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The ballooning money supply may be the key to unlocking inflation in the U.S.

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Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#191

Post by chrischattin »

megaman821 wrote: post #184
chrischattin wrote: post #93

Earlier quoted context omitted.

I should have been more specific. Certain rents are included, but house prices are not. Gasoline and bus fairs are included, but the cost of buying a car is not. And, various food items are seasonally adjusted in a favorable manner. Over time, the index has changed in a manner that grossly underestimates the inflation the average person experiences.

If you did include houses and cars, how would you account for their general improvement over the years? My grandpa used to get rid of his vehicles as the approached $50k miles. They were just too unreliable and costly repairs were right around the corner. Today even junky cars can make it to $150k. They use less fuel, they have better comfort, and they can just do more in general with tech inside them. So if the valu…

Your grandpa could buy a new car for $1500. More like price went up 20x. Incomes have not kept up with this even if you can argue that a new car today is 10x as "valuable" as one built in the 60's. And, the people making the call on those gray areas have an incentive to adjust reported inflation downward.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#192

Post by dogman144 »

JSavageOne wrote: post #95
smallnamespace wrote: post #49

The 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…

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

"money is a shared illusion" applies to your criticism

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#194

Post by throw0101a »

RobertoG wrote: post #117
darawk wrote: post #109

Earlier quoted context omitted.

Creating bank reserves absolutely creates money. Bank reserves are the fulcrum around which bank leverage ratios operate. Yes, they can margin treasuries to borrow reserves from other banks, and in that sense, they are fungible. But the total amount of bank reserves in the system at any one time is still what bounds the total amount of money creation that can happen via leverage. Increasing the absolute amount of ban…

New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money. The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's…

> Because there is not demand for credit, never mind the number of reserves in the system.

Generally correct, but it should be noted that if a bank has a lot of reserves, and the over-night lending market is cheap, that means the bank has access to 'cheap money' on the 'wholesale' end of things.

So if a retail bank can get 'cash' cheaply, it can lower its interest rates to its 'retail' customers (mortgages, business loans, etc).

If a bank wants (say) at least a 2% spread between its wholesale source of money/reserves and what it gives out to the real economy, then the Fed raising liquidity such that the over-night rates go from (e.g.) 2% to 0.5%, that means banks can drop their public facing rates as well.

Someone who was not considering borrowing money at 4% may change their mind at 2.5%.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#195

Post by dogman144 »

smallnamespace wrote: post #49

The 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 think you need to discuss the role of excess reserves and lending on them to make this a complete picture, actually.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#196

Post by erichocean »

api wrote: post #182
neilwilson wrote: post #160

Earlier quoted context omitted.

Reserves have nothing to do with the amount of bank lending. Only the price of such lending. https://onlinelibrary.wiley.com/doi/abs/10.1111/pbaf.12249

Doesn't reducing the price of lending tend to lead to more lending?

We must protect the Federal Reserve from rhetorical attacks by HN commenters.

The best way to do this is to muddy the waters as much as possible as to what is going on. Literal FUD.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#197

Post by scudd »

scsilver wrote: post #37
as_keyof_typeof wrote: post #4

Is anyone (who is paid/lives in the US) concerned about the future value of USD? A lot of my friends are saying I should be investing in cryptocurrencies for future safety, but I don't see those as very stable, so I'm hesitant to put my savings into it.

I think the safest dollar hedges right now are bluechip tech stocks and a forever home(if you need one and get take advantage of rock bottom rates)

What if you don't need a home, but could realistically finance one? Is there incentivisation in real estate over stable(-ish) equities if you're not looking for a long term home for yourself/family

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#198

Post by claudeganon »

SonOfThePlower wrote: post #172
freeone3000 wrote: post #115

Earlier quoted context omitted.

Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.

FED buys MBSes and bonds. FED does not buy neither lettuce nor stocks.

The Fed has already been buying ETFs, which is about a hair’s breadth away from buying stocks. I don’t doubt that they’ll buy stocks to prop up investors if the current stimulus proves ineffective.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#199

Post by leetcrew »

cle wrote: post #102
diob wrote: post #60

Earlier quoted context omitted.

Right, I've posted this before, but long term wealth building is becoming too expensive for the average person. The only reason food hasn't become too expensive is wealthy people don't have a reason to go out and buy up all the food. They do, on the other hand, have reason to go out and invest. This is, however, starting to fall apart for goods that don't normally have reason to be bought up. In other words, folks wi…

If they can hoard goods and sell them all at higher prices, then does that imply that the goods are priced too low to begin with? What's keeping the sellers from recognizing this and raising the prices themselves?

I think GP is describing scalpers in the latter part of their comment. the fact that it can be profitable for some guy to buy up a hundred GPUs and sell them at a 50% markup until the fabs catch up does not necessarily make it a good idea for nvidia to do the same thing. it would likely create a lot of ill will for a comparatively small bump to their bottom line.

on the other hand, one could argue that this did happen in the aftermath of the crypto craze. in that time, gpus sold for well over MSRP (even second-hand) for a year or two. I don't think it's a coincidence that gpu pricing tiers jumped by a couple hundred dollars in the next generation (and again with the RTX 3090, although you could instead argue that's a price cut to the outgoing titan sku).

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#200

Post by arcticbull »

api wrote: post #181
jfengel wrote: post #158

Earlier quoted context omitted.

That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index. The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy mu…

All the QE since 2007 has also caused massive inflation in real estate, and it's ongoing. Housing is actually rising in some markets in spite of record unemployment and a high risk of many mortgage defaults.

It's worth pointing out that housing costs are included in CPI (by proxy of rent).

On an inflation adjusted dollars-per-square-foot basis, housing is exactly the same price as it was in the 1970s [1] -- right around $115/sqft in constant dollars. 2008 didn't actually make a big dent on average.

The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation.

Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation.

[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...

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