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Banks, QE, and Money-Printing

lynalden.com

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Re: Banks, QE, and Money-Printing

#31

Post by netfl0 »

kqvamxurcagg wrote: post #26

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyon…

Excellent summary of reality. Why do you think people seem to ignore or not understand these basic facts?

Re: Banks, QE, and Money-Printing

#32

Post by linschn »

zelos wrote: post #22
turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

It comes from the workers' work.

If you print money to buy stocks, the money goes into the capitalists' pockets, where it tends to stay, because capital is already extremely highly concentrated and avenues for investment are few at this scale. Also you get the adverse externalities mentioned by GP.

Whereas if you pay workers for infrastructure, you get some infrastructure (I. E. Productive capital) and the worker will actually spend their money, thus enabling other workers to create value in turn.

All of this is about putting workers to work.

You can try to order the workers to work, with a central planning system (soviet Russia, or any large multinational corporation such as Google) or with money.

But if you give money to rent seekers who are already full of money, they are not going to put workers to work, which is what is currently happening in the West.

Re: Banks, QE, and Money-Printing

#33

Post by fuoqi »

zelos wrote: post #22
turbinerneiter wrote: post #15

If they print money to build new roads, bridges, (clean) power plants, schools -> good. If they print money to put in stocks and real estate -> bad. The one thing creates real value and enables more real value creation in the future. The other one has no effect on the real economy and wages. Driving real estate prices is even bad: at some point, no real economic strategy (aka. business model) is able to sustain the n…

As someone who really doesn't understand economics: if the government prints money to build infrastructure, where does the value they've added come from? I can't follow the logic of it: the government makes some money and pays a load of workers to build a bridge. It seems like the bridge is 'free', paid for with bits of paper they printed. Is the real cost the increased price of bridge building for everyone else, bec…

The idea is that rational infrastructure projects create additional economic growth in future (i.e. more stuff gets moved across the built bridge, more real value gets created), so the printed money are used to support this growth. So effectively government invests into a long-term project by "borrowing" money from those who are saving them today (in a sense they borrow from "future"). If investments are good, the "loan" gets payed by more taxes being collected. If investments are bad (e.g. as many infrastructure projects in China), they will cause various problems in future since economy gets injected by money not backed by productive activity.

Re: Banks, QE, and Money-Printing

#34

Post by anthony_r »

kqvamxurcagg wrote: post #26

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyon…

Housing prices are long term "bound" by CPI, not the other way around. More specifically they have always mean reverted to CPI if you look few hundred years back. Robert Shiller wrote a lot on this topic.

Also, the current level of divergence between housing prices and CPI is nothing out of the ordinary. It will correct itself over time (either houses will become cheap or CPI will catch up).

If you want a simple explanation as to why it is that CPI bounds houses and not the other way around - just look at the recent post-covid deurbanization trend (and the carnage that's going on in San Francisco or New York real estate markets). There's so much land that can be utilised once you understand that you really don't have to be in downtown New York. Then, homebuilding costs are basically CPI.

Re: Banks, QE, and Money-Printing

#35

Post by arethuza »

JumpCrisscross wrote: post #21
siwatanejo wrote: post #3

Earlier quoted context omitted.

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

MMT is a neat theory. The mathematics are quite elegant. Unfortunately, like a lot of beautiful macroeconomics, it isn’t a policy prescription. (Though it provides ivory tower cover for bad policy.) Reserve currency status does afford increased deficit-spending capacity. But it isn’t an immutable, environmental variable. Deficits and reserve currency status interact. If a country runs up large deficits in the name of…

Presumably for the USD to lose reserve currency status some other currency would have to become more attractive as a long term bet? Are there any obvious candidates at the moment?

Re: Banks, QE, and Money-Printing

#36

Post by JumpCrisscross »

kqvamxurcagg wrote: post #26

The fundamental issue with this article is that the inflation number is a lie. Housing costs are the key cost for every consumer but are excluded from CPI. Western countries have been running fiscal deficits consistently for decades, QE and low interest rates for 10 years. Yet for academics and central bankers the only answer to growth is more debt. Low interest rates benefit only the asset rich. They deprive everyon…

> the inflation number is a lie

It is also a lie to say there is a single inflation number.

There are CPIs calculated including regional food, energy and real estate prices [1]. For policy makers, varying interest rates according to Syrian politics and Midwestern crop yields is too fine-grained. But to suggest the data are hidden is false.

[1] https://www.bls.gov/regions/new-york-new-jersey/news-release...

Re: Banks, QE, and Money-Printing

#37

Post by cryptica »

siwatanejo wrote: post #3
UncleSlacky wrote: post #2

I recommend Stephanie Kelton's "The Deficit Myth" for more background on MMT: https://www.amazon.com/Deficit-Myth-Monetary-Peoples-Economy...

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

Yep, I agree it's clearly a disaster. The government shouldn't be the one deciding who gets all the new money and on what terms... That's essentially what communism does with coupons.

It's naive to think that people will still value the dollar and assets which earn revenue denominated in dollars when everyone knows that the value of the dollar is always approaching 0.

I think something big is going to happen when big investors collectively realize that it's not just the dollar which is losing value, it's also all assets whose earnings are denominated in those dollars.

If gold was worthless, then all gold mines would also be worthless. Somehow people still haven't gotten their heads around that.

Re: Banks, QE, and Money-Printing

#38

Post by sdfin »

xuki wrote: post #10
siwatanejo wrote: post #3

Earlier quoted context omitted.

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

Yet it’s very tempting for politicians to implement exactly that, because to tax people to pay for stuff is not very popular politically. They will always, always, always kick the can down the road.

Just look at Argentina's economic history.

Re: Banks, QE, and Money-Printing

#39

Post by x87678r »

cryptica wrote: post #14

Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later. When money printing does not cause immediate CPI inflation, surplus money is stored in scarce assets which creates asset price inflation and increasing fragility which will inevitably lead to CPI inflation later. The fact that new money is mostly backed by debt is irrelevant because those who own a lot of ca…

>Money printing is always inflationary. Either it causes CPI inflation immediately or it's stored up for later.

Japan and Europe disagree.

Re: Banks, QE, and Money-Printing

#40

Post by BenoitEssiambre »

ChrisMarshallNY wrote: post #6
siwatanejo wrote: post #3

Earlier quoted context omitted.

The point of that woman is simply: let the deficit go up ad infinitum (in USD value), it doesn't matter because as the central bank keeps printing money, the value of the deficit actually goes down (because the USD value goes down), so the value of the deficit is stable even if we don't perceive it to be this way. Quite BS imo

Printing money is a bad idea. You think we had it bad, check out what happened here: https://alphahistory.com/weimarrepublic/great-depression/ I seem to remember something else, rather alarming, that happened after that...

While printing money to the extent MMTs advocate is bad,lack of printing during financial crisis is off the scale bad. It puts a gridlock in the economy as everyone, businesses and and banks aggressively reduce real economic activity in favor of collectively hoarding government paper (money and bonds). As your own link explains:

"Rather than ramping up spending, Bruning increased taxes to reduce the budget deficit. He then implemented wage cuts and spending reductions, an attempt to lower prices. Bruning’s policies were rejected by the Reichstag but the chancellor was backed by President Paul von Hindenburg, who in mid-1930 issued his policies as emergency decrees.

Bruning’s measures failed and only contributed to increased unemployment and public suffering in 1931-32. They also revived government instability and bickering between parties in the Reichstag."

Or from wikipedia:

"From 1930 onwards, President Paul von Hindenburg used emergency powers to back Chancellors Heinrich Brüning, Franz von Papen and General Kurt von Schleicher. The Great Depression, exacerbated by Brüning's policy of deflation, led to a surge in unemployment.[8] In 1933, Hindenburg appointed Adolf Hitler as Chancellor with the Nazi Party being part of a coalition government."

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