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 liquid government treasury -> bank reserve). A bank's constraint against lending more is its equity reserve ratio, which is unchanged by Fed asset purchases.
Again, this is not printing money; functionally speaking, US Treasuries are already 'money' to a bank (they are extremely liquid, widely traded internationally, safe, and in many contexts actually preferable to cash), so swapping a US Treasury with cash is just turning one type of money into another; no net creation.
There's a simple reason the Fed doesn't clear up this confusion: the central bank prefers people to think they are printing money, because credibility is important to their effectiveness. And the Fed doesn't actually print money, because they don't have the legal authority to do so. This is why Powell is regularly getting in front of Congress to urge more stimulus spending: he knows it's the only way to get dollars directly into the hands of ordinary Americans.
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 and using it to buy real assets. You can argue that the effect of this is not as dramatic as printing money to buy a bunch of luxury condos or sports cars, but at that point we're just debating the degree of influence. The whole point of Fed money printing is to influence the economy, so if it didn't anticipate any difference, it wouldn't be doing it.
No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory.
Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is not the printing of money. But increasing the size of the deficit does indeed increase the sizes of private bank balance sheets.
When the government borrows money like the US does, then it is setting itself up to either run a hefty surplus or go with money printing. Both of those are pretty unpleasant for someone (either borrowers or savers). So yes, fiscal policy is where the eventual pain is locked in.
But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count.
I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).
I'm not saying that we didn't print money this year. I'm arguing over how we measure the quantity of the money supply. I am saying that government debt = the quantity of money.
"The federal government ran a budget deficit of $3.1 trillion in fiscal year 2020, CBO estimates, more than triple the shortfall recorded in 2019"
By my definition, we did print $3.1 trillion of money this year.
I don't go by the size of the Fed balance sheet as money supply. There are many reasons for this, and plenty of people on this thread are trying to explain this view point.
> I think what the poster is saying is that running a government deficit is printing money.
The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)
There exists many values of X where borrowing money from X constitutes printing money. For example, when you borrow money from a bank, the bank prints money. It credits your account with new money, it does not transfer money into your account from another account.
It's fairly straightforward to prove that increasing the size of the government deficit = printing money.
1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this.
2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest.
3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money.
4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments.
In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system):
- The assets side gains a treasury instrument
- The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars.
- No change is seen in the quantity of bank reserves
The Treasury simply issues the bonds. It isn't analogous to borrowing money, as there is no collateral to put up and no other entity in the economic system needs to have any savings in order for the US Treasury to issue the bonds. The bonds are traded one-to-one for reserves at the maturity dollar value, so this is not borrowing. It is a swap.
Merely having a different purchase value from maturity value is not enough to qualify a bond purchase as borrowing either, because Bond issuing is not restricted by any economic opportunity cost. The amount of Bonds issued is an simply edict by Congress, when it passes a Budget resolution.
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 much more of the basics just because you have more money. (The people with newfound stock wealth, that is; the people without it don't have any more money to spend in the first place.)
It's still a little unclear to me why the S&P 500 has remained in the "inflated but not insane" through most of the past decade -- though for the past week or so it's trending back to "insane" (a P/E ratio well above 20). 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.
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 $115/sqft in constant dollars. 2008 didn't actually make a big dent on average.
The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation.
Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation.
>> It's worth pointing out that housing costs are included in CPI (by proxy of rent).
I think that is the reason CPI hasn't increased. CPI only accounts for rent and not the cost of actually buying the house. There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.
I think a better way to put it is that there is low/no Consumer Price Inflation but there is tremendous Asset Inflation (in stuff that wealthy people buy).
And perhaps if there did need to be inflation, then perhaps this is better than the reverse (i.e. high CPI inflation which would impact people's ability to buy the basics)?
> There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.
The point I was making was that the price of housing on average ($/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.
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.
==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.
It's been a hot, hot minute from my econ degree, but here goes...
I believe the big question of "Where is the inflation" has to do with lending excess reserves. The amount banks have to keep in reserve is set, but it changes. They can lend the balance after that, although there's a rate set by the fed that also works as a lending/holding incentive too.
"Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities"
So, this money actually hasn't really hit circulation. It doesn't really explain what's up with the SP (perhaps: credit based on reserve holdings, to hand wave a ton of complexity...), but it explains why there's no direct pipeline from Fed money prints -> my wallet -> CPI.
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.
Barely. They are only buying corporate bonds and the sum total of "Includes non-marketable U.S. Treasury securities, supranationals, corporate bonds, asset-backed securities, and commercial paper at face value" is 85.274 billion or a max of 1.2% of their asset sheet [0].
Because they are pocketing the difference by arbitraging between the government (who issue the treasuries) and the Fed (who is the ultimate buyer) since the Fed cannot buy treasuries directly from the government. It's just a complicated way for the government to print money and hand it out and in this case banks are able to act as the middleman and earn money on the spread.
It's a disgraceful system that is extremely morally questionable.
It's inflation through other means. You get asset price inflation instead of commodities / consumer goods inflation. It's a slow death rather than a quick one.
The Bureau of Printing and Engraving prints money, but Federal Reserve Notes are in fact a claim on bank reserves. It's just when you deposit them at your bank you don't get reserves, they instead create a bank deposit for you and a liability for them and then add the reserves you just gave them to THEIR account.
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 bank reserves increases the money supply, by a factor roughly equal to the current reserve requirement ratio (up to demand for credit, etc, etc.).
> 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 points where the government starts spending on various projects: if a contractor is hired to build a bridge, and it will take "x" years, then all of its employees may feel more confident and do more spending because for the next "x" years they're set. Their money then goes into other people's pockets, into other people's pockets, etc.
Public/government spending to kickstart demand is what Keynesian economics basically is.
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.
Not necessarily. When rates are low, banks are more cautious with who they lend it to. And in times like these, it's especially risky for a bank to lend, and couple that with absence of high rates for a bank to mitigate the risk, you end up with actually less lending.
On this chart [0] you can see how lending increase when crisis started, kind of matching inflation of the dollar. But lending is slowing down, and no amount of QE can speed it up, indicating probable deflation of the dollar.
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 necessary that there is demand for credit first.
Because there is not demand for credit, never mind the number of reserves in the system. 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.
>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, all in the interest of experimenting on the population with highly questionable economic models.
In my opinion we would never have been in this situation in the first place were it not for the artificial credit growth and consequent boom caused by central bankers.
>> 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 that the central bank has done all it can do to get the economy going. (There are some other mechanism employed in recent years as well ("quantitative easing"), but the message is the same: we are at the limits of monetary policy.)
After that it is up to governments, if they so choose, to also do fiscal policy initiatives, e.g., Keynesian economics: create economic demand through public spending (since private business spending/demand is in the toilet).
Of course government are free not to do anything at all, which would generally entail lower economic growth and higher employment.
But central banks have a mandate to make sure the economy is in a certain middle-ground: not too hot to induce a lot of inflation, and not too cold to have a lot of people out of work.† Everyone agrees to these goals ahead of time:
> The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates.
The "unelected technocrats" are doing what they were hired to do. They each have a fixed term (though renewable), and if they don't do what they're supposed to they are replaced.
They did not sneak into these positions: they were told to work towards certain goals, and they are using the tools at their disposal. They are no different than the Board of a corporation hired by the shareholders of the company: it's just that the "shareholders" are elected representatives (Congress, parliaments, etc).
If the Board is not doing a satisfactory job it can be sacked with cause if necessary.
† Sometimes you actually have both: see "stagflation".
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.
So you agree that creating reserves is not necessarily inflationary.
Also, a bank is not limited by reserves to lend. In fact, in practice, banks first lend and then search for the reserves in the inter-bank market. Those demand-offer dynamics between banks determine the interest rate. If the Central Bank doesn't want to loss control of the interest rate, it has to increase reserves in the system when there is demand.
Central Banks have to choose, or they control the quantity or reserves or they control the interest rate. They target the later. The quantity is kind of irrelevant.
> So you agree that creating reserves is not necessarily inflationary.
Not necessarily, no. But in practice they create inflationary pressure.
> Also, a bank is not limited by reserves to lend. In fact, in practice, banks first lend and then search for the reserves in the inter-bank market. Those demand-offer dynamics between banks determine the interest rate. If the Central Bank doesn't want to loss control of the interest rate, it has to increase reserves in the system when there is demand.
This is exactly what my original post said. Of course they search for reserves in the inter-bank lending market. But the more reserves there are in that market, the cheaper they are to borrow, which reduces the rate that banks have to charge to earn their spread, which increases demand for credit, which increases the money supply.
> 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%.
>>"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.
> 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.
The money in my saving (or chequing) account is just a number in the bank's account somewhere, but it is still "money" that I have with them. Similarly the Federal Reserve is a bank account for the banks: so your bank (BoA, Chase, Wells Fargo, etc) has money at the Fed just like I have have money at (e.g.) Citibank.
Otherwise, your statement "the Feds buys assets" makes no sense: with what exactly does the Fed buy the assets if not money? "Money" in the modern economy is (1) a means of exchange, (2) a unit of account, and (3) a store of value. In this case we are using (1). Just because the "money" is in digital form does not change its essence.
> […] so swapping a US Treasury with cash is just turning one type of money into another; no net creation.
Can US Treasury bills be used for reserve calculation purposes? Because if they cannot, then the higher reserve accounts mean that banks would be able to create more loans (assuming they can find borrowers).
While reserve holdings and T-bills may have similar net values, each may be have restrictions on how they can be used in various circumstances, which could have knock-on effects.
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.
The credit department of a bank, doesn't check if the bank have enough reserves before lending. They only check if the new lending make senses from a business perspective. If it does, it concede the credit to the customer.
The bank is legally obliged to have the reserves, so, a posteriori (and not before) the bank will try to get the reserves in the inter-bank market (from other banks). If there are not enough reserves in the system the price of the reserves will go up. That's the interest rate.
Central banks don't target the quantity of reserves, they only care about the interest rate. So, if they want to keep the interest rate in their target, they have to create new reserves. So, it's the lending what create reserves, not the other way around.
The main thing limiting how much Canadian banks can lend out would be to remain profitable: too many loans, to too many bad investment ideas, means losses.
- Banks send payments in real time. The system does not involve any transfer of assets, but it does require pledging collateral (often government debt). Asset transfers occur outside of the system. For example, if bank A sells a government debt instrument to bank B, then bank B sends a payment to bank A in the system, and then A transfers the instrument to B outside of this system.
- At the end of each day, settlement is done. Each private bank has a net balance at the end of the day. The net balances sum up to zero across the system, and post-settlement, each individual bank must have a net zero balance. In order to do so, they can either send/receive payments from/to another private bank for overnight loans. Or they can deal with the central bank, by having their reserve balance credited/debited, or by getting an overnight loan from the central bank at a rate determined by the central bank. With overnight loans, no assets are transferred... there's just a promise to pay back the next day via sending a payment.
A few notable things about reserves in the system:
- Use of reserves is totally optional. In practice, banks hold very little reserves.
- The quantity of reserves is entirely determined by demand from private banks.
- Reserves are never transferred from one private bank to another. They are only transferred between central bank and private bank.
Everything you say is correct as I understand things, but some elaboration is in order. "Printing money" is a factually inaccurate rhetorical term meant to emotionally manipulate people with visions of Zimbabwe or Weimar Germany, but fact is that under current law the Federal Reserve and the US Treasury can work in concert to add net financial assets to the private sector's aggregate balance sheet without new fiscal policy. For example while the Fed isn't buying public company equity directly yet, the bond market provides a transmission mechanism for a company to create otherwise worthless or at least discounted equity and sell it at face value to the Fed. Sure from a balance sheet perspective it all balances, because that's how bookkeeping works, but as a practical matter it means more money available to the private sector.
They are, the argument that the poster above you put forward is such a tired argument and I really do not understand why people are trying to hide the fact that the Fed is actually creating money out of thin air and buying assets from banks for it. The Fed doesn't technically "print" the Federal Reserve Notes, but for all intents and purposes it is legitimately money that is being created, only digitally. You are entirely correct in your assessment that they are manipulating the market by being an agent with unlimited amounts of cash and can therefore provide options for banks that they otherwise wouldn't have in a free market.
Also bank reserves can be used as collateral for further loans, just because you don't lend out the actual reserves doesn't mean more money isn't being created, it's just done in a roundabout fashion.
Collateral is the wrong term, apologies for that - what I mean is that expanded bank reserves can be used to back an expansion of credit from the bank in question.
In order to expand credit, banks need borrowers that demand credit. Never mind the number of reserves available if there is nobody asking for credit. That's the reason there is not inflation.
In the current economy, a reactivation of the economy have to come from government spending (fiscal policy). Central Banks (monetary policy) are powerless when the interest rate have gone all the way down.
The is (give or take money market funds) the total sum of money in US bank accounts. Compare and contrast with 2008 for example, where the asset money creation was restricted to the asset side because it was used to take dodgy loans out of the banking system and put them into runoff.
As to why there isn't much inflation yet, well there is. The stock market is considerably inflated due to this, and inflation will creep into the rest of the financial system over time, as this works its way into regulatory capital.
but tldr: it is absolutely printing money - arguably it was the only thing they could do at the time, and the European Central Bank has done similar although less dramatic things, but the longer term consequences will definitely be interesting.
As for inflation -- it's a really slow system that we're looking at here, the inflation depends on where the money ends up, hence the stock market behaviour, but over time it will cause inflation elsewhere.
We look back at historical periods like Weimar, like 1929 as if they happened instantly. But to the people trapped within those moments, they happened day by day, slowly playing out. Irving Fisher is notorious not because he called an end to the crash in 1929, but because he repeatedly called an end to the stock market crash for the next two years.
It would take 3 years for the immediate effects triggered by the US crash in September 29 to play out, and arguably another 20 or more years for the longer term ones. The US money supply actually started shrinking 6 months before the crash as it happened. This is all just the beginning.
I think you're sort of trying to have it both ways here. The Fed has been printing money for 12 years in hopes of increasing CPI. But real people, who buy the stuff in the CPI basket, don't have M2, so no CPI bump. It took a long time for central banks to realize this. And even astute minds like John Paulson got tripped up on this one. Starting in 2009, he bought as much gold as he could because he feared rampant CPI inflation (which never came).
As a thought experiment, imagine someone builds a real, functional money printer in their basement and dialed it to print 10% of current M1.
Would prices at the grocery suddenly skyrocket? Obviously not. Even though the money printer is running, and the money supply has grown, no one really knows about it. Even if a press release was put out about the increase in M1, there would likely not be CPI inflation (putting aside any concern about the money printer itself).
Now, to take the example further, let's say the owner of the money printer started buying up real estate with the cash. Would you see CPI? Still, no. You'd probably see some inflation in the local areas where the real estate was being purchased, if it was done in sufficient volume.
Now, to bring the argument to a close, what if you started buying junk bonds and securitized mortgages? Would you see CPI inflation? No. Would you see asset price increases? Yes, probably. It would be hard to correlate the asset price increases to the money printing, which might be the point. Mortgage originators can start climbing the risk ladder now that the money printer is buying up all these securitized mortgages, and companies can also behave in more risky ways and know that they'll get the financing from the money printer. Increased risk can drive an increase in earnings, which will be rewarded with stock appreciation.
With the money printer stepping in and providing loose financing, the cost of money goes down. Now, previous money lenders have a harder time getting yield, and may climb the risk ladder as well to find the yield they need. This will also be seen in asset appreciation, across bonds, stocks, real estate, & more.
A follow-up, which was less obvious to me than it should have been: Are we sure that central bankers really want CPI inflation, when they choose not to use such an obvious path to it?
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?
If you were to change "US Treasuries" to "British Pounds" everything you state about liquidity &c. remains true, but it's perhaps more clearly creating new dollars that weren't there before.
> There's a simple reason the Fed doesn't clear up this confusion...
There is no confusion, the term is called "monetizing debt" where they create 'money' out of thin air to buy government debt from banks who then use this money to create even more money via fractional reserve lending.
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.
> 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.
Observant, but you are most likely seeing the result of 'dang' changing the URL from the article about printing money to the one about how to measure inflation! https://news.ycombinator.com/item?id=24770185
OP's post isn't about that fact that two different topics are being discussed. OPs point is that for neither of this two topics that are critical to economic theory, people don't even seem to know or agreed on the definition of either. How in the world can people discuss (let alone judge or shape) policy if we can't even agree on what basic concepts even mean.
This is what's simultaneously so fascinating and frustrating about macroeconomics!
At the local scale, one can take for granted that definitions are stable and many laws are immutable: if I go into debt, I must pay it back; I can't create money out of thin air; money is defined as dollars; I must pay my taxes, etc.
But the macroeconomy is the entire system, and in complex systems, everything affects everything. Causal feedback loops run in both directions (A causes B causes A again). Money, debt, taxation, etc. are all creations of human society, and can be modified.
But even though humans made these definitions, they're not quite fully in our control.
Like on the one hand, we just made it all up, just like how US dollars went from gold-backed to fiat overnight.
But then, if you really attempt too much magic, it doesn't work. If you print money and spend more than you have, then you can turn into Venezuela, where there is truly hyperinflation and the dollar again becomes de facto currency (despite the government's halting attempts to outlaw this).
So economic laws have this dual aspect where on the one hand, it's simply a human invention, but on the other hand it appears to reflect some deep laws of nature regarding how energy and information flows through our societies, and you can't push the definitions too far from reality on the ground.
Monetary theory has some very well defined concepts. But those only appear on the equations, and when people go naming them they go and mix with the same names they use on unrelated discussions.
And then we get some completely ridiculous things like people arguing that the Keynes return of investments apply to each investment inside an economy.
I don't think this is exactly it. One can try -- and try fruitfully, for these theories have been useful in practice -- to match 'money' and 'inflation' and 'debt', in their macro senses, to everyday experience, with the caveat that they're aggregate concepts that affect individuals and various productive activities differently, and that they (money especially) can behave a little weird.
What happens instead is that people have feelings about what these concepts are supposed to mean, and then use that to make a political statement. The reason armchair- and pseudo-economists are so eager to say things like "Money is really about X" or "Money is really about the opposite of X" is they want to hijack the word 'money' and the meaning it has in the brain and turn that into politics.
These confident takes are more directly engaging, whereas economic pronouncements are wonky and weird in a way that's more relatively neutral or at least not obviously political, so the gravitation is towards the bad and confusing takes.
Don’t forget, the closer you get to things that affect people’s lives, the more they will be compelled to knee jerk react.
If people fuck up on the understanding of black holes, it doesn’t matter for the economy. If people fuck up economics, it can mean the next Great Depression.
It is said that keynesians and free market economists both would find themselves at the ire of other intellectuals. Taleb lamented that economists are rated by other economists so we can't be sure they're correct. Even the greatest economist said that economists are not reliable.
Not an accurate headline. Here's what actually has happened:
* The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using a big swath of them to purchase financial assets like treasuries and mortgage backed bonds, helping maintain price stability in those and other financial assets. In fact, the Fed has created more new monetary assets during the past five-plus months than in the entirety of 2008-2009, during the worst of the global financial crisis. Source: https://fred.stlouisfed.org/series/WALCL
* The US Treasury, which must borrow funds or collect taxes in order to spend any money, has increased its spending massively during the pandemic, after the passing of significant tax cuts, so it has been incurring federal deficits as a percent of GDP at the fastest rate since WWII. Source: https://fred.stlouisfed.org/series/GFDEGDQ188S
* Tax collections have started to drop, as many sectors of the economy (restaurants, retail stores, malls, office buildings, hotels, travel companies, etc.) are now no longer profitable and have fired or furloughed millions of people. Source: https://fred.stlouisfed.org/series/W006RC1Q027SBEA (data available only as of Q2)
>The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using some of them to purchase financial assets like treasuries and mortgage backed bonds. In fact, the Fed has created more new monetary assets during the past five months than in 2008-2009, during the worst of the global financial crisis.
This is printing money and it is not inaccurate to say that they have created U.S. Dollars out of thin air to finance their asset-purchases and "lending" (a debt that will never be paid off) to the U.S. government.
When the US Treasury sells treasuries and the Fed buys them, the result is that they don’t have to be repaid. (If held to maturity, the money goes to the Fed, and the Fed’s profits go to the government.) The Fed bought about 2 trillion in treasuries since the beginning of the year and this could be thought of as printing money, if it isn’t undone.
* The Fed buys treasury notes and bonds from third parties, because it cannot buy them directly from the US Treasury at issuance.
* The Fed can earn and book profits from treasury securities only to the extent the US Treasury continues to make interest payments and repay principal.
* The US Treasury can pay continue to pay interest and repay principal only with money that is (a) borrowed from third parties by issuing new treasury securities, or (b) collected via taxation.
Things are this way by design, for many reasons, including the explicit goal of limiting short-term political influence over monetary policy.
I don’t see those details changing the essentials.
* An investor acting as middleman between the Treasury selling a bond and the Fed buying it hardly matters. The Fed is supporting the price and ends up with the bond.
* Whether or not an interest payment is made to the Fed, this is money that the government has in the end. The point is that nobody outside the government gets any payments, so the debt is effectively neutralized.
I’m not sure the third point is true. Revenue from the Fed’s operations aren’t restricted funds, are they? It may add a lag, though.
It’s true that this maintains the independence of the Fed, but currently the Fed is openly advocating that Congress should spend more. They can cooperate to create and spend money when they agree that it’s a good thing.
They might not say explicitly say that this is what they’re doing, though.
The people who continue to jumble up inflation by its consumer defenition with the huge expanding of the amount of us dollars are only shooting their own wealth and anyone who listens to them's wealth in the foot.
All you have to look at is stocks and home real estate to see that assets are ballooning no matter how cheap a dozen of eggs stays.
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 with capital now realize they can hoard those resources as well in order to price gouge. This is most evident in consumer electronics as of late.
Usually, these aren't super wealthy individuals, but instead folks who have been priced out of traditional wealth building like stocks / housing. They may not be able to afford a down payment on a house, but they can sure as heck spend a few thousand buying up consumer goods hoping to gouge others.
> 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
sometimes i get the idle premonition that if they started trying to do this tomorrow they could do a shockingly good job, to the point that you could almost claim that the only thing holding together social order at this point is that they are not. not saying i believe this-- i don't even really lean this way ideologically-- but it is kind of a sobering thought because it seems plausible (well, to me at least). maybe this has been true at other points in history as well and things have gone fine...
and i don't mean in the "hire people with guns" sense, but literally just people following the letter of the law
On the one hand, it's a bit of a cyclical argument - The only thing holding together social order is social order. On the other, the same is true of anything which is relied upon on for life and dependent on ongoing financial exchange - Food, water, housing (if you rent). If a lot of excess capital suddenly flooded into those markets and gobbled up stock/pushed up demand, joe average could be priced out.
All kinds of chaos manifests when that happens. Look at nations that experienced hyperinflation for examples of how it might go.
What's not so clear is what might prompt it to happen.
yeah that's the kind of reasoning that makes me feel better about it-- it's not really clear what kind of shock i would really be expecting to happen in the course of ordinary civilization that would cause this sort of run on life support / life-essential stuff that would also not itself be a bigger cause for concern than the system imploding (e.g. a proletariat uprising or world war would do the trick, but would be a bigger deal than the resultant economic shock alone)
I lived through collapse and dissolution of one state, civil war, disintegration, and (belated) birth of a new state, with its own currency. The monetary aspect (hyperinflation in the old, change of currency in the new) is only a small part of that. You are correct - in that scenario, there are other things to tend to, more urgent.
I also witnessed that gold did not replace the collapsing currency. Other, non-collapsing currencies took on that role.
USD is safe and sound for as long US is safe and sound. The fiat currency is creation of the state. In collapse, I'd say causality goes 99% state->fiat. Only a small (2nd or 3rd order) effect in the opposite direction.
For the parent - "Hyperinflation – It’s More Than Just a Monetary Phenomenon" by pragcap.com
reads right for me. Even general inflation (= increase in P/y) does not necessarily follow from the exchange equation (M V = P y) and money growth (M). There are other possibilities too, examples discussed in https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr....
To end on a more upbeat note: I also witnessed the hyperinflation tamed, the economy booming, without seemingly much effort and in short period of time. Looking back, I think the most important part is the right diagnosis: where is it coming from. Otherwise the cures end up worsening the disease.
We got very near this with the ethanol fashion at the end of the last decade. People with money got an extra reason to buy food and it did completely disrupt the social order all over the world.
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 have to do so sustainably either.
And all of that is leaving aside that the goal of a society is to maintain the society over time and in aggregate, not to maximize value extracted from every individual transaction.
> 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+.
Hinges on what you believe would have happened to stock that scalpers bought, had they not done so. It may have left enough on the shelf for the would-be customers of scalpers to meet their needs. On the other hand, that leftover stock may have been obtained by panic buyers.
On a hunch I'd say a scalper would purchase more off the shelf than a panic buyer, because with the goal they have in mind they a) want a large quantity to resell to a large number of people and b) want to drain shelf stock to increase their odds of success.
that's why I used the toilet paper example. I don't think scalpers have enough storage space to clear an entire region's stockpile of tp. I did read a story of a guy who did exactly that with hand sanitizer, literally bought the entire supply from every store within 100 miles. that does change the analysis.
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.
rightfully or not, raising prices in these situations is considered distasteful by most people. the long-term damage to the brand is probably not worth the short-term profits. retailers would rather just run out of stuff or limit customers to two boxes of pasta to maintain their image.
It happens in minor monopolies, which are exploitable best at small scale, like location or temporality. I can flip the latest Nintendo mini on eBay pretty easily.
However, I can’t imagine the trouble that Nintendo would get into if they sold the same device at different prices based on zip code.
Not to say that doesn’t happen, because that’s half the point behind custom phone contracts, where the price you pay for the device over time varies widely from person to person. Though, because it’s individualized, it’s very hard for consumers to compare one another’s prices and identify minor monopolies or price discrimination when it does occur.
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).
If wealthy people suddenly bought up all the food then we would see inflation again. It would be very good because it shifts the balance away from capital to labor.
Imagine you are a billionaire and suddenly the minimum wage shoots up to $100k per year. Suddenly that billionaire's wealth has a lower purchasing power.
Can you expand the example with consumer electronics - because it's not clear: who's gouging whom? You mean Big Tech selling expensive smartphones to people who can't buy a house so will buy an iPhone instead?
As someone who tried buying Nintendo Switch, I can confirm that there were scalpers who bought up every Switch stock available during the COVID lock down and resold it for ~1.5x to 2x more than the MSRP price. This seems to have happened with the latest Nvidia graphic cards as well.
You're close here, but I think you're missing the point. Things that haven't been seen as "scarce" in the past are becoming more and more likely to be forced into scarcity. We're not worried about superfluous goods (concerts), but goods like housing / food are not superfluous (one could even argue the same thing about certain electronics).
Other commenters have gone into it, but this is about forced scarcity vs need. Incidentally, it's also similar to why workers have trouble negotiating individually vs as a group.
The gist of it is that those in power / wealth have the ability to outlast any single poor individual. You don't want to buy a house, toilet paper, or a nintendo switch right now? That's fine, I'll keep buying them till you or some other chump gives up. I have so much money that it doesn't really matter how long you decide to be frugal and wait. You want to strike? That's fine, you'll be back soon enough when you need to pay for something or keep your family alive. I have enough to outlast you.
Had we pumped this money into the actual working class economy I wouldn't be worried. But instead we siphoned off more working class dollars under the guise that inflation isn't real. It is, and future generations are going to pay dearly for our naivety.
Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly.
Inflation is about the prices people actually pay, on average. Your neighbor's house getting sold for a lot of money isn't a real cost to you like rent. Someone paid that price, but they are not necessarily typical.
Inflation does include rent (or "imputed rent") to the extent that people actually pay those prices on average. Some people really do pay higher rents, but many others have lower housing costs locked in via home ownership or rent control, and they count too, so this is going to drag down the average. That's just the nature of averages.
BTW, stock market indexes are an average too, and it's heavily weighted towards tech firms due to market capitalization. Only about half of the stocks in the S&P 500 are up for the year.
It was once thought that the money supply was directly related to inflation, but they were never the same thing. The classic equation was MV = PY, and M (the money supply) and P (the price level) are different. They are only proportional (according to this equation) if everything else remains the same.
In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we care about it? Because it might have a real-world effect on us via price changes.
Gathering data about prices directly is a better way of understanding price levels (and inflation) than mucking around with less measurable quantities.
To the extent that the money supply matters, it's because it might result in higher prices in the future. But this doesn't seem to happen in any mechanical way. Just because people have money doesn't mean they want to spend it. In the classic equation, V (the velocity of money) can slow down.
This is particularly true when we are talking about institutions and rich people who already have savings. Higher numbers in their bank accounts doesn't automatically result in more spending, either by them, by the banks, or by companies whose stock prices get bid up.
It would matter more if the money went to people who actually need to spend it.
People being priced out of productive investments has consequences too. Those are not the same "the sky is falling, everybody is poor now!" consequences of consumer products inflation¹, but they exist and are important for a healthy society.
1 - What an incredible new definition of monetary inflation we have now, that can be split over real markets without any loss of meaning.
I think we agree on the point, but disagree in the definitions.
Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties.
My point is more on the government saying it needs inflation, when even without price increases inflation might be happening.
We have increasing productivity, cost has been falling, so if prices stay fixed, therefore no price inflation, the people are still paying more than they should.
The value of things have been falling, but prices haven't.
When the Federal Reserve said that a little more inflation is acceptable, they were talking about the Consumer Price Index.
It’s not that price increases are good in themselves, but that it would be good if people spent more, and if it results in prices being a little higher, this is okay.
You can; whether that's useful or not depends on the definition and context of use.
> Inflation is an government official indicator with a very clear meaning.
No, its not. Inflation is a broad concept (well, actually, a set of different and interrelated broad concepts) with a number of different official government measures. The most common US government measure of price inflation, the most common kind people talk about, is the all items CPI-U (Consumer Price Index for All Urban Consumers.) But there are lots of other inflation measures, including official government ones used for important purposes, like the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) which is used as the basis for Social Security COLAs. And also frequently cited is the CPI-U for all items excluding food and energy. There are also CPIs for other populations, CPIs for other categories of goods and services, PPIs (Producer Price Indexes), ECI (Employment Cost Index), and others. All of these are official government price inflation measures.
There are also official government measures of money supply, which equivalently are measures of monetary inflation. And there are a whole bunch of those, not just one.
I didn't define as I want to, I pointed to the fact that the meaning in old dictionaries used to be increase in money supply.
My point doesn't depend on this tho, measuring inflation by rising prices isn't ideal, because you will be measuring multiple things at once, and only the people lose in that case.
Prices can rise and fall for multiple reasons, and knowing why helps to fix it.
If the price goes up because of a shortage, the increase in price helps stimulate more production.
Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers.
> I pointed to the fact that the meaning in old dictionaries used to be increase in money supply.
Monetary inflation is one thing denoted by the word "inflation", and perhaps it used to be the more common use in general conversation. Its not anymore, price inflation, particularly consumer price inflation is the most common general use.
> measuring inflation by rising prices isn't ideal
It certainly is if you are doing for a purpose to which price levels are most directly relevant, which is quite commonly the case. There's nothing mystical about the word "inflation" that creates an all-purpose best measure (and, in fact, "inflation" is a name for lots of different things, which have complex interrelationships.)
>>"Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers. "
Governments have the fiscal capacity to keep the economy going. Is your theory that, for instance, the USA economy would be better without the government stimulus?
When the economy goes bananas, if it's not sustained by the government, not only will be suffering of a big part of the population but the destruction of physical capacity and knowledge in the economy.
This is not the 19th century, that idea that the economy on its own works perfectly should be debunked by now.
That's not my point. My point is that if we don't agree in a definition of inflation, how can we have a rational discussion? And there is a clear textbook definition of inflation.
Right but that definition has drifted. That's not necessarily a problem in and of itself but in the process of drifting in this case it has obscured the original definition, which now is orphaned without a label. The problem therein is that it's left the discourse; since the subject of the old definition is more likely to precede and be a cause of the subject of the new definition, it seriously muddies the discourse and arguably the modes of thinking about the solution.
> Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly.
They fail to make a distinction between monetary inflation and price inflation which is the reason for the (intended) confusion around the term 'inflation'.
I mean, to some degree I'm not sure how much it matters. If there's some delayed response to the asset inflation then it'll be concerning, but why are inflated asset prices an issues in and of themselves?
Inflated asset prices means most folks are never going to be able to purchase a home, and equities (which generates wealth with no further effort besides the capital invested, for the most part) will continue to be owned by the wealthiest. Inequality worsens when asset prices increase faster than wages.
This doesn't check out to me (well, the home part does, but I'm not sure we've seen significantly above normal growth there compared to historical norms, outside of hot coastal markets), but for other assets the price doesn't matter, as you can just get a fraction of them or they're split.
Hey, this checks out with the very thing that the younger generation complains about, correlates with social injustice in the grandest scale (homelessness), that is one influencing factor in major social unrest in the country (racial disparity in access to real estate). But let's ignore that.
Have you considered that the deflection in the economy caused by the inflation happened to manifest itself unevenly across various market segments, and the primary direction that the deflection moved into is the very one you're ignoring?
You can literally buy a house by making a YouTube video now a days. It kinda is easy-peasy. Go look at all those TikTok stars. Your ancestors lived in caves be thankful you can even live in a house. It would be much harder to do that without Banks like the FED.
The problem is that you think you need to solve a grand problem instead of inventing something simple like a post-it note or a makeup tutorial. You seem to somehow believe that incumbents ALWAYS win. That is not true. Ingenuity with a superior product is what upends the market, shifts and creates new wealth.
The argument wasn't that they had to invent something to buy a house, it was that it's not a hopeless situation where there is no class mobility. Someone substituted ASSETS for HOUSES for some reason but its not the same thing. ASSETS are what allow some people to have an advantage over others in business.
So many babies on these forums whine about their inadequacies instead of bettering themselves. Making my imaginary number go down does change the fact that YOU AND ONLY YOU have the most power to change your life not some "system". If you can't afford to buy a house, get a better job. Sorry that's harsh. Who said life was easy?
I think you do have some interesting things to say and could convey them better without the negativity of the last paragraph.
I'm coming from the perspective of someone whose extended-extended family ranges from dirt poor laborers to set-for-life landlords.
I'm also drawing on my own experiences. I'm a software engineer, currently on hiatus to work on a YouTube series. I lost a good chunk of change from non-housing assets in 2008 from the meager 401k my internship paid into. I lost the rest when I had to cash in the 401k and sell furniture to have enough cash to wrap up my startup when the market I was in dried up (more like soaked up and polluted by the giant 800lb sponges, plus numerous other factors nobody cares about) and Apple took Primesense out.
So here's what I am saying and relates to what I think everyone else is saying: at every point in my life where I've felt like "now is the time to buy a house," I've just been a few percent short on the down payment. So I keep working and getting promotions and raises and saving, and wouldn't you know, now I'm several more percent short on the down payment despite having more saved, because the treadmill keeps getting longer and spinning faster. And as for other assets, yeah, my stocks are up, but houses are still up more than my risk-tolerable gains.
Meanwhile the people who would have been able to buy reasonable houses in reasonable neighborhoods with reasonable jobs don't have stocks to begin with, and are priced out by migrants with portfolios from even higher cost areas and the massive investors I'm currently having to rent from.
I think you don't understand the difference between "anyone can" and "everyone can". For every hit YouTube makeup tutorial there are a thousand failures.
> You seem to somehow believe that incumbents ALWAYS win
Did you mean to respond to someone else? Where did I say that?
Food, shelter and transportation aren't included in the CPI. Yet those things are essential for quality of life. Inflation is the reason you can't own a house and support a family on a single income anymore.
There are a couple other indexes out there that track total cost of living that are pushing ~10% per year inflation right now.
> Food, shelter and transportation aren't included in the CPI.
This is wrong. Food, shelter, and transportation are all included in the basket used to compute CPI. [0]
> The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services).
> 9. Is the CPI a cost-of-living index?
...
> Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime, that would constitute a complete cost-of-living framework. Since the CPI does not attempt to quantify all the factors that affect the cost-of-living, it is sometimes termed a conditional cost-of-living index.
Public services are being gutted in the US. I think this explains why cost of living indexes can be north of 10% while the CPI is < 2%.
It doesn’t explain how groceries, rent, medical care and education costs have all skyrocketed without raising the CPI. My guess is that people are spending less than they used to on things like recreation and apparel, due to lack of money.
I think he refers to the fact that those categories have their inflation higher than CPI.
CPI weights changed in 1980, and seemly when using old weights the CPI is 10% instead.
I've read (I didn't checked with all details, I don't live in US so it is not that relevant to me) that a major change is that the cost of having a shelter had its weights greatly reduced. (I don't mean the "housing" category in general)
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 value the car provides goes up 4x but it's price goes up 2x, what is its contribution to inflation?
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.
Well, for stocks, the P/E ratio is also extraordinarily high, so it's not inflation there. At least not mostly. The stock market is just overvalued and there will be a correction at some point in the future.
I think a big part of the runup of stocks has been the low interest rates.
That is: I've got some money to invest. As far as rate of return goes, a stock at a P/E of 10 is about the same as a bond paying 10% interest. (Yes, the stock can go up in price. It can also go down. And so can the bond - when interest rates change, bond prices change. But stock prices factor in expectations of future earnings changes, which bond prices usually don't.)
Now bonds are only paying 4%. That stock P/E of 10 looks really good - so good that people keep buying it, and the price keeps going up, until the P/E is more like 25, which puts it back at approximately the same yield as bonds.
I am just wondering if the PE ratio became extraordinarily high because high growth tech companies now are a major part of all of the large indices. Did you ever think about that?
That's definitely the cause of it, but it doesn't make sense to me. Once you're on S&P 500, how much growth can you realistically do? I don't see why investors don't make Google & Apple pay dividends.
Regarding dividends, in theory when company spends $1 per share on a dividend, its stock price should go down by $1 to compensate for this.
So receiving a dividend is kind of like forced selling a small portion of your stock (except that you don't pay the transaction fee).
Apple does pay dividends, has for years. Is also buying back a lot of stock which is another form of investor return. Google does buybacks too but on a less systematic basis afaik.
I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes. I've got 30 more years until I get out of the market, might as well hedge against the dollar, only take out a bit to get a down payment on a home in a nice area, and try to catch the capitalist wave.
If you stayed in through 2008 till now, you'd be doing perfectly fine. If you had to take out money right after the collapse, ouch.
Ultimately your portfolio risk should reflect the cash needs of your age/health/lifestyle in the context of the economics of the time. However, we are in uncharted waters.
> I'm not gonna bet against the fed. Im not going to bet against politicians protecting retirement accounts and personal homes.
I'll take a punt. At some point inflation will take root, and when it does the fed will be in a bind.
Hell, the fed has already been digging away at pensions with their 40 year long put. Pensions funds struggle now to find a positive yield that meets their liabilities.
And homes will at some point come under attack. Perhaps only when everything else is gone, perhaps not. They're a sitting target.
From my viewpoint in history, the homes will be the last thing to get attacked, politicians can't stomach another 08 and we know how to print our way out. If the dollar manages to fend off devaluation due to entended printing(crosses fingers and hopes the world trusts us more than any other currency to pay back our debt) the US may get out of this, ahead of other economies. The people really holding bag havent even entered the workforce, many havent even been born yet.
Yeah, maybe a gallon of milk did not increase that much.
But did you see prices for houses? for education? for cars? for entertainment? even high-end electronics?
Yes, for all those categories there are other (even more important) factors than inflation, but overall, we see a growth much larger than CPI
FED changed the weightings in 1980, notably if I remember correctly they greatly reduced the importance of housing prices (not what they call "housing" category, but the price of the shelter itself)
There was some article coming out some days ago about how when using old CPI calculations inflation is actually 10%, and wages are lagging extremely behind inflation when using old CPI.
That's what the site author claimed he does. Others claim that what he actually does is just adding a few percentage points to the official stats[1]. Among academic economists, the site author is largely regarded as some kooky conspiracy theorist[2].
Personally I just see him more as small time business man making a nice living from satisfying some market demand for figures that proof government is lying to you. For those who want to find out for themselves, here's the raw BLS data[3] and methodology[4].
The missing something in CPI is the volatility or perception of volatility of income, which makes everything more expensive if you have to act more conservatively than people did in decades past.
You feel certain regions of the country are far outpacing others in economic growth and high paying jobs, you feel healthcare costs can and will cause issues for you in the future, you feel automation could come after you. So you bid up housing in areas you feel have higher probabilities of economic growth so you have access to more jobs, in case you get laid off, and you save more since if you get laid off, you have to spend a lot more for healthcare.
You delay having kids because maybe before it felt like things would fall into place, but now you have access to data and decide it's wiser to wait to gather more resources before trying for relationships/kids, so it feels more "expensive" to start a family than in decades past.
But it's probably impossible to reflect all of that in a number.
This is insightful. My speculative impression is that the phenomenon you describe does have an impact on the real economy and that the difference is primarily one of perception and information.
People in the past were also at great risk of job automation, regional economic decline, etc. etc., but didn't seem to stress them and try to hedge for them as much. I could be wrong though.
I also wonder how much fear is simply due to having access to more data, and how much is kind of a feedback loop due to actions stemming from that fear causing even more fear.
But 2 parameters that are different than the past:
1) The rate of change of job destruction from automation and outsourcing to up and coming countries may not be the same over all time periods. If it happens slowly enough, then it may not be perceived by people and it may only have a negligible economic effect if the obviated people are able to be put to use elsewhere.
But with computers and mobile high speed internet and GPS, you can roll out products that obviate entire fields within years if not months. Email/Calendars/Online Shopping/Travel Search/Reviews/Search Engines/Online Auctions/Craigslist/Real Estate/low cost index funds have all laid waste to enormous numbers of people's professions or lowered the barrier to entry heavily. The younger generation has no or much lower demand for travel agents, secretaries, stock brokers, real estate agents, journalists, etc.
2) The birthrate in the past pretty much guaranteed growth. If many people have 3 and 4 children, then growing demand and hence growing growth is basically built into the system. But what happens if people start having 0, 1, and 2 children? And they're all utilizing databases and internet connections to cut out numerous middlemen that their numerous parents and grandparents needed to use?
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)"
Rent is not the same thing as house prices. Additionally, it's imputed rent - not actual rent. The fed released their own study just the other week showing that if house prices were included in the cpi as they were in the past, cpi would be drastically higher.
Not sure how much that distinction really affects the median person though, if housing (rent) inflation is under control. I suppose people with kids may prefer to buy for long-term consistency, so CPI misses them in a way.
How then? Higher education and houses, sure, but car price inflation has been tame since the 90s, and equivalent electronics plummet in price over time.
As far as I can tell entertainment has only gone up sharply in price where it's supply-limited (e.g. Hamilton, the Super Bowl), because more people are rich than in the past. I'm most curious about that one, since there are so many interesting substitutes and prices are all over.
I'm having a hard time parsing your comparison; the prices for houses and education are out of control, the prices of cars rise rapidly but are mostly driven by the evolving conception of what cars are, entertainment and electronics seem historically cheap. Was your intent to say that all of these have rapidly increasing prices?
When you give people stimulus checks, they spend it. That money enters circulation. It winds up in the pockets of businesses. And from there to the owners of said businesses. Which, since they have money and this is a horrible business environment to invest in, means that money goes into assets. Which drives up the price of the assets.
All this money HAS generated a lot of inflation already, you're just looking at the wrong place. Look at the S&P over the last decade, and especially look at the "V shaped recovery" of 2020.
Inflation is not just a term that we can define how we like, it's an economic official indicator ergo, there is not discussion possible about if has happened or not.
Actually, he's talking about asset price inflation, which is isn't redefining the term at all. Inflation just means an increase in prices. Specific inflation measurements like CPI and PCE are the official economic indicators you're thinking of.
How do you, or the Fed in this case, earmark where a dollar goes? Paying interest in excess reserves is the only mechanism I've heard for them to keep money "locked up." Will that continue forever? What's the point of increasing the money supply if not to let it circulate?
Historically that would have been public works employment through infrastructure investment.
The government could have printed a bunch of money to build a giant nuclear is solar plant, and then have a revenue generating, publicly owned asset at the end of it. Instead the government printed the money to prop up existing asset prices.
Just like increasing a company's cap table, there's nothing wrong so long as the new money is converted into a new asset of value that remains in the company's balance sheet.
In fact, a well managed money printing event should dilute private wealth and replace it with public wealth, which is the sort of green new deal I support.
CPI is not inflation. In fact, even CPI itself is not the same as it was before... According to 1980 CPI metrics, today's consumer price inflation is closer to 10% per year.
If you consider stocks and other assets, real inflation is even higher. Banks just manipulate the numbers and statistics to make things seem better than they are.
Hiding the inflation numbers is lucrative because it gives banks a free pass to print more money.
The elite love tech stocks, cryptocurrencies and other assets which are in limited supply because they provide a mechanism to absorb and delay CPI inflation. Those limited supply assets just soak up most of the newly printed currency so that it doesn't leak into the economy and cause CPI increase... That's why P/E ratios of tech stocks are ridiculously low. But it's just delaying the inevitable CPI inflation.
Eventually the value of stocks become completely detached from earnings to the point that it's no longer possible to justify the valuations based on earnings (or even the most optimistic future earnings).
This is why Bitcoin and other pure scarcity assets like Gold and Silver are great because investors have absolutely no expectation of deriving earnings from these and they can never go bankrupt... There is no price point beyond which the value of these scarce assets cannot be justified.
Bitcoin, other cryptocurrencies and other scarce non-productive assets can always be justified at any price point because their entire premise is that the monetary system is a pyramid scheme.
The higher the price of Bitcoin, the more justified it becomes in its assertion that the system is a pyramid scheme and the higher its valuation.
isn't the price of a big mac also subject to technology improvement and outsourcing? it takes quite a logistics chain to get all those ingredients where they need to go.
I'm not sure why some of the comments seems to be arguing over a point that's complete irrelevant to the key information revealed in this thread. No one in their right mind would think the fed physically printed those money overnight. It may not be money actually printed, but it's definitely money can be printed. The only difference is that with all the financial technologies and tools available, it doesn't have to be printed. Just like how we use credit card, it doesn't have to be physical money, but the money is there, dub, so HN please discuss on what's actually important here, will those money have an effect on everyday life? Eventually yes. And wealth disparity will certainly grow larger. You will need more money to buy assets, it will be harder to get rich. inflation on common good will only happen when everyone gets portion of the money; if it doesn't, it means everyone collectively have about the same to spend on day to day life. Yet, eventually, it will bites back, it means only some people have get the money printed, and those will be the wallstreet
Thanks for posting this. After watching I searched for some diagrams on this process and came cross another one of George Gammon's videos (https://www.youtube.com/watch?v=oLhO7tIAtoY). He comes off super sketchy trying to me, almost like a get rich quick salesman, but the actual information in the video seemed legit.
Anyway, based on the discussions and videos, it seems like QE by itself is relatively neutral with regards to inflation. what's really important is whether the process leads to more lending, but that is largely controlled by other factors.
It definitely didn't seem like QE was actually printing money though, because the govt still has to pay back the initial bond.
Yeah it took me a while to come around to Gammon, he uses a really clickbaity/scammy visual language and marketing copy to get subscribers but if you make it past that to the content, the content is mostly very high quality. The specific video you posted is one of his best.
And right, the classic equation from macro 101 that sums this up is:
P = ( M x V ) / Y
Where price level = money supply x velocity of money / gdp
Velocity is the amount of times a given dollar changes hands on average.
So they are saying that if QE fed reserves never make it out into the real economy via lending or monetized fiscal policy, velocity essentially equals 0 and never affects the price level.
Also on a side not, the other guy George mentions in that video Steve Van Metre is also excellent.
I like this one too - more general, but I think explains visually well where the reserve accounts (with the Fed or other Central Banks) sit relative to the other components of the system.
"The Landscape of Money (Part 1): State money, bank money & plug-in institutions"
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.
EDIT: clarification for those unaware, the EUR/USD currency pair is the most traded currency pair by far (which is why I chose Europe as a comparison). The distant second place most traded currency is USD/JPY, but Japan famously has a national bank balance sheet even greater than its own GDP.
Because the dollars have not been permanently pumped into the economy, and the world has faith that the Fed will shrink its balance sheet.
Printing money and lending it out, and then burning the money when it's repaid, is very different than printing money and using it to buy goods and services.
This Planet money episode addresses the whole topic of where the Fed is getting all the money from, and how inflation fits into the picture. I found it pretty helpful.
Assuming society continues onward, it doesn't really need to be fully repaid. The value is in the organization and structure of society. However, war, environmental catastrophes, population decline, and loss of trust between citizens of a nation can cause a decrease in the predictability of actions and consequences in society, and that would be a problem for any debt issued with rosier assumptions.
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.)
Japan is the perfect example that a country with a sovereign currency doesn't need that nobody buy their bonds. They have been doing this for years and they don't have hyperinflation but the opposite.
But logic alone should tell us that already. When foreign countries buy US bonds can only buy them with dollars. You can't buy US bonds with another currency. Where are those dollars coming from?
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.
Because the alternatives are even worse. Anyone with money is still better off buying US bonds knowing that the euro or the renminbi or even physical assets like gold are even more volatile.
If this crisis were specific to the US, things would be different.
Also, with seigneurage of the US dollar, it gives a lot of elasticity to the process. Put another way 'The USD is also a big international currency that everyone else depends on somewhat'.
This is exactly right. People love to claim that we can print unlimited money because we are the reserve currency, yet the entire underlying collateral of the international trade system that preserves this is international us treasury repo markets (eurodollars), which becomes totally untenable as that becomes a negative carry position with real negative yields.
The further we go down that line, the more attractive dedollarization becomes.
And go where? European central bank assets are at 53.1% of GDP, Bank of Japan assets are at 125.7% of GDP, and the US FED is at 34.4% of GDP [0]. But hey, you could go with the chinese yuan, they "only have a 36% assets to GDP ratio" if you trust them.
This is correct but it is not the whole picture. If all the existing options that look like the previous setup are bad, you might find that whatever setup we move to, does not look like the old setup.
There is no law of physics that there has to be one underlying global reserve fiat currency. That is basically a historical oddity that was a result of our huge creditor position vs Britain at the end of WW2.
Going forward look for a basket of currencies, which could include gold, and potentially even crypto. Of course this is speculation.
That's been the story for a while, right? It was the reserve currency. Where else are you going to go? And what I'm saying is that I think you'll see in the coming year or two how it plays out.
I personally see it being a slow death that drags out over a decade, not a big sudden event that happens in the next two years but I agree with your premise.
I'm admittedly new to this but there is mention that the supply should double every 10 years, which it looks like it hasn't (or just right at), are we playing catch up?
Is the 10 year from an inflation target?
2004 - 2014 was an 80% growth.
2001 - 2011 was 60% growth
2011 it was 9600, today it is around 18k, seems like we're on track to 2021 and playing catchup.
Any average including 2008-2011, is not a meaningful way to think about what is average historically in terms of US monetary supply.
That period was the beginning of a paradigm shift in terms of how the US enacted monetary policy, which was on top of another paradigm shift that had occurred with the Greenspan Era.
Which is to say we are in extremely uncharted territory. If you took average measurements of a star in the initial periods of a supernova, you would get a very strange understanding of what is average for that star although technically the figures would be valid averages.
A bit late but that's what I don't understand, there are discussions around the inflating of the money supply in the tail end but it looks like it's just on target and prior was deflationary. This is making an assumption on the target being correct.
The signal/noise ratio on that subreddit was unusablely low start at least ~2017. /r/btc is marginally better, but most of the popular cryptocurrency subreddits are very low quality.
/r/bitcoin is a heavily monitored and censored subreddit. Anything not in line with message is deleted, anyone who tried regularly is banned or shadow banned. It is basically /r/thedonald for cryptocurrency. Even here if you post something negative about it here you can see your votes go down in clusters (while possibly going up in between).
When money supply expands faster than trade, you're going to have a bad time (in the future). We shall see how many USD it takes to buy goods from overseas.
Alternatively, it might turn out to be a pretty good counterbalance to China's tampering with their money supply to keep the yuan artificially much cheaper than it would be in a free market.
Everybody "tampers" with their money supply. And there is no such thing as a "free market". Not in currency, international trade, etc. All markets are controlled and manipulated. It's like every parrots what they hear.
Edit:
Oh god. Here comes the "CCP" nonsense. All countries have tight capital controls. And the tight capital control was part of the bargain for trade between china and the US. It's not like they did it secretly. They did it openly for decades as it was their stated goal and provided benchmarks and press releases. It's like the Fed openly advocating for inflation of 3% for decades and you claiming that they are "tampering". It isn't "tampering". It is the goal/agreement/system/etc. Now whether that capital control regime should continue is another debate. Just like whether 3% inflation is a worthy target. But to claim otherwise is just peter navarro style nonsense. It's just parroting.
Edit1:
> The Euro is the 'least tampered' big currency arguably because they have 25 nations each of whom would scream if the other tampered, meaning almost by definition it has to have integrity.
Hard to imagine such nonsense on HN. One of the problems in the EU is that some countries, like greece/italy/etc, feel that the value of the euro is being too greatly manipulated by germany. It's why britain was part of the EU but kept their currency. It's why every few years you hear about greece or italy leaving the EU/euro. The idea that the euro isn't manipulated is nonsense. All currencies are manipulated to achieve the goals of the nation/region/business community/banks/etc. And all currencies are political instruments as well as financial ones.
So this isn't helpful because a) there is 'tampering' but of different degrees and b) the 'freedom' of a market is also one of degrees.
Just because there's no such thing as a 'free market' doesn't mean that some are not more open than others.
The Euro is the 'least tampered' big currency arguably because they have 25 nations each of whom would scream if the other tampered, meaning almost by definition it has to have integrity. The USD somewhat less so, but in times of war or crisis it will be. China has a fully politicized currency.
The OPs point is actually valid - any weakening of the USD might more accurately reflect what currencies might look like within similar Fed regimes. So long as it's not a crash it might help the US to soften a little.
The paradox is, in a 'global' time of crisis ... people actually seek USDs! So when the US eventually tries to push that weird dynamic to a tipping point, which we are arguably already doing ...
Welcome to the New World Monetary Order - value can hardly be measured in currency because it's made up, so get your hands on something else ... like real-estate! Which would explain a few bubbles.
Sure, but there's degrees of tampering; not many countries can get away with implementing the kind of tight capital control regime that the CCP has in place.
USD won't collapse as long as the US has a tech monopoly and is the only source of certain high tech electronics, biotech, and aerospace components. As long as the US is the only source of key technologies, countries will continue to maintain a stockpile of USD so they can buy/pay license fees. If another country develops an alternate ecosystem that's equal in capability (looking at China) then you'll see the collapse of the USD's global value, especially if both sides start a price war.
This and most discussions about inflation lack an actual definition of the term. This leads to heated discussions that sometimes talk past each other.
I suspect what the article is talking about is Core Personal Consumption Expenditures:
> The Labor Department’s latest report on core consumer prices showed the index down for a third consecutive month in June for the first time since 1957. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge, increase 0.9% on a year-over-year basis in June, the smallest advance since December 2010.
BEA reports that the index is up 1.4% YOY in August, which follows 1.1% in July and 0.9% in June:
The use of the word "unlocking" suggests a benefit to surging headline inflation, which is very strange because inflation by itself implies nothing about what the economy itself is doing.
I suspect all the talk from central banks is just jawboning. It wants to raise the specter of a big bond market decline to get certain kinds of investors out of treasuries and into risk-on assets. Recent history has shown that doing that is highly stimulative.
The Fed has confused inflation with the change in price of consumer goods, but this has led them to all sorts of flawed thinking.
In my view, inflation IS the debasement of the currency.
One would typically expect consumer prices to change when the currency is debased but when you literally define it as such you give yourself all sorts of additional levers to pull that distort the true situation.
For instance technology fundamentally drives down the price of goods. Have I reduced inflation by improving technology?
Offshoring manufacturing to get cheaper labor reduces the price of consumer goods. Have I increased the soundness of the money by doing so?
It’s not inflation exactly, because of the influence of lower interest rates, but in my neighborhood houses sold for around $250/square foot last couple years. My neighbor just sold her house for $365/square foot.
There is a measure of the balance of supply vs demand where 100 is an equal number of buyers and sellers. More sellers < 100, more buyers > 100. My realtor just told me it typically bounces between 80 and 120, but right now it’s 350. She’s never seen it remotely as high.
The percentage of that stimulus that stays in the hands of consumer for disposable income is what’s gonna determine if there will be inflation. The fed is betting most of that is used for paying bills and debt. Then what you get is asset inflation at the hands of businesses.
Doesn't that depend on thing like foreign trade volume and long term demand abroad for US Dollars? I wouldn't suggest that we keep printing money at this pace, but it seems like for the moment there's more than enough appetite for the Dollar and it's trading fairly strongly against other currencies.
middle class, long-term, needs to buy housing, educate their kids, and save for retirement.
The price of all of the three above is rising very fast. Yes, there are other (different) factors for all 3, but too much monetary supply is one of them.
The fact that a one sentence, unsubstantiated claim to /r/bitcoin from a week-old Reddit account is number 14 on the front page of HN shows how fucking sad the state of affairs is around here.
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.
Cryptocurrency is certainly not a good place to put savings, as its price is way too unstable to be a store of value. If you're unsure about the value of the USD, then traditional investments like gold would probably be a better choice. Like other comments mention, even though lots of money was created for economic stimulus, it's used in such a way that makes it deflationary long-term (as seen by the projected 0.62% inflation rate for this year and only 2.24% next year[1]).
Investing in crypto is always nuts, but especially if you are trying to reduce risk. Don't listen to your friends. Buy index funds, with more into bonds if you really want less risk. You won't ever beat the market on average as a retail trader.
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
The only advantage I see is that huge amount of capital you can borrow at a low rate, probably lower than the rate of a weakening dollar, and could potentially turn it into a rental to pull in inflation adjusting income, in addition to your fixed work income. That said, pulling your down payment out of rising stocks to do so may not be the most profitable, but it does serve as a good diversification of asset.
Im not a financial advisor, just a software engineer, but my father is and I've convinced him into buying a second home with me when the right one becomes available (waiting for the supply to open up a bit, we lost our first offer to a cash offer). Key points for purchasing were diversification of assets, pulling out some money from the high riding market before a blue sweep and subsequent taxes, and rates so low that combined with inflation(including assets) the gov is paying you to take out a loan.
They could go also back where they were a year ago and lose half your money. Then enjoy a lost decade of no recovery as the US piles up Japan-style debt. Not making a prediction, just saying what goes up fast can also come down just as fast. For less narrow stock choices, there's whole index funds, both domestic and international. Also bond funds.
There are all sorts of inflation-protected assets you can buy. At a basic level, any durable asset will provide inflation protection. But you could also buy things like Treasury Inflation-Protected Securities.
1-10% into crypto is fine as long as you invest in the bluechips (Bitcoin and Ethereum) depending on your risk tolerance. Don't go all in, and dollar cost average.
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 liquid government treasury -> bank reserve). A bank's constraint against lending more is its equity reserve ratio, which is unchanged by Fed asset purchases.
Again, this is not printing money; functionally speaking, US Treasuries are already 'money' to a bank (they are extremely liquid, widely traded internationally, safe, and in many contexts actually preferable to cash), so swapping a US Treasury with cash is just turning one type of money into another; no net creation.
There's a simple reason the Fed doesn't clear up this confusion: the central bank prefers people to think they are printing money, because credibility is important to their effectiveness. And the Fed doesn't actually print money, because they don't have the legal authority to do so. This is why Powell is regularly getting in front of Congress to urge more stimulus spending: he knows it's the only way to get dollars directly into the hands of ordinary Americans.