Yellen: Dammit Joe, I’m a bureaucrat, not an alchemist!
Everyone I talk to now says it’s extremely slow. I don’t see how spending is up. Could someone explain this? We sell to chemical and food manufacturers and they say they’re sitting on inventory they can’t move.
This isn’t rocket since, people. The Equation of Exchange says:
MV = PQ
where:
M = money supply (often measured using M2)
V = the velocity of money (how fast money “turns over” and almost constant to the last 50 years)
P = Price index (desire is for this to be constant)
Q = Output of goods and services (hopefully growing)
Because V is almost constant and P should be constant (no inflation), if Q grows by 3%, M should grow by (M + .03)/V, which is less that 1%. Actually, since economic growth has been less than 3% under Biden, growth in M2 should be almost nothing. Instead, look at what’s happened during his administration:
https://fred.stlouisfed.org/series/M2SL
Yellen’s only part of the problem. You also need to pillory and post Jerome H. Powell as the Fed’s chair for the control of M2.