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It means a massive crash is coming. Money printer go brrr is funny, but it's not capable of propping up the entire market forever. There's a flight to safety t

It means a massive crash is coming. Money printer go brrr is funny, but it's not capable of propping up the entire market forever. There's a flight to safety that happens when countries really start printing.

lumost 6y ago
If a money printer channels money directly into assets than its entirely feasible that the money printer can drive the asset to an arbitrary valuation e.g. asset hyperinflation. Great for making the economy appear solvent, terrible for everything else.
- 3pt14159 6y ago
  If this were true, Zimbabwe would have a lucrative stockmarket. It's not true though. A high enough inflation rate damages investor confidence and makes business operations more complex. I means constantly needing to minimize cash on hand in the local currency, or having to price contracts in inflation adjusted dollars increasing risk and mental overhead of doing business. At extremis, it means many market participants refusing to do business in the currency at all. Large economies like Germany have gone to the printers before and it doesn't end well.
  - lumost 6y ago
    This is true when viewing from an external currency. If I only care about the nominal value of the S&P500 or the nominal price of oil/copper/steel/aluminum/Gold in dollars. Then the nominal price can inflate indefinitely. Historically no one has been able to inflate assets, without inflating the real economy. If the Fed's QE approach is having this effect then even as a dollar spender you would want to hold assets above all else.
    - blueblisters 6y ago
      Contracts and price tags of things you buy are also is nominal dollars. When they change daily, it becomes extremely frustrating for consumer or producers to manage the overheads of these price swings.
      - lumost 6y ago
        This also depends on whether asset price inflation trickles into the real economy. Historical examples where asset prices were multiple orders of magnitude beyond the earning capability of workers include feudalism. From a pure economics standpoint it's feasible to have a society where only some people can afford an asset, and everyone else pays a comparatively small fee to rent the asset roughly equivalent to their entire disposable income. This is a pretty terrible system overall where assets are allocated to those with money and ROI is bounded by the amount that can be. extracted from a servitude class. The point of this example is that we should not constrain our economic concerns to simple hyper-inflation, as that can mislead us into thinking that as long as we aren't observing consumer price inflation we can print money indefinitely.
marktangotango 6y ago
I echo this sentiment, but when all major central banks are printing? And the Fed is buying equities? There's some sort of brinksmanship going on that I find highly disturbing. Also seems like there's a large amount of will to keeping the party going indefinitely.
- hpkuarg 6y ago
  The Fed isn't buying equities. You could maybe argue that the bond ETFs that the Fed bought are "equities", but they aren't really. They're just working to keep interest rates low across the board, from the federal funds rate up to corporate bonds.
  - erentz 6y ago
    Not buying directly yet. But they do now accept equities as collateral. And they are buying all the bonds of zombie companies which in effect props up the equities of those companies.
disease 6y ago
Then the fed can just start buying equities outright. If equities continue to fall even after that, they can keep on buying them until they own enough that they can set the price themselves.
fzeroracer 6y ago
Money printer could potentially prop up the market longer if we printed money for the people most hit by the crisis. IE, the small business owners and the poor/middle-class that will and are struggling to pay bills and rent. Nathan Tankus goes over this one facet quite well [1] which is that essentially landlords are going to burn themselves down trying to extract rent from tenants that will fundamentally be unable to pay due to the coronavirus. Once those people are forced out of their homes then we'll see the crisis hit full speed. [1] https://nathantankus.substack.com/p/suspending-evictions-is-about-saving https://nathantankus.substack.com/p/suspending-evictions-is-...
pjc50 6y ago
> There's a flight to safety that happens when countries really start printing This is normally great for the dollar. Where else are you going to go? Switzerland has had a "negative rates, please go away" policy for a while now.
- 3pt14159 6y ago
  In a stock market flight to safety you go to the greenback because the USG is the worlds primary reserve currency and is backed up by the power of the American financial system. I'm not talking about a stock market flight to safety. I'm talking about a hypothetical scenario that I do not think will come to pass: They keep running the printers even after the real economy is breaking down. They won't do it. They will let the stock market retract before they let inflation get over five percent because they know the power that they have keeping the USD as the world's primary reserve currency, even if it means the stock market is going to tank. That is my argument: The stock market is going to tank and these meme stonks only go up are going to look chilling in retrospect.
  - nikanj 6y ago
    Presently the glorious leader might not accept the stock market retracting, and would happily sacrifice the future of the USD to prop up the market short-term

lumost 6y ago

If a money printer channels money directly into assets than its entirely feasible that the money printer can drive the asset to an arbitrary valuation e.g. asset hyperinflation. Great for making the economy appear solvent, terrible for everything else.

3pt14159 6y ago
If this were true, Zimbabwe would have a lucrative stockmarket. It's not true though. A high enough inflation rate damages investor confidence and makes business operations more complex. I means constantly needing to minimize cash on hand in the local currency, or having to price contracts in inflation adjusted dollars increasing risk and mental overhead of doing business. At extremis, it means many market participants refusing to do business in the currency at all. Large economies like Germany have gone to the printers before and it doesn't end well.
- lumost 6y ago
  This is true when viewing from an external currency. If I only care about the nominal value of the S&P500 or the nominal price of oil/copper/steel/aluminum/Gold in dollars. Then the nominal price can inflate indefinitely. Historically no one has been able to inflate assets, without inflating the real economy. If the Fed's QE approach is having this effect then even as a dollar spender you would want to hold assets above all else.
  - blueblisters 6y ago
    Contracts and price tags of things you buy are also is nominal dollars. When they change daily, it becomes extremely frustrating for consumer or producers to manage the overheads of these price swings.
    - lumost 6y ago
      This also depends on whether asset price inflation trickles into the real economy. Historical examples where asset prices were multiple orders of magnitude beyond the earning capability of workers include feudalism. From a pure economics standpoint it's feasible to have a society where only some people can afford an asset, and everyone else pays a comparatively small fee to rent the asset roughly equivalent to their entire disposable income. This is a pretty terrible system overall where assets are allocated to those with money and ROI is bounded by the amount that can be. extracted from a servitude class. The point of this example is that we should not constrain our economic concerns to simple hyper-inflation, as that can mislead us into thinking that as long as we aren't observing consumer price inflation we can print money indefinitely.

marktangotango 6y ago

I echo this sentiment, but when all major central banks are printing? And the Fed is buying equities? There's some sort of brinksmanship going on that I find highly disturbing. Also seems like there's a large amount of will to keeping the party going indefinitely.

hpkuarg 6y ago
The Fed isn't buying equities. You could maybe argue that the bond ETFs that the Fed bought are "equities", but they aren't really. They're just working to keep interest rates low across the board, from the federal funds rate up to corporate bonds.
- erentz 6y ago
  Not buying directly yet. But they do now accept equities as collateral. And they are buying all the bonds of zombie companies which in effect props up the equities of those companies.

disease 6y ago

Then the fed can just start buying equities outright. If equities continue to fall even after that, they can keep on buying them until they own enough that they can set the price themselves.

fzeroracer 6y ago

Money printer could potentially prop up the market longer if we printed money for the people most hit by the crisis. IE, the small business owners and the poor/middle-class that will and are struggling to pay bills and rent. Nathan Tankus goes over this one facet quite well [1] which is that essentially landlords are going to burn themselves down trying to extract rent from tenants that will fundamentally be unable to pay due to the coronavirus. Once those people are forced out of their homes then we'll see the crisis hit full speed. [1] https://nathantankus.substack.com/p/suspending-evictions-is-about-saving https://nathantankus.substack.com/p/suspending-evictions-is-...

pjc50 6y ago

> There's a flight to safety that happens when countries really start printing This is normally great for the dollar. Where else are you going to go? Switzerland has had a "negative rates, please go away" policy for a while now.

3pt14159 6y ago
In a stock market flight to safety you go to the greenback because the USG is the worlds primary reserve currency and is backed up by the power of the American financial system. I'm not talking about a stock market flight to safety. I'm talking about a hypothetical scenario that I do not think will come to pass: They keep running the printers even after the real economy is breaking down. They won't do it. They will let the stock market retract before they let inflation get over five percent because they know the power that they have keeping the USD as the world's primary reserve currency, even if it means the stock market is going to tank. That is my argument: The stock market is going to tank and these meme stonks only go up are going to look chilling in retrospect.
- nikanj 6y ago
  Presently the glorious leader might not accept the stock market retracting, and would happily sacrifice the future of the USD to prop up the market short-term