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Is part of the issue that there is just too much money has been printed and hoarded and its creating some weird effects? The government has been printing money

Is part of the issue that there is just too much money has been printed and hoarded and its creating some weird effects? The government has been printing money for a long time, to stimulate the economy, provide spending money, etc. Due to 80/20 rule, rich get richer effects, etc, a large portion of money the government prints ends up in the hands of a relatively small group who doesn't spend it but rather tries to invest it to get more money. Government prints money again trying to stimulate the economy and again most of it ends up in a few hands. At some point don't you have what we have today? A 1% that owns lots of wealth and doesn't know where to put it while the majority of the economy is still relatively broke? How does it play out? Do the 1% just buy all the assets at some point? I am not trying to make a statement about inequality but rather curious about the result of printing money for 70 years and having that money end up with relatively few parties each round. Perhaps someone with more knowledge can speak to this.

tomp 6y ago
It's not just "rich get richer". It's also that everybody bought into the "just buy the market" idea hook line and sinker. Pension funds, individual investors, everybody. How retirement works on paper: you save the money by buying the market and get 20% more when you retire in 40 years. How retirement works in reality: younger people work to supply the old with food and medical care. The real transfer is happening now, while the financial transfer is happening over decades. I don't think this creates a healthy, sustainable dynamic.
- empthought 6y ago
  > 20% more Where did this number come from? At 4% compounding over 40 years, you will have at least 130% again over what you put in.
  - sudosysgen 6y ago
    The issue is two-fold - assuming that all the money comes at beginning, and forgetting about inflation, and not taking into account the shift in risk towards the later ten years, and assuming that your income stays the same. When taking into account the increase in income both absolute and in real terms after necessary expenses, you realize that a lot more than the majority of the money is invested in the latter 25 years. But yes, it would be more than 20%, though a lot less than 130%.
    - mrep 6y ago
      "The average annual total return and compound annual growth rate of the S&P 500 index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation" [0]. If you have a 40 year career, money you put in at the start would approximately be worth 10 times what you put in adjusting for inflation, and even money you put in midway would approximately be worth triple. [0]: https://en.wikipedia.org/wiki/S%26P_500_Index https://en.wikipedia.org/wiki/S%26P_500_Index
    - empthought 6y ago
      No, I came to my conclusion by putting away $100 every month for 40 years. $48000 is put in, $114000 is present at the end with a (historically unprecedented low) 4% overall return. Exactly the same amount of money is put away in the last 25 years as in the first 25 years. The shift in risk should be accompanied by changes to the portfolio mix, of course.
      - sudosysgen 6y ago
        But it's not how people save. The average person has too many expenses and not enough income at age 22 to save up as at age 45. And in those later years, the returns diminish. Sure, if you have sufficient income to be able to save up enough for retirement just as soon as you get a job, that works. But that's not the reality for the average person. Most people don't get a high-paying job straight out of school.
        empthought 6y ago
        I am not sure what you are arguing. Someone said that retirement works “on paper”, and you get 20% more. I pointed out that “on paper” you get more than double what you put in. All of these other issues you raise have nothing to do with the financial illiteracy leading to the idea that you save for retirement just to get an incremental return rather than a multiple (or two, really, depending on timing) of what you put in. Perhaps if this were more well known, people would invest more at age 22. tl;dr we’re talking about “on paper” here, investment works as advertised (In fact, much much better than the original poster believes it advertised). All of the things you bring up here are about scenarios that aren’t “on paper” any more.
- mFixman 6y ago
  The Conservative Party in Great Britain has been trying to make home ownership a reliable method of saving for the last century. They pretty much succeeded: house prices have been going up almost constantly since the war, and owning a house all but guarantees you'll be able to built generational wealth. This came at high costs: once a large enough part of the population buys houses at inflated prices with the expectation of their price further increasing, the government needs to protect them from housing crashes and depreciation to inflate the bubble further and further. Now that pretty much everyone has their money invested in the stock market, I see the same thing happening in the US. The Fed needs to keep the interest rate artificially low and guarantee policies to keep the stock market up so that people don't lose money, but also making sociery overall worse.
  - pas 6y ago
    Central banks keep interest rate low not because of the stock market. People focus too much on stocks. The real question is about the real economy, about price stability and unemployment. Especially in case of the Fed ( https://www.chicagofed.org/research/dual-mandate/dual-mandate https://www.chicagofed.org/research/dual-mandate/dual-mandat... , but of course other central banks are also tracking labor markets too, even if de jure it's not their target - https://ideas.repec.org/p/fip/fedbsp/70.html https://ideas.repec.org/p/fip/fedbsp/70.html ). And we can say whatever we like about how the rich get richer, our current economic system do responds to what central banks do. Cheap money (an oversupply of low and even lower interest rate debt) helps persuade people to buy/invest/order things. It helps finance stimulus bills, and so on. The savings are "just" an indicator. Sure, when the savings crash, the economy crashes too, but the causality is backwards. If/when the economy crashes (when industries stop, when people stop buying, when businesses let people go) savings will also become "worthless", because after all they represent future income, and if the economy tanks its productivity (income) tanks too.
- pas 6y ago
  Is there any serious idea about how a fair pension scheme could/should work without just buying the market? (So in some countries the pension system is just mandated by law, managed by the government. And might be even "guaranteed by law" to track inflation. But in this case it's again exactly the same, your purchasing power of your pension income depends on the strength of the country's economy - which depends on the global market.)
  - tomp 6y ago
    Well, as I expand in the second paragraph above - the ONLY real pension scheme is having kids, and more kids. Everything else is just an obfuscation and/or securitization of this basic fact. If you don't want to work, someone else has to. And if we (jointly as a society) decide that "old" people are more deserving to not work, then, well, we need to make & have enough non-old people. That's why to some degree I think asset-hoarding (S&P, real estate, cashflow-positive businesses etc.) is a good idea and actually my preferred plan, because I fundamentally don't trust the governments (they're all delusional with their long-term plans re: pension obligations, education, family planning & birth rates, immigration, ...), but at the same time I'm aware of the fact that while this strategy works individually (i.e. if I own more property, I'm better off than the next retiree), it doesn't quite work for the whole society. Pension as a social transfer really is the only way to go.
charwalker 6y ago
Printing money has recently shown to have little impact on inflation. This is likely due in part to lack of consumer spending (can't inflate prices if nobody is buying it anyway) as well as spreading the USD across billions of people in dozens of interconnected economies that base off the dollar. The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we could afford universal healthcare and a bunch of other programs that cost $$$. Now is the time to spend that money and, at least it appears, avoid some long term costs. I'd argue the benefits of things like expanding education, investing in mental and physical health, and doing more to support our youth will have a much greater return than potential long term inflation or other issues from the $5 trillion. I commented more on this last week here: https://news.ycombinator.com/item?id=23778819 https://news.ycombinator.com/item?id=23778819
- Quinner 6y ago
  Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.
  - bob33212 6y ago
    People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?
    - sudosysgen 6y ago
      If you're looking at which company is most likely to achieve a breakthrough in battery tech, Tesla isn't where you should be looking.
  - cephaslr 6y ago
    This seems likely to me, lots and lots of money injected and consumer prices are stable yet art, real estate in desirable urban locations, equities, and some categories of luxury goods/experiences are soaring. Am I wrong?
mwfunk 6y ago
Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it. I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt. I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.
- pas 6y ago
  Generally lowering the interest rate causes inflation only if the economy is already at capacity. Printing money to keep up with economic growth is also an important function of central banks. Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)
- svachalek 6y ago
  At a large scale, the question "what is money" actually gets pretty complicated. This may help: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/definition-measurement-and-functions-of-money-ap/v/money-supply-m0-m1-and-m2 https://www.khanacademy.org/economics-finance-domain/ap-macr...
- frandroid 6y ago
  Look up Quantitative Easing, since 2008
- msteffen 6y ago
  Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE": "The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."

tomp 6y ago

It's not just "rich get richer". It's also that everybody bought into the "just buy the market" idea hook line and sinker. Pension funds, individual investors, everybody. How retirement works on paper: you save the money by buying the market and get 20% more when you retire in 40 years. How retirement works in reality: younger people work to supply the old with food and medical care. The real transfer is happening now, while the financial transfer is happening over decades. I don't think this creates a healthy, sustainable dynamic.

empthought 6y ago
> 20% more Where did this number come from? At 4% compounding over 40 years, you will have at least 130% again over what you put in.
- sudosysgen 6y ago
  The issue is two-fold - assuming that all the money comes at beginning, and forgetting about inflation, and not taking into account the shift in risk towards the later ten years, and assuming that your income stays the same. When taking into account the increase in income both absolute and in real terms after necessary expenses, you realize that a lot more than the majority of the money is invested in the latter 25 years. But yes, it would be more than 20%, though a lot less than 130%.
  - mrep 6y ago
    "The average annual total return and compound annual growth rate of the S&P 500 index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation" [0]. If you have a 40 year career, money you put in at the start would approximately be worth 10 times what you put in adjusting for inflation, and even money you put in midway would approximately be worth triple. [0]: https://en.wikipedia.org/wiki/S%26P_500_Index https://en.wikipedia.org/wiki/S%26P_500_Index
  - empthought 6y ago
    No, I came to my conclusion by putting away $100 every month for 40 years. $48000 is put in, $114000 is present at the end with a (historically unprecedented low) 4% overall return. Exactly the same amount of money is put away in the last 25 years as in the first 25 years. The shift in risk should be accompanied by changes to the portfolio mix, of course.
    - sudosysgen 6y ago
      But it's not how people save. The average person has too many expenses and not enough income at age 22 to save up as at age 45. And in those later years, the returns diminish. Sure, if you have sufficient income to be able to save up enough for retirement just as soon as you get a job, that works. But that's not the reality for the average person. Most people don't get a high-paying job straight out of school.
      - empthought 6y ago
        I am not sure what you are arguing. Someone said that retirement works “on paper”, and you get 20% more. I pointed out that “on paper” you get more than double what you put in. All of these other issues you raise have nothing to do with the financial illiteracy leading to the idea that you save for retirement just to get an incremental return rather than a multiple (or two, really, depending on timing) of what you put in. Perhaps if this were more well known, people would invest more at age 22. tl;dr we’re talking about “on paper” here, investment works as advertised (In fact, much much better than the original poster believes it advertised). All of the things you bring up here are about scenarios that aren’t “on paper” any more.
mFixman 6y ago
The Conservative Party in Great Britain has been trying to make home ownership a reliable method of saving for the last century. They pretty much succeeded: house prices have been going up almost constantly since the war, and owning a house all but guarantees you'll be able to built generational wealth. This came at high costs: once a large enough part of the population buys houses at inflated prices with the expectation of their price further increasing, the government needs to protect them from housing crashes and depreciation to inflate the bubble further and further. Now that pretty much everyone has their money invested in the stock market, I see the same thing happening in the US. The Fed needs to keep the interest rate artificially low and guarantee policies to keep the stock market up so that people don't lose money, but also making sociery overall worse.
- pas 6y ago
  Central banks keep interest rate low not because of the stock market. People focus too much on stocks. The real question is about the real economy, about price stability and unemployment. Especially in case of the Fed ( https://www.chicagofed.org/research/dual-mandate/dual-mandate https://www.chicagofed.org/research/dual-mandate/dual-mandat... , but of course other central banks are also tracking labor markets too, even if de jure it's not their target - https://ideas.repec.org/p/fip/fedbsp/70.html https://ideas.repec.org/p/fip/fedbsp/70.html ). And we can say whatever we like about how the rich get richer, our current economic system do responds to what central banks do. Cheap money (an oversupply of low and even lower interest rate debt) helps persuade people to buy/invest/order things. It helps finance stimulus bills, and so on. The savings are "just" an indicator. Sure, when the savings crash, the economy crashes too, but the causality is backwards. If/when the economy crashes (when industries stop, when people stop buying, when businesses let people go) savings will also become "worthless", because after all they represent future income, and if the economy tanks its productivity (income) tanks too.
pas 6y ago
Is there any serious idea about how a fair pension scheme could/should work without just buying the market? (So in some countries the pension system is just mandated by law, managed by the government. And might be even "guaranteed by law" to track inflation. But in this case it's again exactly the same, your purchasing power of your pension income depends on the strength of the country's economy - which depends on the global market.)
- tomp 6y ago
  Well, as I expand in the second paragraph above - the ONLY real pension scheme is having kids, and more kids. Everything else is just an obfuscation and/or securitization of this basic fact. If you don't want to work, someone else has to. And if we (jointly as a society) decide that "old" people are more deserving to not work, then, well, we need to make & have enough non-old people. That's why to some degree I think asset-hoarding (S&P, real estate, cashflow-positive businesses etc.) is a good idea and actually my preferred plan, because I fundamentally don't trust the governments (they're all delusional with their long-term plans re: pension obligations, education, family planning & birth rates, immigration, ...), but at the same time I'm aware of the fact that while this strategy works individually (i.e. if I own more property, I'm better off than the next retiree), it doesn't quite work for the whole society. Pension as a social transfer really is the only way to go.

charwalker 6y ago

Printing money has recently shown to have little impact on inflation. This is likely due in part to lack of consumer spending (can't inflate prices if nobody is buying it anyway) as well as spreading the USD across billions of people in dozens of interconnected economies that base off the dollar. The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we could afford universal healthcare and a bunch of other programs that cost $$$. Now is the time to spend that money and, at least it appears, avoid some long term costs. I'd argue the benefits of things like expanding education, investing in mental and physical health, and doing more to support our youth will have a much greater return than potential long term inflation or other issues from the $5 trillion. I commented more on this last week here: https://news.ycombinator.com/item?id=23778819 https://news.ycombinator.com/item?id=23778819

Quinner 6y ago
Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.
- bob33212 6y ago
  People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?
  - sudosysgen 6y ago
    If you're looking at which company is most likely to achieve a breakthrough in battery tech, Tesla isn't where you should be looking.
- cephaslr 6y ago
  This seems likely to me, lots and lots of money injected and consumer prices are stable yet art, real estate in desirable urban locations, equities, and some categories of luxury goods/experiences are soaring. Am I wrong?

mwfunk 6y ago

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it. I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt. I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.

pas 6y ago
Generally lowering the interest rate causes inflation only if the economy is already at capacity. Printing money to keep up with economic growth is also an important function of central banks. Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)
svachalek 6y ago
At a large scale, the question "what is money" actually gets pretty complicated. This may help: https://www.khanacademy.org/economics-finance-domain/ap-macroeconomics/ap-financial-sector/definition-measurement-and-functions-of-money-ap/v/money-supply-m0-m1-and-m2 https://www.khanacademy.org/economics-finance-domain/ap-macr...
frandroid 6y ago
Look up Quantitative Easing, since 2008
msteffen 6y ago
Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-when-print-money-us.asp https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE": "The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."