6 ms·

I'm not optimistic about our future because no official will say the obvious, the $14 trillion injected into the US economy is driving this inflation. To put th

by bko 4y ago

I'm not optimistic about our future because no official will say the obvious, the $14 trillion injected into the US economy is driving this inflation. To put this in scale, US GDP is $23 trillion. This is helicopter money on a scale we've never seen in the US, much of it going to large banks and corporations. What did people think was going to happen? Raising rates marginally isn't going to soak up all this money, and even when it does and inflation eventually goes back to 1-3%, we'll still see the higher cost of living that has accumulated over the last few years. That means the typical American will be at least 10% poorer. But at least they got those checks for a few thousand dollars a few years ago. https://www.covidmoneytracker.org/ https://www.covidmoneytracker.org/

seneca 4y ago
Dead on. Helicopter money while at the same time forcefully shutting down production lead us where we are right now. Constraining actual economic output while pumping up demand with cheap money. "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." - Milton Friedman
Aunche 4y ago
That website double counts money creation. When the Federal Reserve buys government bonds as part of quantitative easing, they aren't "creating money." They're converting bonds into cash. It's an equivalent exchange.
- refurb 4y ago
  That is new money. When a government bond is first sold, the buyer gives the government money. Then when the Fed buys it back, it creates news money for the purchase.
  - Aunche 4y ago
    When the Fed buys the bonds back, they remove the bonds from circulation, so it's an equivalent exchange. Likewise, when they sell their bonds as part of raising interest rates, they're removing money from circulation, which is also an equivalent exchange. The only time something is created from nothing is when the Treasury issues new bonds to fund increasing government spending.
    - refurb 4y ago
      This is not accurate. Post-2008, the fed did their quantitative easing by buying non-treasury bond like mortgage debt, etc. It’s new money because the original money received for the bond doesn’t disappear. Yes within that transaction it’s neutral (seller gives up $1M bond for $1M cash). But overall, new money has been injected.
      - Aunche 4y ago
        Ok. So in that case, you're not counting bonds as "money". In that case, you can't count the stimulus as new money because that was funded by bonds. I emphasize that this isn't a great interpretation because the root of the problem lies with Congress's inability to balance a budget, not the Fed. If our budget were balanced, then the Fed would instead raise interest rates by selling more bonds, which destroys more money. Because we're already issuing so many new bonds already, the Fed doesn't have to sell as many.
        refurb 4y ago
        Bonds aren’t money any more than stocks are. If the fed buys with new money, it expands the supply, whatever they buy. If someone issues debt and exchanges existing money for bonds, there is no change to the money supply.
        Aunche 4y ago
        There are several definitions of what you can consider money. Physical cash is M0. Including money in your bank accounts gives you M1. In the modern age of electronic banking, M1 is what people broadly think of as money. Treasury bonds are considered M4 money. It's not as liquid as M1, but so long as if you don't want to liquidate it, it isn't much different from M1. >If someone issues debt and exchanges existing money for bonds, there is no change to the money supply. I'm not sure what you mean by this. Issuing debt is creating money. This is true for commercial banks as well. When a bank issues lends you $10k to buy a car, that's money that had never existed before. You receive $10k from the bank. Meanwhile, the bank's depositors are still entitled to withdrawal the full amount they deposited in the bank.
- ShivShankaran 4y ago
  not sure what you mean by this. QE is essentially creating money. Though, in our current economy more money was created by loans especially mortgages than QE. QT is the processes of reducing money supply so is paying off the loans. If more people pay off the loan than new people taking up loans due to higher interest rates, the money supply falls.
  - Aunche 4y ago
    Actually the website is fine. I mean that the OP was double counting money injected in the economy by adding up legislative actions and executive actions with federal reserve actions. If you consider bonds money, then QE isn't injecting new money because that removes bonds. If you don't consider bonds money, then the stimulus spending isn't injecting new money, because that was funded through bonds.

by bko 4y ago

seneca 4y ago

Dead on. Helicopter money while at the same time forcefully shutting down production lead us where we are right now. Constraining actual economic output while pumping up demand with cheap money. "Inflation is always and everywhere a monetary phenomenon, in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output." - Milton Friedman

Aunche 4y ago

That website double counts money creation. When the Federal Reserve buys government bonds as part of quantitative easing, they aren't "creating money." They're converting bonds into cash. It's an equivalent exchange.

refurb 4y ago
That is new money. When a government bond is first sold, the buyer gives the government money. Then when the Fed buys it back, it creates news money for the purchase.
- Aunche 4y ago
  When the Fed buys the bonds back, they remove the bonds from circulation, so it's an equivalent exchange. Likewise, when they sell their bonds as part of raising interest rates, they're removing money from circulation, which is also an equivalent exchange. The only time something is created from nothing is when the Treasury issues new bonds to fund increasing government spending.
  - refurb 4y ago
    This is not accurate. Post-2008, the fed did their quantitative easing by buying non-treasury bond like mortgage debt, etc. It’s new money because the original money received for the bond doesn’t disappear. Yes within that transaction it’s neutral (seller gives up $1M bond for $1M cash). But overall, new money has been injected.
    - Aunche 4y ago
      Ok. So in that case, you're not counting bonds as "money". In that case, you can't count the stimulus as new money because that was funded by bonds. I emphasize that this isn't a great interpretation because the root of the problem lies with Congress's inability to balance a budget, not the Fed. If our budget were balanced, then the Fed would instead raise interest rates by selling more bonds, which destroys more money. Because we're already issuing so many new bonds already, the Fed doesn't have to sell as many.
      - refurb 4y ago
        Bonds aren’t money any more than stocks are. If the fed buys with new money, it expands the supply, whatever they buy. If someone issues debt and exchanges existing money for bonds, there is no change to the money supply.
        Aunche 4y ago
        There are several definitions of what you can consider money. Physical cash is M0. Including money in your bank accounts gives you M1. In the modern age of electronic banking, M1 is what people broadly think of as money. Treasury bonds are considered M4 money. It's not as liquid as M1, but so long as if you don't want to liquidate it, it isn't much different from M1. >If someone issues debt and exchanges existing money for bonds, there is no change to the money supply. I'm not sure what you mean by this. Issuing debt is creating money. This is true for commercial banks as well. When a bank issues lends you $10k to buy a car, that's money that had never existed before. You receive $10k from the bank. Meanwhile, the bank's depositors are still entitled to withdrawal the full amount they deposited in the bank.
ShivShankaran 4y ago
not sure what you mean by this. QE is essentially creating money. Though, in our current economy more money was created by loans especially mortgages than QE. QT is the processes of reducing money supply so is paying off the loans. If more people pay off the loan than new people taking up loans due to higher interest rates, the money supply falls.
- Aunche 4y ago
  Actually the website is fine. I mean that the OP was double counting money injected in the economy by adding up legislative actions and executive actions with federal reserve actions. If you consider bonds money, then QE isn't injecting new money because that removes bonds. If you don't consider bonds money, then the stimulus spending isn't injecting new money, because that was funded through bonds.