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The Fed was initially saying the inflation was transitory, but have recently dropped the "transitory" label. Back in July, Siegel pointed out that the M2 money

The Fed was initially saying the inflation was transitory, but have recently dropped the "transitory" label. Back in July, Siegel pointed out that the M2 money supply is 30% over pre-pandemic levels and predicted that would translate into 20% cumulative inflation over the next 3 years. Here are my talk notes / video links if you're interested: https://neapowers.com/investing/jeremy-siegel/ https://neapowers.com/investing/jeremy-siegel/ In July Siegel said "There is zero need for the Fed to be buying $120 billion in bonds every month given market conditions." I don't know why the Fed is buying mortgage backed securities in the midst of an apparent housing bubble. Larry Summers was voicing inflation concerns back in March: https://www.youtube.com/watch?v=PBnaahSe7JU&ab_channel=BloombergMarketsandFinance https://www.youtube.com/watch?v=PBnaahSe7JU&ab_channel=Bloom... The main macroeconomists I follow (Siegel, Gundlach, Summers) are all puzzled by the Feds actions recently.

magila 5y ago
I don't know if you were being rhetorical, but the Fed's motivation doesn't seem like that big of a mystery. They're succumbing to political pressure not to induce a recession or allow asset prices to drop.
- handrous 5y ago
  As far as I can tell, the political class decided that no cost was too high to avoid being the one left standing when the music stops, after the '08 crash. So we'll just inflate until someone gets unlucky and is the one stuck with the blame for a massive crash rather than 2-3 smaller recessions inconveniencing some other politicians, who are actually the ones to blame for the whole situation. [EDIT] actually, arguably, the '08 crash was already an in-the-works recession delayed and made worse by exactly this kind of thing. Another possibility is that someone realized something really awful, like that the global economy had shifted such that anything like the "asian contagion" crash (no, nothing to do with COVID[0]) can't be contained next time, so they're desperately trying to keep the plates spinning until they can figure something out, because they expect the next major crash will be a true global depression and don't know how to stop/mitigate it if it's triggered. [0] https://en.wikipedia.org/wiki/1997_Asian_financial_crisis https://en.wikipedia.org/wiki/1997_Asian_financial_crisis
all2 5y ago
If the bubble pops, those securities are generally worthless. If I didn't know better, I'd say this is a move to bankrupt the US government. As it stands, it is idiocy and will bankrupt the government if things go sideways in the housing market. Though, given the rate of inflation, the housing market may not pop as land is a secure asset that the wealthy are getting into.
- padobson 5y ago
  They're buying those securities with printed money. It won't bankrupt the government, it will tank the dollar and everyone who has dollars, gets paid in dollars or loans dollars. Those borrowing dollars to buy assets and offload liabilities will be fine. The first people getting those borrowed dollars (government contractors, banks selling treasuries and MBS, old people on social security) will be okay.
  - maxwell 5y ago
    On the flip side, it will benefit those who don't hodl $USD, those who borrowed dollars, and exporters of U.S. made goods. Big opportunities in manufacturing and agriculture, risks in finance and communications. https://www.lynalden.com/fraying-petrodollar-system https://www.lynalden.com/fraying-petrodollar-system
  - all2 5y ago
    > It won't bankrupt the government, it will tank the dollar and everyone who has dollars, gets paid in dollars or loans dollars. Can you expand on this? How does that work?
    - Qub3d 5y ago
      Since the dollar is an entirely Fiat currency, its supply is dictated purely at the whim of the U.S. Government. This means that they can turn on the presses (or these days, make some keystrokes) and instantly have as much money as they want. Because of this, if there are outstanding debts that are denominated in USD, the government will always be able to have that money on hand, or create it. The problem is that this puts more dollars out in the world. And if there are more dollars in circulation, everyone (on average) has a little bit more they can "bid" on consumer goods. Because of the law of supply and demand, things inflate in price.
gofigure 5y ago
There's also an element here people don't talk: Covid created insane amounts of hard-to-repay debts. If interest rates go up quickly, the Govrermnent will suddently have to spend a lot of its budget on interest - expected, of course, but not something they are used to. In NYC, many restaurants and property owners survived thanks to debt which will eat into their profits for years to come and may even bankrupt them down the road. What is the answer to overwhelming debt? Inflation. Inflation makes the principle that you owe a lot cheaper and if you have borrowed in fixed interest rates, it makes the interest payments cheaper as well. It would help both the government and the businesses mostly affected by Covid to run high inflation for a few years. This may or may not be part of the Fed calculation but I don't understand why nobody talks about it.
- maxwell 5y ago
  Exactly, inflation is a detriment to those with lots of dollars, those who have lent out dollars, and importers/consumers of foreign goods. But it can also benefit owners of physical assets, borrowers of dollars, and exporters of domestic goods.
- hajile 5y ago
  Inflation is NEVER the answer. Inflation taxes money, but not hard assets. The poor have their week's worth of money that then gets taxed an extra 10-30%. The middle-class may sell some assets and be partly hit as a result. The wealthy will just hold their assets until the market settles down and lose nothing. This is the exact opposite of a good economic solution.
  - Invictus0 5y ago
    > This is the exact opposite of a good economic solution. The system is built by and FOR the wealthy. The system is working exactly as designed: to hold down the middle and lower classes, giving them just enough to be happy but not enough to emerge from the rat race.
    - gofigure 5y ago
azth 5y ago
It was obvious to anyone with an iota of critical thinking that it was not transitory. The way the government just printed billions of dollars was bound to result in inflation.

magila 5y ago

I don't know if you were being rhetorical, but the Fed's motivation doesn't seem like that big of a mystery. They're succumbing to political pressure not to induce a recession or allow asset prices to drop.

handrous 5y ago
As far as I can tell, the political class decided that no cost was too high to avoid being the one left standing when the music stops, after the '08 crash. So we'll just inflate until someone gets unlucky and is the one stuck with the blame for a massive crash rather than 2-3 smaller recessions inconveniencing some other politicians, who are actually the ones to blame for the whole situation. [EDIT] actually, arguably, the '08 crash was already an in-the-works recession delayed and made worse by exactly this kind of thing. Another possibility is that someone realized something really awful, like that the global economy had shifted such that anything like the "asian contagion" crash (no, nothing to do with COVID[0]) can't be contained next time, so they're desperately trying to keep the plates spinning until they can figure something out, because they expect the next major crash will be a true global depression and don't know how to stop/mitigate it if it's triggered. [0] https://en.wikipedia.org/wiki/1997_Asian_financial_crisis https://en.wikipedia.org/wiki/1997_Asian_financial_crisis

all2 5y ago

If the bubble pops, those securities are generally worthless. If I didn't know better, I'd say this is a move to bankrupt the US government. As it stands, it is idiocy and will bankrupt the government if things go sideways in the housing market. Though, given the rate of inflation, the housing market may not pop as land is a secure asset that the wealthy are getting into.

padobson 5y ago
They're buying those securities with printed money. It won't bankrupt the government, it will tank the dollar and everyone who has dollars, gets paid in dollars or loans dollars. Those borrowing dollars to buy assets and offload liabilities will be fine. The first people getting those borrowed dollars (government contractors, banks selling treasuries and MBS, old people on social security) will be okay.
- maxwell 5y ago
  On the flip side, it will benefit those who don't hodl $USD, those who borrowed dollars, and exporters of U.S. made goods. Big opportunities in manufacturing and agriculture, risks in finance and communications. https://www.lynalden.com/fraying-petrodollar-system https://www.lynalden.com/fraying-petrodollar-system
- all2 5y ago
  > It won't bankrupt the government, it will tank the dollar and everyone who has dollars, gets paid in dollars or loans dollars. Can you expand on this? How does that work?
  - Qub3d 5y ago
    Since the dollar is an entirely Fiat currency, its supply is dictated purely at the whim of the U.S. Government. This means that they can turn on the presses (or these days, make some keystrokes) and instantly have as much money as they want. Because of this, if there are outstanding debts that are denominated in USD, the government will always be able to have that money on hand, or create it. The problem is that this puts more dollars out in the world. And if there are more dollars in circulation, everyone (on average) has a little bit more they can "bid" on consumer goods. Because of the law of supply and demand, things inflate in price.

gofigure 5y ago

There's also an element here people don't talk: Covid created insane amounts of hard-to-repay debts. If interest rates go up quickly, the Govrermnent will suddently have to spend a lot of its budget on interest - expected, of course, but not something they are used to. In NYC, many restaurants and property owners survived thanks to debt which will eat into their profits for years to come and may even bankrupt them down the road. What is the answer to overwhelming debt? Inflation. Inflation makes the principle that you owe a lot cheaper and if you have borrowed in fixed interest rates, it makes the interest payments cheaper as well. It would help both the government and the businesses mostly affected by Covid to run high inflation for a few years. This may or may not be part of the Fed calculation but I don't understand why nobody talks about it.

maxwell 5y ago
Exactly, inflation is a detriment to those with lots of dollars, those who have lent out dollars, and importers/consumers of foreign goods. But it can also benefit owners of physical assets, borrowers of dollars, and exporters of domestic goods.
hajile 5y ago
Inflation is NEVER the answer. Inflation taxes money, but not hard assets. The poor have their week's worth of money that then gets taxed an extra 10-30%. The middle-class may sell some assets and be partly hit as a result. The wealthy will just hold their assets until the market settles down and lose nothing. This is the exact opposite of a good economic solution.
- Invictus0 5y ago
  > This is the exact opposite of a good economic solution. The system is built by and FOR the wealthy. The system is working exactly as designed: to hold down the middle and lower classes, giving them just enough to be happy but not enough to emerge from the rat race.
  - gofigure 5y ago

azth 5y ago

It was obvious to anyone with an iota of critical thinking that it was not transitory. The way the government just printed billions of dollars was bound to result in inflation.