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Can someone tell me, with a straight face, how this won't cause inflation at one of the worst points to have such?

bryanlarsen 7y ago
The answer would be something like "Increasing the money supply has been very successful at mitigating previous recessions without causing inflation." Unfortunately, previous recessions were caused by demand-side shocks. So increasing the money supply increases demand and mitigates the deflation that usually accompanies a demand driven recession. It's not clear whether the upcoming recession is supply or demand driven. Shutting down factories in China causes supply shocks; laying people off because of social isolating will cause demand shocks. If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse.
- yumraj 7y ago
  > If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse. Surely in the beginning, with just China impacted, that was the case. But right now with a global pandemic it's not clear if its a supply shock, or both. Curious, if supply is lower and the demand lowers more, then what does it mean. A depression??
  - a_tractor 7y ago
    >Curious, if supply is lower and the demand lowers more, then what does it mean. A depression?? Seems like break even? Its kind of like how a person who normally works out everyday and is very active might reduce their caloric intake if they break their leg. From 4000 calories a day to maybe 2000 very suddenly might sound like a problem if he wasn't just gonna be sitting at home all day for a while. But obviously its more complicated than that, and the system we are talking about is not even close to organic, and in a more equivalent scenario the guy with the broken leg sitting at home is also no longer able to harvest his crop for the season to provide the food a local village depends upon, so...
yasp 7y ago
Not an expert but I think the argument is that this is just swapping one asset (government securities) for another (central bank reserves). So, the working monetary base is not necessarily increasing.
whatshisface 7y ago
It's "only" a big loan, so the money will be reeled back in. It would only cause inflation if it sloshed around the system long enough for McDonalds workers to get some and use it to compete for consumer goods. As long as none of it makes it outside of "the system" we're fine.
SpaceRaccoon 7y ago
Economic theories regarding inflation aren't so simple. It is not simply true that increasing the money supply causes a proportional increase in inflation. There are other factors. Where does the money go? How is it being spent? Is product output increasing with increased demand? If the money ends up in wealthy bank accounts, not being spent, then it won't really affect our consumer prices, will it? If consumers have more money to spend, but factories can meet the increased demand, that won't increase prices either, but it will drive growth. There is plenty of evidence for this. Consider that the US money supply more than doubled since 2008, yet our purchasing power for general goods didn't halve. Asset prices have doubled, though. Fueled by QE or real growth? I'm inclined to think the former. Food for thought.
jovial_cavalier 7y ago
Demand for money is up, because there is a lot of volume being moved. This drives prices up; we are actually experiencing deflation right now. QE increases liquidity, lowers demand for money, and corrects the prices. That is the idea, anyway.

The answer would be something like "Increasing the money supply has been very successful at mitigating previous recessions without causing inflation." Unfortunately, previous recessions were caused by demand-side shocks. So increasing the money supply increases demand and mitigates the deflation that usually accompanies a demand driven recession. It's not clear whether the upcoming recession is supply or demand driven. Shutting down factories in China causes supply shocks; laying people off because of social isolating will cause demand shocks. If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse.

yumraj 7y ago
> If it's a supply shock recession, they usually come with significant inflation and more money will make it a lot worse. Surely in the beginning, with just China impacted, that was the case. But right now with a global pandemic it's not clear if its a supply shock, or both. Curious, if supply is lower and the demand lowers more, then what does it mean. A depression??
- a_tractor 7y ago
  >Curious, if supply is lower and the demand lowers more, then what does it mean. A depression?? Seems like break even? Its kind of like how a person who normally works out everyday and is very active might reduce their caloric intake if they break their leg. From 4000 calories a day to maybe 2000 very suddenly might sound like a problem if he wasn't just gonna be sitting at home all day for a while. But obviously its more complicated than that, and the system we are talking about is not even close to organic, and in a more equivalent scenario the guy with the broken leg sitting at home is also no longer able to harvest his crop for the season to provide the food a local village depends upon, so...

yasp 7y ago

Not an expert but I think the argument is that this is just swapping one asset (government securities) for another (central bank reserves). So, the working monetary base is not necessarily increasing.

whatshisface 7y ago

It's "only" a big loan, so the money will be reeled back in. It would only cause inflation if it sloshed around the system long enough for McDonalds workers to get some and use it to compete for consumer goods. As long as none of it makes it outside of "the system" we're fine.

SpaceRaccoon 7y ago

Economic theories regarding inflation aren't so simple. It is not simply true that increasing the money supply causes a proportional increase in inflation. There are other factors. Where does the money go? How is it being spent? Is product output increasing with increased demand? If the money ends up in wealthy bank accounts, not being spent, then it won't really affect our consumer prices, will it? If consumers have more money to spend, but factories can meet the increased demand, that won't increase prices either, but it will drive growth. There is plenty of evidence for this. Consider that the US money supply more than doubled since 2008, yet our purchasing power for general goods didn't halve. Asset prices have doubled, though. Fueled by QE or real growth? I'm inclined to think the former. Food for thought.

jovial_cavalier 7y ago

Demand for money is up, because there is a lot of volume being moved. This drives prices up; we are actually experiencing deflation right now. QE increases liquidity, lowers demand for money, and corrects the prices. That is the idea, anyway.