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It’s (the start of hyper)inflation, plain and simple. Almost a fifth of all circulating dollars were created in 2020. And they keep printing money.. The dollar

by vimy 6y ago

It’s (the start of hyper)inflation, plain and simple. Almost a fifth of all circulating dollars were created in 2020. And they keep printing money.. The dollar lost a lot of value and we see it first in asset prices, soon the real economy will follow. So don’t see it as stocks rising 30 % but the dollar losing 30 % of its value.

taxcoder 6y ago
Came here to say exactly this. Adding to the money supply increases the nominal cost of assets because more dollars are available.
dragonwriter 6y ago
Yeah, its not like the same entity that pumps dollars into the economy to boost employment and prevent deflation when it slows down also might take dollars out to restrain inflation as the economy speeds back up.
- bko 6y ago
  Higher rates come w/ a lot of political pain. You saw the prior administration talking about keeping rates low and tying that to low cost of borrowing for the US. It means higher mortgage rates for homebuyers as well. The Fed has spoken about keeping rates zero until 2023 [0]. Unemployment came down considerably (~6%). Last time it was this level was mid-2014. We started raising rates at ~5% unemployment in early-2016. I think theres a good chance you'll hit 5% unemployment well before 2023, especially considering that the economy isn't fully open yet and we're still vaccinating. I don't see the political will to raise rates and slow this thing down. [0] https://www.forbes.com/sites/sergeiklebnikov/2020/09/16/federal-reserve-says-it-will-keep-interest-rates-near-zero-until-2023/?sh=218ec364798d https://www.forbes.com/sites/sergeiklebnikov/2020/09/16/fede...
anm89 6y ago
The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on the table. I would be more worried about a solvency crisis or sector specific inflation, or broader changes in the global role of the dollar.
- deleted 6y ago
  [deleted]
- raydalio0705 6y ago
  What is your take on the Ray Dalio view? The way I understand it: 1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative. 2. Investors demand higher interest rates to make it worth their while. 3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it cannot afford (what rate would that be?). Fed comes to the rescue by buying treasuries with new money, creating more demand and driving interest rates down. 4. That makes points 1 and 2 even more valid, so fewer 'real' investors turn up to buy treasuries, and those that hold treasuries try to sell them (you don't want to be getting fixed returns in currency that is losing value). That increases supply of treasuries even more. 5. Recognizing this dynamic, people rush to 'cash in' their dollars - buy anything tangible they can. US stocks sell off relative to 'hard' assets, as companies reporting in dollars are not be able to operate effectively. 6. This results in hyperinflation. The above unfolds relatively quickly with no advance warning (you don't want to alert others as you are trying to offload your dollars), turning low inflation into hyperinflation.
  - anm89 6y ago
    So i would say you are qualitatively correct but not quantitatively correct regarding what Dalio believes regarding inflation. I think Dalio would go as far as saying "Cash is trash" but not as far as saying "the dollar will hyperinflate". He believes strong inflation is coming but that is very different than hyperinflation. Hyper inflation would generally be defined as a quarter of 50% per month inflation. That means the dollar would have to lose 3/4 or more of it's value over a quarter to be said to have hyperinflated. Supply factors have to totally outstrip demand factors where there is essentially no bid to reach this kind of growth. But 90% of the world has debt denominated in dollars that creates a constant bid for dollars. This simply cannot unwind overnight without ending in a major global solvency event and if that happens every currency on the planet is going to be revalued instantaneously anyway. Anyway that's a lot of words to say, I dont think Ray Dalio believes hyperinflation is coming. I think he thinks inflation is coming, maybe even a lot of it. A second unrelated point is that every historical instance of hyperinflation I'm aware of involved a sovereign owing debts in some other sovereigns currency. No one has ever hyperinlfated when their debts were denominated in their own currency. This also is a situation which does not apply to the US.

by vimy 6y ago

taxcoder 6y ago

Came here to say exactly this. Adding to the money supply increases the nominal cost of assets because more dollars are available.

dragonwriter 6y ago

Yeah, its not like the same entity that pumps dollars into the economy to boost employment and prevent deflation when it slows down also might take dollars out to restrain inflation as the economy speeds back up.

bko 6y ago
Higher rates come w/ a lot of political pain. You saw the prior administration talking about keeping rates low and tying that to low cost of borrowing for the US. It means higher mortgage rates for homebuyers as well. The Fed has spoken about keeping rates zero until 2023 [0]. Unemployment came down considerably (~6%). Last time it was this level was mid-2014. We started raising rates at ~5% unemployment in early-2016. I think theres a good chance you'll hit 5% unemployment well before 2023, especially considering that the economy isn't fully open yet and we're still vaccinating. I don't see the political will to raise rates and slow this thing down. [0] https://www.forbes.com/sites/sergeiklebnikov/2020/09/16/federal-reserve-says-it-will-keep-interest-rates-near-zero-until-2023/?sh=218ec364798d https://www.forbes.com/sites/sergeiklebnikov/2020/09/16/fede...

anm89 6y ago

The US is not at risk of hyperinflation due to structural reasons related to international trade. I listen to hours os economics podcasts a week from brilliant people with viewpoints across the political spectrum , many of whom love nothing more than to trash Fed actions and US economic policy and I have never once heard any of these let's say 50+ speakers say they feel hyper inflation is a risk. It really isn't on the table. I would be more worried about a solvency crisis or sector specific inflation, or broader changes in the global role of the dollar.

deleted 6y ago
[deleted]
raydalio0705 6y ago
What is your take on the Ray Dalio view? The way I understand it: 1. Lending to the US government (buying treasuries) at low interest rates is not profitable, as you will be paid back in devalued currency. As is, real rates are negative. 2. Investors demand higher interest rates to make it worth their while. 3. US government has to roll over its debt or borrow more, but has to do it at higher interest rates that it cannot afford (what rate would that be?). Fed comes to the rescue by buying treasuries with new money, creating more demand and driving interest rates down. 4. That makes points 1 and 2 even more valid, so fewer 'real' investors turn up to buy treasuries, and those that hold treasuries try to sell them (you don't want to be getting fixed returns in currency that is losing value). That increases supply of treasuries even more. 5. Recognizing this dynamic, people rush to 'cash in' their dollars - buy anything tangible they can. US stocks sell off relative to 'hard' assets, as companies reporting in dollars are not be able to operate effectively. 6. This results in hyperinflation. The above unfolds relatively quickly with no advance warning (you don't want to alert others as you are trying to offload your dollars), turning low inflation into hyperinflation.
- anm89 6y ago
  So i would say you are qualitatively correct but not quantitatively correct regarding what Dalio believes regarding inflation. I think Dalio would go as far as saying "Cash is trash" but not as far as saying "the dollar will hyperinflate". He believes strong inflation is coming but that is very different than hyperinflation. Hyper inflation would generally be defined as a quarter of 50% per month inflation. That means the dollar would have to lose 3/4 or more of it's value over a quarter to be said to have hyperinflated. Supply factors have to totally outstrip demand factors where there is essentially no bid to reach this kind of growth. But 90% of the world has debt denominated in dollars that creates a constant bid for dollars. This simply cannot unwind overnight without ending in a major global solvency event and if that happens every currency on the planet is going to be revalued instantaneously anyway. Anyway that's a lot of words to say, I dont think Ray Dalio believes hyperinflation is coming. I think he thinks inflation is coming, maybe even a lot of it. A second unrelated point is that every historical instance of hyperinflation I'm aware of involved a sovereign owing debts in some other sovereigns currency. No one has ever hyperinlfated when their debts were denominated in their own currency. This also is a situation which does not apply to the US.