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more than 20% of all US dollars that ever existed were created in the last 2 years and there are “no worries”? I’d like to learn more why.

by option 5y ago

01100011 5y ago
I have heard people claim that QE is disinflationary because the dollars are tied up and don't add velocity but I haven't grokked their reasons why.
- pram 5y ago
  QE and the repo operations the Fed does are “providing liquidity” to activity that would (presumably) normally happen anyway. I’d assume this would be the reason. You can argue the activity wouldn’t happen if interest rates weren’t kept artificially low. Another thing is these security purchases are largely insulated from what is used to calculate inflation. These are exchanges between banks and funds and similar.
ethbr0 5y ago
Good question! Because inflation is the sum of money supply + velocity + consumer expectations + goods production + international monetary markets? Which explains why historical attempts to point to any one and say "Inflation is coming / not coming!" have fared poorly.
- zpeti 5y ago
  Historical: Except in those cases most printed money went to banks, buying their bad loans. Which had already affected house prices by 2008, and only affected asset and commodity prices, which did rise in price since 2008. This time round you have more and more stimulus going to ordinary people, who will spend it on ordinary goods like food. That will create a different type of inflation. (I’m not endorsing either type of bailout/stimulus btw)
  - ethbr0 5y ago
    It's a fair point. But on the other hand, we had substantially depressed demand in a lot of industries for a year+ due to the pandemic. And while some of that money found alternate outlets (home improvement, streaming services [0]), the uptick in savings indicated a lot of it pooled [1], and the postponed evictions and rent / loan payments resulted in delayed debt obligations (which are difficult to find numbers on, in total?). So as usual, arrows pointing both ways. [0] https://www.familyhandyman.com/article/home-improvement-spending-rising/ https://www.familyhandyman.com/article/home-improvement-spen... [1] https://fred.stlouisfed.org/graph/?g=DXqc https://fred.stlouisfed.org/graph/?g=DXqc (2019-2021 savings rate)
  - RC_ITR 5y ago
    Boy would you be surprised to see that food inflation is decelerating and has been since the stimulus started! https://fred.stlouisfed.org/series/CPIUFDSL https://fred.stlouisfed.org/series/CPIUFDSL
    - zpeti 5y ago
      Have you seen the Bloomberg agricultural price index recently?
      - RC_ITR 5y ago
        Do me a favor. Log into your terminal, type in 'BCOMAGSP Index'. Hit Go. Then hit 'Max.' Look at the spike in 2010. Then tell me about the runaway food inflation that happened then. EDIT: Just to be clear on my point: Yes I agree that people are hedging inflation via commodity futures (like they do after most recessions), but that doesn't mean they're right. In the same way stock prices are often a bad indication of a company's actual value.
arberx 5y ago
Because no one was/is spending: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
deleted 5y ago
[deleted]
jonnycomputer 5y ago
I know at least 3 households who spent all their stimulus dollars paying down debt. And those are the only households I know how they spent it, so 100%. Decreasing debt to income ratio will stimulate demand, but not in a shock like fashion. Most people don't want to jump back into debt again. People with big medical bills (because of COVID for example), used it to pay off their medical debts. People with big credit card debt, student loan debt, car loan debt, mortgages, probably used a lot of it to pay that off. Other than that, people with homes and cars might have deferred repairs and renovations. So some of that is going to where it would have gone anyway. And why price of wood skyrocketed.
dragonwriter 5y ago
> more than 20% of all US dollars that ever existed were created in the last 2 years and there are “no worries”? I’d like to learn more why. Because they were created to fight deflation (only barely successfully, as a year ago unadjusted inflation was about 0 and within seasonal adjustment it was negative) and if there are signs of sustained rather than transitory inflation, the Fed will suck them right back up. It’s like people think monetary policy either only happens in the past or only happens in one direction.
- jgalt212 5y ago
  > It’s like people think monetary policy either only happens in the past or only happens in one direction. You can make a very strong argument that monetary policy for the last 20 years has has little effect on CPI and strong effects on asset prices.
  - dragonwriter 5y ago
    > You can make a very strong argument that monetary policy for the last 20 years has has little effect on CPI and strong effects on asset prices. If you disagree with policymakers about what the likely course of inflation would have been without the policy intervention, maybe, but I've yet to see anyone make the argument for that disagreement, just assert it as if it were an undisputable fact. So, yeah, if you assume the deflation QE was ddsigned to fight would not have happened without QE, then you are forced to conclude that the low with-QE inflation meant QE didn’t cause inflation beyond what would have existed without it. But that’s largely just assuming the conclusion.
    - jgalt212 5y ago
      Here's what indisputable: If you gift money to bondholders, bond prices will go up. If you gift money to food buyers, the price of food will go up.
- eloff 5y ago
  You can't take the official inflation numbers at face value. If you look at real inflation it's been closer to 4-5% a year since 2009. Which means if you had $100,000 in cash under your mattress in 2009, you can now generally buy half as much with it. Less in education, healthcare. More in consumer tech. About half in Big Macs or housing. Source: https://www.lynalden.com/inflation/ https://www.lynalden.com/inflation/

more than 20% of all US dollars that ever existed were created in the last 2 years and there are “no worries”? I’d like to learn more why.

by option 5y ago

more than 20% of all US dollars that ever existed were created in the last 2 years and there are “no worries”? I’d like to learn more why.

01100011 5y ago

I have heard people claim that QE is disinflationary because the dollars are tied up and don't add velocity but I haven't grokked their reasons why.

pram 5y ago
QE and the repo operations the Fed does are “providing liquidity” to activity that would (presumably) normally happen anyway. I’d assume this would be the reason. You can argue the activity wouldn’t happen if interest rates weren’t kept artificially low. Another thing is these security purchases are largely insulated from what is used to calculate inflation. These are exchanges between banks and funds and similar.

ethbr0 5y ago

Good question! Because inflation is the sum of money supply + velocity + consumer expectations + goods production + international monetary markets? Which explains why historical attempts to point to any one and say "Inflation is coming / not coming!" have fared poorly.

zpeti 5y ago
Historical: Except in those cases most printed money went to banks, buying their bad loans. Which had already affected house prices by 2008, and only affected asset and commodity prices, which did rise in price since 2008. This time round you have more and more stimulus going to ordinary people, who will spend it on ordinary goods like food. That will create a different type of inflation. (I’m not endorsing either type of bailout/stimulus btw)
- ethbr0 5y ago
  It's a fair point. But on the other hand, we had substantially depressed demand in a lot of industries for a year+ due to the pandemic. And while some of that money found alternate outlets (home improvement, streaming services [0]), the uptick in savings indicated a lot of it pooled [1], and the postponed evictions and rent / loan payments resulted in delayed debt obligations (which are difficult to find numbers on, in total?). So as usual, arrows pointing both ways. [0] https://www.familyhandyman.com/article/home-improvement-spending-rising/ https://www.familyhandyman.com/article/home-improvement-spen... [1] https://fred.stlouisfed.org/graph/?g=DXqc https://fred.stlouisfed.org/graph/?g=DXqc (2019-2021 savings rate)
- RC_ITR 5y ago
  Boy would you be surprised to see that food inflation is decelerating and has been since the stimulus started! https://fred.stlouisfed.org/series/CPIUFDSL https://fred.stlouisfed.org/series/CPIUFDSL
  - zpeti 5y ago
    Have you seen the Bloomberg agricultural price index recently?
    - RC_ITR 5y ago
      Do me a favor. Log into your terminal, type in 'BCOMAGSP Index'. Hit Go. Then hit 'Max.' Look at the spike in 2010. Then tell me about the runaway food inflation that happened then. EDIT: Just to be clear on my point: Yes I agree that people are hedging inflation via commodity futures (like they do after most recessions), but that doesn't mean they're right. In the same way stock prices are often a bad indication of a company's actual value.

arberx 5y ago

Because no one was/is spending: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

deleted 5y ago

[deleted]

jonnycomputer 5y ago

I know at least 3 households who spent all their stimulus dollars paying down debt. And those are the only households I know how they spent it, so 100%. Decreasing debt to income ratio will stimulate demand, but not in a shock like fashion. Most people don't want to jump back into debt again. People with big medical bills (because of COVID for example), used it to pay off their medical debts. People with big credit card debt, student loan debt, car loan debt, mortgages, probably used a lot of it to pay that off. Other than that, people with homes and cars might have deferred repairs and renovations. So some of that is going to where it would have gone anyway. And why price of wood skyrocketed.

dragonwriter 5y ago

> more than 20% of all US dollars that ever existed were created in the last 2 years and there are “no worries”? I’d like to learn more why. Because they were created to fight deflation (only barely successfully, as a year ago unadjusted inflation was about 0 and within seasonal adjustment it was negative) and if there are signs of sustained rather than transitory inflation, the Fed will suck them right back up. It’s like people think monetary policy either only happens in the past or only happens in one direction.

jgalt212 5y ago
> It’s like people think monetary policy either only happens in the past or only happens in one direction. You can make a very strong argument that monetary policy for the last 20 years has has little effect on CPI and strong effects on asset prices.
- dragonwriter 5y ago
  > You can make a very strong argument that monetary policy for the last 20 years has has little effect on CPI and strong effects on asset prices. If you disagree with policymakers about what the likely course of inflation would have been without the policy intervention, maybe, but I've yet to see anyone make the argument for that disagreement, just assert it as if it were an undisputable fact. So, yeah, if you assume the deflation QE was ddsigned to fight would not have happened without QE, then you are forced to conclude that the low with-QE inflation meant QE didn’t cause inflation beyond what would have existed without it. But that’s largely just assuming the conclusion.
  - jgalt212 5y ago
    Here's what indisputable: If you gift money to bondholders, bond prices will go up. If you gift money to food buyers, the price of food will go up.
eloff 5y ago
You can't take the official inflation numbers at face value. If you look at real inflation it's been closer to 4-5% a year since 2009. Which means if you had $100,000 in cash under your mattress in 2009, you can now generally buy half as much with it. Less in education, healthcare. More in consumer tech. About half in Big Macs or housing. Source: https://www.lynalden.com/inflation/ https://www.lynalden.com/inflation/