Notes on the Week Ahead Why Money Doesn’t Talk Any More
Aug 18, 2025
Modern life is a whirlwind of distractions that obscure our understanding of the economy. The discussion highlights how today's financial landscape demands a new focus, particularly regarding the money supply. It delves into the historical shifts in monetary policy and their economic implications. There’s also a look at how innovations like electronic payments have transformed monetary transactions, significantly affecting economic forecasting. Overall, it’s a striking examination of the distractions that can lead us astray in investment strategies.
AI Snips
Chapters
Books
Transcript
Episode notes
Why Money Once Mattered
- The money supply once tightly linked to inflation via the equation of exchange (M×V = P×Y).
- If velocity were stable, faster M2 growth would mean higher inflation or output.
Volcker’s Money-Target Experiment
- The Fed targeted money growth under Paul Volcker in 1979, which pushed short-term rates above 20%.
- That extreme tightening caused two recessions and collapsed inflation to about 2.5% by 1983.
The Broken Link Between M2 And GDP
- After the late 1970s the link between M2 growth and nominal GDP became unstable.
- Big money-supply surges recently met collapses in velocity with little effect on growth or inflation.
