The Cash Machine

There were 5 IPOs on Friday. And there was $7.5 billion in new capital raised. I don’t think those are headlines you normally hear on a summer Friday in the middle of a pandemic. I’m not sure what to think of it, yet, but I do know that the cash is swirling.

The chart you see below shows the M2 Money Stock. The M2 Money Stock measures how much money is out there, everywhere, whether it’s cash or an investment or a checking account. While several smart people on my Twitter feed have been pointing to this chart for months, I want to hop on board and make it very clear to anyone who stumbles across my wild blog… the cash machine is on:

Screen Shot 2020-06-27 at 9.40.09 AM.png

The rapper named DRAM, in late 2016, released a single called Cash Machine and that’s the inspiration for the title of this post. More recently, someone recreated DRAM’s Cash Machine music video and added Jerome Powell (J POW for those unaware of the modern central banker) as the one spitting lyrical bars on camera. The remixed video was shared way back in April and it’s incredible to reflect on how spot on it was. Markets have bounced enormously since this collaboration hit the tweets:

While I generally think more money in circulation is the cure to the current economic crisis, and while I do applaud its efforts, I am not ignorant to the potential downsides. There are always downsides.

The first thing on my mind is capital allocation. It does not matter how much money is printed or how loud the machines go brrr. If it is poorly allocated and used, its impact will be minimal. If we gave $1 trillion to Hertz, could they build something that improved lives, efficiency, and happiness? Let’s turn this question around. What if instead we gave $1 trillion to Apple? Who would create more value? I think this is a very important thought process for the next steps of our economic recovery.

Increasing the money stock makes sense to me in a crisis, and it’s even better in the short-term. But, long-term, if the money is misallocated and poorly invested it will not only make things worse (more money in circulation with no improvement to the economy), but also be even harder to turn around. That’s why a small portion of me says… “wait a second, this can’t be that easy?”

So I write this post to comment on the economic history we’ve witnessed. I am also writing this post to point out that if there is any more downside from here, which I hope there isn’t, it’s probably in some form of stagnation. That’s why the most important next step for the economy is not in the form of checks, but instead in the form of creating. An infrastructure bill that brings high speed Internet to everyone and every city no matter your background or income. That’s a cash machine I can get behind.

Leave a Reply

%d bloggers like this: