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I don’t understand how that graph cannot represent some kind of crisis in the making. Is there really a way to walk back from this without blowing up the dollar
by ordinaryradical 6y ago
I don’t understand how that graph cannot represent some kind of crisis in the making. Is there really a way to walk back from this without blowing up the dollar?
- clint 6y agoTake it from the rich people who have primarily hoarded all that money, and give it to poor people who are on the brink of death.
- hpoe 6y agoThat doesn't suddenly change the amount of stuff there is to buy though.
- hanniabu 6y agoNo but it makes it more affordable, which increases spending, which improves the economy, which combats inflation. Or maybe we should continue the "trickle down economy" that has worked so, so well.
- ars 6y agoMore people buying things makes them less affordable, not more. (At least until supply adjusts.) I'm not understanding your logic - it seems backward to me. Also we have never actually done "trickle down", it's a bogyman people like to trot out, not something actually done.
- lun4r 6y agoThat surely would be a quick way to turn it all into inflation
- pkulak 6y agoOnly redistribute half of it.
- xhkkffbf 6y agoExactly. If the rich are happy to leave it in a bank account gathering dust, it doesn't affect prices. But when everyone is actively bidding for scarce assets, we get inflation.
- Tuna-Fish 6y agoRich people don't have tons of money sitting in bank accounts gathering dust.
- reedjosh 6y agoNo, they just have it in gold, stocks, real estate, art, etc... all of which probably doesn't gather much dust--maybe the gold, but if you can afford art, you can probably afford someone to clean it. I also agree that they have debt for that as well. No reason not to use debt to gain real assets when the fiat debt loses value regularly.
- williamdclt 6y agoNot if you "take it" with taxation and "give it" through social programs, I don't think
- CyberRabbi 6y agoIf giving it causes the economy to slow down it could have very hazardous effects. The challenge for lawmakers is how do we aid people in need without causing too much harm to the economy.
- Tuna-Fish 6y ago> Take it from the rich people who have primarily hoarded all that money That's not how any of this works. Rich people generally have much less of their assets as cash or cash-equivalent than poor people. They also in general have much more debt than poor people, both in absolute values and as proportion of their net worth. (Simply because they are able to take more debt, and with the neverending low interest rates, taking more debt and investing it is basically free money.)
- core-questions 6y agoDoesn't the "hoarding money" thing only even apply if you keep your money as literal physical cash in your mattress? If it's in a bank account, it's being lent out and is working, no?
- mypalmike 6y agoAside from primary home ownership, do wealthy individuals generally borrow money in order to invest it? My financial advisors have never suggested such a strategy.
- stainforth 6y agoThose assets can be converted to cash then and redistributed.
- deleted 6y ago[deleted]
- aluminum96 6y agoI think that the change to M2 is expected to be much flatter, since banks have walked back lending. Whether it's that much flatter, I would be surprised.
- MarkSweep 6y agohttps://fred.stlouisfed.org/release/tables?eid=491&rid=21 https://fred.stlouisfed.org/release/tables?eid=491&rid=21 From January to December of 2020, M1 increased by $14 trillion, while M1 “only” increased by $4 trillion. So not as steep at 25%.
- rmah 6y agoThere was a change in regulations in May 2020 which changed how banks classified some deposit accounts which effectively changes how the Fed defined M1 money. IIRC, it was related to what sorts of liquid deposits were counted as M1 vs not M1. Either way, IMO, the more important number to watch is M2 money.
- PragmaticPulp 6y agoYes, the M1 now includes some components that were previously only counted in M2: > This suggests that the rapid acceleration in M1 since May 2020 is mainly from money moving out of the non-M1 components of M2 into M1, rather than reflecting any acceleration in the demand for transaction balances. The chart looks shocking without context, but it’s also very misleading without the context.
- nrmitchi 6y agoI'm pretty sure that taxation is the way to collect and "recapture" those printed dollars. They were printed in order to be spent and "stimulate" the economy, not make already rich people look richer on paper.
- fullshark 6y agoWell they were printed mostly to stop rich people from defaulting on loans, keep companies alive for the and keep them paying their workers etc. So the fed may have very well succeeded there (we don't have the counterfactual, no fed intervention would have likely been not good though). Possibly it was overkill and taxation -> wealth transfer to poorer people makes sense though.
- vmception 6y agoSo, the classic the hyperinflation events occurred because it happened to a currency in isolation. What is new here is that you cant really see it because all major currencies are increasing their supply at similar rates. So stocks, houses and apples increase in value rapidly as more money exists than there are things to buy, but the relative inflation of any economic union is completely masked. Therefore the classic concern - speculators loosing confidence in the currency - isn't quite a classic concern. They don't have an alternative as all major currencies are doing the same thing. To play that script they would need to be exiting fiat currencies, so watch for that. But the macro trend is worldwide speculators pounding against the dam for negative interest rates in the US. Thats the season finale for now and cliffhanger, with no real prediction on the next season’s contents.
- simonbarker87 6y agoBack when the Covid crisis kicked off I (with minimal knowledge) speculated with friends that stuff would get weird economically because all the countries (developed economies) in the world are going to do similar things to counter this so we may not see obvious sides effects we would typically see. Sounds similar to what you’ve said above?
- vmception 6y agokind of, the only thing you are missing is that macroeconomic trend is in play no matter what the catalyst turned out to be the yield curve flattening was a big headline long before and seen as a bearish sign, its not important that COVID spooked everyone to selloff and its not interesting that Congress and the Fed stepped in because of that. All the monetary policy and the fiscal policy decisions were written in advance and just placed on Congress’s desk when they were scrambling for a solution. 5,000 page bills werent just made overnight. the entire game is to put your losses on the balance sheet of the biggest whale in the market (a sovereign with no consequence) and keep all the profits for yourself, and reaching a place in society where that is practical. there is no andrew jackson to dismantle the central bank for the specific reason he dismantled the first one. so the outcome is always predictable, the cause and effect is easy to understand. the mechanism that all central banks (except china’s) use to flood the market with cash is by purchasing an ever expanding universe of bonds, with pushes the bond price up and interest rates of those bonds down.
- throw0101a 6y agoIn most cases in the past, the printing of money has actually been the effect, and not the cause, of problems like hyperinflation: * https://clintballinger.wordpress.com/2021/01/12/the-myth-of-hyperinflation/ https://clintballinger.wordpress.com/2021/01/12/the-myth-of-... As a linked-to IMF paper observes (Benes and Michael Kumhof 2012, p. 12): > To be fair, there have of course been historical episodes where government-issued currencies collapsed amid high inflation. But the lessons from these episodes are so obvious, and so unrelated to the fact that monetary control was exercised by the government, that they need not concern us here. These lessons are: First, do not put a convicted murderer and gambler, or similar characters, in charge of your monetary system(the 1717-1720 John Law episode in France). Second, do not start a war, and if you do, donot lose it (wars, especially lost ones, can destroy any currency, irrespective of whether monetary control is exercised by the government or by private parties). * https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf https://www.imf.org/external/pubs/ft/wp/2012/wp12202.pdf
- asmos7 6y agoAll depends. We increased the supply of money creating downward pressure on the purchasing power of the dollar e.g. inflation but those effects are being countered by decreased consumer demand keeping prices low and less job opportunities again leading to decreased demand for consumer goods. Most likely want to see heavy inflation till we get back to a more "normal" way of life. Keep in mind some inflation is healthy, roughly 3%.
- CyberRabbi 6y agoThere isn’t decreased demand for basic goods like food, so there is no countering effect in those markets. Sure the cost of flat screens and nikes may be stable.
- QuesnayJr 6y agoThe Fed prints money and uses it to buy bonds. It can reverse this by selling the bonds, and destroying the money. (Of course, most of this "money" exists electronically.) The bonds themselves pay interest to the Fed (which will take money out of circulation). Even if the Fed does nothing, the whole thing will reverse itself when the bond reaches maturity, and the principal is paid to the Fed.
- bryanlarsen 6y agoThe standard mechanism for controlling inflation is to increase interest rates. Interest rates are currently at essentially zero, so it seems to me that this is a complete non-issue. If inflation starts to become problematic the fed will increase interest rates and we'll return to a more "normal" economic state.
- anewaccount2021 6y agoNo, debt levels are too high. Raise rates and you crush borrowers who are already saturated with debt and cannot absorb variable rates rising. The Fed is trapped.
- Sargos 6y agoThis ignores all of the evidence that raising interest rates slows economic activity. In our currently economically weakened state raising interest rates would likely crush the economy into a depression.
- bryanlarsen 6y agoWhich is probably the reason we don't currently have core inflation. If we had inflation then it would be evidence the economy is overheated, so cooling the economy would be appropriate at that time.
- CyberRabbi 6y agoChanges in the money supply don’t alone cause crisis. There might be some transient non-linear effects to certain sectors of the economy, which can be dangerous, but if done slow enough usually aren’t. In steady state money supply (and inflation) matters very little to how the economy functions. What matters more is the functional status / size of the economy. If the economy ceases to function then you should be alarmed. Of course the economy has been damaged during the past year but to what extent is not still fully known and is not easily gleanable from changes in the money supply. Politicians go very wrong with this when they assume that pumping the money supply has a causal effect on the economy. At small scales it can but generally it doesn’t. You can throw millions of dollars at a pig, it will never be able write software for FAANG.
- BenoitEssiambre 6y agoI mean, this is totally reversible and is mostly caused by hitting the zero lower bound. Consider that money is put into circulation by the fed buying safe assets. They can sell these assets to reverse this. Not that there isn't any danger. Even better would have been if the Fed was ok going into negative rates (like the ECB did a few years ago). They wouldn't have had to create so much money. People, businesses and banks are just hording government money instead of private assets because it offers above market returns of 0% while marginal safe assets on the private markets have had negative returns (on a risk adjusted, liquidity adjusted basis). With sufficiently negative Fed rates more in line with the markets, people would have kept their assets instead of hoarding government paper and the Fed wouldn't have needed to print so much.
- tryitnow 6y agoThe increase is not as dramatic as this chart makes it out to be. It's more on the order of ~25%, not 300%+. This is largely a function of a re-categorization of certain types of accounts: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec... From what I can understand a lot of accounts that used to be categorized as M1 are now categorized as M2. M1 is a component of M2. So to get a better understanding of the real impact we should look at how M2 has changed: https://fred.stlouisfed.org/series/M2NS https://fred.stlouisfed.org/series/M2NS The increase in M2 is around 25%. Still pretty substantial and it looks to be way beyond the historical norm, so I think we should be concerned. But maybe we should re-calibrate our concern by an order of magnitude.