 Okay everybody, why don't we go ahead and get started? I got four o'clock on my clock here. So thank you for coming to this lecture and I'm just curious, how many of you have seen these stickers before? Okay, great, all right, so it's, and you're, I assume from a wide range of, like some of you are even from Europe and I don't know why you're seeing that, but it's really, not technically, there should be more of Powell's picture should be up there if you're in Europe, but so anyway, that was one of the few things that's worn by higher of the last year or two was just seeing that spontaneous outgrowth there. And that's, like I said, I've even been living in Massachusetts right now, which has this reputation of being a very liberal area. And even in the areas in Massachusetts that are liberal for Massachusetts, at the gas stations, these things were there. I think at the beginning they were scraping them off and then they just threw in the towel and so just let them sit up there. So let me clarify or give some more background as to why I personally wanted to give this talk in some of the personal context. So for those of you who don't know, I back when QE happens, a quantitative easing, I'm sure most people in here know exactly what a lot of what I'm talking about is, but I'll elaborate for the people listening at home perhaps. So back in 2008, it's the financial crisis in the fall and then the Federal Reserve at that time, the chairman was Ben Bernanke and they unleashed what was dubbed QE. So incidentally, just so you know, the Federal Reserve itself never called it QE1, QE2, QE3. That was just stuff that like the financial press dubbed as those programs. And it was truly unprecedented at that point. And you'll see some of the charts in a minute here. What they did at that time was truly unprecedented both in terms of quantitative and qualitative. So it's not just how much money they were creating out of thin air, but the things, the types of assets they were buying, it was in fact, arguably illegal. Incidentally, I have a new book with the Mies Institute called Understanding Money Mechanics. So a lot of the stuff I'm talking about today, if you wanna go read more, go check that out. And in particular, I go through and explain that what they were doing wasn't even legal just to give you a quick aside, they were doing things like they didn't have the statutory authority to buy mortgage-backed securities. And so what they did was they created these things called Maiden Lane Limited Liability Corporations. The Fed would lend money to those entities because the Fed can lend to whoever they want. And then those entities would go out and buy the mortgage-backed securities. So the Fed could say, we're not buying them, we're talking about, we're just lending money to this Maiden Lane LLC, we don't even know what these people are. So they were doing stuff like that. So it, like I said, not only was it uneconomical, but it was also illegal what they were doing, arguably, like a person in a legal journal wrote that up. So anyway, so they're doing that. A lot of people at the time were flipping out. If you know who Glenn Beck is, he's a sort of right-wing-ish commentator and on his TV show at the time, and he had a chart of what the Fed was doing, and he had himself in a forklift and was driving along, like 1990, 1995, 2000, I think it was the charts just going like this. And then in 2008, the chart goes up so much that the forklift had to lift him up. He's also a heavier man, and so that's why. And so I'm just trying to convey to you, and I was part of this too, right? Like I wasn't using forklift props to get the point across, but a lot of us were very alarmed. And then, as I'm sure many of you know, the conventional measures of price inflation did not explode, right? Gasoline did not turn into $8 a gallon in 2010, 2011, in a lot of people's rhetoric. So I would like to say that I was a little bit more garden what I said. I wasn't saying hyperinflation, hyperinflation, oh my God, it's gonna be Zimbabwe, but I was pretty alarmed. And so we're a lot of economists of a free market bent, and that didn't happen, right? And we're gonna get into and talk about, well, why didn't it, or maybe it did happen and they masked it and so forth, things like that. But clearly it was not how it is right now, right? So how it is right now, stuff like this, everybody knows consumer price inflation is very high. The government admits it's the highest it's been in 40 years. And so my concern though is a lot of right-wing people who hate Biden lately had been running victory laps and they're making fun of guys like Paul Krugman. So if you don't know last summer, when the consumer price inflation rate in the United States, the 12 month increase was like 4% in change, Krugman had a column that they titled something like peak inflation is gone now or something like, or inflation hysteria has peaked or something like that. And Krugman was like, hey, remember when people were worried about inflation? Ha, ha, ha. Cause he was saying like that's so May 2021, right? Like he, in other words, he thought that we were over that and the people who were warning about large and the price inflation had egg on their face. And that, and he was, that's how confident he was back when inflation was 4% in change. By the way, it's consumer price inflation. I may just for shorthand say inflation, but you know, the way that the mainstream media talks about it in this talk, but obviously as Austrians it's, we like to distinguish between monetary inflation versus price inflation. And so back in the last summer, Krugman was confidently making fun of people who were worrying about inflation when it was 4% in change. So by this point you can see how bad it is. In fact, he actually had to write an article saying I was wrong about inflation. If you don't know him, it has to be really bad for Krugman to say I was wrong, right? And so it was, don't get me wrong, it was a very weasley apology. Like it was saying, hey, but I was disagreeing with other Keynesians. So it's not that Keynesianism is wrong, it's just we're off by magnitudes and stuff like, you know, is that kind of confession? But in any event, he did have to say that. So a lot of right-wingers were sort of, you know, laughing and saying, oh my gosh, who could have predicted this? The Fed dumps boatloads of money in the economy and prices go up, duh. But right, but on the other hand, that's kind of why a lot of us back in 2009 were also saying get ready folks, it's gonna be bad. And then it seemed like it wasn't like this. Okay, so that's what I'm trying to expand. Let's just make sure we understand that, you know, it's not just simply as when the Fed opens up the monetary spigots, duh, of course you're gonna see gasoline shoot up to record highs and that you're gonna see the highest price inflation since the 70s because that didn't happen. And at that time, they also, the Fed open up the monetary spigots as we'll see. So that's the kind of thing that I just wanted to sort out. Last sort of caveat before we dive into this, I'm not here to tell you, oh, the definitive explanation for why it seemed like two different things happened here or that the impact was a lot more this time around than last time. I'm not here to tell you this is why. It's just, there's a lot of different possibilities and I'm just gonna kind of go through and just make sure you get like, if you have your preferred explanation, you understand, well, wait a minute, there's some nuance here, that sort of thing. So I'm gonna be a standard economist and just say on the one hand, there's this, on the other hand, there's this. So by the end of this, you'll have no idea, but you'll at least know a lot of different confusing aspects to it. Okay, so let me just give you a quick outline of what I'm gonna go through in this talk. So I'm gonna establish that the QE didn't lead to high, at least officially measured CPI inflation, whereas the COVID experience did. I'm gonna go through some of the popular explanations. Again, it tended to be people on the right who were the ones warning at the time, you know, 2008, 2009, 2010. Hey, Bernanke, where do you crazy helicopter bend? This is gonna lead to exploding prices. And then when it seemed like it wasn't, there were a lot of explanations for, wow, this is why, and so I'm gonna go through some of those. And a lot of them have some merit, but there's also some problems with them. So I'm just gonna go over those. And then I wanna show you, so this is the element where I personally think that, okay, there's a lot of understanding here. Like for me personally, like, okay, this is partly what was going on, is the differences between M1 and M2, all right? And so that's, so I am, I was being a little bit flippant two minutes ago when I said, you know, at the end of this, you're not gonna know. So I do have my own theory, but I'm just saying it's, if you wanna walk away from this and still think it's something else, that's fine. But this element, when I show you this, when we get to the end of today's talk, I think you'll see where I'm coming from is for me personally, when you look at the charts about how M1 behaved the same way in both episodes whereas M2 didn't. And so that's where this is building up to, all right? And you'll see what I'm talking about. Because again, big picture, it looked like the Fed, you know, opened up the monetary spigots in both periods and yet CPI only blew up such that the public is outraged the second time around. The first time around, it looked like, geez, turning out, you know, printing a bunch of money doesn't seem to do anything or at least not the same way that, you know, the textbooks warn us about maybe the Keynesians are right. And the second time, like, no, no, no, Keynesians don't know what they're talking about. But that's, I'm so, again, trying to understand that it's, so what you'd wanna see then is, oh, is there some way to assess, like measuring money and maybe with different measures and it's like, oh, okay, according to this measure, the two actually, it was a much smaller thing in the first one as compared to the second one. So that's where we're going with this, that you'll end up seeing that, I'll just give you the punchline right now so I'm not confusing anybody. M1 grew very substantially in both periods. And that's why I personally was concerned about just the flippant way some right-wingers were trying to just dismiss it and say, no, no, we didn't do anything wrong. The banks were sitting on the money and it was like, no, the money in the hands of the public did rise during 2008, nine and 10. And so you can't just dismiss that too flippantly. But M2, which is a broader measure of money, that actually didn't grow all that much, at least, you know, compared to other historical periods the first time around, whereas during the COVID period, M2 exploded also. So that's what I'm building up to here. Okay, so just again, for those who haven't seen this, this chart is showing the Federal Reserve's assets, it's balance sheet. And in case you can't see in the back, that's 2006, 2008, 10, 12, 14, 16, 18, 20. So here remember the financial crisis strikes in the fall of 2008. So that right there is what the Federal Reserve did in the last few months of 2008. Let me go ahead and get this. So that was what eventually became be called the quantitative easing round one. That right there was round two when the first one didn't seem to work. QE2 didn't work. And then they said, all right, this time we mean it. They did QE3. And the difference here was, for those who were interested in the play by play, for these two periods, the Fed at the time of the program was initiated, said we're gonna buy this many billions of dollars worth of assets, a mix of mortgage backed securities and treasuries. And then for this one, they didn't say, they said we're gonna buy $85 billion a month worth and we're gonna keep doing it until the economy's fixed. So they didn't put a limit on it. And so that's why some people call that QE infinity because they were saying it was an open ended commitment because the theory from the Fed economists was, oh, the reason the first two didn't work is we just told the market what we were gonna do and they priced it all in. And then it was just us, following through on what we said we were gonna do. And so there was no extra bang for the buck as it were. And so it wasn't gonna do anything additionally. Once we told them that was a one shot, the stock market got juiced, but then they already knew what we were gonna do. So it wasn't a surprise. Like you gotta keep pumping it in so that the markets know if the economy is still languishing, we're gonna end up doing more because we're just gonna keep that open ended commitment going. So that was their theory. They were very tied to the idea that all you gotta do is inject money and surely at some point the economy is gonna fix itself. All right, and then that's what happened in response to the COVID crisis that in the US at least sort of took hold in March of 2020. Okay, so let me just note a few things. So you might be tempted to just say, well, I've got an explanation, Dr. Murphy, as to why this one made prices, consumer prices rise rapidly, whereas these didn't, because that's a lot bigger, right? I don't have a PhD, but right. So you can say that, I mean, so that's fair enough. Don't get me wrong. Like I said, I'm the one up here trying to explain why I was wrong and when I was warning my short-term warnings there, but I just wanna make sure you realize, so yes, even though now to fit this on the graph, it's making these things look like small potatoes, look at that. So that goes from one trillion to two trillion and more specifically, the Federal Reserve's assets were like 850 billion in early September of 2008 and then they had more than doubled three months later. Okay, so the Fed doubled how many, that's collection of assets in like three months, right? So that's a huge increase. And it just, like I said, it just looks not that big a deal because of the crazy stuff they did later on. But at the time, I mean, it really doesn't work, I think to say, oh yeah, doubling the quantity of base money doesn't have a big deal, but if you quadruple it, then we're talking, then we're gonna start to see the fact that, inflation's always in everywhere monetary phenomenon, right? So again, the issue is why did this not seem to have as big an impact? And here specifically, so let's look at what I'm talking about. So the 12 month growth in the consumer price index, so you can see the last data point here. So the July figures recently came out, I think they broke nine, but this was the June one, at least according to this particular Fred series. So you can see that, actually I think I got it right there, yeah, this right here, so here's 2010. So if what happened in 2009, 10, 11, when they had all those QEs going, if that was going to cause at least at the time, so let me put it this way. If price inflation had been really high back then and then even higher now, that would make sense according to the previous chart, but you can see, no, consumer price inflation was not anything special, it wasn't even higher than it had been like in the mid 2000s. It wasn't higher than it had been in the 1990s, right? So if you just looked at this and I said to you, hey, at what point here did the Fed double them, the monetary base in three months, you wouldn't have known from looking at this chart, you wouldn't have any, I think it was back here, you wouldn't think it was right there, okay? So, and yet, like I say, over here, it does look like, oh yeah, the Fed pumps in a bunch of money because of the coronavirus stuff and what do you think's gonna happen? Of course, consumer prices are gonna skyrocket. So that's the issue that we're trying to sort out here in this talk, okay. So why didn't QE seem to lead to large consumer price inflation, and then, whereas it did seem like it did after the COVID stuff? All right, so let me just go through some of the popular explanations. Again, I cover these in more detail and then some other ones that I just don't have time for in my book with the Institute Understanding Money Mechanics. Okay, so one thing that cynics bring up is they say, well, okay yeah, officially the consumer price index didn't lead to double-digit price increases, but I mean, I was going to the grocery store back in 2008 and nine and prices, I was spending a lot more than I was two years earlier and also the quality of the product. I mean, this is all true. I'm not like making the cynics say something wrong. This is true, like paper towels got real thin. I don't know if this was on your guys radar, cereal boxes, the cardboard got a lot thinner, stuff like, so they were using tricks. You couldn't find an employee to save your life, right? All the grocery stores moved to self-checking. I'm not saying it was merely in response to QE and had ways for them to contain their producer price increases, but the stores were getting squeezed. Consumers were on tight, they were panicked. They didn't want to spend more money because it was the middle of the financial crisis. So there is a lot of truth to that, that the retailers, they saw their raw product prices, wholesale level price increases hitting, and that was showing up in the data. That's not just anecdotal, that was there. And they weren't passing it along officially just by jacking up the price per unit. They were doing other tricks like reducing the quantity, but then leaving the sticker price the same. So it looked like, oh, you're paying the same amount for a jar of peanuts, but you're getting fewer peanuts, that kind of stuff, right? So that was all true. And there's also things they were doing like hedonic price adjustments, if you've heard of that. So they would do things like, well, a new car every year that comes out, if the quality gets better, then they don't book that as the raw increase in the price, right? Like a car now is much better than a car in 1970, that the tires don't go flat as much as AC, there's power windows, that sort of stuff. And so they do make adjustments for that. So even though the raw price of certain goods goes up, they don't book that fully as a full increase because they say, oh, the quality's higher. So it's like the price per unit of quality. And as you can guess, there's a lot of wiggle room there. It's not objectively obvious, like how much better is this TV than last year's model or how much better is this computer than last year's model? And so they have some wiggle room if they have an incentive to contain the official announcement of what price inflation is doing, which they do, because that looks bad. But having said all that, I mean, number one, that's true right now. It's not that the Biden economists are honest and the Obama ones were liars, right? They're both liars, right? And so again, if we're trying to understand the differences in the two periods, something like that doesn't really fully explain it. In particular, you can't hide with the price of gasoline with everybody remembers, and that's why I started the slide with that Biden sticker. Right now, everybody, if the government came out and said consumer price inflation's 4%, everybody would know, no, that's a ball-faced lie because they could see how much stuff had increased. And so you can see here that this is, sorry, this is the price of gasoline in case you can't read that in the back. This is the average price of US gasoline, the regular formulation. So you can see that back then, where is it? In here, gas was relatively high in the QE era but it wasn't skyrocketing, okay? And that was the kind of thing that for me was like, gasoline did get really expensive relative to what it had been like in the late 70s and early 80s back when people were worried about price inflation. Okay, so let me just mention one thing though. And so if this is how you wanna argue it, then I think this is perfectly valid. I'm saying here contrast it with the counterfactual. What you could do is say, hang on, look it. Here's what the price of gas absolutely crashed from the summer of 2008 to December, let's say. And then when all the QE stuff kicked in, look it, it actually did in percentage terms, it went up a lot, right? So in absolute terms, it didn't end up at a final value that was historically really high but gasoline went way up in response to QE. And so couldn't you argue there was massive consumer price inflation, in fact, double digit relative to what consumer prices would have been had QE not happened, right? So I think that that's true actually. And so if that's the way you wanna handle it, that's fair enough. The only problems with that are in terms of what economists, like right wing economists were telling the public, I don't think that nuance totally came through that they said, hey, watch out, what Bernanke's doing is gonna make gasoline as the same price it was two years ago, right? Went, hey, you're gonna miss out on this huge bargain you otherwise would have had. Like that's not when they were saying hyperinflation, hyperinflation, Zimbabwe, that's not where the message people were getting. And then also guys like Brad DeLong and Paul Krugman were arguing and saying, because some of it, like we're sort of cheekily saying, you know, this sort of thing, like, because that's how Krugman and them were handling the unemployment problems. So Christina Romer and Jared Bernstein just do a quick tangent here. When Obama first got elected, he had this thing called the stimulus package and his key advisors made these projections about how unemployment would go up if we didn't pass the stimulus package. And so that's why we got to pass it. So they did pass the stimulus package and unemployment went up higher than what Romer and Bernstein warned would happen if they did nothing, right? So like there could not have been a clearer demonstration that you guys have a bad model here or something, you know what I mean? Like there's nothing else the data could have done to be more embarrassing them. And they just rolled up punches and just said, wow, the economy was worse than we realized. Good thing we passed that, right? And so they were just saying, you know, oh, our problem was not in thinking massive deficits raised employment. Our problem was just in our point forecast as to what unemployment would be in a laissez-faire scenario. We still raised unemployment because government deficits, of course that raises employment. How could you think otherwise, right? So that's what they, so I said sort of tongue in cheek, okay, my price inflation warning was correct. It's just my point estimate of what the price level was gonna be was off. And so DeLong and Krugman, and they really did respond to me by name. It's not that I'm walking around with this complex and thinking that's all about me. They really did find my posting or making fun of me personally by name. And they were saying, oh, so you're admitting there would have been a deflationary black hole had Bernanke not acted. Well, duh, that's the whole point, Moran, right? And so Krugman didn't call me a Moran. I think DeLong actually did, just so you know. So as you see what I'm saying, like in other words, the advocates of QE were warning about deflation. Like they were terrified of deflation. So I think they're wrong to do that. And the Austrians have a good explanation and viewpoint to show how, no, in a healthy economy, like if there is an inflationary boom to let prices fall, at least they give some respite to consumers. They can go buy stuff cheaply at the very least as the economy's imploding. And then if you just go and pour money into defense contractors and stuff, that's not obvious how that's helping anybody by making prices high. But it is tricky if the advocates of QE are saying this is gonna prevent deflation when the critics are saying, oh, this is preventing deflation. So we're right, right? So anyway, I'm just saying that that's, but you could argue that. That'd be one way out of that. Okay, so another popular explanation. So this one, like just be real careful with this one. So as I see a lot of people saying this, they say, oh, what happened was the reason the QE one, two and three didn't lead to huge increases like in the price of gas or the price of eggs or milk, but with COVID it did is because back then it was on the heels of the financial crisis. The housing bubble had popped. And so remember the banks had been making a lot of bad, silly loans, very foolish loans during the housing bubble years. This is all true. Doing things like, in case you don't know. So somebody, they called them liar loans. So somebody would apply for a mortgage on a house and just make up their income, say, oh yeah, I'm employed by this company. They're paying me this one. And they were just making it all up. In the person originating the mortgage, the bank knew they were making it up and they didn't care. They went ahead and approved the mortgage. And so that helped fuel the housing bubble. And so then when things collapsed and when prices collapsed and all these people who didn't actually have the income they just walked away from the house because they couldn't make those payments. They were just trying to get in and flip the house for the gain. So once prices collapsed they weren't gonna keep making those payments. And then the banks are stuck with all these bad mortgages. And so the banks tightened up their standards, their lending standards. And so in 2008, 2009 and so forth, when the Fed pumped in all this money you saw what's called access reserves skyrocketed. So the banks had the legal ability to make more loans to people, but they chose not to. So the conventional sort of textbook description we give about, oh, when the Federal Reserve wants to loosen it buys assets, that injects reserves in the system then the banks with the money multiplier process can lend up to 10 times as much. And that kind of thing, that didn't happen. It was just the Fed injected the money and then the banks did not lend up to the legal amount they were allowed to because they were trying to repair their balance sheets. So that's true, but it's not correct to say so therefore the Fed just pumped in a bunch of money and it stopped with the banks and the public never saw it. And so you can see that most clearly if you look at a chart of M1. So M1 is, just think of it as money in the hands of the public. It's like actual currency, green pieces of paper with pictures of presidents on them and checking account balances. At least that's the definition that was true back then. They recently changed it. I'll talk about that in a minute. Okay, so you can see M1 was actually pretty flat during the housing bubble years. And then right when the financial crisis hit all of a sudden M1 starts rising rapidly. Okay, so my point is it doesn't work to just glibly say, oh no, the public never saw that money. It just sat in the vaults of the banks or electronically in the banks ledgers sitting on an account with the Fed and the public never got their hands on it. That's not right. The money in the hands of the public at least as measured by M1 did rise substantially right when this started. So again, just merely say the banks were sitting on it, I think is not accurate and there's something else that had to be going on here. Okay, so another explanation as to again, in case you're getting lost, when I say popular explanations, I'm trying to explain or I'm repeating a lot of things I heard from people who had been warning about, hey, the Fed during the QE period is pumping in a lot of money. Watch out, the dollar's gonna crash or the dollar's gonna fall significantly. This is we're gonna have bad inflation. It's gonna be like the 70s and then it wasn't. And then after a few years of that just waiting, hey, it's not happening. And then people started trying to give explanations. Why not? And so one of the popular explanations was, oh, well, the new Fed money, it went into stuff like the stock market and other financial assets. It didn't go into milk and eggs and gasoline. I'm sympathetic to that. And also I like this sort of explanation because it reminds us that there's different prices. And so when people loosely talk about in the mainstream press, they say, oh, the inflation rate last month was blah, blah, blah. What they actually mean more narrowly is the consumer price inflation rate, the prices of certain types of consumer goods. Whereas if the stock market went up 60% a year, people don't normally call that inflation, even though those are prices. If the real estate market goes up 50%, not only do they not include that, it's typically in the measure of inflation, but a lot of people think that's a good thing. Even though from a certain aspect, it's like, well, why is it bad if eggs are more expensive but it's good if houses are more expensive? You need to live somewhere just like you need to eat eggs. So somebody even say houses are more important than eggs. So it's weird how they do this. I do like this explanation in that respect that it is reminding us that even the advocates, the proponents of QE, they would agree. They would say it's a sign of the success that whatever the QE announcements were made, the stock market popped. It went up the US stock market. And so in that sense, it's like, yeah, of course, QE raised prices. It's just raised these types of prices. So this explanation is good in so far as that goes. But let me just go through, and this is more of like a technical quibble, but I just wanna make sure you're thinking about this properly. That strictly speaking, it's not the money like goes into the stock market. It's not like there's certain money that you can see. Oh yeah, that money right now is in the stock market. Where's this money's over here in eggs? And let me just show you what I mean. Let's say we start with Alice. She's got $1,000 in her checking account. And Bob's got 10 stock shares that right now has a market value of $80 each. So he would say, oh, I have $800 worth of these stocks. And then Bob sells the stock shares to her at $100 each. And she writes him a check for $1,000. Okay, so when all is said and done, I'm asking you what, so looking from the point of view of the stocks, you would say, oh, those stocks went from $800 to $1,000. Okay, so there's a sense in which someone would say, oh, there's $200 now more of market cap in the stock market, or those assets now have a $200 more of wealth behind them. And so you might think an extra 200 went into the stock market, you might think a total of 1,000 just went into it. But in terms of where is the money, originally it was in her checking account, and it ends up in Bob's checking account. Okay, so when you say money goes or go to the flip side, if there's a big sell-off in the stock market, people are saying, oh, people are getting out of stocks and going into cash or something like that. And you might be thinking that there was money over here in the stock market and it's sold off and now the money's over here in cash. But in terms of where is it physically or legally, no, it was in the one person or one entity's checking account balances with some bank and it ended up in somebody else's checking account balances in a different bank perhaps. All right, so just make sure you, I mean, again, it's just a technical quibble, but make sure you realize that that's going on. And so when we talk about, oh, the stock, people say things like, oh, well, the stock market lost $2 trillion of wealth in the last month. It's not that there's $2 trillion fewer bills or something or even the checking account balances are that much lower. That what we mean by the value of the stocks is just they look at the most recent transactions, what was the unit price, and then they multiply that out. So if there had been a thousand more of these shares of stock, then the fact of this transaction pushed up the stock price, that would get multiplied by those for the people who were just sitting holding their stocks and their wealth would have gone up too. So just make sure you realize that it's not that there's physical transfers of cash. When we talk about the stock market gaining or losing huge amounts of value one way or the other. Okay, so M1 versus M2 again, this is what we're building up to and we may have time for a question or two. Okay, so in case you don't know these, let me just refresh your memory. So M1, these are just all monetary aggregates. All right, and so the M0 or what's sometimes called the base is like the actual currency and the bank reserves with the Fed. So when I was earlier showing you the Fed's purchases, that's what you would call or that's at least related to the monetary base. And then M1, at least pre-2020 was defined as currency in the hands of the public plus demand deposits. And just think about like there's checking account balances and some other really liquid items. Whereas M2, it's M1, everything that's an M1 and it's got some other things such as retail, money market, mutual funds. All right, again, you'll see where I'm going with this in a minute. So again, the punchline is gonna be that M2 did not grow significantly at least by historical standards during the QE period but it did later, whereas M1 grew a lot in both. And so once I saw that I was trying to understand, okay, well, what were the components then of M2 that must have been falling to offset? Because if you know M1 jumped but M2 didn't jump that much, that must mean there was something else in M2 that was falling. And so one of the things I found was this, that money market mutual funds, you can see they tend to fall after these gray lines or recessions. They fall after every recession, including the one that was caused by the lockdowns but in terms of magnitude and the duration of it, you can see, so here's 2010, so this is the 2008 crisis, you can see it fell, so if you can't read these numbers, it's about $400, $500 billion worth that retail, money market, mutual funds dropped and then they stayed down for a long time. And so part of what's going on then, so here's the punchline, the growth rates, so this slide is showing you the growth rates in M1 and M2 in the two periods. So let me just walk you through this. So the blue line, it's M1 and you can see, so here's the 2008 crisis. So the blue line, it's real low, it shoots up, right? So you can see the growth rate here and it was like 20%. So that's what I was getting at when I was saying that you can't just glibly say, oh, the reason the QEs didn't lead to price inflation was because the money just set in the banks the public never saw it is because, well, no, this is currency component of M1 plus demand apod, you can see that rose 20%, and then also just to get some idea of the context, you can see that's way higher than it had been at least going back a few decades. And so it, especially here, so this right here is up to 2012, right? You can see that's what, 25%. So it won't work to just say the public never saw it, no, the public did see a huge increase in the narrow measure of money that's typically said money in the hands of the public. And then also skyrocketed there. So in terms of M1, again, that's what initially misled me when I was trying to figure out at the time, before COVID, like what's going on? How come we didn't see huge increases in CPI and I was dismissing people who were saying up because the public never saw it because I was looking at these charts of M1 and saying, well, yeah, no, they did. Okay, but M2, again, which is just a broader measure of money that includes some other things. Again, the growth rates, you can see a different picture that M2 did explode during COVID, right? That's much higher than it had been going back decades. It popped a little bit during the QE rounds, but by historical standards, it wasn't unusually large. If you just looked at that red line and didn't see this part over here, and I told you, at one point here, the Fed doubled the monetary base in three months and when did that happen? You wouldn't have known it was right there. You might have thought it was right there because those are comparable spikes, right? So that's what I'm saying is if you had looked at that particular measure of the stock of money, you would have said, oh, okay, so in that sense, you don't see a huge increase. What the Fed was doing during the rounds of QE maybe prevented M2 from collapsing so that there's still the inflation relative to the counterfactual, but in absolute terms, there wasn't a huge spike the way there was here. So that kind of makes sense if you want to explain swings in consumer prices by reference to the stock of money, looking at M2 does a good job. So let me just make a couple last remarks here and then I'll open them. We'll have like five minutes for questions. I'm not saying, oh, the right measure of money to predict consumer price inflation is M2, not M1, even though you might see, that's not what I'm saying. You could still use M1 if you wanted to, what's going on though is what you would have to realize is, I think, and psychologically, I think this is what was happening is the reason you saw checking account balances swelling after 2008 is people were panicked and in particular, money market funds were not performing the way they were supposed to. Like I don't know if you know the phrase broke the buck in September of 2008, this is one of the things that precipitated the panic is these large funds that were supposed to maintain parity, stopped doing so, right? And so people had their money and what they thought were extremely safe, real liquid short-term investments that didn't offer a higher interest rate but were supposed to be rock solid, like almost as good as cash. Well, they had like a commercial paper and stuff like that, very short-term assets and they were not maintaining their share price, was not supposed to go below a dollar and it was, that's the phrase, break the buck. And so I think a lot of institutional investors were getting out of those things. That's why you saw the huge exodus in value of retail money market mutual funds and they were getting into like literal checking account balances. And another institutional change is the Fed, if you remember this, FDIC in 2008, when the crisis hit, they increased the limit. So up till then, checking account balances had been guaranteed up to $100,000 and they increased it to $250,000. Like saying that even if your bank fails, if you have a checking account balance, the federal government will make you whole up to $250,000 and you could just open multiple accounts. So even that limit wasn't really a big deal. You could just open up multiple accounts if you had more than that in a checking account. Okay, so I think a lot of people were panicked. They were seeing stuff happen, the Lehman brothers and whatever that was inconceivable at the time. And so they were getting out of what used to be considered real safe assets and into literal checking account balances. So the fact that M1 was increasing was more due to people wanting to bulk up on checking account balances out of fear. Not, it wasn't so much a reflection of the system pumping in all this money and people are like, what are we gonna do this? Let's go spend it because this money's burning a hole in my pocket. Okay, so again, if you think of like, oh, when I think about what money really is, it's not so much money market mutual funds. It's more like currency and checking account balances. That's money. You can still do that. I'm not telling you it's wrong. I'm just saying though that it obviously does make a difference if people's demand to hold money increases because of fear and they wanna just increase their cash balances. So my point is looking at the data on M2 in real time, you would have had a better, if you had seen or if I had done this at the time when I saw M1 was rising rapidly but I saw M2 wasn't rising nearly as much, that would have been a hint that wait a minute, something's going on here. Maybe that rise in M1 is largely driven by the public, just their demand to hold cash and so that increase in the quantity of checking account balances is not gonna show up as $8 a gallon gasoline. Okay, let's see, do I wanna say? Oh, one last thing in case you're curious. So some of you may know that the Austrians have their own measure of the money supply that Rothbard developed and then Joe Salerta worked on it with him and they call it the true money supply, meaning they take the definite, like the definition of money in the Austrian approach and then go out and pick the components that best approximate that. And I just, I checked, I didn't have it when I made the slide, but I thought about it afterwards and I went and checked it and it holds up that the Austrian measure of the monetary supply, right? So it's not M1 and M2, it's something else that has some of the components and other ones that these don't have but that measure rises very rapidly, the COVID period and it doesn't rise all that much during the QE period. And so that, if you had been looking at that particular measure, that would have given you good guidance as to, oh, should we worry about consumer prices exploding back in the QE period versus after COVID? One little warning though about that is earlier in the late 70s and early 80s, that the Austrian measure of the money supply, it doesn't explode like in the late, it explodes like around 1982 and three so the timing there is a little bit in terms of it doesn't perfectly lead what you would think of as, oh, the money supply goes way up and then prices go way up and then the money supply grows, drops and price inflation drops. The timing there is a little bit, not what you would have thought, but on these two periods, the timing that does work out really well. Okay, so I will stop there and I think we have time for a few questions. Have you ever met Paul Krugman in real life? If so, what happened? Okay, so he was in a debate at Freedom Fest one year and so I didn't meet him, he was sitting at a table and I walked by and I kind of glared at him, but. So the main reason I was of the impression that the money going into the stock market after early eight was the main reason why there wasn't inflation was because if you look at the periods where the Fed increased the interest on excess reserves which they gave themselves the power to do after 08, that corresponds with rallies in the stock market. So in your opinion, is there just not a real correlation there? Is it actually just good fundamentals in the stock market and that money was not going there? Okay, so let me, I think I get what you're asking. All right, so one thing he brought up was, and this is another element related to the banks are just sitting on it. So the Fed in, what was it? October of 2008 started a brand new policy of paying interest on reserves. All right, so up till then, if banks had excess reserves at the Fed, meaning they were legally allowed to lend them out to borrowers, but they chose not to and left them at the Fed, they wouldn't earn any interest. So that was one reason that they would banks typically up till that period were fully loaned up. It was kind of, you had money sitting there, the Fed doing nothing for you. If you lent it out as long as it was a decent credit risk, you could earn interest on it. And then in the fall of 2008, they began paying banks an interest rate to keep their money parked at the Fed. So if you think about it, that's kind of weird that in the way I like to explain that is to say, when the, right when the Fed was bailing out the big investment banks because saying, hey, we got to, you know, rescue Wall Street to keep loans flowing to Main Street. That was some of the rhetoric they used. Like, oh, we hate to bail out these banks. You know, it just breaks our heart, but we got to do it, you know, because we care so much about the little guy. They also began paying banks to not make loans to their customers. Like that's a little, that's a true statement. That's not the way they described it, but that's what they were doing. However, having said that, though, the amount was like 0.25% originally. And so I, in the grand scheme, I mean, that could be a major factor, but I personally, I don't think if, I don't think that was the main thing. I think the reason banks were not making loans to their customers and the excess reserves shot way up was because banks were afraid and they wanted to repair their balance sheets. I don't think that small, if it had been like a, you know, 5% payment that would've been something else. Are we done? Okay, he's saying no. All right, thanks everybody. Thank you.