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> The Fed is stabilizing the price of the USD because of the coronavirus pandemic. If it were not printing money, then there would likely be a deflationary spir
by tchalla 6y ago
> The Fed is stabilizing the price of the USD because of the coronavirus pandemic. If it were not printing money, then there would likely be a deflationary spiral that would cause a depression.
And by doing that, we have the Cantillon Effect [0].
> The Cantillon Effect refers to the change in relative prices resulting from a change in money supply. The change in relative prices occurs because the change in money supply has a specific injection point and therefore a specific flow path through the economy. *The first recipient of the new supply of money is in the convenient position of being able to spend extra dollars before prices have increased. But whoever is last in line receives his share of new dollars after prices have increased*. This is why when the Treasury’s deficit is monetized, inflation is referred to as a non-legislated tax. In these cases, the government has seized purchasing power (rather than physical bills) from its citizens without congressional approval.
[0] https://www.aier.org/article/cantillon-effects-and-money-neutrality/ https://www.aier.org/article/cantillon-effects-and-money-neu...
- jb775 6y agoWhat's a good hedge against the Cantillon Effect?
- bseidensticker 6y agoInject the money somewhere else? UBI perhaps?
- jb775 6y agoI mean as a personal investment hedge to protect against the artificial inflation
- throwaway09223 6y agoBorrow money.
- MrMan 6y agoAnd invest it in startups
- pjmorris 6y agoIMO the way to decide that follows from questions like: What does the Fed buy? Second question: What do the sellers to the Fed buy (where do they spend the proceeds?), and wherever the spending chain goes from there. To my eye, stocks and real estate, at least right now.
- Thorrez 6y agoJust invest in the stock market. That protects you from inflation.
- aidenn0 6y agoLobby for the government to use use as an injection point?
- pjmorris 6y agoMy own personal favorite notion of a hedge for this is wages. Boost wages to match the money supply, and most of those wages will get spent across the economy as well as providing for the wage earners. Of course, this is what many more economically-educated people than I warn against.
- jb775 6y agoEmployees can't control their own wage increases though..but it explains why job hopping is prevalent and understandable nowadays as the only realistic way to keep up. Increasing minimum wage would definitely increase money spent throughout the economy, but I think business owners would offset that cost by creatively reducing/stagnating pay and benefits for middle-class type roles. And the resulting extra demand (without extra supply) would prob lead to higher prices for common goods/services (even more inflation), therefore compounding the issue we are discussing now. On top of that, a big chunk of the extra minimum-wage money spent (by the employees) will end up in the pockets of the richest as they "reinvest profits back into the business". IMO this is essentially transferring wealth from the middle-class to the upper-class via extra money paid to the lower-class.
- pjmorris 6y agoMy personal favorite way for boosting wages would be a job guarantee. Hand-wavy explanation: Having the government hire people who can't find work elsewhere puts a floor on both unemployment and on the minimum that other entities have to provide in a job. More detail in this interview [0] of Pavlina Tcherneva, author of 'The Case for a Job Guarantee' by Mark Blyth (the most entertaining political economist, IMO.) [0] https://soundcloud.com/rhodescenter/is-now-the-time-for-a-federal-jobs-guarantee https://soundcloud.com/rhodescenter/is-now-the-time-for-a-fe...
- deleted 6y ago[deleted]
- lallysingh 6y agoI think the best option is to stop the injection and let the natural price inflation (from raises in population and efficiency) catch up.
- pa7x1 6y agoHaving more injection points, for example, UBI.
- cryptocrypter 6y agoI would guess owning assets?