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What happens when people sell these appreciated assets and try to obtain real goods and services with the proceeds? Inflation cannot remain isolated in assets!

jfengel 5y ago
It can, actually, which is the problem. It's the multi-trillion-dollar question. Some of it will go to real goods and services, but little of that is consumer goods. The rich don't eat more canned peas than other people. They buy more expensive cars, but that doesn't compete with consumer-grade cars. They do sometimes try to invest it in housing, and there are indications that that's going on right now. That does potentially raise actual consumer-level inflation, at least temporarily. It's one of those play-stupid-games-win-stupid-prizes, market-remain-irrational-longer-than-you-can-remain-solvent type situations. That's something they're going to need to watch out for. Some of that money will vanish when they try to cash out. In asset markets, the prices are all fictional, and the money can simply disappear. And some will go back into government coffers, which was the plan in the first place. The government works counter-cyclically, spending money when others won't and collecting taxes when people are spending freely. It's supposed to keep the market on an even keel. For most of a decade they've been putting out more and more punch bowl even though the party is going strong. That will be bad in the end. There's a crash coming -- but nobody knows when, and nobody wants to leave the party too early. The Fed will, probably this year, start taking away the punch, and that will be the signal to start selling assets. And the market will crash, by perhaps 50% -- all the while the government is collecting cap gains. And the rest of the money goes... gold? Real estate? Bonds? It's gonna be a mess. And it's likely to cause deflation, since whenever markets crash companies close -- because they were being propped up by fake cash. At which point the whole stupid business cycle starts over again.

jfengel 5y ago

It can, actually, which is the problem. It's the multi-trillion-dollar question. Some of it will go to real goods and services, but little of that is consumer goods. The rich don't eat more canned peas than other people. They buy more expensive cars, but that doesn't compete with consumer-grade cars. They do sometimes try to invest it in housing, and there are indications that that's going on right now. That does potentially raise actual consumer-level inflation, at least temporarily. It's one of those play-stupid-games-win-stupid-prizes, market-remain-irrational-longer-than-you-can-remain-solvent type situations. That's something they're going to need to watch out for. Some of that money will vanish when they try to cash out. In asset markets, the prices are all fictional, and the money can simply disappear. And some will go back into government coffers, which was the plan in the first place. The government works counter-cyclically, spending money when others won't and collecting taxes when people are spending freely. It's supposed to keep the market on an even keel. For most of a decade they've been putting out more and more punch bowl even though the party is going strong. That will be bad in the end. There's a crash coming -- but nobody knows when, and nobody wants to leave the party too early. The Fed will, probably this year, start taking away the punch, and that will be the signal to start selling assets. And the market will crash, by perhaps 50% -- all the while the government is collecting cap gains. And the rest of the money goes... gold? Real estate? Bonds? It's gonna be a mess. And it's likely to cause deflation, since whenever markets crash companies close -- because they were being propped up by fake cash. At which point the whole stupid business cycle starts over again.