5 ms·

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

by jl6 5y ago

irjustin 5y ago
The new thinking is money supply/debt vs GDP doesn't necessarily equate to inflation.
xiphias2 5y ago
The banking cartel controls where the newly printed money (debt) goes first by controlling interest rates (governments, big banks, stocks, bonds and houses get the best rates near 0%, and Aftermarket and credit card customers get 30%
adventured 5y ago
Because the money supply didn't increase 4x. They changed the definition of M1 to include savings.
gizmo 5y ago
What matters is the amount of money in active circulation. If salaries all went up 4x then you’d see significant inflation across the board. The fed provides extra liquidity to banks which trickles down to the financial system, which makes stocks go up, and real estate to some extent, but it doesn’t boost the entire economy. Doing 1tn of QE and borrowing 1tn for shovel ready infrastructure spending are not equivalent. Inflation always lags behind, though, and it’s pretty likely at this point that rising inflation indicators in the coming quarters force the fed to tighten. Opinions are very much divided on this, where many are convinced the fed needs to take drastic action to keep inflation from getting out of control with another financial crisis as a result. The other mainstream view is that we’re only seeing transitory inflation right now and as long as the real economy is healthy we shouldn’t expect inflation to persist and cause carnage.
blueblisters 5y ago
I believe that's partially because that money is a liability on someone's balance sheet - the fed, the banks, the treasury, companies, consumers etc. As long as the Fed can use its levers to mop up excess liquidity sometime in the future, the excess money supply is not too much of a concern.
bluecalm 5y ago
Imagine everyone gets 1000 USD loan, freshly printed USD from the government. Money supply just increased by 300billion (assuming it's for US citizens). Does it mean inflation follows? Probably not because people know they have to pay the money back. The price of assets people really need/want or those that are undervalued is going to go up though. I believe the situation is the same with stocks. They were criminally undervalued for decades (imo still are somewhat undervalued) so additional money supply causes the prices to increase (it's profitable to buy into great opportunity and pay back cheap loan later) but it's only because the assets were very cheap. If they weren't it wouldn't make sense to buy them no matter how much money is around (as you need to pay it back). What may cause inflation though are programs when you just hand money to people (not as loans but as handouts) as then you just diluted everyone's else money.
- skohan 5y ago
  What's your reasoning for concluding that stocks were substantially undervalued? Because another way to read the situation is that stocks are simply the asset of last resort. In a world with no interest, you can't park money in bonds (or CD's etc.) so you've basically got stocks, real-estate and commodities left as options. Large-scale asset managers are not going to park billions of dollars under the mattress, so basically it has to go to stocks.
  - bluecalm 5y ago
    No deep analysis on this one. I just think it's a crazy good deal to be able to buy stock of the biggest corporations which lead humanity technological progress, have huge political influence and even at today profit levels return 3-4% per year (in reality much more as a lot of money is invested in research/new projects which are going to be profitable in the future). I think Apple/Amazon/Alphabet/MSFT etc are going make even more in the future and current price is a steal, especially considering those are highly liquid assets with 0 cost of maintenance.

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

by jl6 5y ago

Can someone explain why x4’ing the money supply hasn’t ÷4’d the value of the dollar? Yet?

irjustin 5y ago

The new thinking is money supply/debt vs GDP doesn't necessarily equate to inflation.

xiphias2 5y ago

The banking cartel controls where the newly printed money (debt) goes first by controlling interest rates (governments, big banks, stocks, bonds and houses get the best rates near 0%, and Aftermarket and credit card customers get 30%

adventured 5y ago

Because the money supply didn't increase 4x. They changed the definition of M1 to include savings.

gizmo 5y ago

What matters is the amount of money in active circulation. If salaries all went up 4x then you’d see significant inflation across the board. The fed provides extra liquidity to banks which trickles down to the financial system, which makes stocks go up, and real estate to some extent, but it doesn’t boost the entire economy. Doing 1tn of QE and borrowing 1tn for shovel ready infrastructure spending are not equivalent. Inflation always lags behind, though, and it’s pretty likely at this point that rising inflation indicators in the coming quarters force the fed to tighten. Opinions are very much divided on this, where many are convinced the fed needs to take drastic action to keep inflation from getting out of control with another financial crisis as a result. The other mainstream view is that we’re only seeing transitory inflation right now and as long as the real economy is healthy we shouldn’t expect inflation to persist and cause carnage.

blueblisters 5y ago

I believe that's partially because that money is a liability on someone's balance sheet - the fed, the banks, the treasury, companies, consumers etc. As long as the Fed can use its levers to mop up excess liquidity sometime in the future, the excess money supply is not too much of a concern.

bluecalm 5y ago

Imagine everyone gets 1000 USD loan, freshly printed USD from the government. Money supply just increased by 300billion (assuming it's for US citizens). Does it mean inflation follows? Probably not because people know they have to pay the money back. The price of assets people really need/want or those that are undervalued is going to go up though. I believe the situation is the same with stocks. They were criminally undervalued for decades (imo still are somewhat undervalued) so additional money supply causes the prices to increase (it's profitable to buy into great opportunity and pay back cheap loan later) but it's only because the assets were very cheap. If they weren't it wouldn't make sense to buy them no matter how much money is around (as you need to pay it back). What may cause inflation though are programs when you just hand money to people (not as loans but as handouts) as then you just diluted everyone's else money.

skohan 5y ago
What's your reasoning for concluding that stocks were substantially undervalued? Because another way to read the situation is that stocks are simply the asset of last resort. In a world with no interest, you can't park money in bonds (or CD's etc.) so you've basically got stocks, real-estate and commodities left as options. Large-scale asset managers are not going to park billions of dollars under the mattress, so basically it has to go to stocks.
- bluecalm 5y ago
  No deep analysis on this one. I just think it's a crazy good deal to be able to buy stock of the biggest corporations which lead humanity technological progress, have huge political influence and even at today profit levels return 3-4% per year (in reality much more as a lot of money is invested in research/new projects which are going to be profitable in the future). I think Apple/Amazon/Alphabet/MSFT etc are going make even more in the future and current price is a steal, especially considering those are highly liquid assets with 0 cost of maintenance.