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For anyone scratching their head on what "MP3" is: monetary policy 3, i.e. "helicopter money," i.e. "the government be handin out them stimmies," i.e. the gover

For anyone scratching their head on what "MP3" is: monetary policy 3, i.e. "helicopter money," i.e. "the government be handin out them stimmies," i.e. the government injected COVID-19 relief funds into the economy, giving an across-the-board increase in demand for goods & services, but there aren't enough "goods & services" to keep up with this demand.

asdff 5y ago
The government didn't even grant people a months worth of rent in my city. Not sure how that lead to such a huge infusion of demand that continues to persist, unless there are just that many people with very little rent who are driving this demand. Seems like such a small amount in the grand scheme of things considering most people even working a minimum wage job might see more money back on a tax return than the measly $1200 that's been dispersed.
- 300bps 5y ago
  It isn’t just direct stimulus to private citizens. It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
  - asdff 5y ago
    So what exactly happens in between the fed purchasing mortgage bonds and allegedly consumer driven supply runs on everything from toilet paper to golf clubs?
    - 300bps 5y ago
      Bond rates move inversely to price. As the fed buys bonds, it raises the price which lowers the rate. As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy. Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.
      - asdff 5y ago
        Not everyone is a homeowner and on top of that not every homeowner has refinanced their home during covid. I don't think people are borrowing money to buy toilet paper or a golf club. How do lower rates for corporate loans affect behavior that's at the consumer level? I'm trying to understand this relationship better.
        option_greek 5y ago
        It doesn't directly go from fed to toilet paper. It starts with fed, inflates assets like real estate, stocks, commodities and leaks into actual economy due to the expected returns on these assets. For example, rents, prices of hardware and capital intensive sectors, oil all go up because on one hand these are getting indirectly pumped up by suppressed yields on bonds thanks to fed while on the other hand they are also getting consumed by economy (industry/people) which has to pay more to match the appreciation in prices to use/consume them. All this results in higher wage expectations due to people expecting higher wages based on higher prices (gasoline, cars etc) which moves the fed money to people's hands and increases the prices of consumer goods including fmcg like TP. As you can see there is a long link from cause to effect which is why we are seeing the slow increase in inflation. In many sectors like agriculture this is not even priced in yet as they are ultra competitive. But as their inputs go up (people and raw materials, hardware ), they will also have to increase prices. Even when eventually fed raises rates or tapers their buying, prices once gone up have a way of sticking around unless efficiency improvements like automation reduce input costs.
        asdff 5y ago
        Are people actually seeing higher wages on the whole? Some cities have raised minimum wages like a few dollars more an hour but minimum wages have not been keeping pace with inflation as it was. Has median wage gone up in this time? My understanding has been that wages have been pretty flat for middle income earners for years despite cost of living increases rising over these same years.
        300bps 5y ago
    - epgui 5y ago
      The cost of servicing debt decreases and disposable income increases.
      - asdff 5y ago
        People are borrowing money to buy toilet paper and golf clubs? I think you are missing some details in the path from mortgage bonds -> your average consumer buying average consumer goods. I'm not being cynical or anything, I'd just like to understand this relationship a bit better.
        perpetualpatzer 5y ago
        I think it's less taking a loan to buy golf clubs and more "feeling less financially stretched makes people more willing to spend money." Example: Joe just had a kid and was going to buy a house in a good school district no matter the cost. With a higher mortgage rates, he'd have wound up house poor for a few years. With today's rates, he has a comfortable savings rate. Since he's not scrimping, he decides this month he'll buy that putter he'd been eying.
        asdff 5y ago
        My understanding with housing is that is nearly always costs the same amount no matter what mortgage rate is, so in times of high rates list price is lower, times of low rates list price is higher, and adjusted for inflation the ultimate montly payment of mortgage+interest remains about the same. Seems like if you bought today you'd have to cough up a huge down payment vs when rates were higher, and its this initial costs from things like down payment and paying pmi that makes people initially house poor.
- danjayh 5y ago
  Not sure where you live, but a family of two adults and 3 kids got $13,900 in stimulus checks so far in the USA, not counting the expanded child tax credits (which would be another $5400 if the kids are young, dispersed in $900 monthly payments for the last 6 months of the year). Even a single adult with no kids would have gotten $3,200 so far. I mean, damn, how much is rent in your city? https://www.pgpf.org/blog/2021/03/what-to-know-about-all-three-rounds-of-coronavirus-stimulus-checks https://www.pgpf.org/blog/2021/03/what-to-know-about-all-thr...
  - unethical_ban 5y ago
    I got nothing. Your link explains that the stimulus checks were income-capped.
  - deathanatos 5y ago
    My 1 bedroom is >$2800/mo, not counting utilities, so they're might technically be wrong, but they're not far off the mark, really. (Now, I also don't qualify for the stimulus, and if I did, I would probably have been unable to afford a 1 bedroom apt. here.)
  - relaxing 5y ago
    I wonder why that think tank you linked doesn’t have a handy fact sheet on rent prices. I don’t think any of the stimulus checks covered a month’s rent in any major city, and the checks weren’t coming monthly.
arthurcolle 5y ago
Thank god we have crypto & NFTs to help people use all this free cash
- human 5y ago
  It doesn’t work like that though. If I buy BTC at 60k then someone is selling BTC at the same price. The fiat is just moving from one account to the next. The people getting cash-rich from crypto are either spending it (on lambos) or putting it back into the stock market.
  - mikeodds 5y ago
    Depends who you are buying it from and which country they are spending in
  - Ozzie_osman 5y ago
    It's a little more complicated than that. You buy 1 BTC from me for 60k. Now let's say I want to buy BTC again, but you want to sell it for 120k, so now I buy 0.5 BTC from you for 60k, and if everyone agrees that 120k should be the fair price, we've just bid up the market cap and value of BTC without really increasing the fiat. Now imagine that with different crypto, stocks, other financial instruments, real estate, etc etc and in different combinations and with margin and derivatives and what not.
    - JumpCrisscross 5y ago
      > we've just bid up the market cap and value of BTC without really increasing the fiat If anyone in their chain borrows against their inflated crypto, that creates new fiat.
  - clavicat 5y ago
    In all probability, you’re selling to a crypto trader or bot who then uses those funds to make more crypto trades, so the money is in a sense trapped in crypto markets until someone withdraws it from the exchange. The extent to which this money is being absorbed by crypto can be seen by analyzing exchange flows.
halo13245 5y ago
Thanks you!
- deleted 5y ago
  [deleted]
craigds 5y ago
Thanks, I was scratching my head wondering why an old music format was related to recent events!
- qorrect 5y ago
  Using acronyms before defining them is really unforgiveable.
deleted 5y ago
[deleted]

asdff 5y ago

The government didn't even grant people a months worth of rent in my city. Not sure how that lead to such a huge infusion of demand that continues to persist, unless there are just that many people with very little rent who are driving this demand. Seems like such a small amount in the grand scheme of things considering most people even working a minimum wage job might see more money back on a tax return than the measly $1200 that's been dispersed.

300bps 5y ago
It isn’t just direct stimulus to private citizens. It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
- asdff 5y ago
  So what exactly happens in between the fed purchasing mortgage bonds and allegedly consumer driven supply runs on everything from toilet paper to golf clubs?
  - 300bps 5y ago
    Bond rates move inversely to price. As the fed buys bonds, it raises the price which lowers the rate. As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy. Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.
    - asdff 5y ago
      Not everyone is a homeowner and on top of that not every homeowner has refinanced their home during covid. I don't think people are borrowing money to buy toilet paper or a golf club. How do lower rates for corporate loans affect behavior that's at the consumer level? I'm trying to understand this relationship better.
      - option_greek 5y ago
        It doesn't directly go from fed to toilet paper. It starts with fed, inflates assets like real estate, stocks, commodities and leaks into actual economy due to the expected returns on these assets. For example, rents, prices of hardware and capital intensive sectors, oil all go up because on one hand these are getting indirectly pumped up by suppressed yields on bonds thanks to fed while on the other hand they are also getting consumed by economy (industry/people) which has to pay more to match the appreciation in prices to use/consume them. All this results in higher wage expectations due to people expecting higher wages based on higher prices (gasoline, cars etc) which moves the fed money to people's hands and increases the prices of consumer goods including fmcg like TP. As you can see there is a long link from cause to effect which is why we are seeing the slow increase in inflation. In many sectors like agriculture this is not even priced in yet as they are ultra competitive. But as their inputs go up (people and raw materials, hardware ), they will also have to increase prices. Even when eventually fed raises rates or tapers their buying, prices once gone up have a way of sticking around unless efficiency improvements like automation reduce input costs.
        asdff 5y ago
        Are people actually seeing higher wages on the whole? Some cities have raised minimum wages like a few dollars more an hour but minimum wages have not been keeping pace with inflation as it was. Has median wage gone up in this time? My understanding has been that wages have been pretty flat for middle income earners for years despite cost of living increases rising over these same years.
      - 300bps 5y ago
  - epgui 5y ago
    The cost of servicing debt decreases and disposable income increases.
    - asdff 5y ago
      People are borrowing money to buy toilet paper and golf clubs? I think you are missing some details in the path from mortgage bonds -> your average consumer buying average consumer goods. I'm not being cynical or anything, I'd just like to understand this relationship a bit better.
      - perpetualpatzer 5y ago
        I think it's less taking a loan to buy golf clubs and more "feeling less financially stretched makes people more willing to spend money." Example: Joe just had a kid and was going to buy a house in a good school district no matter the cost. With a higher mortgage rates, he'd have wound up house poor for a few years. With today's rates, he has a comfortable savings rate. Since he's not scrimping, he decides this month he'll buy that putter he'd been eying.
        asdff 5y ago
        My understanding with housing is that is nearly always costs the same amount no matter what mortgage rate is, so in times of high rates list price is lower, times of low rates list price is higher, and adjusted for inflation the ultimate montly payment of mortgage+interest remains about the same. Seems like if you bought today you'd have to cough up a huge down payment vs when rates were higher, and its this initial costs from things like down payment and paying pmi that makes people initially house poor.
danjayh 5y ago
Not sure where you live, but a family of two adults and 3 kids got $13,900 in stimulus checks so far in the USA, not counting the expanded child tax credits (which would be another $5400 if the kids are young, dispersed in $900 monthly payments for the last 6 months of the year). Even a single adult with no kids would have gotten $3,200 so far. I mean, damn, how much is rent in your city? https://www.pgpf.org/blog/2021/03/what-to-know-about-all-three-rounds-of-coronavirus-stimulus-checks https://www.pgpf.org/blog/2021/03/what-to-know-about-all-thr...
- unethical_ban 5y ago
  I got nothing. Your link explains that the stimulus checks were income-capped.
- deathanatos 5y ago
  My 1 bedroom is >$2800/mo, not counting utilities, so they're might technically be wrong, but they're not far off the mark, really. (Now, I also don't qualify for the stimulus, and if I did, I would probably have been unable to afford a 1 bedroom apt. here.)
- relaxing 5y ago
  I wonder why that think tank you linked doesn’t have a handy fact sheet on rent prices. I don’t think any of the stimulus checks covered a month’s rent in any major city, and the checks weren’t coming monthly.

arthurcolle 5y ago

Thank god we have crypto & NFTs to help people use all this free cash

human 5y ago
It doesn’t work like that though. If I buy BTC at 60k then someone is selling BTC at the same price. The fiat is just moving from one account to the next. The people getting cash-rich from crypto are either spending it (on lambos) or putting it back into the stock market.
- mikeodds 5y ago
  Depends who you are buying it from and which country they are spending in
- Ozzie_osman 5y ago
  It's a little more complicated than that. You buy 1 BTC from me for 60k. Now let's say I want to buy BTC again, but you want to sell it for 120k, so now I buy 0.5 BTC from you for 60k, and if everyone agrees that 120k should be the fair price, we've just bid up the market cap and value of BTC without really increasing the fiat. Now imagine that with different crypto, stocks, other financial instruments, real estate, etc etc and in different combinations and with margin and derivatives and what not.
  - JumpCrisscross 5y ago
    > we've just bid up the market cap and value of BTC without really increasing the fiat If anyone in their chain borrows against their inflated crypto, that creates new fiat.
- clavicat 5y ago
  In all probability, you’re selling to a crypto trader or bot who then uses those funds to make more crypto trades, so the money is in a sense trapped in crypto markets until someone withdraws it from the exchange. The extent to which this money is being absorbed by crypto can be seen by analyzing exchange flows.

halo13245 5y ago

Thanks you!

deleted 5y ago
[deleted]

craigds 5y ago

Thanks, I was scratching my head wondering why an old music format was related to recent events!

qorrect 5y ago
Using acronyms before defining them is really unforgiveable.

deleted 5y ago

[deleted]