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In 2009 the USA embarked on a radical strategy of creating base money at a previously unheard-of rate: http://imgur.com/MjdJNbz http://imgur.com/MjdJNbz Basic
by riprowan 11y ago
In 2009 the USA embarked on a radical strategy of creating base money at a previously unheard-of rate:
http://imgur.com/MjdJNbz http://imgur.com/MjdJNbz
Basic Econ 101 tells us that inflating the base money supply should eventually result in higher nominal prices for goods and services.
Meanwhile the basket of goods and services used to measure inflation has remained mostly flat, meaning "low inflation", ensuring that the Fed can continue its cheap-money strategy, while also helping the government minimize its expenditures by keeping cost-of-living adjustments to a minimum.
Meanwhile, as Peter points out, investment and speculative assets have increased wildly in value. Fortunately for the wealthy, these are not considered part of the "basket of goods and services" used to calculate inflation.
It's almost as if the very wealthy have more money than they know what to do with, and cannot find enough rational places to invest it. It's almost as if none of this wealth is "trickling down."
It's almost as if there is a disconnect between the economy that the very wealthy live in, and the economy that the rest of us live in.
- xbmcuser 11y agoI think the US is under a double whammy. Republicans call for trickle down economics but at the same time they have opened the bottom up to unregulated and slave labour. So the money doesn't trickle down. It just flies to the lowest rung of the ladder skipping the middle where the US middle and lower middle class lives and goes abroad.
- riprowan 10y agoGreat point - in the USA, wealth doesn't "trickle down" it "leaks out"
- bbcbasic 11y agoThe velocity of money also matters. You can create a quadrillion dollars and stick it in a bank account and it never moves. That is not inflationary.
- williamscales 11y agoIs there a way that wealth could trickle down? Are there investments that the very wealthy could pursue that would reflect in the broader economy? Or am I misunderstanding. When the cost of goods and services eventually rises, will that result in a rebalancing of where the wealth is flowing?
- ajuc 11y agoWealth is trickling down. It's just trickling from poor people in developed countries to poor people in developing countries. And it's a good thing. Why should poor people in developed countries be priviledged? Meanwhile rich people in develoepd and developing countries make tons of money on the differences between the poor, decreasing them in the process.
- deleted 11y ago[deleted]
- scotty79 11y agoIt's not wealth. It's just money. Trickling it down would just cause inflation. Just take a look what money trickling down through IT companies did to SF housing market.
- ftlio 11y agoIf you already own the assets, you're alright. If you're young and owe 80k to Sallie Mae, you make out better. Everyone on a defined benefit program gets the shaft though.
- stickfigure 11y agoThank you, this is exactly what I want to stand on street corners every day and scream out at the top of my lungs like a crazy person. Money != wealth, at least not on a macroeconomic scale.
- williamscales 11y agoWell, that and anti-development policies that result in a complete undersupply of housing. Opening up more housing supply would alleviate that inflationary pressure---so I'm wondering what the analogue is here, from a policy perspective.
- smitherfield 11y agoIf the economy you live in is software development (and/or, the SF Bay Area), you've seen quite a bit of trickle-down since 2009.
- ricksplat 11y agoI've been getting a good bit of trickle-down since the late 90s at least .. but that's not the point. When you talk about trickle-down, you're talking about the economy as a whole not just a specialised sector with a scarcity of skills ... if anything the value we create "trickles up" because half the time it's hard to see benefit to the man on the street. Effective economic policy is not just about me having loads of money. It's about not seeing your friends and family having to struggle; your friends having to emigrate; cuts to services for the sick & elderly, and a spiralling cycle of fucking the poor.
- sgt101 11y agoI thought that software development created wealth - how does it relate to trickle down?
- toomuchtodo 11y agoSoftware development doesn't create wealth; it simply extracts value removed from other parts of the economic system (labor->automation).
- deleted 11y ago[deleted]
- ftlio 11y agoCorporate balance sheets are good on the debt front. Corporate cash stockpiles are high. Meanwhile Average Joe is carrying a lot of debt and no cash. I know wages would lag behind the curve as they always do, but doesn't Average Joe (especially young Average Joe) stand to gain from an ensuing high inflation scenario?
- fauigerzigerk 11y agoOnly if Average Joe's debt is fixed rate and his skills are valuable enough to demand a raise.
- damptowel 11y agoBasic Econ 101 is wrong. See http://www.sciencedirect.com/science/article/pii/S1057521914001070 http://www.sciencedirect.com/science/article/pii/S1057521914...
- cperciva 11y agoIt's almost as if none of this wealth is "trickling down." It definitely trickled down to resource economies. Without the influx of cheap capital, "unconventional oil" like shale and oil sands would never have gotten off the ground.
- sgt101 11y agoOne example of this is mechanical watches. My wife is a photographer and buys glossy magazines as a part of getting inspired, so I picked up a Vanity Fair special on watch movements a few days ago and thumbed through it. I was struck by the fact that the shots of watches weren't accompanied by prices so I typed "tourbillon" into google. I got 5 returns in the "shopping" banner, with prices ranging from £380,000 to $22. One of the things I learned from the Vanity Fair article, which is pretty obvious, is that the patents on automatic watch movements have all expired. New designs are not, by in large, technical innovations, the patents on them protect novel arrangements with novel aesthetic characteristics. Therefore if you have a little cnc machine or a 3d printer you can make a movement for pennies and sell with the comfort of IP protection. The gold and gems on a watch are worth ~£10k, leaving ~£360k as margin. Staggering.
- tribaal 11y agoWhile you are right, I feel compelled to point out that mechanical luxury watches are expensive not because of IP (they expired long ago, as you point out), but because they are: 1. Assembled by hand (in Switzerland, for the most famous brands, where labour isn't cheap) 2. Made of precious material, as you pointed out. 3. Require a lot of R&D and design to develop (fitting movements and complications in each model's unique case is a hard problem). 4. Very limited numbers of them are produced (mostly because of 1.). It's common for watches to be unique. 5. Come with an "eternal" warranty (they will fix my dead grandpa's watch for free, forever). So while having a CNC and a 3d printer, making a wearable watch to the same specs will be quite a challenge.
- sgt101 11y agoI agree, a substantial premium attaches to all of these points. The differential between that premium (Gold, diamonds, R&D and Swiss labour) and the price used to be relatively small. There is a magnificent analysis of this process of "luxurification" here : http://www.ablogtowatch.com/rolex-prices-past-60-years-revealing-analysis/ http://www.ablogtowatch.com/rolex-prices-past-60-years-revea...
- dethswatch 11y ago
- panarky 11y agoThat's a dramatic chart with a steep rise in 2009. However, that only tells part of the story. The monetary base doesn't affect asset prices and consumer prices if it just sits there doing nothing. Bank reserves with Federal Reserve Banks match your chart during the same time, showing that this money is just sitting with banks, not in the real economy [1]. Consequently, the velocity of money declined steeply at the same time [2]. [1] https://research.stlouisfed.org/fred2/series/WRESBAL https://research.stlouisfed.org/fred2/series/WRESBAL [2] https://research.stlouisfed.org/fred2/series/M2V https://research.stlouisfed.org/fred2/series/M2V
- cylinder 11y agoIt's interest rates, simple as that. Asset price = Cash flows / required rate of return ...
- prostoalex 11y agoThe QE money was used to purchase various debt instruments, which means that every dollar originating from Federal Reserve is expected to bring that dollar back to the Federal Reserve when the underlying security matures. It will bring slightly more, as there are interest payments between the time of purchase and the maturity date. That money does not stay in the system forever. It's slowly reaching the maturity date one security at a time, with the created money being erased. Unfortunately, we have no further visibility into Fed's portfolio, duration of securities, percentage of defaults, etc.
- toomuchtodo 11y ago> The QE money was used to purchase various debt instruments That money went into inflating housing and the securities market. It did nothing to help the economy, and only helped distort prices of those assets.
- prostoalex 11y agoSure, but as those debt instruments get paid down, you'd expect the market to return to its equilibrium.
- jgalt212 11y ago> investment and speculative assets have increased wildly in value I would say that is only true for real estate and government bonds[1]. Most other asset classes are only only slightly overvalued. For example, on a PE basis, the SP500 is only slightly rich. I am not commenting on pre-IPO start-ups because I cannot make heads or tails of them and saying they are rich feels knee-jerk to me even though most of them to me seem like pie in the sky valuations. [1] non-government bonds have been under pressure since Q4 of last year and many of them are at attractive yield spreads (certainly when you consider defaults in the US are largely negligible outside of out and gas)