4 ms·

I think these days there is only one metric that really matters: the size of the Fed balance sheet. And it is going up [1]. As long as the Fed keeps printing, a

by cm2187 6y ago

I think these days there is only one metric that really matters: the size of the Fed balance sheet. And it is going up [1]. As long as the Fed keeps printing, asset prices will go up, no matter the financial ratios. [1] https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

jpalomaki 6y ago
I've been thinking about the same, but not sure sure if numbers really match. Just checked some figures for fun: Fed balance sheet has gone $6 trillion since 2007. ECB [1] bit less than €3 trillion. US stock market cap is $36 trillion [2], up $17 trillion since 2007. [1] https://www.ecb.europa.eu/pub/annual/balance https://www.ecb.europa.eu/pub/annual/balance /html/index.en.html [2] https://siblisresearch.com/data/us-stock-market-value/ https://siblisresearch.com/data/us-stock-market-value/
- cm2187 6y ago
  I don’t know if you can do that. This is assuming an inflationary effect alone. But when there is too much cash around, when you have lots of buyers chasing a small number of assets, the price of these assets can increase in a completely irrational way.
- cat199 6y ago
  this is at least partly due to the money multiplier effect - a fed $1 isn't just a $1 after it's been distributed/reloaned/etc through the system: https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier so you have fed $$ going into banks, which increases their ability to generate loans of future $$ > fed $$, which is then reinvested somehow
ronyfadel 6y ago
Something I can't comprehend: how can they keep printing at this scale, yet inflation remains so low?
- rhodozelia 6y ago
  The measurement of inflation is based on a basket of goods like McDonald’s hamburgers that does not include housing, stocks, or gasoline apparently
  - ronyfadel 6y ago
    But does this mean that there effectively is high inflation, but most of us are oblivious to it? The price of gasoline seems to remain the same [1]. [1] https://www.eia.gov/todayinenergy/images/2017.05.26/chart2.png https://www.eia.gov/todayinenergy/images/2017.05.26/chart2.p...
    - ju-st 6y ago
      In Germany official inflation was 1.5% in 2019 but the price of newly built houses and flats increased by 7-9%. This is missing completely in the official inflation numbers of the eurozone: https://www.faz.net/aktuell/finanzen/der-inflation-fehlen-die-immobilienpreise-16667186.html https://www.faz.net/aktuell/finanzen/der-inflation-fehlen-di...
      - SpaceRaccoon 6y ago
        Inflation statistics only include the interest payments on mortgages, since the principle is considered recoverable. It's misleading by design.
    - Traster 6y ago
      It means the divide between the rich and poor got even wider. The average person is poorer, can still buy basic staples, but is further than ever from being able to buy any assets and would need to work significantly more to build up the cash that would let them buy assets. It also means that the wealth of those whose wealth is primarily derived from assets has gone up signficantly more than those who have a mix of assets and earnings. Or to put it another way - the super rich are crowding out the rich from asset ownership. In essence making it difficult to build wealth.
    - 6y ago

by cm2187 6y ago

jpalomaki 6y ago

I've been thinking about the same, but not sure sure if numbers really match. Just checked some figures for fun: Fed balance sheet has gone $6 trillion since 2007. ECB [1] bit less than €3 trillion. US stock market cap is $36 trillion [2], up $17 trillion since 2007. [1] https://www.ecb.europa.eu/pub/annual/balance https://www.ecb.europa.eu/pub/annual/balance /html/index.en.html [2] https://siblisresearch.com/data/us-stock-market-value/ https://siblisresearch.com/data/us-stock-market-value/

cm2187 6y ago
I don’t know if you can do that. This is assuming an inflationary effect alone. But when there is too much cash around, when you have lots of buyers chasing a small number of assets, the price of these assets can increase in a completely irrational way.
cat199 6y ago
this is at least partly due to the money multiplier effect - a fed $1 isn't just a $1 after it's been distributed/reloaned/etc through the system: https://en.wikipedia.org/wiki/Money_multiplier https://en.wikipedia.org/wiki/Money_multiplier so you have fed $$ going into banks, which increases their ability to generate loans of future $$ > fed $$, which is then reinvested somehow

ronyfadel 6y ago

Something I can't comprehend: how can they keep printing at this scale, yet inflation remains so low?

rhodozelia 6y ago
The measurement of inflation is based on a basket of goods like McDonald’s hamburgers that does not include housing, stocks, or gasoline apparently
- ronyfadel 6y ago
  But does this mean that there effectively is high inflation, but most of us are oblivious to it? The price of gasoline seems to remain the same [1]. [1] https://www.eia.gov/todayinenergy/images/2017.05.26/chart2.png https://www.eia.gov/todayinenergy/images/2017.05.26/chart2.p...
  - ju-st 6y ago
    In Germany official inflation was 1.5% in 2019 but the price of newly built houses and flats increased by 7-9%. This is missing completely in the official inflation numbers of the eurozone: https://www.faz.net/aktuell/finanzen/der-inflation-fehlen-die-immobilienpreise-16667186.html https://www.faz.net/aktuell/finanzen/der-inflation-fehlen-di...
    - SpaceRaccoon 6y ago
      Inflation statistics only include the interest payments on mortgages, since the principle is considered recoverable. It's misleading by design.
  - Traster 6y ago
    It means the divide between the rich and poor got even wider. The average person is poorer, can still buy basic staples, but is further than ever from being able to buy any assets and would need to work significantly more to build up the cash that would let them buy assets. It also means that the wealth of those whose wealth is primarily derived from assets has gone up signficantly more than those who have a mix of assets and earnings. Or to put it another way - the super rich are crowding out the rich from asset ownership. In essence making it difficult to build wealth.
  - 6y ago