3 ms·
It isn't free, but that isn't really true. The $1200 comes out of inflation, which decreases the value of accumulated wealth (at least to the extent it sits in
by wegs 7y ago
It isn't free, but that isn't really true. The $1200 comes out of inflation, which decreases the value of accumulated wealth (at least to the extent it sits in cash).
If you're sitting on a retirement fund, that hurts you. If you're sitting on debt, that helps you. So it's much more past tax payers than future ones who are hurt by this.
On the other hand, decreasing the value of accumulated wealth is exactly what ought to happen here. We're not producing very much, and everyone will have less actual stuff. The question is how the banking system adjusts.
If we see deflation (prices go down, salaries go down, revenues go down), people will default on debts and other fixed obligations, and the whole thing blows up in structural damage from bankruptcies, mortgage defaults, layoffs, etc.
If we see inflation, a lot less structural damage happens.
COVID19 is destroying value. What the fed is doing -- inflation in the stock market to keep prices where they were -- is exactly what ought to happen. Inflation will continue to happen elsewhere in the system. The flip side is you don't want starving, homeless people in the streets -- that will destroy massive wealth. We'll deal with that with inflation too, most likely.
- vkou 7y agoNo, that $1,200 didn't come out of the Fed printing press. It came out of the general budget, so taxpayers are going to be on the hook for paying it back, in the future. The trillions the Fed is printing aren't being sent out as stimulus cheques. They are being used to provide short-term liquidity (Which does not cause inflation), and to buy junk bonds, (Which does cause inflation, and also happens to prop up the stock market.) Some of that money is also being lent to the government - if those loans are paid back, they will cause net zero inflation. (Because once the money is paid back to the Fed, it is destroyed.) This is precisely why we have central banks that are independent of government budgets. It creates checks and balances against a government choosing to print its way out of budget troubles.
- wegs 7y agoIn the very short term, that's true. In the medium-to-long term, they're kind of the same thing. Fiscal and monetary policy are handled by independent bodies, but they're not entirely uncoordinated. They're both different hands of the same overarching body too: the US government.
- rapsey 7y ago> No, that $1,200 didn't come out of the Fed printing press. It came out of the general budget, so taxpayers are going to be on the hook for paying it back, in the future. Government debt does not really get payed. Old debts are payed off with new ones.
- RobertoG 7y agoAs it should be. Public debt is just a number that express the accumulated of pass deficits. In order to reduce that number you need a government that, instead of a deficit, have a surplus. If the government has a surplus, less money is spend in the economy. If that reduction in spending is not compensated somehow, necessarily, the GDP has to fall. The only things that can reduce that fall in government spending are a positive balance commerce or an increase in private debt. Now, an increase in private debt, instead of public debt, that's a real problem.
- defertoreptar 7y ago> if those loans are paid back, they will cause net zero inflation. Assuming you can get the fed to make that money disappear, which it doesn't have a good track record of doing so far.
- mobilefriendly 7y agoBankruptcies are not "structural damage" they are economic progress that transfers assets to stronger or more nimble players. The bailouts are fighting creative destruction and this will reduce the dynamism and long term growth of the economy.