A conundrum of monetary expansion

Expansionary monetary policies in OECD countries are driving up the money supply (M2, money held by non-bank economic agents) relative to GDP (income). This has given rise to the following conundru m : In the medium term, the share of money in wealth must remain more or less stable: economic agents have a desired structure for their wealth, between money and other assets (bonds, equities, real estate, etc.), to which they return. This is obtained thanks to the increase in the prices of the other assets that results from the reinvestment of the money in these assets. In the medium term, wealth therefore increases in line with the money supply, i.e. faster than GDP; But in the medium to long er term, it is inconceivable for wealth to increase faster than GDP: financial and real estate assets are bought by the “young”, in prepar ation for their retirement, and sold by the “old”, who consume the income from these sales. The value of these assets cannot exceed the saving capacity of the young. So there is an impossibility: Monetary policy drives up the ratio M2/GDP ; At equilibrium, the ratio M2/Wealth must be stable, which means that the ratio Wealth/GDP rises in line with the ratio M2/GDP ; But the ratio Wealth/GDP must stabilise. This shows that if monetary policy remains expansionary for a long time, economic agents will inevitably have to end up accept ing an increase in the share of money in their wealth.