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Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Not saying a gover

Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Not saying a government shouldn't provide relief during a pandemic, just stating that it sounded obvious to me rather than alarming.

tmaly 5y ago
The printing is part of it, but not all of it. The commercial credit that amplifies the money in circulation is a major factor. This is itself driven by the amount of money available to leverage against with fractional lending.
raydev 5y ago
Don't you have to eliminate supply chain issues before you can confidently assert "printing trillions of US dollars for pandemic relief" is the primary cause?
AnimalMuppet 5y ago
As you say, they created a bunch of money. But also, we have less stuff (because when all those people who weren't working, they weren't doing whatever they normally did, and so there's missing output in the economy). So, more money and less stuff, and what do you know, we have inflation. This is my complete lack of surprise. But, if we stop creating more extra money, and if people can return to work, then it should be transitory. I don't see reason why we should expect 5% inflation every year going forward.
nerdponx 5y ago
My somewhat-uneducated opinion has been that this was not due to pandemic relief, but due to long-term inflation pressure that the economy stopped being able to absorb as a result of the pandemic, and/or wasn't being measured (because it was being reflected in real estate, commodities, and securities).
ThunderSizzle 5y ago
It probably wouldn't have been as bad if the time before it and time after it is similarly inflated. If it was a one-off 2T expense, it probably wouldn't be as noticeable as the every growing hockey stick of Keynesian economics (funding expensive mandatory social programs).
- syshum 5y ago
  They moved on from Keynesian economics a long time ago, today it is all about MMT i.e Magical Monetary Thinking errrr... Modern Monetary Theory
  - whimsicalism 5y ago
    You have no idea what you are talking about.
  - tharne 5y ago
    > They moved on from Keynesian economics a long time ago This 100%. Keynesian economics sees debt as temporary to be used to fight a war or stimulate the economy during a depression, with the expectation that the debt is paid down during the good times. This is what the U.S. did during World War 2. They ran up a huge debt to fight the war then paid it back down in the prosperous years following the war. Modern Monetary Theory on the other hand is the philosophy of a six year old who asks daddy why the government can't just print more money to buy stuff.
    - ThunderSizzle 5y ago
      TBF, we never really _paid_ off the WW2 debt. We started to use GDP vs Debt as the measurement tool to avoid actually paying off debt instead of endlessly servicing it. It didn't take much time to convince our 6-year-old selves that we could just endlessly service more debt when GDP grows and to grow more GDP. Obviously there's no bad if taking debt causes GDP to grow, and GDP will always grow, so debt should always grow, because more GDP!
    - mindslight 5y ago
dustintrex 5y ago
It weirds me out that this is a considered a controversial opinion instead of common sense. Give people money during pandemic, people feel less pressure to work. Less people who want/need to work, wages rise to attract more people. Companies have higher wage bills, they raise prices to compensate. Hey presto, inflation. There's also a secondary feedback loop of people buying more stuff with their payouts and the increased demand translating into higher prices, but this hit various sectors of the economy really unevenly, where wage inflation seems to be very widespread.
- gitfan86 5y ago
  Thank God for the meme stocks and crypto. Otherwise we could have seen all the money jump into commodities or trying to corner markets or other goods.
- bumby 5y ago
  Even common sense needs to be validated though. There are always "common sense" solutions that end up being wrong, often because they are an overly simplistic model. There was an interesting outcome of some states stopping benefits because common sense said that would make people more pressured to go back to work. This was essentially a large-scale economics experiment. "25% of the workers who lost their benefits in June had gone back to work by August. Now, in states that left the benefits in place, 21% of unemployed people found jobs. So there was only a four percentage point difference when these benefits went away...And what this means is those states that ended benefits early, they turned down billions of dollars in federal unemployment aid, and it ended up backfiring for their local economies."[1] The "common sense" solution to helping their economy may have actually hurt their economy. [1] https://www.npr.org/transcripts/1034965231 https://www.npr.org/transcripts/1034965231
  - silexia 5y ago
    That 4% difference is absolutely massive. Further, these benefits have to be paid by someone somewhere. These benefits are being paid by all the rest of us in the form of inflation eating way our income.
mywittyname 5y ago
A trillion dollars is basically a 12mo-18mo of GDP growth for the USA. And it was handed out in a year where GDP fell by 600 billion.
- frankfrankfrank 5y ago
  Those are not comparable other than that the GDP growth you reference IS that trillion dollars you also reference, and then some. It's essentially like switching to buying everything on credit card to keep up the facade to your friends that nothing has changed, in spite of the fact that your business is bankrupt/you lost your job. The GDP will still go up because you are buying things, but that does not change the fact that taking on one trillion dollars in debt or embezzling one trillion dollars from shareholders of your company is a good idea.
I_am_tiberius 5y ago
Government should NOT provide relief. They didn't even discuss alternative solutions. One time taxes would have been a possible alternative. EDIT: relief in terms of QE.
- nuerow 5y ago
  > Government should NOT provide relief. Why? Isn't this one of the very core responsibilities of a government? Otherwise what would be the point of having a government to begin with? > They didn't even discuss alternative solutions. Which solutions do you have in mind? I mean, you mentioned QE and arguably QE has been going on for a decade or so.
  - reedjosh 5y ago
    > Otherwise what would be the point of having a government to begin with? You tell me. It seems the reasons keep expanding. Ostensibly governments were initially for defense of a nation. People even resisted the creation of the US federal government. Unfortunately even then there were financiers willing to lend against future taxation for the expense of qwelling dissent. In these conversations consent of the governed, and the source of the 'relief' is never considered.
    - bumby 5y ago
      >Ostensibly governments were initially for defense of a nation. Can you elaborate on this conclusion? At least in the U.S., the Constitution explicitly defines responsibilities of the government that go beyond national defense.
  - I_am_tiberius 5y ago
    One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2. QE is not a valid option in my opinion.
    - nuerow 5y ago
      > One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2. Why do you believe that creating/increasing taxes all on itself will address the problem caused by a) economic stagnation, b) workers seeing themselves out of a job and without a paycheck?
deleted 5y ago
[deleted]
pkulak 5y ago
We've been "giving" (I know, it's not technically that) billions to rich people for decades and it hasn't done anything to inflation. So it's reasonable to wonder if that still holds when everyone gets the cash. My theory is that rich people save it, and poor people spend it; so here we are.
- throwaway0a5e 5y ago
  The rich all competed for assets and it was reflected in asset prices.
- nuerow 5y ago
  > My theory is that rich people save it, and poor people spend it; so here we are. Supposedly this money is being dumped on conservative investments which are actually worsening the whole economy, such as the massive inflow of institutional investments in real estate which is behind the astronomical real estate prices in some cities.
nimbius 5y ago
Its far more concerning to remember that the US Federal Reserve cannot combat this round of inflation using the prime interest rate, as it never fully abandoned QE or Quantitative Easing from 2008. since the corporate lending market is now saturated with low or no interest loans, any attempt to raise interest rates at all will likely trigger a massive recession. this is called the corporate debt bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble EDIT: this is due to the QE taper failure of 2012 as a point of evidence as it alone resulted in a 700 point market crash that forced the fed to reverse course immediately. https://en.wikipedia.org/wiki/Quantitative_easing#United_States_(QE1,_QE2,_and_QE3) https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta... the fed is therefore stuck hammering news outlets and the government with hopeful rhetoric about "transient" inflation that will somehow clear up after Covid, despite rising unemployment, underemployment, lingering state debt from the covid crisis, and back-rent payments still due by millions of americans who will likely declare bankruptcy at some point. EDIT: Generally, bankruptcy is a positive influence on the economy. It allows consumers to find a way out of massive debt so they can once again start engaging in the economy through buying goods, services and large-scale assets such as vehicles and real estate. unfortunately personal bankruptcy stokes a permanent US underclass that are denied rental housing in nearly every market. Bankruptcy is also prohibitively expensive for many americans to formally declare, and so the debt remains in an unserviceable limbo on books (eventually becoming an unseen toxic asset.) Bankruptcy can also factor into your employment screening. and this doesnt even begin to touch supply chain constraints like the semiconductor shortage and the ongoing international shipping gridlock, ergo most of what we're seeing now is the Fed treading water until a major recession inevitably hits.
- hammock 5y ago
  Can you go one level deeper- why would raising interest rates trigger a recession?
  - silexia 5y ago
    The US government and corporations borrow money at the prime interest rate plus some margin. Right now, US corporations have borrowed the maximum they possibly can. If the interest rates on that debt go up, many corporations will immediately go bankrupt. The US government also has a debt ceiling it is refusing to raise, which may mean that the US government itself may become insolvent faster with an increase in interest rates.
dragonwriter 5y ago
> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Pretty much everybody, as that was precisely (in comparison to the expected course without it) the intent. That eventually stimulus of all kinds would have to be reeled back in to control inflation was also expected. The exact timing and course of the rebound in both the general economy and inflation was less predictable, and widely understood as such. > Not saying a government shouldn't provide relief during a pandemic, just stating that it sounded obvious to me rather than alarming. It shouldn't be considered overly alarming, in broad monetary terms, in the short term, the question is whether appropriate steps are taken to prevent it from becoming alarming, on the broad monetary front, and whether appropriate steps are taken to address acute harms on the distributional front. Most people here seem more concerned about the first question and less or unconcerned about the second.
RickJWagner 5y ago
Also driven by skyrocketing energy costs. Maybe if we had a pipeline, to move fuel in a more efficient way....
throw0101a 5y ago
> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Plenty of folks thought (a) we needed to spend lots of money on relief, (b) this would cause a spike in inflation, and (c) this is fine: * https://www.nytimes.com/2021/02/07/opinion/covid-biden-economy-stimulus.html https://www.nytimes.com/2021/02/07/opinion/covid-biden-econo... * https://www.piie.com/blogs/realtime-economic-issues-watch/inflation-fears-and-biden-stimulus-look-korean-war-not-vietnam https://www.piie.com/blogs/realtime-economic-issues-watch/in... A 12-18 months spike in inflation is worse than the alternative, not spending not enough and the economy stagnate for years like it did post-2008: > I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.” * https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/ https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...

tmaly 5y ago

The printing is part of it, but not all of it. The commercial credit that amplifies the money in circulation is a major factor. This is itself driven by the amount of money available to leverage against with fractional lending.

raydev 5y ago

Don't you have to eliminate supply chain issues before you can confidently assert "printing trillions of US dollars for pandemic relief" is the primary cause?

AnimalMuppet 5y ago

As you say, they created a bunch of money. But also, we have less stuff (because when all those people who weren't working, they weren't doing whatever they normally did, and so there's missing output in the economy). So, more money and less stuff, and what do you know, we have inflation. This is my complete lack of surprise. But, if we stop creating more extra money, and if people can return to work, then it should be transitory. I don't see reason why we should expect 5% inflation every year going forward.

nerdponx 5y ago

My somewhat-uneducated opinion has been that this was not due to pandemic relief, but due to long-term inflation pressure that the economy stopped being able to absorb as a result of the pandemic, and/or wasn't being measured (because it was being reflected in real estate, commodities, and securities).

ThunderSizzle 5y ago

It probably wouldn't have been as bad if the time before it and time after it is similarly inflated. If it was a one-off 2T expense, it probably wouldn't be as noticeable as the every growing hockey stick of Keynesian economics (funding expensive mandatory social programs).

syshum 5y ago
They moved on from Keynesian economics a long time ago, today it is all about MMT i.e Magical Monetary Thinking errrr... Modern Monetary Theory
- whimsicalism 5y ago
  You have no idea what you are talking about.
- tharne 5y ago
  > They moved on from Keynesian economics a long time ago This 100%. Keynesian economics sees debt as temporary to be used to fight a war or stimulate the economy during a depression, with the expectation that the debt is paid down during the good times. This is what the U.S. did during World War 2. They ran up a huge debt to fight the war then paid it back down in the prosperous years following the war. Modern Monetary Theory on the other hand is the philosophy of a six year old who asks daddy why the government can't just print more money to buy stuff.
  - ThunderSizzle 5y ago
    TBF, we never really _paid_ off the WW2 debt. We started to use GDP vs Debt as the measurement tool to avoid actually paying off debt instead of endlessly servicing it. It didn't take much time to convince our 6-year-old selves that we could just endlessly service more debt when GDP grows and to grow more GDP. Obviously there's no bad if taking debt causes GDP to grow, and GDP will always grow, so debt should always grow, because more GDP!
  - mindslight 5y ago

dustintrex 5y ago

It weirds me out that this is a considered a controversial opinion instead of common sense. Give people money during pandemic, people feel less pressure to work. Less people who want/need to work, wages rise to attract more people. Companies have higher wage bills, they raise prices to compensate. Hey presto, inflation. There's also a secondary feedback loop of people buying more stuff with their payouts and the increased demand translating into higher prices, but this hit various sectors of the economy really unevenly, where wage inflation seems to be very widespread.

gitfan86 5y ago
Thank God for the meme stocks and crypto. Otherwise we could have seen all the money jump into commodities or trying to corner markets or other goods.
bumby 5y ago
Even common sense needs to be validated though. There are always "common sense" solutions that end up being wrong, often because they are an overly simplistic model. There was an interesting outcome of some states stopping benefits because common sense said that would make people more pressured to go back to work. This was essentially a large-scale economics experiment. "25% of the workers who lost their benefits in June had gone back to work by August. Now, in states that left the benefits in place, 21% of unemployed people found jobs. So there was only a four percentage point difference when these benefits went away...And what this means is those states that ended benefits early, they turned down billions of dollars in federal unemployment aid, and it ended up backfiring for their local economies."[1] The "common sense" solution to helping their economy may have actually hurt their economy. [1] https://www.npr.org/transcripts/1034965231 https://www.npr.org/transcripts/1034965231
- silexia 5y ago
  That 4% difference is absolutely massive. Further, these benefits have to be paid by someone somewhere. These benefits are being paid by all the rest of us in the form of inflation eating way our income.

mywittyname 5y ago

A trillion dollars is basically a 12mo-18mo of GDP growth for the USA. And it was handed out in a year where GDP fell by 600 billion.

frankfrankfrank 5y ago
Those are not comparable other than that the GDP growth you reference IS that trillion dollars you also reference, and then some. It's essentially like switching to buying everything on credit card to keep up the facade to your friends that nothing has changed, in spite of the fact that your business is bankrupt/you lost your job. The GDP will still go up because you are buying things, but that does not change the fact that taking on one trillion dollars in debt or embezzling one trillion dollars from shareholders of your company is a good idea.

I_am_tiberius 5y ago

Government should NOT provide relief. They didn't even discuss alternative solutions. One time taxes would have been a possible alternative. EDIT: relief in terms of QE.

nuerow 5y ago
> Government should NOT provide relief. Why? Isn't this one of the very core responsibilities of a government? Otherwise what would be the point of having a government to begin with? > They didn't even discuss alternative solutions. Which solutions do you have in mind? I mean, you mentioned QE and arguably QE has been going on for a decade or so.
- reedjosh 5y ago
  > Otherwise what would be the point of having a government to begin with? You tell me. It seems the reasons keep expanding. Ostensibly governments were initially for defense of a nation. People even resisted the creation of the US federal government. Unfortunately even then there were financiers willing to lend against future taxation for the expense of qwelling dissent. In these conversations consent of the governed, and the source of the 'relief' is never considered.
  - bumby 5y ago
    >Ostensibly governments were initially for defense of a nation. Can you elaborate on this conclusion? At least in the U.S., the Constitution explicitly defines responsibilities of the government that go beyond national defense.
- I_am_tiberius 5y ago
  One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2. QE is not a valid option in my opinion.
  - nuerow 5y ago
    > One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2. Why do you believe that creating/increasing taxes all on itself will address the problem caused by a) economic stagnation, b) workers seeing themselves out of a job and without a paycheck?

deleted 5y ago

[deleted]

pkulak 5y ago

We've been "giving" (I know, it's not technically that) billions to rich people for decades and it hasn't done anything to inflation. So it's reasonable to wonder if that still holds when everyone gets the cash. My theory is that rich people save it, and poor people spend it; so here we are.

throwaway0a5e 5y ago
The rich all competed for assets and it was reflected in asset prices.
nuerow 5y ago
> My theory is that rich people save it, and poor people spend it; so here we are. Supposedly this money is being dumped on conservative investments which are actually worsening the whole economy, such as the massive inflow of institutional investments in real estate which is behind the astronomical real estate prices in some cities.

nimbius 5y ago

Its far more concerning to remember that the US Federal Reserve cannot combat this round of inflation using the prime interest rate, as it never fully abandoned QE or Quantitative Easing from 2008. since the corporate lending market is now saturated with low or no interest loans, any attempt to raise interest rates at all will likely trigger a massive recession. this is called the corporate debt bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble EDIT: this is due to the QE taper failure of 2012 as a point of evidence as it alone resulted in a 700 point market crash that forced the fed to reverse course immediately. https://en.wikipedia.org/wiki/Quantitative_easing#United_States_(QE1,_QE2,_and_QE3) https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta... the fed is therefore stuck hammering news outlets and the government with hopeful rhetoric about "transient" inflation that will somehow clear up after Covid, despite rising unemployment, underemployment, lingering state debt from the covid crisis, and back-rent payments still due by millions of americans who will likely declare bankruptcy at some point. EDIT: Generally, bankruptcy is a positive influence on the economy. It allows consumers to find a way out of massive debt so they can once again start engaging in the economy through buying goods, services and large-scale assets such as vehicles and real estate. unfortunately personal bankruptcy stokes a permanent US underclass that are denied rental housing in nearly every market. Bankruptcy is also prohibitively expensive for many americans to formally declare, and so the debt remains in an unserviceable limbo on books (eventually becoming an unseen toxic asset.) Bankruptcy can also factor into your employment screening. and this doesnt even begin to touch supply chain constraints like the semiconductor shortage and the ongoing international shipping gridlock, ergo most of what we're seeing now is the Fed treading water until a major recession inevitably hits.

hammock 5y ago
Can you go one level deeper- why would raising interest rates trigger a recession?
- silexia 5y ago
  The US government and corporations borrow money at the prime interest rate plus some margin. Right now, US corporations have borrowed the maximum they possibly can. If the interest rates on that debt go up, many corporations will immediately go bankrupt. The US government also has a debt ceiling it is refusing to raise, which may mean that the US government itself may become insolvent faster with an increase in interest rates.

dragonwriter 5y ago

> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Pretty much everybody, as that was precisely (in comparison to the expected course without it) the intent. That eventually stimulus of all kinds would have to be reeled back in to control inflation was also expected. The exact timing and course of the rebound in both the general economy and inflation was less predictable, and widely understood as such. > Not saying a government shouldn't provide relief during a pandemic, just stating that it sounded obvious to me rather than alarming. It shouldn't be considered overly alarming, in broad monetary terms, in the short term, the question is whether appropriate steps are taken to prevent it from becoming alarming, on the broad monetary front, and whether appropriate steps are taken to address acute harms on the distributional front. Most people here seem more concerned about the first question and less or unconcerned about the second.

RickJWagner 5y ago

Also driven by skyrocketing energy costs. Maybe if we had a pipeline, to move fuel in a more efficient way....

throw0101a 5y ago

> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?! Plenty of folks thought (a) we needed to spend lots of money on relief, (b) this would cause a spike in inflation, and (c) this is fine: * https://www.nytimes.com/2021/02/07/opinion/covid-biden-economy-stimulus.html https://www.nytimes.com/2021/02/07/opinion/covid-biden-econo... * https://www.piie.com/blogs/realtime-economic-issues-watch/inflation-fears-and-biden-stimulus-look-korean-war-not-vietnam https://www.piie.com/blogs/realtime-economic-issues-watch/in... A 12-18 months spike in inflation is worse than the alternative, not spending not enough and the economy stagnate for years like it did post-2008: > I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.” * https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithmetic-wonkish-but-important/ https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...