Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.
This. For years now everyone has been saying "where is the (consumer price) inflation"? Meanwhile real estate prices are rising fast (in desirable parts of the country) and the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.
This is a dangerous trend. The rich (who tend to own those assets) get richer and and the poor (who rent/live paycheck to paycheck) get more and more desperate. If we don't find a way to reduce the inequality, this is going to mean serious trouble down the line.
> Meanwhile real estate prices are rising fast (in desirable parts of the country)
Mainly just the west coast and that's because their cities are built in valleys with a fixed amount of land, restrictive zoning on said land causing a fixed amount of housing and thus the bidding up housing prices.
For the rest of the country, inflation adjusted price per square foot hasn't really changed [0].
> the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.
Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1]. Albeit, if you just started in 2009, it has been quite epic considering it was the longest bull run in US history.
Piketty tried to analyze this, and the idea is to have a minimal wealth tax. (I have no idea what's the current best evaluation/assessment of his work and this idea, but Land Value Tax is something many economists already favor, and it'd help decouple the pain of growing cities from housing as an investment.)
So similarly there is probably some sense in trying to counteract low-interest-rate inflated asset bubbles via some kind of tax or other financial structure. (A progressive capital gains tax might help, but that might just make markets less efficient by introducing a chilling effect on the high end.)
In the end this is a purely political question, because obviously the problem is not that it's unfair that some very "desirable" assets price inflates, but that the majority of the population did not have the means to buy into it before the inflation happened to reap the capital gains.
There's already serious trouble due to inequality. (The recent protests about police brutality follow a long series of other symptoms that highlight how socioeconomic inequality manifests and persists on an ethnic level.)
Exactly this. The FED and the ECB have been printing money like crazy for years, however this money did not go to the man in the street but to banks and indirectly to other financial institutions. And those don't spend their money in the grocery store but in the stock market.
The classic economical laws are not broken, they are still in full effect and we see their effect in the inflated share prices.
So who is buying equity (so stocks)? And one argument is, that "retail investors" are driving this. (So end users, the folks on the WallStreetBets subreddit, and whoever uses RobinHood, or anyone that puts money into a passive index fund: https://www.reddit.com/r/econmonitor/comments/hnohi6/us_equi... )
Also savings increased a lot, since people were not spending (they were staying at home), so where to put the money? They put it into index funds.
Meh, most of what they are buying is just our own governments debt [0]. Now, you can certainly argue investors are buying more equities now that there aren't as many treasury securities to buy, but equity returns aren't even abnormal from historical returns. Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1].
You're comparing one of the strongest economic expansions in US history (1991-2001, brief, small recession, then 2001-2007, stopping at 2005 of course) to a period bookended by two of the worst recessions in US history (2007, 2020). It should be concerning that equity returns don't differ very much. That means they aren't correlated with the underlying economy.
The great recessions was definitely one of the worst, but it was followed by the longest bull run in the history of the united states and it is way to early to claim this crisis as being one of the worst recessions in US history.
This is the most important and often under-looked thing in this whole thread. This will further lead to wealth gaps and difficulty for working people to "get ahead".
And that is on top of the mismanagement of PPP funds after the IG over that was fired and replaced with a loyalist. We are only starting to see where billion of tax dollars went including a large chunk to churches and millions to Kanye West and campaign donors/supporters. If one has an issue with looting by protestors, they really need to look at the looting by the wealthy. Not just PPP loan abuse but also historically low tax rates and a pass for environmental abuse too.
This is an inherent problem with need-based things -- they are ripe for abuse. If you have universal things, the abuse is part of the design ;) IOW: if instead of PPP being only for certain kinds of companies or institutions it were all of them then a) there is far less to administer b) they get more support and c) you dont have moralistic temptations or arguments. UBI vs SSI, universal healthcare vs medicare, etc etc.
Yes, this means wealthy people will get the same checks as the poor -- but that is a feature, not a bug. Sorry for the soapbox.
There was oversight for PPP, but the president fired the IG over the program and replaced them with a loyalist right before the fund went live. The administration then refused to provide data on who got loans until sued. Now we know that the Sec of Transportation and husband Mitch McConnell, the new USPS head who appears to be trying to crush mail in voting internally, and many other government officials received loans for millions. If one was to condemn protesting due to looting, imaging the response to misappropriating billions in tax dollars to corporations, supporters, and corrupt officials.
This seems likely to me, lots and lots of money injected and consumer prices are stable yet art, real estate in desirable urban locations, equities, and some categories of luxury goods/experiences are soaring. Am I wrong?
Yes and no. You're right about what happened in the aftermath of 2008, though it took a while to get there. You're wrong (so far) about what's happening in 2020. Currently, the market (or at least the Dow) is down about 10% from its high.
People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?
