Has anyone any idea what that means to the average joe? How to protect one's purchasing power?
If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?
If the government can give you free money (1200$ checks), it also has the power to take everything away from you, right?
I initially looked long and hard at trying to implement my own copy of Ray Dalio's "All Weather Portfolio". I really recommend reading up as much as you can about Ray Dalio and this portfolio. To create this portfolio for US investors you can follow this website: http://www.lazyportfolioetf.com/allocation/ray-dalio-all-wea...
Having done all that research, I've started to modify my approach according to Chris Cole's "Dragon Portfolio". You can learn about it here: https://youtu.be/SkfgEZtJ9LA and read how to implement it yourself here: https://docsend.com/view/taygkbn
Just to be clear, I have no connection to any of the people and companies mentioned. Also, you may have higher risk tolerance, and want a higher level of return, so these portfolios may not be for you. Either way, you should always seek the advice of multiple fiduciary financial advisers before deciding what to do.
The money the Fed prints doesn't go to Joe Average. It goes to investors who are selling the Fed junk bonds. (They then turn around, and buy stocks with those dollars, which is why the market is soaring.)
If you're sitting on a retirement fund, that hurts you. If you're sitting on debt, that helps you. So it's much more past tax payers than future ones who are hurt by this.
On the other hand, decreasing the value of accumulated wealth is exactly what ought to happen here. We're not producing very much, and everyone will have less actual stuff. The question is how the banking system adjusts.
If we see deflation (prices go down, salaries go down, revenues go down), people will default on debts and other fixed obligations, and the whole thing blows up in structural damage from bankruptcies, mortgage defaults, layoffs, etc.
If we see inflation, a lot less structural damage happens.
COVID19 is destroying value. What the fed is doing -- inflation in the stock market to keep prices where they were -- is exactly what ought to happen. Inflation will continue to happen elsewhere in the system. The flip side is you don't want starving, homeless people in the streets -- that will destroy massive wealth. We'll deal with that with inflation too, most likely.
The trillions the Fed is printing aren't being sent out as stimulus cheques. They are being used to provide short-term liquidity (Which does not cause inflation), and to buy junk bonds, (Which does cause inflation, and also happens to prop up the stock market.) Some of that money is also being lent to the government - if those loans are paid back, they will cause net zero inflation. (Because once the money is paid back to the Fed, it is destroyed.)
This is precisely why we have central banks that are independent of government budgets. It creates checks and balances against a government choosing to print its way out of budget troubles.
Government debt does not really get payed. Old debts are payed off with new ones.
Public debt is just a number that express the accumulated of pass deficits. In order to reduce that number you need a government that, instead of a deficit, have a surplus.
If the government has a surplus, less money is spend in the economy.
If that reduction in spending is not compensated somehow, necessarily, the GDP has to fall.
The only things that can reduce that fall in government spending are a positive balance commerce or an increase in private debt.
Now, an increase in private debt, instead of public debt, that's a real problem.
Assuming you can get the fed to make that money disappear, which it doesn't have a good track record of doing so far.
That is debatable. They say this but at some point you have to wonder, will they have the capacity to take it off the balance sheet without massive inflation? Historically, there are two ways governments went out of huge debt: default or massive inflations. I doubt the USG will ever let itself default so inflation is more likely. One advantage that the US has is that it has the world reserve currency.
If dollars are worth 1/2-1/10th of what they are now in three years, that's kind of okay, and in-line with the damage of COVID19. If they are worth 1/1000th, we're looking at a serious, structural collapse.
That is massive inflation.
On the one hand: Look at unemployment rates, business failure rates, mortgage defaults, people unable to pay for food/medicine/shelter, or any other economic metrics, and plot even conservative predictions even a month or two out. The economy will be dead very quickly if we don't do something drastic.
On the other hand: If we let it burn: look at COVID19 mortality rates, and multiply by a significant fraction of the US population. You land on numbers greater than WWI casualties, and likely greater than all previous wars combined. Heck, looking at permanent lung damage alone, we're already tanking our economy.
These are exceptional times.
They take exceptional measures.
The metrics I care about are: (1) Structural damage to the economy (layoffs, defaults, bankruptcies, etc.). (2) The number of people working (likely in pandemic-adapted industries) (3) Deaths. To minimize those, we'll either need to be clever or to inflate. So far, we've been really bad at clever.
People need food, shelter, and medicine, so those are well inflation-protected. But housing prices would collapse if everyone is unemployed for long. Food producers may get sued of COVID19 outbreaks which are happening at plants already (essential workers, no PPE). And hospitals may be overloaded for a long, long time in ways which are quite complex.
And you can't eat gold. It's as fiat as anything else.
We're looking at a potential major collapse. It's hard to shield yourself from that.
Education is always a good investment, I guess. Schools are desperate for students and tuition, and not a bad place to weather a crisis.
It's a good way of inter-generational wealth storage still. Also it's useful along with a basket of currencies to diversify with especially in countries with high inflation or value volatility e.g. Venezuela. It's highly regarded in 2 of the most populated countries in the world (India and China) and that is not apt to change any time soon.
Sure, in a full grid-down situation it's useless and "junk silver" would be more useful as a temporary currency but that is a slim possibility.
That is a pretty outdated view. More like the money supply grew and everyone's money is a bit less worth.
Only if the economy is at full utilization. The reason for the stimulus is that the economy it's not at full utilization, ergo, there will be not accelerated inflation.