Who is going to buy individual loans which are never repaid if inflation starts to rise?
As shown in 2018, the fed has the power to massively deflate the currency simply by indicating that they might want to unwind or reduce stimulus.
I'm not sure I understand what's stopping the Fed from buying back these loans that it issued? If it can't for some reason, what's stopping Congress or the states from creating "banks" to buy it back?
Didn't people say before '08 that inflation was caused by the money supply, and then we did QE, and inflation didn't happen? So now they're saying inflation is tied to velocity, or M1 vs. M2?
I disagree. We never unwound and all that stimulus did come back, but only in things that people wanted: healthcare, education, real estate, and stock prices.
Things that were discretionary like air travel and electronics were stuck and have generally stayed there in nominal dollars.
We will see this again. The best lie the Fed ever created was to convince people that you have to see inflation everywhere for it to be real inflation. It would be very hard to achieve the sort of 1930s German inflation, or a Zimbawean scenario. What you'll see is that your food costs 50% of your income and rent is the other 50%. Social programs will either be cut or become ineffective, as more of the government's budget is devoted to servicing debt.
What's actually going to happen is that food, air travel, and cars will remain cheap, while investments, like stocks, houses, etc, will rise in price. That's the direct consequence of QE.
Assuming the price goes back up later, you mean. But if that were guaranteed then the price wouldn't have been down much in the first place. It could stay down, or even go lower, in which case the Fed will lose money when they go to sell.
https://en.wikipedia.org/wiki/Constant_purchasing_power_acco...
Whenever you take out a loan, at the moment of signing the contract the value is converted from the local currency to the unit of account. Loan payments are then made in the unit of account, every month this fixed value is converted back to the local currency according to the current exchange rate. This way loan payments get inflation adjusted.
The idea is that banks and foreign investors have no inflation risk, companies and consumers take all risk.
Loan payments increase every month, also some other services like insurances are charged this way. But of course your salary is paid in the local currency and doesn't get adjusted at all. The problem is that it is all we have access to, every loan in the country works this way. So there is not much the consumer can do, people want houses, people need to pay for college, people need a car.
In most countries inflation works in your favor, here it works in the banks favor.
On the other hand, sounds like a possible major opportunity if you provide a solution that is better for the people.
Regulations probably prohibit anything else but I haven't looked into it.