The ballooning money supply may be the key to unlocking inflation in the U.S. • Hacker News Board

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

#211

Post by neffy » Tue, Oct 13, 2020, 8:58 PM UTC

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.

I'm sure their canteen buys lettuce, and as it happens they've been getting quite adventurous with what else they're prepared to buy recently.

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

#212

Post by floatingatoll » Tue, Oct 13, 2020, 8:58 PM UTC

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…

This helps put a bit more nuance on the two questions I wish we'd see answered from this in thirty days:

What percentage of dollars issued in bank loans, whose issuance depended on this increase in Fed reserves, are expected to be issued to individual citizens who make $72,900 or less (the AMT threshold for 2020, iirc)?

What percentage of dollars are expected to be issued to businesses with gross revenue of $1mil/year or less?

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

#213

Post by neffy » Tue, Oct 13, 2020, 9:00 PM UTC

jbverschoor wrote: post #135

nostrademons wrote: post #124

Earlier quoted context omitted.

Bank reserve ratios [1] operate as a percentage, so by creating more bank reserves, you create more money that can be lent out. Say that the reserve ratios requirement is 10%, which it currently is. Then for every dollar it has in reserves, the bank may create $10 in loans. The bank reserves don't themselves circulate as money, but they let the bank create more credit, which does circulate as money. [1] https://www.i…

The reserve requirements are 0% as of earlier this year. https://www.forbes.com/sites/bobhaber/2020/03/16/the-fed-fir... https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-t...

And as it happens everything is regulated by bank capital and the Basel framework these days, rather than the old gold standard of asset reserves.

OP gave the correct textbook description - but that description has been superceded by changes in bank regulation since the 1980's.

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

#214

Post by lordnacho » Tue, Oct 13, 2020, 9:00 PM UTC

I don't often write meta-comments, but it's interesting to see the two large threads here.

One of them is about whether the Fed is printing money.

The other one is about what inflation is, or how it ought to be measured.

I find it fascinating that there's so much confusion about all these economic terms. I don't have a simple answer to either, but it's thought provoking that there isn't an established theory that everyone can point to from which people can comfortably say what different things mean. If you had a physics debate about black holes or whatever, it would normally be quite clear if someone had misunderstood something. At least when the threads got deeper, it would become clearer and some authoritative comment would appear.

I have an economics degree from a well known university, and I'm still not entirely sure what to think of those threads. They are so meandering, each new commentator rectifying an old definition or seeking to add yet another concept.

That should say something about how confidently we can make economic decisions.

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

#215

Post by comicjk » Tue, Oct 13, 2020, 9:01 PM UTC

_gx90 wrote: post #119

alexjray wrote: post #40

Earlier quoted context omitted.

That's a best case scenario and feels overly optimistic. What are the chances it gets fully repaid?

It cannot be repaid, ever, because the interest exceeds the amount of money that is currently in existence, which means they will always have to borrow more money (which is created out of thin air) to service the debt.

Interest on the national debt is $400-$600 billion per year depending on what you count (a lot of it is paid to the federal government itself). It's a lot of money, but it's a small fraction of the federal budget. It's also less than the amount of money in existence - M1 is $5.5 trillion and can easily be expanded, as mentioned.

(It also wouldn't necessarily matter if the interest per year were greater than the total amount of money in existence. If the money supply were $20, that wouldn't make it impossible for me to pay you $21/year; I could pay it in 21 $1 payments.)

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

#216

Post by HarryHirsch » Tue, Oct 13, 2020, 9:01 PM UTC

arcticbull wrote: post #200

api wrote: post #181

Earlier quoted context omitted.

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 t…

You could say that houses are twice as big because nowadays you have the dual-income family, and a family pays more for one house because the amount of money on the supply side has increased, so prices on the demand side have caught up. The fact that now there is twice as much enclosed space is immaterial, a family needs a house to live in.

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

#217

Post by cle » Tue, Oct 13, 2020, 9:07 PM UTC

nitrogen wrote: post #165

cle wrote: post #102

Earlier quoted context omitted.

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?

It's zero sum. The people who desperately needed hand sanitizer or toilet paper today had less money left to spend elsewhere, but overall averaged demand wasn't all that different. Traditional suppliers probably know that jacking the price of one item can lead to losses elsewhere. Hoarders/scalpers are not aiding price discovery, they are manipulating the price by artificially changing supply or demand. They don't ha…

I'm definitely not advocating for hoarding or scalping, I'm just curious about what specifically the systemic inefficiencies are that prevent sellers from undercutting the hoarders and scalpers by raising prices on their own.

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

#218

Post by comicjk » Tue, Oct 13, 2020, 9:07 PM UTC

cm2187 wrote: post #152

How did he get to 22%? The fed balance sheet is 7 trillions now, it was about 4 trillons at the beginning of the year. I’d say it’s more like 40%. https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

Maybe it's the definition of money supply being used? M1 money has increased by about 40%, M2 by about 20%.

https://www.federalreserve.gov/releases/h6/current/default.h...

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

#219

Post by leetcrew » Tue, Oct 13, 2020, 9:08 PM UTC

nitrogen wrote: post #165

cle wrote: post #102

Earlier quoted context omitted.

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?

It's zero sum. The people who desperately needed hand sanitizer or toilet paper today had less money left to spend elsewhere, but overall averaged demand wasn't all that different. Traditional suppliers probably know that jacking the price of one item can lead to losses elsewhere. Hoarders/scalpers are not aiding price discovery, they are manipulating the price by artificially changing supply or demand. They don't ha…

> Hoarders/scalpers are not aiding price discovery, they are manipulating the price by artificially changing supply or demand. They don't have to do so sustainably either.

one could reasonably argue otherwise. let's take the example of toilet paper in the early weeks of quarantine. with or without the action of scalpers, such a massive shift in demand was going to cause toilet paper to go out of stock regardless. without scalpers, you are shit out of luck when this happens (perhaps literally). with scalpers, you at least have the ability to buy it at an eye-watering price. even before you run out, knowing that you have to pay $20/roll is a strong signal that you ought to use one or two squares per wipe instead of 3+.

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

#220

Post by notherthrowaway » Tue, Oct 13, 2020, 9:10 PM UTC

jfengel wrote: post #158

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.

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…

==That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.==

It isn’t a given that you need to increase earnings to increase your P/E ratio. The “E” is your Earning Per Share. Buying back shares lowers your denominator and magically increases EPS, which drives the price higher.