5 ms·

You might find the Cantillon Effect to be of interest: https://www.austriancenter.com/cantillon-effect-populism/ https://www.austriancenter.com/cantillon-effect

by JanisL 6y ago

You might find the Cantillon Effect to be of interest: https://www.austriancenter.com/cantillon-effect-populism/ https://www.austriancenter.com/cantillon-effect-populism/ The effects of inflation are somewhat localized at first and the movement of money in the economy matters significantly in terms of the purchasing power of that money for various groups over time.

imtringued 6y ago
It's interesting because this looks at inflation from another angle. Some of the central bank money does eventually circulate in the economy but since the money goes to assets first, consumer inflation will always lag behind asset inflation and therefore we have a redistribution effect from the poor to the rich. Unless central banks adopt policies that distribute money evenly among the population they are going to keep distorting the economy.
- mrep 6y ago
  The central bank cannot distribute money evenly among the population. Congress however can and they basically did albeit selectively based on need with the CARES act which gave citizens direct cash handouts, massive increases to unemployment, and indirectly by funding payroll for small businesses and airlines. However, they are supposed to maintain a budget and the CARES act alone cost over 2 trillion dollars so they finance deficits by selling US treasury securities. If you look at the outstanding debt, it has grown by about 3.6 trillion dollars worth of outstanding treasury securities from january to august [0]. If you look at the federal reserves asset sheet trends [1], you'll see it grown by up about 3 trillion since january [1] with over 2/3 of that buying those same US treasury securities our government sells to finance the deficit [2]. My point is that if congress had simply decided to pay for all deficits including those direct and indirect payments to citizens this year with printed money and the federal reserve did nothing, we would be basically in the exact same position. Congress is spending to put cash in citizens pockets and the federal reserve is buying up most of the treasury securities that congress is selling to fund that. [0]: https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm [1]: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [2]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
  - vkou 6y ago
    The problem is that the fed did not buy those US treasuries. The fed bought a bunch of crap bonds from the market at above market value (As prior to their involvement, those bonds were tanking), and the people who sold them those bonds then went on to buy treasures and securities. It socialized the risk, and privatized the profits.
    - mrep 6y ago
      From the current asset sheet in millions of dollars: Reserve Bank credit: 6,968,229 U.S. Treasury securities: 4,391,505 Mortgage-backed securities: 1,949,547 That puts treasuries and mortgage backed securities as basically their entire balance. Corporate bonds are listed in section 1A as Other securities which Includes non-marketable U.S. Treasury securities, supranationals, corporate bonds, asset-backed securities, and commercial paper at face value and that comes out to a grand total of 86.729 billion or about 1.24% of their asset sheet.

by JanisL 6y ago

imtringued 6y ago

It's interesting because this looks at inflation from another angle. Some of the central bank money does eventually circulate in the economy but since the money goes to assets first, consumer inflation will always lag behind asset inflation and therefore we have a redistribution effect from the poor to the rich. Unless central banks adopt policies that distribute money evenly among the population they are going to keep distorting the economy.

mrep 6y ago
The central bank cannot distribute money evenly among the population. Congress however can and they basically did albeit selectively based on need with the CARES act which gave citizens direct cash handouts, massive increases to unemployment, and indirectly by funding payroll for small businesses and airlines. However, they are supposed to maintain a budget and the CARES act alone cost over 2 trillion dollars so they finance deficits by selling US treasury securities. If you look at the outstanding debt, it has grown by about 3.6 trillion dollars worth of outstanding treasury securities from january to august [0]. If you look at the federal reserves asset sheet trends [1], you'll see it grown by up about 3 trillion since january [1] with over 2/3 of that buying those same US treasury securities our government sells to finance the deficit [2]. My point is that if congress had simply decided to pay for all deficits including those direct and indirect payments to citizens this year with printed money and the federal reserve did nothing, we would be basically in the exact same position. Congress is spending to put cash in citizens pockets and the federal reserve is buying up most of the treasury securities that congress is selling to fund that. [0]: https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm https://www.treasurydirect.gov/govt/reports/pd/mspd/mspd.htm [1]: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... [2]: https://www.federalreserve.gov/releases/h41/current/h41.htm https://www.federalreserve.gov/releases/h41/current/h41.htm
- vkou 6y ago
  The problem is that the fed did not buy those US treasuries. The fed bought a bunch of crap bonds from the market at above market value (As prior to their involvement, those bonds were tanking), and the people who sold them those bonds then went on to buy treasures and securities. It socialized the risk, and privatized the profits.
  - mrep 6y ago
    From the current asset sheet in millions of dollars: Reserve Bank credit: 6,968,229 U.S. Treasury securities: 4,391,505 Mortgage-backed securities: 1,949,547 That puts treasuries and mortgage backed securities as basically their entire balance. Corporate bonds are listed in section 1A as Other securities which Includes non-marketable U.S. Treasury securities, supranationals, corporate bonds, asset-backed securities, and commercial paper at face value and that comes out to a grand total of 86.729 billion or about 1.24% of their asset sheet.