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The Federal Reserve has taken on $9 trillion onto their balance sheet to flood the economy with money. https://www.federalreserve.gov/monetarypolicy/bst_recent

by 300bps 4y ago

The Federal Reserve has taken on $9 trillion onto their balance sheet to flood the economy with money. https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... They’ve lowered short-term interest rates to effectively 0 and kept them there for quite a number of years. Federal and State governments have flooded the economy with stimulus. There is so much money that has been injected into the economy that it is no wonder that every asset has gone up so much. It is no wonder we have such high inflation. The trick now will be to stop it before we have a wage-price spiral where employees demand higher wages to compensate for higher prices which leads to even higher prices. Expect the Fed now to be raising interest rates, taking $47.5 billion out of the economy per month starting in June and then $95 billion per month starting in September. https://www.federalreserve.gov/newsevents/pressreleases/monetary20220504b.htm https://www.federalreserve.gov/newsevents/pressreleases/mone... I think what’s coming is going to look at lot more like the dotcom bust than it will 2008. So I think the article’s caution on buying dips this time around is warranted.

kmonsen 4y ago
I honestly think that’s not the main reason we have inflation now. Since every country in the world is seeing similar inflation I would think it’s supply side and not something any central bank can fight. I’ve always been Keynesian, but it faces the same problem as everything else, you need to be able to predict the future to do it well.
- 300bps 4y ago
  Fed balance sheet is about $9 trillion. This article gives details on $5 trillion in government stimulus. https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html https://www.nytimes.com/interactive/2022/03/11/us/how-covid-... To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion. I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a bit? A beach town near me, I paid $4,000 for a week to stay there two years ago. This year, an equivalent house is $15,000 per week. So now I’m driving six hours away to get a house for $10,000 per week. When people make $20,000 per month in stock market/cryptocurrency gains, it starts driving up demand for everything dramatically.
  - tonymet 4y ago
    leverage
  - kmonsen 4y ago
    Oh I’m not saying the feed is not causing inflation at all. I think the primary driver is supply side, but clearly there is more going on. And that I’m not so sure anymore if federal banks are net positive.
  - refurb 4y ago
    They blamed inflation in the 1970's on supply side issues as well. Sure, the oil embargo contributed to price increases, but looking back, it was pretty clear it was fed monetary policy that drove most of it. And monetary policy by Volker that fixed it. No different today. Massively expand the money supply and you (eventually) get inflation. Add in a few supply issues and you amplify the problem. But I agree with you that without the massive monetary expansion, the supply issues would be minor blips.
    - kmonsen 4y ago
      That’s the problem, in bad times you pour money into the market either directly or with interest rates. Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.
      - refurb 4y ago
        The situation we're in now is pretty close to what some people were warning about back in 2008 when the feds decided on their massive monetary expansion. By the time inflation starts to heat up (it doesn't happen right away), there will be immense pressure to delay any monetary contraction for fear of dampening economic growth. Then Covid hit and the economy was goosed with another massive injection while everyone worried about a recession. Then once inflation starts it's too damn late to put the genie back in the bottle so you just spend the next 5-10 years trying to get it under control while not entirely tanking the economy.
- vmception 4y ago
  The US fed is the biggest whale in the whole market And every major economic union is duplicating what the fed does Even if the second part wasn’t true, the first part would cause inflation in those economic unions It buys bonds from ANY bondholder indiscriminantly. It didn’t matter where they are, they get new dollars, and dilute the value of their area.
- Tiktaalik 4y ago
  Every other country did what the Fed did for the same reason: We've experienced (and are still experiencing) a once a century global pandemic. The measures to limit pandemic deaths would have completely destroyed the economy had the governments and their associated banks not taken the measures they took to support people during this difficult time. It's not the Feds fault, it's the pandemic.
  - deleted 4y ago
    [deleted]
  - benjaminwootton 4y ago
    There is still considerable debate if those measures were actually effective. Did closing down entire industries, closing borders, making 20 year olds WFH etc really move the needle on Covid deaths in retrospect? And even if it did, was it ethical, fair and is it a reasonable price to damage the economy and life prospects of hundreds of millions of young people who weren’t at statistical risk? Its important because it means the current and future mess is down to bad science and politics and not an act of god.
    - icelancer 4y ago
      > There is still considerable debate if those measures were actually effective. Not really. I agree with the thrust of your post but there is definitely no considerable debate being had on this topic, because Near-Zero COVID is the only acceptable policy, and saving lives at any cost along with it.
      - jokethrowaway 4y ago
        If you're the Chinese Communist party, that's it. I'm not willing to ruin my life on the chance some 90 years old may catch the flu and die. If they're worried about COVID they can isolate.
        icelancer 4y ago
deleted 4y ago
[deleted]
john_moscow 4y ago
This is a good point, but there is a counter-argument as well. America is currently divided into the rank-and-file class vs. the stockholder class. The governments' actions so far have been heavily benefitting the latter. Workers get a $1000 cheque, stockholders get a 20% net worth increase. Mom'n'pop shop closes due to lockdowns, Walmart eats up their niche due to being exempt. Taking too much money out of the economy at this point would harm the interests of the stockholder class, so they would try to do as little of it as possible. Of course, that would only deepen the divide and push Gen Z into accepting more socialist demagoguery, but the short-term stock market dip might be somewhat less than in the dotcom times.
- astrange 4y ago
  Workers (well, unemployed ones) got $2400 a month. "We just got a $2000 check" is a meme from people who weren't unemployed and are looking for more free money.
  - phendrenad2 4y ago
    What percentage of the population is unemployed?
    - astrange 4y ago
      That's not the question, the question is what the percentage was in 2020. People who were still working got 1. PPP loans 2. support from their customers still being able to buy things.

by 300bps 4y ago

kmonsen 4y ago

I honestly think that’s not the main reason we have inflation now. Since every country in the world is seeing similar inflation I would think it’s supply side and not something any central bank can fight. I’ve always been Keynesian, but it faces the same problem as everything else, you need to be able to predict the future to do it well.

300bps 4y ago
Fed balance sheet is about $9 trillion. This article gives details on $5 trillion in government stimulus. https://www.nytimes.com/interactive/2022/03/11/us/how-covid-stimulus-money-was-spent.html https://www.nytimes.com/interactive/2022/03/11/us/how-covid-... To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion. I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a bit? A beach town near me, I paid $4,000 for a week to stay there two years ago. This year, an equivalent house is $15,000 per week. So now I’m driving six hours away to get a house for $10,000 per week. When people make $20,000 per month in stock market/cryptocurrency gains, it starts driving up demand for everything dramatically.
- tonymet 4y ago
  leverage
- kmonsen 4y ago
  Oh I’m not saying the feed is not causing inflation at all. I think the primary driver is supply side, but clearly there is more going on. And that I’m not so sure anymore if federal banks are net positive.
- refurb 4y ago
  They blamed inflation in the 1970's on supply side issues as well. Sure, the oil embargo contributed to price increases, but looking back, it was pretty clear it was fed monetary policy that drove most of it. And monetary policy by Volker that fixed it. No different today. Massively expand the money supply and you (eventually) get inflation. Add in a few supply issues and you amplify the problem. But I agree with you that without the massive monetary expansion, the supply issues would be minor blips.
  - kmonsen 4y ago
    That’s the problem, in bad times you pour money into the market either directly or with interest rates. Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.
    - refurb 4y ago
      The situation we're in now is pretty close to what some people were warning about back in 2008 when the feds decided on their massive monetary expansion. By the time inflation starts to heat up (it doesn't happen right away), there will be immense pressure to delay any monetary contraction for fear of dampening economic growth. Then Covid hit and the economy was goosed with another massive injection while everyone worried about a recession. Then once inflation starts it's too damn late to put the genie back in the bottle so you just spend the next 5-10 years trying to get it under control while not entirely tanking the economy.
vmception 4y ago
The US fed is the biggest whale in the whole market And every major economic union is duplicating what the fed does Even if the second part wasn’t true, the first part would cause inflation in those economic unions It buys bonds from ANY bondholder indiscriminantly. It didn’t matter where they are, they get new dollars, and dilute the value of their area.
Tiktaalik 4y ago
Every other country did what the Fed did for the same reason: We've experienced (and are still experiencing) a once a century global pandemic. The measures to limit pandemic deaths would have completely destroyed the economy had the governments and their associated banks not taken the measures they took to support people during this difficult time. It's not the Feds fault, it's the pandemic.
- deleted 4y ago
  [deleted]
- benjaminwootton 4y ago
  There is still considerable debate if those measures were actually effective. Did closing down entire industries, closing borders, making 20 year olds WFH etc really move the needle on Covid deaths in retrospect? And even if it did, was it ethical, fair and is it a reasonable price to damage the economy and life prospects of hundreds of millions of young people who weren’t at statistical risk? Its important because it means the current and future mess is down to bad science and politics and not an act of god.
  - icelancer 4y ago
    > There is still considerable debate if those measures were actually effective. Not really. I agree with the thrust of your post but there is definitely no considerable debate being had on this topic, because Near-Zero COVID is the only acceptable policy, and saving lives at any cost along with it.
    - jokethrowaway 4y ago
      If you're the Chinese Communist party, that's it. I'm not willing to ruin my life on the chance some 90 years old may catch the flu and die. If they're worried about COVID they can isolate.
      - icelancer 4y ago

deleted 4y ago

[deleted]

john_moscow 4y ago

This is a good point, but there is a counter-argument as well. America is currently divided into the rank-and-file class vs. the stockholder class. The governments' actions so far have been heavily benefitting the latter. Workers get a $1000 cheque, stockholders get a 20% net worth increase. Mom'n'pop shop closes due to lockdowns, Walmart eats up their niche due to being exempt. Taking too much money out of the economy at this point would harm the interests of the stockholder class, so they would try to do as little of it as possible. Of course, that would only deepen the divide and push Gen Z into accepting more socialist demagoguery, but the short-term stock market dip might be somewhat less than in the dotcom times.

astrange 4y ago
Workers (well, unemployed ones) got $2400 a month. "We just got a $2000 check" is a meme from people who weren't unemployed and are looking for more free money.
- phendrenad2 4y ago
  What percentage of the population is unemployed?
  - astrange 4y ago
    That's not the question, the question is what the percentage was in 2020. People who were still working got 1. PPP loans 2. support from their customers still being able to buy things.