<story><title>Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply</title><url>https://m1chart.com/?ref=hn</url></story><parent_chain><item><author>choxi</author><text>A lot of people say there’s no such thing as asset inflation [1] and I find that very confusing. Hypothetically, if we add $1T to the economy and everyone invests it into stocks, is that not inflation? I guess economists say it’s not, but it feels like a pedantic argument about assets being “overpriced” not “inflated”.&lt;p&gt;I think our current method of measuring inflation against the CPI is nonsense, the basic premise that you can assume the price of e.g. milk is stable doesn’t even make sense. There’s changes in manufacturing, quality, brands, and market demand that aren&amp;#x27;t accounted for in the CPI.&lt;p&gt;Measuring inflation (or whatever you want to call the difference between an asset&amp;#x27;s nominal value and it&amp;#x27;s intrinsic value) is still useful, but the current method of pegging everything against the bag-of-goods in the CPI seems like an overly simplistic model. This approach of normalizing asset prices against the M1 supply seems more reasonable to me. The intrinsic dollar value of an asset is its value relative to how many dollars there are, not relative to whatever the price of milk is.&lt;p&gt;1. &lt;a href=&quot;http:&amp;#x2F;&amp;#x2F;noahpinionblog.blogspot.com&amp;#x2F;2013&amp;#x2F;07&amp;#x2F;asset-price-inflation-is-not-inflation.html&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;noahpinionblog.blogspot.com&amp;#x2F;2013&amp;#x2F;07&amp;#x2F;asset-price-infla...&lt;/a&gt;&lt;p&gt;Edit: I am clearly not an economist, please see some of the informative comments below. In particular, it sounds like the CPI does account for some complexities, asset inflation is more commonly supported than I thought, but normalizing by M1 might not make any more sense than CPI.</text></item></parent_chain><comment><author>tylerhou</author><text>Mainstream economists know that CPI isn&amp;#x27;t accurate because of changes in demand. So they created other indicators (like chained CPI [0]) to account for changes in the basket of goods.&lt;p&gt;Normalizing against the M1 is an not very meaningful because ignores the fact that the price of a dollar is subject to &lt;i&gt;demand&lt;/i&gt; as well. In times of high demand for dollars (like right now), the supply of money (the M1) needs to increase to for the price of a dollar to not rise.&lt;p&gt;In other words, stock prices normalized to the M1 has the same amount of meaning as stock prices normalized to the number of loaves of bread the country produces, or the number of cars. It&amp;#x27;s nonsense — you&amp;#x27;re comparing a price to a metric that only takes into account half of the equation (only supply)!&lt;p&gt;Sidenote: When the price of a dollar rises, that&amp;#x27;s deflation; when it falls, that&amp;#x27;s inflation. That&amp;#x27;s also why &amp;quot;asset price inflation&amp;quot; isn&amp;#x27;t precise — inflation measures the change in price of a currency, not an asset. Maybe individual assets go up or down in price, but that happens in response to consumer demand shift. The Fed&amp;#x27;s mandate is to manage inflation, which is affected by changes in &lt;i&gt;aggregate&lt;/i&gt; consumer demand. Therefore, Congress delegated it tools to influence consumer demand as a whole, but not tools to shift demand from one asset to another.&lt;p&gt;The phenomenon you&amp;#x27;re observing is: the Fed&amp;#x27;s monetary policy helps the US grow, which benefits corporations and increases stock prices. The only way the Fed can prevent that is to... stop the economy from growing by letting our currency deflate? Which sounds bad? I.e. the Fed can&amp;#x27;t do anything to shift consumer demand, short of causing a recession.&lt;p&gt;TD;DR: If you think stonks are overvalued, then blame Congress, not the Fed. They&amp;#x27;re the ones who have the power to change that without causing a recession.&lt;p&gt;[0] &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.brookings.edu&amp;#x2F;blog&amp;#x2F;up-front&amp;#x2F;2017&amp;#x2F;12&amp;#x2F;07&amp;#x2F;the-hutchins-center-explains-the-chained-cpi&amp;#x2F;&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.brookings.edu&amp;#x2F;blog&amp;#x2F;up-front&amp;#x2F;2017&amp;#x2F;12&amp;#x2F;07&amp;#x2F;the-hutch...&lt;/a&gt;</text></comment>
<story><title>Show HN: M1 Chart – The stock market adjusted for the US-dollar money supply</title><url>https://m1chart.com/?ref=hn</url></story><parent_chain><item><author>choxi</author><text>A lot of people say there’s no such thing as asset inflation [1] and I find that very confusing. Hypothetically, if we add $1T to the economy and everyone invests it into stocks, is that not inflation? I guess economists say it’s not, but it feels like a pedantic argument about assets being “overpriced” not “inflated”.&lt;p&gt;I think our current method of measuring inflation against the CPI is nonsense, the basic premise that you can assume the price of e.g. milk is stable doesn’t even make sense. There’s changes in manufacturing, quality, brands, and market demand that aren&amp;#x27;t accounted for in the CPI.&lt;p&gt;Measuring inflation (or whatever you want to call the difference between an asset&amp;#x27;s nominal value and it&amp;#x27;s intrinsic value) is still useful, but the current method of pegging everything against the bag-of-goods in the CPI seems like an overly simplistic model. This approach of normalizing asset prices against the M1 supply seems more reasonable to me. The intrinsic dollar value of an asset is its value relative to how many dollars there are, not relative to whatever the price of milk is.&lt;p&gt;1. &lt;a href=&quot;http:&amp;#x2F;&amp;#x2F;noahpinionblog.blogspot.com&amp;#x2F;2013&amp;#x2F;07&amp;#x2F;asset-price-inflation-is-not-inflation.html&quot; rel=&quot;nofollow&quot;&gt;http:&amp;#x2F;&amp;#x2F;noahpinionblog.blogspot.com&amp;#x2F;2013&amp;#x2F;07&amp;#x2F;asset-price-infla...&lt;/a&gt;&lt;p&gt;Edit: I am clearly not an economist, please see some of the informative comments below. In particular, it sounds like the CPI does account for some complexities, asset inflation is more commonly supported than I thought, but normalizing by M1 might not make any more sense than CPI.</text></item></parent_chain><comment><author>dragonwriter</author><text>&amp;gt; I think our current method of measuring inflation against the CPI is nonsense,&lt;p&gt;It&amp;#x27;s not nonsense for policies that are directly concerned with consumer prices, which most that the CPI (or, more precisely, any of the CPIs, of which there are several) is used for do. We have lots of other inflation measures (, industry specific PPIs, for instance) for other purposes.&lt;p&gt;&amp;gt; Measuring inflation (or whatever you want to call the difference between an asset&amp;#x27;s nominal value and it&amp;#x27;s intrinsic value) is still useful&lt;p&gt;That&amp;#x27;s not what inflation is supposed to measure, because that&amp;#x27;s a nonsense thing to try to measure, because there is no such thing as intrinsic value.&lt;p&gt;&amp;gt; but the current method of pegging everything against the bag-of-goods in the CPI seems like an overly simplistic model.&lt;p&gt;How? Consumer prices are final prices. Everything else is instrumental to producing final goods and services.&lt;p&gt;&amp;gt; The intrinsic dollar value of an asset is its value relative to how many dollars there are&lt;p&gt;No it&amp;#x27;s not, and even if it was, that wouldn&amp;#x27;t make M1 a sensible measure. Why not the actual number of actual dollars there are: monetary base. Or something that better captures the number of effective dollars, M2.</text></comment>