Most people, a lot of experts will say, you know what? The fed printing all this money, it’ll be leading towards inflation, right? $3 trillion, $4 trillion in last few months, pop the stock market. And that’s one of the ways it’s showing its ugly head, but you’re saying the complete opposite it’s deflation that’s coming.
Maybe why is the whole inflation story? Not true. First of all, it hasn’t been true for 13 years. Go back to 2009, between late 2008 and 2009. The federal reserve expanded its balance sheet from about $800 billion to something just under $4 trillion. So they increased it by 300% and it was like, Oh my goodness, they’re printing all this money.
We’re going to get inflation. We never got inflation. We didn’t have inflation for 10 years. We still don’t. And money supply has nothing to do with inflation. Milton Friedman was wrong about that. The Austrian school was wrong about that. The Neo Keynesians are wrong about that. Inflation is not caused by money printing.
Inflation is caused by velocity of money. He knows this the turnover of money. So you can take the fed balance sheet to 7 trillion. My friend, Stephanie Kelton has used the big brand and modern monetary theory. They say, why can’t it be 10 showing the answer is it could be 10 trillion, but it’s not necessarily inflationary unless you get the turnover.
So I’ll give you a simple example. Let’s say I go out to dinner and I tip the waiter. And the way that it takes the tip money and takes a taxi or an Uber home tips, the driver, and then the driver takes the tip money and puts gas in his car. My $1 had velocity of three, it supported $3 of goods and services that the restaurant tip the taxi tip and the guests.
But what if I stayed home and watch TV, then my money has velocity of zero. I didn’t spend my money. There was no turnover. And I remind people $7 trillion times zero. Is zero in others. If you don’t have velocity, I don’t care how much money you print. If you don’t have velocity, you don’t have an economy.
Philosophy has been dropping for 22 years. It started to drop in 1998. It’s been coming down ever since our head larger spikes down in the 2008 global financial crisis and the 2020 pandemic collapse, the clear line has been going steeply down and it’s still going down. So my point is, and we need inflation inflation.
Uh, is, is not good in some ways, but you can’t print your way out of a liquidity trap. You can’t borrow your way out of a debt trap. The only way to get out of it is with inflation. And the only way to get inflation is to change the psychology because it’s not controlled by my supplies control by how people feel.
And right now they’re, they’re saving savings rates are sky high is precautionary savings. People feel the prices is going to get lower. So they defer consumption. Now. I’m talking about consumer price inflation, which is what the fed looks at and what’s policy makers. I got a few. If you think the stock market is a place, I can call it an asset bubble.
Yeah. Stock prices are going up. That’s not inflation as. Economists and policy makers to understand it. Those are just asset bubbles and they are happening. So the money has to go somewhere. I’ve heard of people got these $1,200 checks last around last June, may and June. They’re probably going to get another $600 in the next month or so what are they doing with the money?
Some people were paying the bills, but a lot of people are investing in stocks. You got all these newbies that are in Robinhood. They’re first time investors. They don’t really know what they’re doing, but they know that stocks only go up. They’re not spending the money they’re investing in the stock market.
They’re just in plating the bubble, not doing anything for the real economy, which we come from spending. There’s something to be said for savings, but that’s what people are doing, the saving the money and investing the money. They’re not spending it. So the money printing doesn’t work. Yeah. Makes total sense.
The money’s out there. It’s just the government needs have to try and find a way to incentivize throwing it into the real economy or getting reflectance mindset for consumers. .