fair value gains in the ten-to-thirty year bucket would've been. It's been taken as gospel that Buffett has been shrewd in avoiding the long-end of the yield curve and staying in cash and cash equivalents for the better part of a decade. But in fact, its been a huge error that has cost BRK shareholders plenty. Is ten years long enough to call out Buffett's mistake or is that still heresy here at COB&F? wabuffo

Bought more GTXMQ this morning even though I already had a full position. At this point - its kind of an arb. The Ch.11 plan is providing a put option at $6.25 that will be good until plan is confirmed (likely in Q2, 2021). Haven't decided if I will take the cash or invest in the rights @ $3.50 and get the Series A 11% preferreds plus common shares. wabuffo

SD trading or Wabuffo talking about monetary policy....both are kind of like grad level university course poetry. You can see its beauty. You are captivated by its effortless luster, and ultimately leave appreciating it, but not really understanding it anyway. Hey Greg - what if I explain monetary policy with memes? wabuffo

Thanks about that sub-stack. I've heard of him, haven't read his stuff (its behind a paywall, I think) - but have seen some of his interviews and think he is brilliant. Also, just to be sure I'm correctly synthesizing the Hunt/Hoisington position with your explanation above, is it fair to say scenario 2 cannot legally happen independent of a corresponding tax receipt or treasury issuance? In other words, the government cannot legally create new private sector assets without taxing the private sector or increasing public sector debt to pay for those assets? Yes - but its because of a political constraint - ie the US Treasury cannot run its general account at the Fed with an overdraft (ie - negative balance). wabuffo

Do I understand you correctly? I think so. Just remember you must always think in terms of debits and credits. If there is a flow, you must think in terms of both assets and liabilities. If there is a flow of deposits into a bank (a liability), there must also be a corresponding asset. You have to ask yourself what is that asset (or it could be the addition of a liability and the reduction of another liability). The reason why this is all confusing is because most people don't think this way. So even economists make ridiculous statements sometimes on CNBC and elsewhere. wabuffo

Russell 3000 Value +3.1% Russell 3000 Growth +0.25% Long end of the yield curve going up. I think people sometimes forget that stocks have duration as well. A growth stock has much of its discounted cash flows out in the future - thus much of its NPV is past the, say, 10-year mark. But a value stock has shorter duration. Its value is driven by liquidation value and near-term earnings so much of its NPV is within the 10-year mark of a DCF. If this is more than a head-fake in terms of rising long-end yields, then "value" might do better than "growth", much like a shorter-term bond than a long-term bond when rates rise. wabuffo

Are you saying that each bank has two types of accounts with the Federal Reserve: (1) that they cannot withdraw from because it is funded by asset sales to the Fed, and (2) that they can withdraw because they funded it voluntarily with customers' cash? No there is only one account at the Fed - a reserve account. Banks also hold a tiny amount of cash outside the Federal Reserve. They also have vault cash (actual hard currency). Let's look at the data as at Weds Dec. 23, 2020 as an example. We'll look at this from both sides of the mirror: - first from the Federal Reserve's balance sheet (Federal Reserve H.4.1 report), and then - from the collective balance sheet of all US commercial banks (Federal Reserve H.8 report) [as always - click on the image to expand it for full-screen viewing] First - let's go to the Federal Reserve's balance sheet (the liability side): Bank reserves are a liability of the Fed. From this snapshot taken on Weds. Dec. 23, 2020 - total bank reserves for the entire US commercial banking sector on deposit at the Fed were $3.177 trillion. Now let's go to the mirror image of this liability and look at the collective balance sheet of the US commercial banking sector's asset side that matches this Fed liability. We can find this in the Federal Reserve's H.8 report We can see here that total cash assets across the entire banking sector were $3.240 trillion. Why the difference? Because on the bank balance sheet all cash is consolidated from an accounting perspective and doesn't distinguish between what is at the Fed and what is held by banks themselves or in their vaults. Thus $3.240 - $3.177 trillion = $63 billion held by banks outside of the Fed reserve accounts. As expected banks on their own want to hold very little cash. Thus 98% of what banks classify as cash on their GAAP balance sheets actually is frozen at the Fed. The $3.177 trillion is there simply because of actions by the Fed (and US Treasury). Here is an excerpt from a Bank of America earnings call, where they are saying that they have a choice on what to do with incoming cash from customer deposits to either (a) park incoming cash from customer deposits at 10 bps with the Fed Reserve or (b) buy securities. Are you saying that if they pick (a), they cannot take that cash out to start funding riskier loans later? Ok - I can see where this gets confusing and BofA is not helping with their description of what's happening here. First of all customer deposits are not an asset of BofA - they are a liability (unlike reserve balances which are an asset for BofA). So you can't mix the two, right? Second - ask yourself where does the growth in total US commercial banking deposits come from? You might say "saving" or people or businesses "depositing their money" - but actually these transactions move deposits around from bank to bank but don't actually increase total deposits for the entire banking sector. If you get paid by your employer - your deposits at the bank go up but deposits at your employer go down by an equal amount (and total deposits for the entire banking sector don't change). Its only when you pay taxes to the IRS or get a stimulus check from the US Treasury do total deposit balances for the entire banking sector change. Go back to this payment flow (US Treasury deficit spending) and think about what was happening in 2020. The lion share of net, new bank deposits are created out of the blue from US Treasury spending. And as we can see from the flowchart (substitute BofA for JPM visually here), this spending creates BOTH A RESERVE ASSET for BofA and a BANK DEPOSIT. So when BofA is saying they've added billions in new deposits since year-end, most of those are via US Treasury spending (though some could be a net increase from transfers of deposits from other banks). But most of that deposit increase was accompanied by a reserve account increase too. BofA didn't "deposit cash at the Fed, the US Treasury did" and it stays locked there. In addition, to the extent that BofA saw a net increase in transfers of deposits from other banks, those deposits, too, were accompanied on the asset side of BofA's balance sheet with a reserve transfer from those other banks. Again those reserves can't leave the Fed's payment and reserve account systems, they can only circulate between reserve accounts as payments/transfers get cleared. If you are interested you can pull BofA's regulatory Call reports at the FFIEC and there you will see a breakdown of BofA's cash assets between what's actually held at the Fed in reserve accounts. Hope this helps. wabuffo

<bizaro86> I'd like to invert this with a question (selfishly to aid my own understanding). What would cause inflation? We know inflation is possible because it has happened in the past. <mattee2264> Yeah I think large budget deficits accompanied by a recovery of private sector spending could do the trick with higher commodity prices and supply constraints adding some fuel to the fire. I'm glad these accounting ledger views are helping folks visualize what's really happening with these different government payment flows. So with that I want to show the three basic payment flows that we've been talking about: 1) The Federal Reserve buying a US Treasury bond in its open market purchases. (it is not technically allowed to buy it directly from the US Treasury) 2) The US Treasury spends. (because the US Treasury runs a perpetual deficit - it must spend more than it takes in via taxes. But I could also focus on a tax payment too - flows would just reverse) 3) The US Treasury issuing a bond to the private sector. Here's the key takeaway: Only deficit spending (scenario #2) from the US Treasury actually creates new money (i.e., new net financial assets) for the private sector. The other two flows leave the private sector with exactly the same net financial assets as it had before, it just changes the form of that financial asset composition. Ok - so if you've read this far. Let's go through all the payment flows. I'm going to expand the accounting ledger beyond the Fed and a bank (JP Morgan Chase) to add the US Treasury and an Individual/Business Account (which is a proxy for the private sector). I'm consolidating the govt sector by combining the US Treasury and the Fed on one side (in blue) and the private sector (bank + individual/business) on the other side in green. The key to focus on is the effect on the net financial assets of the Individual/Business sector. Focus on which of these three flows increases the net financial assets - highlighted in yellow. First up - the one payment flow we've already covered. The Fed buys a Treasury Bond. In this case, I've made a change. I've had the US Treasury Bond originate from an Individual/Business through a Bank to the Fed. Before we just had the Bank dealing with the Fed directly. [click on drawing for full screen viewing] I'm not going to go over this one because we've been over it. Notice though that this payment flow does not increase individual/business net assets. Next up - the US Treasury deficit spends. Here the US Treasury issues $10m in CARES Act checks (for example). The Treasury tells the Fed to issue a payment order and the Fed moves electronic deposits from the Treasury's reserve account to JPM's reserve account. This creates both a reserve asset and a bank deposit liability for JPM. But for the private sector - this is a new net financial asset. Therefore US Treasury deficit spending creates "new money" for the private sector and increases the private sector's net asset values (in terms of the "government's money". Finally - the US Treasury issues a bond. Here the private sector buys a bond from the US Treasury. Notice again - that this is an asset swap. The private sector does not see an increase in its net financial assets. It's balance sheet stays the same as before buying the bond - it just changes the asset mix. A long-winded way to answer the question is that the only thing that increases money, banking deposits, net financial assets in the hands of the private sector is US Treasury deficit spending. Everyone worries about the Fed, the banks, lending - but all of the real action is here. This is what one needs to pay attention to. The Fed and the banks are just intermediaries that manage the payment flows through the payment systems. I'll just add another comment. File this under = advanced topics. Compare Payment Flows 2 and 3. Notice how the act of US Treasury Spending creates an equal in size reserve balance for JP Morgan? Notice how after issuing a Treasury bond, the bond relieves JP Morgan of that large reserve balance even as it maintains the increase in net financial assets for the private sector? (ie, the bank deposit asset is changed into a Treasury bond asset for the Individual/Business sector). This is why we say that Federal Government Debt issuance isn't really borrowing - its a reserve maintenance function. This means that if not for the borrowing, US Treasury spending would create unwanted and large reserve balances in the US commercial banking sector. This is why one can't think of a sovereign borrowing in its own currency as simply borrowing the way we think of it for individuals, businesses, local and state governments that don't create fiat currency. Federal borrowing serves a different function than funding the government. I know this last point can be confusing. It is made confusing by the rules that the Congress puts in place to make it look like the government must tax or borrow to fund spending: - the US Treasury cannot run an overdraft at its general account at the Federal Reserve (i.e., no negative balance), - the US Treasury cannot borrow beyond an absolute level (ie "the debt ceiling") - the US Treasury must issue its bonds to the public (and not the Fed). - the Fed must buy its Treasury bonds in the open market. Its important to note that these are all political constraints, and not economic ones. The only economic constraint is that the private sector must want and need the Federal government's money. This need is not created by legal tender laws or contracts. It is created by the tax obligations that the Federal government imposes on the private sector and then mandating that these tax obligations can only be extinguished by using the Federal government's money. Hope this helps and I just haven't confused everyone with my ramblings. I'm still learning this stuff myself. wabuffo

Are you saying that #1 effectively forces #2 to happen because banks don't have anywhere else safe to put their customer deposits? No - I am saying the two are linked in a payment flow. The Fed's main job is to manage US large-scale payments clearing. They do this by using reserve accounts. All nationally-chartered banks have a "chequing account" at the Fed. So when the Fed decides it wants to expand its balance sheet by buying a Treasury bond from JP Morgan Chase, this is the payment flow that happens. This is very simplified and very high-level. The tables show what happens to the assets and liabilities of the Fed and the assets and liabilities of JP Morgan Chase when the Fed buys a bond from JPM. In the first table, JPM owns only $10m of US Treasury Bonds so its total assets are also $10m. (This is obviously not what the entire balance sheet of JPM looks like). The Fed at this point has no assets and no liabilities. (again - not what the Fed balance sheet looks like). Then the Fed buys $10m of US Treasury bonds from JPM. The Fed makes an electronic accounting entry in JPM's reserve account at the Fed for $10m and takes possession of the bond. Now the balance sheets have changed. The Fed expanded its balance sheet and now owns $10m of Treasury Bonds but also has a liability of $10m via JPM's reserve account at the Fed. JPM's balance sheet hasn't changed in total assets. It still has the same $10m of total assets. The difference is that instead of US Treasury bonds, its assets are on deposit at the Fed with an account balance of $10m. The issue is that these reserve accounts at the Fed can only be used to clear payments between JPM and other federally-chartered banks or between JPM and the US Treasury (ie, tax payments going to the US Treasury, spending from the US Treasury going to JPM). See! its a closed-loop system. In aggregate the reserve balances can shift between banks but for the entire banking sector the total reserves at the Fed can't change unless/until the Fed changes them by selling assets back to the banks. LearningMachine - I hope that makes sense. You can't think of reserves as something banks can "withdraw" from the Fed, in aggregate they can't. It is Fed decisions to buy assets (and expand its balance sheet) or sell assets (and reduce its balance sheet) that determine how much reserves that banks have stuck in these accounts. If you want a slightly more complicated flow involving the US Treasury and MetaBank (CASH) and the CARES Act EIP debit card program for stimulus payments to the "unbanked" - I went over that payment flow last summer (a real world example). Its shows how MetaBank's reserve account exploded when the US Treasury issued the order to the Fed to transfer money from the US Treasury's reserve account at the Fed to Metabank's. https://www.cornerofberkshireandfairfax.ca/forum/general-discussion/how-can-the-fed-unlimited-qe-be-deflationary/msg425263/#msg425263 wabuffo

This action eliminated reserve requirements for all depository institutions. This is related to REQUIRED RESERVES and was already essentially obsolete as a concept. TOTAL RESERVES today are made up of REQUIRED RESERVES + EXCESS RESERVES. Required reserves stopped being important after the GFC and the expansion of the Fed's balance sheet. Look at this table - nothing's really changed just because for accounting purposes required reserves are marked at zero -- the numbers just shift over to the excess reserves column now. https://www.federalreserve.gov/releases/h3/current/default.htm It sounds counter-intuitive, but reserves are a function of the Fed deciding how big a balance sheet it wants to carry. Banks are just along for the ride as passengers collectively. They have no choice. Don't believe me. Let's hear from a former Fed governor (ex-NY Fed President Bill Dudley): https://www.bloomberg.com/opinion/articles/2020-01-29/fed-s-repo-response-isn-t-fueling-the-stock-market Dudley was talking to the issue that many market participants were blaming the Fed restarting its repo program in late Sept. 2019 as causing "liquidity to flood into the stock market" - but focus on the mechanics he's describing. 1) The Fed increases reserves by buying stuff (strictly a swap of assets with a bank) 2) Those reserves go nowhere and stay in the Fed’s clearing accounts for the banks. So why did the Fed cut the required reserves to zero if banks can't actually change the total reserve levels held by the commercial banking system? I believe there are calculations embedded within that reserve requirement that are affected by the types of assets banks hold on their balance sheet. By setting it to zero, it was a very quick-and-dirty deregulation act for banks to free them up to change their asset mix. Perhaps, the Fed hoped banks could more easily alter their asset mix towards riskier assets and help them better respond to the economic hardships businesses were facing because of the pandemic-related shutdowns. I don't think it did much. wabuffo

I wonder if it is a question of "when" people might stop hoarding money not a question of "if". The problem is that one of the largest components in the calculation of "velocity" in the monetary base is reserves. I can't seem to access my reserve account at the Fed so I guess I'm one of the hoarders. 8) "Velocity" started to fall when the Fed expanded its balance sheet in 2008 by forcing the US commercial banking sector to hold over $3 trillion of reserves when they used to hold less than $5 billion pre-2008. The quantity of bank reserves is a policy decision controlled by the Fed (banks as a total sector don't have any choice in the quantity of reserves the industry must hold on deposit at the Fed). Reserves are "frozen" assets that do nothing but sit there to help clear payments. If one is actually trying to measure velocity - I think you could look to the Federal payments systems (Fedwire, CHiPs) and measure the number of turns vs something like GDP. I haven't updated this in awhile, but this is a chart I drew up comparing these two things ($ value of payment transfers & GDP) Currently, the Federal Reserve payment systems settle over $1.1 quadrillion in payments per year. Annual US GDP is $21 trillion - give or take. So every $1 of GDP requires over $60 of payments to circulate on average through the US economy. This doesn't include payments in cash - but they are small relative to non-cash so I ignore them. Here's the historical chart. The ratio bobs around a bit but is up in 2020, FWIW - if my little home-grown "velocity" ratio actually tells us anything useful. wabuffo

I think what is different this time is the money supply growth is enabling enormous budget deficits. Is it really different this time, though? The numbers look big, but as always I think its important to put them in context. During the response to the GFC, the US hit a peak deficit-to-GDP ratio on a trailing-twelve month basis during Sep Q 2009 of 12.58%. During this crisis, the peak deficit-to-GDP ratio on a trailing-twelve month basis was during the June Q 2020 of 14.8%. The deficit continued to go up on a TTM basis for the Sep Q 2020 but so did GDP such that the ratio for Sep Q 2020 actually fell slightly to 13.31% of GDP. So yes - the budget deficits are a bit bigger, but not enormously so, when place in the context of the size of the US economy. Did we have inflation after 2009? I didn't see much of it. Did we have currency debasement? That we sure did - gold took off and hit a peak in 2012 but declined after that as deficit-to-gdp ratios came back down to the single-digit range percentages. wabuffo