4 ms·

Why do you think the longer running money printing program, quantitative easing, didn’t increase inflation?

by oivey 2y ago

rayiner 2y ago
I mean look at the chart I linked. That's why. QE probably did cause inflation, in asset values, etc. We papered over many of the negative effects through importing cheap Chinese goods and cheap immigrant labor, which was a temporary bandaid that caused other problems.
- toomuchtodo 2y ago
  With regards to real estate price inflation, I agree with you. Homeowners originated mortgages at 2-3%, allowing real estate prices to run wild at those cheap money rates. It will take years for sellers to make peace with forward looking asset prices at the current benchmark rate (some real estate prices can be supported by cash buyers, but investor demand will be low with the risk free rate where it is at, and incomes that can support mortgage payments cannot support current price levels). But there is no way to dig ourselves out of this real estate inflation mess besides building as much housing as possible, as fast as possible, if you want to reduce housing inflation (unless you want to start forcing people with low rate mortgages to sell their homes, or take action that destroys demand for housing). > The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” On March 23, 2020, it made the purchases open-ended, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” expanding the stated purpose of the bond buying to include bolstering the economy. In June 2020, the Fed set its rate of purchases to at least $80 billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed securities until further notice. The Fed updated its guidance in December 2020 to indicate it would slow these purchases once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and price stability. In November 2021, judging that test had been met, the Fed began tapering its pace of asset purchases by $10 billion in Treasuries and $5 billion in MBS each month. At the subsequent FOMC meeting in December 2021, the Fed doubled its speed of tapering, reducing its bond purchases by $20 billion in Treasuries and $10 billion in MBS each month. https://www.brookings.edu/articles/fed-response-to-covid19/ https://www.brookings.edu/articles/fed-response-to-covid19/ https://www.axios.com/2023/12/09/mortage-rates-housing-market https://www.axios.com/2023/12/09/mortage-rates-housing-marke...
  - rayiner 2y ago
    Lack of supply is the cause in some popular metro areas. But that’s not the whole story. Prices are exploding even in places that are experiencing virtually no population growth. Or where growth is below historic trends. The price of my house has doubled, in a country where population growth has been like 1% annually (and it’s a red county with lots of farmland where building housing is relatively cheap and easy). That’s not because all the yuppies want to move to exurban Maryland. I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing. The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. It’s a textbook outcome from easily identifiable policy choices.
    - deleted 2y ago
      [deleted]
    - reducesuffering 2y ago
      > The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. M1 didn't include savings accounts in December 2019 and it does now, that's the majority of M1 diff... That makes me think your conclusions are based off talking-head points instead of first principles, as when your conclusion hinges on M1 changes, you'd think you'd do a few minutes searching what is M1...
      - cko 2y ago
        https://collabfund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/ https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo... Yep it was an accounting change. Though the additional wave of stimmy checks plus continued buying of MBS during 2021 was definitely not good for inflation.
        rayiner 2y ago
        It wasn’t just an accounting change. The money supply still more than doubled over just two years.

Why do you think the longer running money printing program, quantitative easing, didn’t increase inflation?

by oivey 2y ago

Why do you think the longer running money printing program, quantitative easing, didn’t increase inflation?

I mean look at the chart I linked. That's why. QE probably did cause inflation, in asset values, etc. We papered over many of the negative effects through importing cheap Chinese goods and cheap immigrant labor, which was a temporary bandaid that caused other problems.

toomuchtodo 2y ago
With regards to real estate price inflation, I agree with you. Homeowners originated mortgages at 2-3%, allowing real estate prices to run wild at those cheap money rates. It will take years for sellers to make peace with forward looking asset prices at the current benchmark rate (some real estate prices can be supported by cash buyers, but investor demand will be low with the risk free rate where it is at, and incomes that can support mortgage payments cannot support current price levels). But there is no way to dig ourselves out of this real estate inflation mess besides building as much housing as possible, as fast as possible, if you want to reduce housing inflation (unless you want to start forcing people with low rate mortgages to sell their homes, or take action that destroys demand for housing). > The Fed resumed purchasing massive amounts of debt securities, a key tool it employed during the Great Recession. Responding to the acute dysfunction of the Treasury and mortgage-backed securities (MBS) markets after the outbreak of COVID-19, the Fed’s actions initially aimed to restore smooth functioning to these markets, which play a critical role in the flow of credit to the broader economy as benchmarks and sources of liquidity. On March 15, 2020, the Fed shifted the objective of QE to supporting the economy. It said that it would buy at least $500 billion in Treasury securities and $200 billion in government-guaranteed mortgage-backed securities over “the coming months.” On March 23, 2020, it made the purchases open-ended, saying it would buy securities “in the amounts needed to support smooth market functioning and effective transmission of monetary policy to broader financial conditions,” expanding the stated purpose of the bond buying to include bolstering the economy. In June 2020, the Fed set its rate of purchases to at least $80 billion a month in Treasuries and $40 billion in residential and commercial mortgage-backed securities until further notice. The Fed updated its guidance in December 2020 to indicate it would slow these purchases once the economy had made “substantial further progress” toward the Fed’s goals of maximum employment and price stability. In November 2021, judging that test had been met, the Fed began tapering its pace of asset purchases by $10 billion in Treasuries and $5 billion in MBS each month. At the subsequent FOMC meeting in December 2021, the Fed doubled its speed of tapering, reducing its bond purchases by $20 billion in Treasuries and $10 billion in MBS each month. https://www.brookings.edu/articles/fed-response-to-covid19/ https://www.brookings.edu/articles/fed-response-to-covid19/ https://www.axios.com/2023/12/09/mortage-rates-housing-market https://www.axios.com/2023/12/09/mortage-rates-housing-marke...
- rayiner 2y ago
  Lack of supply is the cause in some popular metro areas. But that’s not the whole story. Prices are exploding even in places that are experiencing virtually no population growth. Or where growth is below historic trends. The price of my house has doubled, in a country where population growth has been like 1% annually (and it’s a red county with lots of farmland where building housing is relatively cheap and easy). That’s not because all the yuppies want to move to exurban Maryland. I don’t understand the resistance to acknowledging that inflation is the predictable effect of money printing. The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. It’s a textbook outcome from easily identifiable policy choices.
  - deleted 2y ago
    [deleted]
  - reducesuffering 2y ago
    > The M1 money supply increases from $4 trillion in December 2019 to $20 trillion in June 2022. That’s what’s causing the inflation. M1 didn't include savings accounts in December 2019 and it does now, that's the majority of M1 diff... That makes me think your conclusions are based off talking-head points instead of first principles, as when your conclusion hinges on M1 changes, you'd think you'd do a few minutes searching what is M1...
    - cko 2y ago
      https://collabfund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/ https://collabfund.com/blog/the-fed-isnt-printing-as-much-mo... Yep it was an accounting change. Though the additional wave of stimmy checks plus continued buying of MBS during 2021 was definitely not good for inflation.
      - rayiner 2y ago
        It wasn’t just an accounting change. The money supply still more than doubled over just two years.