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There are those who disagree: https://www.ai-cio.com/news/cathie-wood-the-big-risk-is-deflation-not-inflation/ https://www.ai-cio.com/news/cathie-wood-the-big-

by arbuge 5y ago

There are those who disagree: https://www.ai-cio.com/news/cathie-wood-the-big-risk-is-deflation-not-inflation/ https://www.ai-cio.com/news/cathie-wood-the-big-risk-is-defl... For what it's worth, I personally think she's dead wrong, chiefly because she's forgetting that inflation is primarily a monetary phenomenon. In an environment where governments and central banks are strongly biased in favor of printing money, I see the possibility of deflation as extremely small.

ganeshkrishnan 5y ago
>inflation is primarily a monetary phenomenon. Inflation has not been a monetary phenomenon at all ever since most currencies dropped the gold standard. If that was the case we would have had hyper inflation during QE from 2009. Japan also prints money in excess (for the last 20+ years) and they havent had inflation. The current inflation (as is with most developed countries) is always due to supply/labor.
newaccount2021 5y ago
The Fed has already announced its tapering. A rate rise won't be far behind. The time to ride an inflationary bubble is when it is starting (2009), not when it is ending (2022).
mywittyname 5y ago
> I see the possibility of deflation as extremely small. Which is good, deflationary pressure is devastating. The low prices that occurred during a deflationary phase look appealing after-the-fact. But the cause of those low prices were the fact that nobody could afford anything close to market price for assets. Inflation slowly erodes purchasing power, but deflation completely erases it. People who've lived through the GFC remember why houses, cars, and stocks where cheap: because your income could go to zero at any time. Even if you had the money now to buy something, that wasn't prudent. The phrase of the era was, "cash is king."
analyst74 5y ago
Central banks definitely have demonstrated their willingness to print. However, the Fed's mandate also includes managing inflation, meaning they're unlikely to continue the printing if that contributes higher inflation.
NickM 5y ago
In an environment where governments and central banks are strongly biased in favor of printing money, I see the possibility of deflation as extremely small. I'm not saying you're necessarily wrong, but keep in mind that the amount of wealth in our economy is much greater than the amount of money; printing cash doesn't necessarily have as big an impact on inflation as one might think, because most value these days is in assets other than cash. You can see this in graphs of e.g. the M2 growth rate vs the inflation rate over time. If the existence of more cash directly caused inflation then those rates would be highly correlated, but instead they are only very loosely correlated and the M2 growth rate has far outstripped inflation in recent decades.
AnimalMuppet 5y ago
In particular, QE was the Fed printing money to prevent deflation. (After $4 trillion evaporated in 2008, the Fed created $4 trillion through QE.)
dragonwriter 5y ago
> In an environment where governments and central banks are strongly biased in favor of printing money, This is literally an argument against people arguing that that bias should be reversed out of fear of inflation, so pointing out that deflation is unlikely to be allowed to happen if the people this is arguing against fail to succeed in realigning policy to fit their preferences is...missing the point.
imtringued 5y ago
QE is just the central bank buying treasury bonds with central bank reserves. The private bank that sold its treasury bonds must still find a borrower to create money. It's the availability of solvent borrowers that is the primary driver of money creation. The central bank's mandate nowadays is to keep inflation low. If there is a risk of permanently high inflation they are going to raise interest rates even if that means choking the economy. The reason why they aren't doing it right now is that inflation expectations aren't high enough in the bond market. It's entirely possible that tapering now wouldn't choke but kill the economy.

by arbuge 5y ago

ganeshkrishnan 5y ago

>inflation is primarily a monetary phenomenon. Inflation has not been a monetary phenomenon at all ever since most currencies dropped the gold standard. If that was the case we would have had hyper inflation during QE from 2009. Japan also prints money in excess (for the last 20+ years) and they havent had inflation. The current inflation (as is with most developed countries) is always due to supply/labor.

newaccount2021 5y ago

The Fed has already announced its tapering. A rate rise won't be far behind. The time to ride an inflationary bubble is when it is starting (2009), not when it is ending (2022).

mywittyname 5y ago

> I see the possibility of deflation as extremely small. Which is good, deflationary pressure is devastating. The low prices that occurred during a deflationary phase look appealing after-the-fact. But the cause of those low prices were the fact that nobody could afford anything close to market price for assets. Inflation slowly erodes purchasing power, but deflation completely erases it. People who've lived through the GFC remember why houses, cars, and stocks where cheap: because your income could go to zero at any time. Even if you had the money now to buy something, that wasn't prudent. The phrase of the era was, "cash is king."

analyst74 5y ago

Central banks definitely have demonstrated their willingness to print. However, the Fed's mandate also includes managing inflation, meaning they're unlikely to continue the printing if that contributes higher inflation.

NickM 5y ago

In an environment where governments and central banks are strongly biased in favor of printing money, I see the possibility of deflation as extremely small. I'm not saying you're necessarily wrong, but keep in mind that the amount of wealth in our economy is much greater than the amount of money; printing cash doesn't necessarily have as big an impact on inflation as one might think, because most value these days is in assets other than cash. You can see this in graphs of e.g. the M2 growth rate vs the inflation rate over time. If the existence of more cash directly caused inflation then those rates would be highly correlated, but instead they are only very loosely correlated and the M2 growth rate has far outstripped inflation in recent decades.

AnimalMuppet 5y ago

In particular, QE was the Fed printing money to prevent deflation. (After $4 trillion evaporated in 2008, the Fed created $4 trillion through QE.)

dragonwriter 5y ago

> In an environment where governments and central banks are strongly biased in favor of printing money, This is literally an argument against people arguing that that bias should be reversed out of fear of inflation, so pointing out that deflation is unlikely to be allowed to happen if the people this is arguing against fail to succeed in realigning policy to fit their preferences is...missing the point.

imtringued 5y ago

QE is just the central bank buying treasury bonds with central bank reserves. The private bank that sold its treasury bonds must still find a borrower to create money. It's the availability of solvent borrowers that is the primary driver of money creation. The central bank's mandate nowadays is to keep inflation low. If there is a risk of permanently high inflation they are going to raise interest rates even if that means choking the economy. The reason why they aren't doing it right now is that inflation expectations aren't high enough in the bond market. It's entirely possible that tapering now wouldn't choke but kill the economy.