Under some special circumstances the market can move almost lock step with the dollar, but his is not the usual case. Most often those factors driving the equities market are quite apart from those driving core inflation.
Mohamed A. El-Erian doesn't get it either
- Thread starter Q.E.D.
- Start date
Usually not just fed made.
There is a huge myth about fed "printing". It pervades elite trader forums like a roach infestation and results in many wrong conclusions being drawn. It stems from confusion over the source of new (outside) money. This new money is created by Congress's deficits, which the fed does, in effect, "print" when it credits the Treasury's reserve account to cover overdrafts; yet the fed is no more responsible for this "money" than a printing press is for a newspaper. Many people, including many well-known economists!, think QE amounts to printing. This is plainly wrong, and this false belief led many, including many here in these ET forums, to incorrectly predict QE would lead to hyperinflation.
I'm pretty sure the real cause of inflation right now is all the stimulus money doled out by the Trump/Biden administration. Supply and Demand both went down in March 2020 but the stimulus money changed the game and demand far exceeded the supply. I think it still does. Where ever the demand goes the supply is inefficient to keep up with demand so even more inflation (hotels, airlines, concerts, etc.). Toilet paper --> Furniture --> Computers (Game Consoles) --> New & Used Cars --> RVs --> Concerts --> Airlines and on and on.
I agree that the Quantity Theory of Money won't ever cause inflation. At least not without Velocity of Money. I remember back starting after the collapse of Lehman Brothers everyone was predicting hyperinflation but it never happened. Even after QE and "Operation Twist" it didn't happen.
I agree that the Quantity Theory of Money won't ever cause inflation. At least not without Velocity of Money. I remember back starting after the collapse of Lehman Brothers everyone was predicting hyperinflation but it never happened. Even after QE and "Operation Twist" it didn't happen.
i think it was all the savings people had from not consuming for 6 months and a supply chain not equipped for the shift in demand. I don't think $3600 did that much.
I'm probably wasting digital ink, but for decades, inflation meant increased money supply. Austrian / Free-market economists still consider that to be the definition of inflation. There will be varied implications from the printed money, which may be an increase in the general price level. But that does not have to occur. Ghost companies, whether in U.S., Europe, China, etc., are other possible results.
The point however is that prices are always higher than they would have been. And/or assets have been wasted. But that requires thinking, and an appropriate epistemology re money / economics. For instance, except for very brief periods, computer & related prices have only declined -- regardless of how much money printed. Yet, likely they have always been higher than they would have been without the fiat currencies. Just a brief comment for those whom still have an open mind.
I re-read my own post above, and while it is correct, I realized it could be misinterpreted. In QE the fed is crediting bank reserves in exchange for Treasuries held by the private sector. This does increase the money base (reserves plus currency), and that's why I think it is, incorrectly though, referred to as "printing". Treasuries, when looked at correctly, do not in the case of the U.S. represent real borrowing. It's more accurate to view Treasuries as an interest paying store of money. In QE, the Fed is simply converting this stored money to its spendable form as bank reserves. Naturally, increasing reserves puts downward pressure on interest rates, which is the intention of QE; thus to make money more cheaply available to the private sector and encourage borrowing. Typically, this is used to bring the economy out of recession. But this effort can be stymied in a deep recession, such as the Great recession. If the private sector won't cooperate and agree to borrow, than the QE effort can be for naught. This was Bernanke's dilemma in the early phases of recovery from the 2008-9 market crash. Certainly under such a circumstance the fed could "print" until the cows come home, but there would be no inflation. Get the timing wrong, however, and do QE too near full employment and inflation would be the result.
Deficit spending works somewhat differently but may achieve a similar end. Generally when big deficits, ~Trillion or more, are announced, they are spread out over a period of years, perhaps a decade. In net, once coupled to the subsequent sale of an identical dollar amount of Treasury securities, a deficit leaves bank reserves unchanged. The money added to reserves by government's purchase of goods and services from the private sector is exactly balanced by removal of reserves when the Treasuries matched in amount to the deficit are auctioned. If however the deficit creates demands on the private sector causing a strain on productivity that might induce hiring, and this occurred near full employment, inflation might again be the result. Under this circumstance, the Fed is quite powerless to do much other than induce unemployment by selling Treasuries to drain reserves* and force up rates, making credit more expensive.
There may be simultaneously high demand for workers and the products of their labor, an inflation fueled rising cost of production and rising interest rates as the fed forces up the cost of credit in an attempt to cool the economy and inflation. Unfortunately the feds "tightening" may not be very effective until at least mild unemployment is induced. If this situation should happen at the same time external economic forces are causing rising costs of raw materials, energy and transportation, a real conundrum can be expected.
Under such a circumstance, a creative approach by both the Administration and Congress is needed. Barriers to competition created by obsolete statutes and regulations must be brought down, tariffs eliminated, bottlenecks in supply opened up, and transportation and energy costs must be forced down. Needless to say a Congress immobilized by a cloakroom filibuster will not be up to the task. And a timid administration will be no help at all. The nation may face an economic "hurricane".
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* The fed eliminated the specific reserve requirement in 2019 or 2020. They now use a target funds rate band, the low being set by the rate the fed pays on reserves and the high I'm not sure, possibly via the discount window rate.
China making chit cheap kept our inflation in check for a good while.
Then tRumplestiltskin's tariff tantrum and Covid lockdowns here and in China with everyone ordering Amazon stuff with their stimmy money fueled price rises. Then Russia/Ukraine happened. But QEternity certainty was a big part of it too.
Then tRumplestiltskin's tariff tantrum and Covid lockdowns here and in China with everyone ordering Amazon stuff with their stimmy money fueled price rises. Then Russia/Ukraine happened. But QEternity certainty was a big part of it too.
Once again piezoe you miss the mark.
Fed QEternity created many asset bubbles. And as assets inflate they create a wealth effect putting more money in asset holders pockets, which then get spent on high-priced - make that higher-priced - art, wine, women, cars, homes, jets and a partridge in a pear tree.
More money in people's hands with the same, or in some cases, less goods equals inflation.
Fed QEternity created many asset bubbles. And as assets inflate they create a wealth effect putting more money in asset holders pockets, which then get spent on high-priced - make that higher-priced - art, wine, women, cars, homes, jets and a partridge in a pear tree.
More money in people's hands with the same, or in some cases, less goods equals inflation.
why did inflation hockey stick then?
assets have been going up for 12 years but goods and services started going bananas in 2021.