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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/ho

by 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.
  - landemva 4y ago
    >>> the good times never arrived First two years of Trump were economically pretty good. Low unemployment - particularly for minorities. The Fed was raising rates!
    - kmonsen 4y ago
      Mostly we spent it on tax cuts for the rich instead. You don't cut taxes in good times, that more than offset the minor rate hikes.
      - landemva 4y ago
        Spent what? I don't see economic growth as a reason to expand government spending, though many disagree. The economy was good, unemployment was low, rates were rising. USA was still spending it's treasure protecting Afghanistan poppy fields.
        kmonsen 4y ago
        Right, so the theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times. Spending can take many forms, but the traditional ones are lower interest rates and tax cuts. The issue is that we lowered taxes significantly in the middle of good times. It's like feeding ice cream to kids already on a sugar high. There is no room to lower taxes anymore as we are already running a significant deficit, and there is a recession coming where we are going to need to juice the economy.
leehuffman 4y ago
Love your relatively simple (that’s a compliment - I’m sure you can go deeper) yet 100% accurate (IMO) take on this topic. Just want to mention that we shouldn’t forget that the fed’s balance sheet ballooning started with the 2008 crisis. If I recall correctly, they had _just_ started to lightly unload all the things they gobbled up like fiends during that period before COVID smacked. Of course they hard turned 180 degrees and got on the throttle again, going in to stabilize the usual markets along with new additions people never would have anticipated they’d touch, ever. I guess my point is this has been very very long running and is another data point that says (to me) it’s not just a supply side issue that’s driving what we’re seeing.

by 300bps 4y ago

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.
- landemva 4y ago
  >>> the good times never arrived First two years of Trump were economically pretty good. Low unemployment - particularly for minorities. The Fed was raising rates!
  - kmonsen 4y ago
    Mostly we spent it on tax cuts for the rich instead. You don't cut taxes in good times, that more than offset the minor rate hikes.
    - landemva 4y ago
      Spent what? I don't see economic growth as a reason to expand government spending, though many disagree. The economy was good, unemployment was low, rates were rising. USA was still spending it's treasure protecting Afghanistan poppy fields.
      - kmonsen 4y ago
        Right, so the theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times. Spending can take many forms, but the traditional ones are lower interest rates and tax cuts. The issue is that we lowered taxes significantly in the middle of good times. It's like feeding ice cream to kids already on a sugar high. There is no room to lower taxes anymore as we are already running a significant deficit, and there is a recession coming where we are going to need to juice the economy.

leehuffman 4y ago

Love your relatively simple (that’s a compliment - I’m sure you can go deeper) yet 100% accurate (IMO) take on this topic. Just want to mention that we shouldn’t forget that the fed’s balance sheet ballooning started with the 2008 crisis. If I recall correctly, they had _just_ started to lightly unload all the things they gobbled up like fiends during that period before COVID smacked. Of course they hard turned 180 degrees and got on the throttle again, going in to stabilize the usual markets along with new additions people never would have anticipated they’d touch, ever. I guess my point is this has been very very long running and is another data point that says (to me) it’s not just a supply side issue that’s driving what we’re seeing.