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At a high level I agree, but monetary policy isn't the only way to affect wealth inequality either. And the question I'm wrestling with is not, "Was/is two dec

At a high level I agree, but monetary policy isn't the only way to affect wealth inequality either. And the question I'm wrestling with is not, "Was/is two decades of relatively easy money a bad policy?" but "Why hasn't the last year or two of very easy money caused huge problems?". And for bonus points, the follow-up question is: could we have done this anytime? Did the Covid economic downturn necessitate these drastic measures, or could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse?

lend000 5y ago
> Why hasn't the last year or two of very easy money caused huge problems? See the other comment I posted on this article. Commodities have skyrocketed. But the price of the beef in your Big Mac was negotiated years ago, so consumer prices lag raw materials as multi-year supply chain contracts are updated. > could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse? The economic shock of the pandemic no doubt slowed the velocity of money for a time, which further slowed the consumer inflationary effect. But that velocity has increased amongst lockdown fatigue and reopening in the US, while the money printed is still here. We're seeing it manifest in real estate, stocks, and commodities. "The everything bubble" is just a way of saying (wealth inequality x inflation).
ItsMonkk 5y ago
To answer that question we need to consider top down Vs bottom up. What Congress does is bottom up. After the stimulus went out, the amount of retail sales skyrocketed[0]. The first round single-handedly rebounded us back to where we were before CO-VID, and the second pushed us single-handedly up ~4 years worth of gains. This has a large effect on CPI inflation, but it's limited to when Congress can pass their bills. However with interest rates at basically nothing, they can afford to keep writing them forever if they don't care about the consequences. What the Fed does on the other hand when they lower the interest rate and buy bonds is top down. This money is funneled directly into the already wealthy. You see the more wealth inequality there is, the more goes to the wealthy, the less these top down has any effect on inflation. You're right, when you give money to the wealthy they save it, it's like pushing on a string, asset prices rise and this doesn't effect inflation, and they could have done it at any time. So you need to ask yourself, why now? The Fed is deeply concerned with what they are seeing with housing. You see the more wealth inequality there is, the more they need to make sure that their money stays in the monopoly money that is stocks, and out of the real economy. Once the wealthy work out that steel and lumber and housing have a better overall return than stocks, that's exactly when things that the CPI tracks finally takes off. Most of the time this is triggered by a supply shock. In the 1970s it was oil. If only 5% of the population can eat because of a famine, food is going to be priced such that only 5% can afford it. If the top 5% have billions, well, then food is priced in the billions. So what the Fed is seeing with housing is the wealthy are buying excessively. That's a big problem because that pushes housing demand to unsustainable levels which ultimately leaves people homeless. They don't like that. They want stocks to be the best. So they respond by making asset prices run higher, which gets the wealthy to reconsider and keep their money in the stock market. So the Fed actually hates inequality, but exacerbating inequality is the easiest way to do their job. [0]: https://fred.stlouisfed.org/series/MRTSSM44X72USS https://fred.stlouisfed.org/series/MRTSSM44X72USS

lend000 5y ago

> Why hasn't the last year or two of very easy money caused huge problems? See the other comment I posted on this article. Commodities have skyrocketed. But the price of the beef in your Big Mac was negotiated years ago, so consumer prices lag raw materials as multi-year supply chain contracts are updated. > could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse? The economic shock of the pandemic no doubt slowed the velocity of money for a time, which further slowed the consumer inflationary effect. But that velocity has increased amongst lockdown fatigue and reopening in the US, while the money printed is still here. We're seeing it manifest in real estate, stocks, and commodities. "The everything bubble" is just a way of saying (wealth inequality x inflation).

ItsMonkk 5y ago

To answer that question we need to consider top down Vs bottom up. What Congress does is bottom up. After the stimulus went out, the amount of retail sales skyrocketed[0]. The first round single-handedly rebounded us back to where we were before CO-VID, and the second pushed us single-handedly up ~4 years worth of gains. This has a large effect on CPI inflation, but it's limited to when Congress can pass their bills. However with interest rates at basically nothing, they can afford to keep writing them forever if they don't care about the consequences. What the Fed does on the other hand when they lower the interest rate and buy bonds is top down. This money is funneled directly into the already wealthy. You see the more wealth inequality there is, the more goes to the wealthy, the less these top down has any effect on inflation. You're right, when you give money to the wealthy they save it, it's like pushing on a string, asset prices rise and this doesn't effect inflation, and they could have done it at any time. So you need to ask yourself, why now? The Fed is deeply concerned with what they are seeing with housing. You see the more wealth inequality there is, the more they need to make sure that their money stays in the monopoly money that is stocks, and out of the real economy. Once the wealthy work out that steel and lumber and housing have a better overall return than stocks, that's exactly when things that the CPI tracks finally takes off. Most of the time this is triggered by a supply shock. In the 1970s it was oil. If only 5% of the population can eat because of a famine, food is going to be priced such that only 5% can afford it. If the top 5% have billions, well, then food is priced in the billions. So what the Fed is seeing with housing is the wealthy are buying excessively. That's a big problem because that pushes housing demand to unsustainable levels which ultimately leaves people homeless. They don't like that. They want stocks to be the best. So they respond by making asset prices run higher, which gets the wealthy to reconsider and keep their money in the stock market. So the Fed actually hates inequality, but exacerbating inequality is the easiest way to do their job. [0]: https://fred.stlouisfed.org/series/MRTSSM44X72USS https://fred.stlouisfed.org/series/MRTSSM44X72USS