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The ballooning money supply may be the key to unlocking inflation in the U.S.
71–80 of 319 posts
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#72This helps middle class very short term, but would absolutely annihilate us medium to long term.
Any thoughtful reasoning behind that? Or just fatalistic absolutist predictions of doom?
middle class, long-term, needs to buy housing, educate their kids, and save for retirement.
The price of all of the three above is rising very fast. Yes, there are other (different) factors for all 3, but too much monetary supply is one of them.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#73Earlier quoted context omitted.
Yeah, maybe a gallon of milk did not increase that much. But did you see prices for houses? for education? for cars? for entertainment? even high-end electronics? Yes, for all those categories there are other (even more important) factors than inflation, but overall, we see a growth much larger than CPI
All the things you enumerated are included in the fed's calculation of CPI. Are you arguing their weightings are bad?
FED changed the weightings in 1980, notably if I remember correctly they greatly reduced the importance of housing prices (not what they call "housing" category, but the price of the shelter itself)
There was some article coming out some days ago about how when using old CPI calculations inflation is actually 10%, and wages are lagging extremely behind inflation when using old CPI.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#74The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…
I'm sorry, that is flat out incorrect. They are printing asset and liability money this time around. Observe:
https://fred.stlouisfed.org/series/M2
The is (give or take money market funds) the total sum of money in US bank accounts. Compare and contrast with 2008 for example, where the asset money creation was restricted to the asset side because it was used to take dodgy loans out of the banking system and put them into runoff.
As to why there isn't much inflation yet, well there is. The stock market is considerably inflated due to this, and inflation will creep into the rest of the financial system over time, as this works its way into regulatory capital.
but tldr: it is absolutely printing money - arguably it was the only thing they could do at the time, and the European Central Bank has done similar although less dramatic things, but the longer term consequences will definitely be interesting.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#75Earlier quoted context omitted.
Yeah, maybe a gallon of milk did not increase that much. But did you see prices for houses? for education? for cars? for entertainment? even high-end electronics? Yes, for all those categories there are other (even more important) factors than inflation, but overall, we see a growth much larger than CPI
All the things you enumerated are included in the fed's calculation of CPI. Are you arguing their weightings are bad?
Home prices are not included in the CPI.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#76The fed has pumped 2.3 trillion dollars into the economy in the past six weeks.... I don't see how the dollar won't crash eventually. Why would foreign countries still buy US bonds?
You only think the situation in America is bad because that's all you hear about.
The current Federal Reserve balance sheet is 7 Trillion dollars, or 35% of the US GDP[1].
The current Eurosystem Bank balance sheet is 7.9 Trillion dollars, or 43% of the EU GDP[2].
If you're worried about pumping money into the economy, then USD is a much safer investment than EUR for you.
[1]https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[2] https://www.ecb.europa.eu/press/pr/wfs/2020/html/ecb.fst2010...
EDIT: clarification for those unaware, the EUR/USD currency pair is the most traded currency pair by far (which is why I chose Europe as a comparison). The distant second place most traded currency is USD/JPY, but Japan famously has a national bank balance sheet even greater than its own GDP.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#77The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…
I'm sorry, that is flat out incorrect. They are printing asset and liability money this time around. Observe: https://fred.stlouisfed.org/series/M2 The is (give or take money market funds) the total sum of money in US bank accounts. Compare and contrast with 2008 for example, where the asset money creation was restricted to the asset side because it was used to take dodgy loans out of the banking system and put them…
Bank reserves are counted in M2, but US Treasuries and other highly liquid assets aren't.
The fact that these are functionally the same to a bank is ignored (or deliberately obscured).
I mean, this is just common sense: if M1 or M2 expansion were printing money, then a rapid doubling of M2 should cause CPI inflation. But it doesn't.
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#78Earlier quoted context omitted.
Well, for stocks, the P/E ratio is also extraordinarily high, so it's not inflation there. At least not mostly. The stock market is just overvalued and there will be a correction at some point in the future.
I am just wondering if the PE ratio became extraordinarily high because high growth tech companies now are a major part of all of the large indices. Did you ever think about that?
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Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#79The fed has pumped 2.3 trillion dollars into the economy in the past six weeks.... I don't see how the dollar won't crash eventually. Why would foreign countries still buy US bonds?
because everyone else did similar printing.
https://www.cnbc.com/2020/07/21/eu-leaders-reach-a-breakthro...
Re: The ballooning money supply may be the key to unlocking inflation in the U.S.
#80Earlier quoted context omitted.
Food, shelter and transportation aren't included in the CPI. Yet those things are essential for quality of life. Inflation is the reason you can't own a house and support a family on a single income anymore. There are a couple other indexes out there that track total cost of living that are pushing ~10% per year inflation right now.
> Food, shelter and transportation aren't included in the CPI. This is wrong. Food, shelter, and transportation are all included in the basket used to compute CPI. [0] > The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, housing, apparel,…
I think he refers to the fact that those categories have their inflation higher than CPI.
CPI weights changed in 1980, and seemly when using old weights the CPI is 10% instead.
I've read (I didn't checked with all details, I don't live in US so it is not that relevant to me) that a major change is that the cost of having a shelter had its weights greatly reduced. (I don't mean the "housing" category in general)