4 ms·

there's much more to the economy than just cash That is true. But prices are in cash aka dollars. So when we create 11% more dollars, the dollar loses 11% of i

• dragonwriter 5y ago
  > So when we create 11% more dollars, the dollar loses 11% of its value. No, it we have 11% more dollars, distributed and chasing goods and services the same way, sure, but that's...more than just creating them.
  • TekMol 5y ago
    Goods, services and assets. The FED buys the bonds from people and gives them money. What do these people do with the money? Chase goods, services and assets.
    • thoughtstheseus 5y ago
      Mostly save it (stocks and housing) and then pay higher prices for existing assets.
      • landemva 5y ago
        Working class and poor don't really have investments. They have cash for paying bills. These groups are particularly hurt by inflation because they can't afford to have investments. The rich don't care as much because the rich have investments which track inflation.
• mindslight 5y ago
  But people's purchasing power includes assets. If someone has $10k in cash in the bank, and $1M in stocks, then they will feel like they have $1M when deciding whether to spend $1k, despite having nowhere near that amount of cash. Furthermore, asset valuation is not proportional to the amount of total dollars. For example a small amount of money going into an illiquid market (eg real estate) will drive up valuations across the board, making asset owners feel much richer in total than merely the incoming dollars. On the flip side, asset owners who are not in a position to liquidate their asset (eg personal homeowners) might not feel any richer at all.
  • landemva 5y ago
    I would like to understand why you focus on the feelz. Of more importance are actual prices and money velocity.
    • mindslight 5y ago
      The decision to purchase something or not, in the context of discretionary spending, is fundamentally an emotional one. Sure you can describe it in rational terms, attempt to constrain your own impulses with rationality etc, but at the end if it it's a heuristic. That's all I meant. In case you didn't get my larger point. Take two people both with $10k in cash. One has $1M in the stonk market, the other does not. The first will spend that cash like a millionaire (because they are), where the second one is likely to hold back because that cash is their emergency fund. Even though they have the same exact amount of M2, their purchasing powers are defined by the amount of non-monetary assets they hold.