4 ms·

Better explanation: the fed is buying securities.

by steveeq1 6y ago

lisper 6y ago
This. What you're seeing is the beginning of a massive currency inflation.
- ganeshkrishnan 6y ago
  It's very hard to have currency based inflation especially for USD which is in very high demand.
  - lisper 6y ago
    Have you looked at the Fed's balance sheet lately? It is quite literally off the charts. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... It is no harder to inflate the dollar than any other currency. Print enough of them, and the their price will go down. It's no different from any other commodity.
    - asah 6y ago
      serious q: down relative to what other currency or asset? gold? bitcoin? real estate?
      - lisper 6y ago
        Well, stocks at the moment. The real value of U.S. stocks has not risen 20% in one month. What has really happened is that the U.S. dollar has lost 20% of its value relative to stocks. Inflation takes a long time to work its way into the economy at large, and it is possible that it won't happen. We managed to avoid it after 2008, but back then we had some very competent people running the show. I'm less sanguine about that this time around. My reading of the tea leaves is that the Trump administration will prop up stock prices by whatever means necessary because they believe (probably correctly) that many people will vote according to the bottom line of their 401ks. But it is simply not possible to keep pumping currency into a shrinking economy without producing inflation. Sooner or later the law of supply and demand will catch up with you. The only question is whether it will happen before or after November.
    - xxpor 6y ago
      Inflation has only been on a downward trend since the early 80s, despite what everyone predicted when Nixon closed the gold window.
      - lisper 6y ago
        That's because the economy has grown more or less apace with the money supply (or, more accurately, because the Fed has controlled the growth of the money supply to keep pace with the economy). Now we are pumping cash into a shrinking economy. You can't do that for very long without producing inflation.
        dd36 6y ago
        It’s also because of the undermining of labor unions. They haven’t returned.
        antientropic 6y ago
        The WSJ editorial page has been predicting hyperinflation because of QE since 2008, but it stubbornly refuses to materialize. Maybe this time...
        thedragonline 6y ago
        Doubt it. Money velocity has been steadily dropping since the mid-90s. Take a look at this chart from the St. Louis Fed: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V My guess is that it will be absolutely crushed when Covid-19 finally shows up in the chart.
        lottin 6y ago
        They may be pumping cash but it doesn't seem that this is resulting in more consumer demand, which is what would lead to price inflation.
        xxpor 6y ago
        This is a good point. CPI is very good at missing the classes of products that have seen massive price increases: housing, education, and other large assets. For everyone who will respond "oh but CPI has a housing component": https://slate.com/business/2014/02/housing-inflation-the-cpi-is-a-disaster.html https://slate.com/business/2014/02/housing-inflation-the-cpi...
    - AQuantized 6y ago
      It's definitely much harder to inflate the dollar than any other currency. If there's massive demand for the dollar, that's a huge deflationary effect on the dollar, which counteracts the inflationary effect. In times of crisis, everyone wants to be in the global reserve currency.
      - lisper 6y ago
        That's true, but "much harder" != "impossible". If you print enough dollars, there will come a point at which it will stop being the world's reserve currency. The only way to find out where that point is is to actually cross it. That will be a very painful experiment to conduct. If we ever get to that point, the world will learn the meaning of the word "hysteresis".
        ganeshkrishnan 6y ago
        No one knows what's the limit of "enough dollars". It's not infinite but it's very possible that enough money can be printed to provide ubi to the lowest rung of the society ad infinitum
        lisper 6y ago
        There is no question that this could be done. In fact, I think that this is a fairly reasonable policy. It effectively amounts to a flat tax on wealth to fund UBI. Personally I would prefer a progressive tax to "flatten the curve" more at the top, but I'd settle for an inflation-based UBI. But that is NOT what is happening at the moment. What is happening at the moment is almost the exact opposite: money is being injected mostly at the top in order to prop up asset values, with a little bit coming in to the bottom via the $1200 relief checks, and the middle via PPP.
        ganeshkrishnan 6y ago
        That's right. Trickle down economy is not ideal. It was a worthy experiment and it has failed. It's best to give MMT a shot and provide UBI to the lower rung of the society.
    - RobertoG 6y ago
      The Fed balance sheet is kind of irrelevant. What that number means is the quantity of reserves in the system. Only the money that is spend in the real economy has inflationary effects. One more steep is necessary for that money to have real effect and that doesn't happen automatically in a depression. If you increase the reserves, you are forcing the interest rate down, so you are making credit more cheaper (until it arrives zero and can't go further down). For inflation to appear you need borrowers to who the banks think is good business to lend, and that spend that borrowed money in the economy. That it's not going to happen in a depression, when nobody wants to invest and the banks are scared to lend. What is necessary is a decisive fiscal policy. That would increase the central bank balance sheet also, but what would cause some inflation would be the spending in the economy, not the number in the balance sheet.
tathougies 6y ago
That doesn't explain foreign markets
- jcfrei 6y ago
  Same is happening in Japan, Europe, China, etc.
godzillabrennus 6y ago
Paying a premium for junk...
- artursapek 6y ago
  This is what the government does best!
- officemonkey 6y ago
  It's called Lemon Socialism. Businesses keep their winnings. Governments pay their losses.

Better explanation: the fed is buying securities.

lisper 6y ago

This. What you're seeing is the beginning of a massive currency inflation.

ganeshkrishnan 6y ago
It's very hard to have currency based inflation especially for USD which is in very high demand.
- lisper 6y ago
  Have you looked at the Fed's balance sheet lately? It is quite literally off the charts. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... It is no harder to inflate the dollar than any other currency. Print enough of them, and the their price will go down. It's no different from any other commodity.
  - asah 6y ago
    serious q: down relative to what other currency or asset? gold? bitcoin? real estate?
    - lisper 6y ago
      Well, stocks at the moment. The real value of U.S. stocks has not risen 20% in one month. What has really happened is that the U.S. dollar has lost 20% of its value relative to stocks. Inflation takes a long time to work its way into the economy at large, and it is possible that it won't happen. We managed to avoid it after 2008, but back then we had some very competent people running the show. I'm less sanguine about that this time around. My reading of the tea leaves is that the Trump administration will prop up stock prices by whatever means necessary because they believe (probably correctly) that many people will vote according to the bottom line of their 401ks. But it is simply not possible to keep pumping currency into a shrinking economy without producing inflation. Sooner or later the law of supply and demand will catch up with you. The only question is whether it will happen before or after November.
  - xxpor 6y ago
    Inflation has only been on a downward trend since the early 80s, despite what everyone predicted when Nixon closed the gold window.
    - lisper 6y ago
      That's because the economy has grown more or less apace with the money supply (or, more accurately, because the Fed has controlled the growth of the money supply to keep pace with the economy). Now we are pumping cash into a shrinking economy. You can't do that for very long without producing inflation.
      - dd36 6y ago
        It’s also because of the undermining of labor unions. They haven’t returned.
      - antientropic 6y ago
        The WSJ editorial page has been predicting hyperinflation because of QE since 2008, but it stubbornly refuses to materialize. Maybe this time...
        thedragonline 6y ago
        Doubt it. Money velocity has been steadily dropping since the mid-90s. Take a look at this chart from the St. Louis Fed: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V My guess is that it will be absolutely crushed when Covid-19 finally shows up in the chart.
      - lottin 6y ago
        They may be pumping cash but it doesn't seem that this is resulting in more consumer demand, which is what would lead to price inflation.
        xxpor 6y ago
        This is a good point. CPI is very good at missing the classes of products that have seen massive price increases: housing, education, and other large assets. For everyone who will respond "oh but CPI has a housing component": https://slate.com/business/2014/02/housing-inflation-the-cpi-is-a-disaster.html https://slate.com/business/2014/02/housing-inflation-the-cpi...
  - AQuantized 6y ago
    It's definitely much harder to inflate the dollar than any other currency. If there's massive demand for the dollar, that's a huge deflationary effect on the dollar, which counteracts the inflationary effect. In times of crisis, everyone wants to be in the global reserve currency.
    - lisper 6y ago
      That's true, but "much harder" != "impossible". If you print enough dollars, there will come a point at which it will stop being the world's reserve currency. The only way to find out where that point is is to actually cross it. That will be a very painful experiment to conduct. If we ever get to that point, the world will learn the meaning of the word "hysteresis".
      - ganeshkrishnan 6y ago
        No one knows what's the limit of "enough dollars". It's not infinite but it's very possible that enough money can be printed to provide ubi to the lowest rung of the society ad infinitum
        lisper 6y ago
        There is no question that this could be done. In fact, I think that this is a fairly reasonable policy. It effectively amounts to a flat tax on wealth to fund UBI. Personally I would prefer a progressive tax to "flatten the curve" more at the top, but I'd settle for an inflation-based UBI. But that is NOT what is happening at the moment. What is happening at the moment is almost the exact opposite: money is being injected mostly at the top in order to prop up asset values, with a little bit coming in to the bottom via the $1200 relief checks, and the middle via PPP.
        ganeshkrishnan 6y ago
        That's right. Trickle down economy is not ideal. It was a worthy experiment and it has failed. It's best to give MMT a shot and provide UBI to the lower rung of the society.
  - RobertoG 6y ago
    The Fed balance sheet is kind of irrelevant. What that number means is the quantity of reserves in the system. Only the money that is spend in the real economy has inflationary effects. One more steep is necessary for that money to have real effect and that doesn't happen automatically in a depression. If you increase the reserves, you are forcing the interest rate down, so you are making credit more cheaper (until it arrives zero and can't go further down). For inflation to appear you need borrowers to who the banks think is good business to lend, and that spend that borrowed money in the economy. That it's not going to happen in a depression, when nobody wants to invest and the banks are scared to lend. What is necessary is a decisive fiscal policy. That would increase the central bank balance sheet also, but what would cause some inflation would be the spending in the economy, not the number in the balance sheet.

tathougies 6y ago

That doesn't explain foreign markets

jcfrei 6y ago
Same is happening in Japan, Europe, China, etc.

godzillabrennus 6y ago

Paying a premium for junk...

artursapek 6y ago
This is what the government does best!
officemonkey 6y ago
It's called Lemon Socialism. Businesses keep their winnings. Governments pay their losses.