3 ms·

Just a friendly remainder that "government support" cost money, and governments usually[0] don't have any other source of money than taxation and borrowing, bot

Just a friendly remainder that "government support" cost money, and governments usually[0] don't have any other source of money than taxation and borrowing, both put the burden in the productive citizens of a country, and had their limits. Very hard to see where the support will be paid off without traumatic consequences. Of course, almost every economy is printing money as there is no tomorrow, diluting current assets dramatically, and who will suffer that most are those with fixed income like pensionist. Is a very very bad scenario that we are getting into it. In the US, people wonder how markets are growing since the beggining of the pandemic despite the colossal impact in the real economy, there are many reasons but my contention is that people should take that growth as the new baseline of value, and see how their assets compare with that growth. The difference is how much value your assets lost in that timeframe. Printing money is the magic invisible taxation that most people don't see or complain until its too late. [0] Maybe Norway and its massive sovereing fund is an exception, but the fund took an over 100B USD loss in the first quarter of 2020, and it will be a lot worse in the second. Even that sovereing fund, which is the gold global standard for a rainy day state fund, can be depleted very quickly with the current scenario

antientropic 6y ago
What assets are being "diluted dramatically"? The only asset class you mention are stocks and they're mostly up. Here in the Netherlands, housing prices have continued to rise during corona. Eurozone inflation in July was 0.4% annualized. So were is the massive dilution? The government support you mention is for the most part financed through bonds (at very low or negative interest rates), not by "printing money".
- gassius 6y ago
  The value of money is being diluted, the USD[0] and the Euro[1] for example, but by no means limited to them. IMHO the difference of the monetary growth and the GDP growth in the same period is the value lost for each money unit. I concede GDP growth is not the perfect indicator of the value of an Economy, but it is what we have. This is not post Bretton Woods, standard modus operandi we are talking here. Since 2008 we can see a change of scenario, and in Q1 2020 we can see once again a clear jump. Inflation may result of an increase in the monetary base, but, as we saw with Japan, since they already tried[3], other factors as a productivity shock alongs with a liqudity trap might lead to deflation[4], which may be a far worse scenario. One could argue that if equity and assets prices, on one hand, and salaries and pensions on the other, are stable while money is diluted as per above definition, you are already on a deflationary cycle. [0]https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE [1]https://tradingeconomics.com/euro-area/money-supply-m3 https://tradingeconomics.com/euro-area/money-supply-m3 check 10y [2]https://www.bis.org/publ/bppdf/bispap19l.pdf https://www.bis.org/publ/bppdf/bispap19l.pdf [3]https://www.bis.org/publ/bppdf/bispap70c.pdf https://www.bis.org/publ/bppdf/bispap70c.pdf

antientropic 6y ago

What assets are being "diluted dramatically"? The only asset class you mention are stocks and they're mostly up. Here in the Netherlands, housing prices have continued to rise during corona. Eurozone inflation in July was 0.4% annualized. So were is the massive dilution? The government support you mention is for the most part financed through bonds (at very low or negative interest rates), not by "printing money".

gassius 6y ago
The value of money is being diluted, the USD[0] and the Euro[1] for example, but by no means limited to them. IMHO the difference of the monetary growth and the GDP growth in the same period is the value lost for each money unit. I concede GDP growth is not the perfect indicator of the value of an Economy, but it is what we have. This is not post Bretton Woods, standard modus operandi we are talking here. Since 2008 we can see a change of scenario, and in Q1 2020 we can see once again a clear jump. Inflation may result of an increase in the monetary base, but, as we saw with Japan, since they already tried[3], other factors as a productivity shock alongs with a liqudity trap might lead to deflation[4], which may be a far worse scenario. One could argue that if equity and assets prices, on one hand, and salaries and pensions on the other, are stable while money is diluted as per above definition, you are already on a deflationary cycle. [0]https://fred.stlouisfed.org/series/BOGMBASE https://fred.stlouisfed.org/series/BOGMBASE [1]https://tradingeconomics.com/euro-area/money-supply-m3 https://tradingeconomics.com/euro-area/money-supply-m3 check 10y [2]https://www.bis.org/publ/bppdf/bispap19l.pdf https://www.bis.org/publ/bppdf/bispap19l.pdf [3]https://www.bis.org/publ/bppdf/bispap70c.pdf https://www.bis.org/publ/bppdf/bispap70c.pdf