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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.

#251

Post by nkurz »

claudeganon wrote: post #198
SonOfThePlower wrote: post #172

Earlier quoted context omitted.

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.

Confirming story: https://www.marketwatch.com/story/the-fed-has-been-buying-et...

The possibly essential caveat being that the ETF's being purchased are (as far as publicly known) all bond ETF's.

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

#252

Post by AnimalMuppet »

farseer wrote: post #96
alexjray wrote: post #41

Earlier quoted context omitted.

Gold?

For all you know the gold price can halve if there is an economic recovery sooner than expected. The same drastic movement (either way) is not going to happen to US bonds.

If there's a big jump in inflation, the same drastic movement is exactly going to happen to US bonds.

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

#253

Post by skybrian »

x87678r wrote: post #239

Inflation has been here for a while, house prices have exploded, education and healthcare are unaffordable too. Sure TVs, cars and clothes have reduced in price so now they really make a tiny impact on your budget. The real problem is CPI isn't reflecting the real world.

The CPI reflects what people actually pay for and a lot of people manage not to pay current prices. Many people bought a house a long time ago so their cost is lower. Also many people went to college a long time ago and aren’t spending anything on it now. Also, many people are healthy, and if they’re not insured then they’re not paying for healthcare.

This is about real people in the real world, it’s just not necessarily current prices, and it’s an average. The average experience isn’t going to be all that relevant to you if you do need to pay current prices.

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

#254

Post by darawk »

throw0101a wrote: post #221
api wrote: post #182

Earlier quoted context omitted.

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

> Doesn't reducing the price of lending tend to lead to more lending? Theoretically, yes. If loans are 2% instead of 4% then that may induce people to take one up to do some kind of economic activity (start business, renovate house, buy a new car, etc). But it is not guarantee: people may feel too financial vulnerable to take risks with borrowed money. This is where the limits of monetary policy are run it. There are…

Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of lending, which increases the money supply.

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

#255

Post by darawk »

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…

Of course the existence of reserves doesn't force a bank to lend. It increases their capacity to lend, which, assuming there is sufficient demand for credit, increases the money supply.

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

#256

Post by RobertoG »

throw0101a wrote: post #194
RobertoG wrote: post #117

Earlier quoted context omitted.

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…

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

We agree: when the interest rate arrive down to zero there is nothing more than the central bank can do to stimulate the economy. They could add infinite reserves to the economy and nothing would happen, because, obviously, the private sector is not interested in investment. Monetary policy is a blunt instrument.

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

#257

Post by nkurz »

chrischattin wrote: post #75
rory wrote: post #34

Earlier quoted context omitted.

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.

You are right, but this might just be semantics. Perhaps you already know this, but for others, rent is included in CPI, and for those those who own, "owner equivalent rent" is used as an estimate of the amount of rent they would be paying. Incredibly, the amount of OER is determined by asking the owner they think they could rent out their home! I'd guess that home prices must correlate strongly to this estimation. So while home prices are not directly included, over time, as homes are bought and sold, they sale prices almost certainly influence the CPI, even if they are not directly a component.

Here's the Bureau of Labor Services Q&A on the topic:

"How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)"

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

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

#258

Post by arcticbull »

somethoughts wrote: post #243
arcticbull wrote: post #200

Earlier quoted context omitted.

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…

>> It's worth pointing out that housing costs are included in CPI (by proxy of rent). I think that is the reason CPI hasn't increased. CPI only accounts for rent and not the cost of actually buying the house. There are definitely highly inflated price to rent ratios particularly in land constrained urban areas. I think a better way to put it is that there is low/no Consumer Price Inflation but there is tremendous Ass…

> There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.

The point I was making was that the price of housing on average ($/sqft) is the same as it has always been. Since we know major metros have gone up it likely means that tier-2 and below cities have actually gone down.

Further, it might be nuanced, but major urban areas aren't land-constrained. They are constrained by their city councils staunch refusal to permit new, tall construction to the benefit of existing landowners and at the detriment of renters. This is not an inflation-linked issue however but a city policy issue. It's strictly supply and demand.

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

#259

Post by RobertoG »

throw0101a wrote: post #206
_gx90 wrote: post #130

Earlier quoted context omitted.

>The central bank have not power to stimulate the economy in this situation, that's the reason central bankers are pushing the governments to spend directly. Sounds very political for a supposedly independent central banking system! This system is a disgrace and is governed by unelected technocrats who are able to yield a crazy amount of power over the economy without ever being subject to inquiries from the public,…

>> The central bank have not power to stimulate the economy in this situation, that's the reason central bankers are pushing the governments to spend directly. > Sounds very political for a supposedly independent central banking system! The phraseology makes it sound political, but it is not political. Basically when a central bank cuts its rate down to 0.25%, 0%, or even negative (e.g., Switzerland), it's a signal t…

>>"[..] which would generally entail lower economic growth and higher employment."

I suppose you mean "unemployment".

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

#260

Post by arcticbull »

HarryHirsch wrote: post #216
arcticbull wrote: post #200

Earlier quoted context omitted.

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.

I suspect families were actually larger in the past than they are today, as evidenced by the rapidly declining fertility rate. In the 1970s there was an average of 2.48 births per woman, and today it's 1.77. My unsubstantiated opinion is that folks were willing to make do with less in the past, and again, city councils have forbidden building smaller buildings forcing the real costs up -- not through $/sqft but rather mandatory minimum sqft if you will.
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