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I think 1.4 Trillion in asset purchases by the Fed has more to do with inflation than Russia invading Ukraine. You could make an argument it impacted wheat pric

I think 1.4 Trillion in asset purchases by the Fed has more to do with inflation than Russia invading Ukraine. You could make an argument it impacted wheat prices. But the oil market already priced the invasion in, it’s in backwardation with farther months trading lower and lower.

arcticbull 5y ago
There's really no basis to think that asset purchases are responsible for this. Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Asset purchases didn't cause the Port of LA to back up (ships still wait in port 18 days [3]). Asset purchases didn't cause a lack of supply of IC manufacturing [4], including due to bad weather. Asset purchases didn't cause COVID outbreaks [5]. Asset purchases didn't cause labor supply issues [6]. I agree the oil market is in backwardation, but this is retrospective CPI, not December 2023 CPI. [edit] Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market. It's less than 8.9% of global financial assets, and while it increased a lot recently (for obvious reasons) on average over the last 20 years it's not super dramatic. [1] https://www.fsb.org/wp-content/uploads/P161221.pdf https://www.fsb.org/wp-content/uploads/P161221.pdf [2] https://unctad.org/news/shipping-during-covid-19-why-container-freight-rates-have-surged https://unctad.org/news/shipping-during-covid-19-why-contain... [3] https://www.wsj.com/articles/container-ship-backup-at-southern-california-ports-is-receding-11644523945 https://www.wsj.com/articles/container-ship-backup-at-southe... [4] https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-prices-set-to-rise-into-2022-as-TSMC-hikes-rates https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-pr... [5] https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzhou-closes-schools-shanghai-record-cases.html https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzh... [6] https://www.cbsnews.com/news/long-covid-labor-market-missing-workers/ https://www.cbsnews.com/news/long-covid-labor-market-missing...
- MegaButts 5y ago
  Your points are valid about there being truly unusual geopolitical factors right now which fuck up supply chains, shipping routes, and overall availability of goods. But it's ignoring something much simpler: if you print more money, you're directly obfuscating supply and demand by devaluing your currency. The notion that it's not money printing because it's held by financial institutions is as credible as trickle-down economics. There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market. You know what the best hedge against unsustainable debt is? Devaluing the currency. Yes, I am making some simplifications. If you really want to get into the details of quantitative easing in the US we can, but honestly it's just noise. You can't escape the concept of supply and demand no matter how opaque your policies are. The M2 money supply has had an enormous increase in just the past few years. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS I admit I have not had a chance to look at all your links as of writing this comment.
  - arcticbull 5y ago
    Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supply matters, but more money doesn't immediately mean higher prices. More money doesn't necessarily mean each unit is worth less than before because it doesn't exist in isolation. What you do with that money matters. [edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
    - MegaButts 5y ago
      Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
      - arcticbull 5y ago
        btw to be clear, I don't think that the increase in money supply has had zero impact. I think it's actually a key part. Folks saved a bunch of money - to your point, invested it in the stock market - and then when restrictions lifted, they went out and bought stuff. This spike in demand contributed to inflation, no doubt, and it was in part created by new money. I'm not sure that the alternative - at least from the Fed's perspective - of allowing the US to enter a deflationary spiral in 2020 would have done us better. I also think that these issues are transient, and caused by a very poor transition out of COVID lockdowns and into normalcy. It's taking longer than I thought to resolve, but I do think that not taking too much dramatic action and letting the market sort it out is the path forward.
- steve76 5y ago
  [dead]
- rafaelero 5y ago
  > Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2] Why not? Fload the economy with dollars and people will demand goods. This increased demand will affect shipping prices.
  - deleted 5y ago
    [deleted]
  - empraptor 5y ago
    from what I understand, the increased demand was at least partly due to shift in spending from services so goods during the pandemic.
    - rafaelero 5y ago
      Then service prices should be deflating, which doesn't seem to be the case.
      - empraptor 5y ago
        from what i've been reading up on the subject, the thin margin that service sector businesses operate on means many failed despite government intervention and the rest raised prices in order to make profit on lower volume, higher materials cost, and higher labor cost.
- whimsicalism 5y ago
  I'm not a big Fed scaremonger, I actually think early in the pandemic they executed quite well. But you are wrong on a number of fronts. > Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Monetary policy has a massive influence on aggregate demand by consumers. > Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market You're focusing on the wrong thing. What matters is money/assets changing hands and bidding up the price of things. Fed policy absolutely has a massive impact on this, nobody denies this empirically.
space_fountain 5y ago
I'm not sure what you mean by saying the oil market had already priced in the invasion. Certainly there was a huge jump in oil prices when the invasion started (https://tradingeconomics.com/commodity/crude-oil https://tradingeconomics.com/commodity/crude-oil). I think it's at this point clear that stimulus has had something to do with inflation, but also undeniable that the Russian invasion helped raise oil prices
- deleted 5y ago
  [deleted]
randomdata 5y ago
> You could make an argument it impacted wheat prices. Bids jumped by about 30% when the war began, but the price of wheat was already up by nearly 100% over pre-pandemic levels when we still thought there was little chance of war breaking out.
- empraptor 5y ago
  report on wheat market outlook from Jan 2021 is interesting to peruse. there's certainly no one simple answer to why the price rose, but it does indicate higher consumption and lower yield overall in the world (higher yield in Russia but lower in China and Argentina) played a role as well as US wheat planting acreage that had been trending down in recent years. and that rising price of corn meant wheat stocks were used as substitute in feed. https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf?v=5058 https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf...
evrydayhustling 5y ago
That's not what backwardation means. Backwardation means a recovery of supply is priced in. And we may well see those future "roll up" the curve if war continues to constrain supply. The high prices at the front of the curve are the ones we are experiencing, and they are both driving up the CPI directly (since oil is a component) and indirectly adding costs to other goods since you need actual oil, not oil futures, to undertake production.
- harambae 5y ago
  Investopedia disagrees "Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market."
  - evrydayhustling 5y ago
    We agree about the definition of backwardation. I am disagreeing with the post's statement that backwardation implies the invasion is "already priced in" to inflation, when at the time of writing they implied a rapid recovery. If you look at the curve since OP, you'll see it's is actually less backwardated than it's been all year (due to repeated releases from the US reserves). But long term futures are near their highest - suggesting a worse picture for impact on consumer prices over time. Source: traded oil futures professionally. Data you can watch: https://www.eia.gov/outlooks/steo/marketreview/crude.php https://www.eia.gov/outlooks/steo/marketreview/crude.php
imtringued 5y ago
QE turns illiquid treasuries into liquid treasury soup. No new treasuries are created through QE. The Fed has no control over how much bank reserves banks want to own and how many treasuries the government issues to borrow money. The reason why QE doesn't lead to inflation is so utterly boring it surprises me that people even think it can cause inflation. Once interest rates fall below liquidity preference, people would rather keep their money liquid than invested in fixed term assets (treasuries or certificates of deposit) which means banks need liquid assets (reserves) to match their now increasingly liquid liabilities (your deposits). Banks have learned from 2008 and aren't lending to risky borrowers anymore which means the government is acting as the borrower of last resort.

arcticbull 5y ago

There's really no basis to think that asset purchases are responsible for this. Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Asset purchases didn't cause the Port of LA to back up (ships still wait in port 18 days [3]). Asset purchases didn't cause a lack of supply of IC manufacturing [4], including due to bad weather. Asset purchases didn't cause COVID outbreaks [5]. Asset purchases didn't cause labor supply issues [6]. I agree the oil market is in backwardation, but this is retrospective CPI, not December 2023 CPI. [edit] Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market. It's less than 8.9% of global financial assets, and while it increased a lot recently (for obvious reasons) on average over the last 20 years it's not super dramatic. [1] https://www.fsb.org/wp-content/uploads/P161221.pdf https://www.fsb.org/wp-content/uploads/P161221.pdf [2] https://unctad.org/news/shipping-during-covid-19-why-container-freight-rates-have-surged https://unctad.org/news/shipping-during-covid-19-why-contain... [3] https://www.wsj.com/articles/container-ship-backup-at-southern-california-ports-is-receding-11644523945 https://www.wsj.com/articles/container-ship-backup-at-southe... [4] https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-prices-set-to-rise-into-2022-as-TSMC-hikes-rates https://asia.nikkei.com/Business/Tech/Semiconductors/Chip-pr... [5] https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzhou-closes-schools-shanghai-record-cases.html https://www.cnbc.com/2022/04/11/china-covid-outbreak-guangzh... [6] https://www.cbsnews.com/news/long-covid-labor-market-missing-workers/ https://www.cbsnews.com/news/long-covid-labor-market-missing...

MegaButts 5y ago
Your points are valid about there being truly unusual geopolitical factors right now which fuck up supply chains, shipping routes, and overall availability of goods. But it's ignoring something much simpler: if you print more money, you're directly obfuscating supply and demand by devaluing your currency. The notion that it's not money printing because it's held by financial institutions is as credible as trickle-down economics. There's still more money in the system, and that system is purposefully using the extra cash to prop up the stock market. You know what the best hedge against unsustainable debt is? Devaluing the currency. Yes, I am making some simplifications. If you really want to get into the details of quantitative easing in the US we can, but honestly it's just noise. You can't escape the concept of supply and demand no matter how opaque your policies are. The M2 money supply has had an enormous increase in just the past few years. https://fred.stlouisfed.org/series/WM2NS https://fred.stlouisfed.org/series/WM2NS I admit I have not had a chance to look at all your links as of writing this comment.
- arcticbull 5y ago
  Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supply matters, but more money doesn't immediately mean higher prices. More money doesn't necessarily mean each unit is worth less than before because it doesn't exist in isolation. What you do with that money matters. [edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI
  - MegaButts 5y ago
    Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
    - arcticbull 5y ago
      btw to be clear, I don't think that the increase in money supply has had zero impact. I think it's actually a key part. Folks saved a bunch of money - to your point, invested it in the stock market - and then when restrictions lifted, they went out and bought stuff. This spike in demand contributed to inflation, no doubt, and it was in part created by new money. I'm not sure that the alternative - at least from the Fed's perspective - of allowing the US to enter a deflationary spiral in 2020 would have done us better. I also think that these issues are transient, and caused by a very poor transition out of COVID lockdowns and into normalcy. It's taking longer than I thought to resolve, but I do think that not taking too much dramatic action and letting the market sort it out is the path forward.
steve76 5y ago
[dead]
rafaelero 5y ago
> Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2] Why not? Fload the economy with dollars and people will demand goods. This increased demand will affect shipping prices.
- deleted 5y ago
  [deleted]
- empraptor 5y ago
  from what I understand, the increased demand was at least partly due to shift in spending from services so goods during the pandemic.
  - rafaelero 5y ago
    Then service prices should be deflating, which doesn't seem to be the case.
    - empraptor 5y ago
      from what i've been reading up on the subject, the thin margin that service sector businesses operate on means many failed despite government intervention and the rest raised prices in order to make profit on lower volume, higher materials cost, and higher labor cost.
whimsicalism 5y ago
I'm not a big Fed scaremonger, I actually think early in the pandemic they executed quite well. But you are wrong on a number of fronts. > Asset prices didn't cause shipping prices across the pacific to explode almost 10X [2]. Monetary policy has a massive influence on aggregate demand by consumers. > Check out the graph on page 7 (11th page in the PDF) [1] It shows you just how little global central bank balance sheets are in terms of the market You're focusing on the wrong thing. What matters is money/assets changing hands and bidding up the price of things. Fed policy absolutely has a massive impact on this, nobody denies this empirically.

space_fountain 5y ago

I'm not sure what you mean by saying the oil market had already priced in the invasion. Certainly there was a huge jump in oil prices when the invasion started (https://tradingeconomics.com/commodity/crude-oil https://tradingeconomics.com/commodity/crude-oil). I think it's at this point clear that stimulus has had something to do with inflation, but also undeniable that the Russian invasion helped raise oil prices

deleted 5y ago
[deleted]

randomdata 5y ago

> You could make an argument it impacted wheat prices. Bids jumped by about 30% when the war began, but the price of wheat was already up by nearly 100% over pre-pandemic levels when we still thought there was little chance of war breaking out.

empraptor 5y ago
report on wheat market outlook from Jan 2021 is interesting to peruse. there's certainly no one simple answer to why the price rose, but it does indicate higher consumption and lower yield overall in the world (higher yield in Russia but lower in China and Argentina) played a role as well as US wheat planting acreage that had been trending down in recent years. and that rising price of corn meant wheat stocks were used as substitute in feed. https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf?v=5058 https://www.ers.usda.gov/webdocs/outlooks/100227/whs-21a.pdf...

evrydayhustling 5y ago

That's not what backwardation means. Backwardation means a recovery of supply is priced in. And we may well see those future "roll up" the curve if war continues to constrain supply. The high prices at the front of the curve are the ones we are experiencing, and they are both driving up the CPI directly (since oil is a component) and indirectly adding costs to other goods since you need actual oil, not oil futures, to undertake production.

harambae 5y ago
Investopedia disagrees "Backwardation is when the current price of an underlying asset is higher than prices trading in the futures market."
- evrydayhustling 5y ago
  We agree about the definition of backwardation. I am disagreeing with the post's statement that backwardation implies the invasion is "already priced in" to inflation, when at the time of writing they implied a rapid recovery. If you look at the curve since OP, you'll see it's is actually less backwardated than it's been all year (due to repeated releases from the US reserves). But long term futures are near their highest - suggesting a worse picture for impact on consumer prices over time. Source: traded oil futures professionally. Data you can watch: https://www.eia.gov/outlooks/steo/marketreview/crude.php https://www.eia.gov/outlooks/steo/marketreview/crude.php

imtringued 5y ago

QE turns illiquid treasuries into liquid treasury soup. No new treasuries are created through QE. The Fed has no control over how much bank reserves banks want to own and how many treasuries the government issues to borrow money. The reason why QE doesn't lead to inflation is so utterly boring it surprises me that people even think it can cause inflation. Once interest rates fall below liquidity preference, people would rather keep their money liquid than invested in fixed term assets (treasuries or certificates of deposit) which means banks need liquid assets (reserves) to match their now increasingly liquid liabilities (your deposits). Banks have learned from 2008 and aren't lending to risky borrowers anymore which means the government is acting as the borrower of last resort.