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Comment by throwaway4good | Hacker News Reader

The fed can keep interest rates low; it is literally what they are doing by buying the bonds.

In principle you should see higher inflation and a falling currency. However this policy (aggressive buying of all kind of bonds) has been persued by the Europeans and Japanese for years and it haven't really caused a collapsing currency or high inflation.

Some may argue that it suspends a natural reallocation of resources in the economy. And causes the economy to keep overallocating real resources into things like real estate and finance causing bubbles, malinvestment and zoombie institutions ultimately leading to lower growth.

However that assumes that you had a free market in the first place which you never really had.

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If you print money, but only give it to the top 10% who use it to prop up the stock market, does that cause inflation? I don't understand how America can pump a couple trillion dollars into the economy and it doesn't seem to have any impact. If the average person is getting any of that it should cause inflation, shouldn't it?

> If the average person is getting any of that it should cause inflation, shouldn't it?

That seems to be roughly correct. And yet, we are not seeing inflation.

The conclusion seems easy to me (perhaps too easy). The average person is not seeing much of that money being printed. Instead, all of that money seems to be causing massive inflation in the stock market. The S&P500 and other similar indexes are incredibly high.

This is not caused by their expected cash flows growing. Instead, it is is caused by the expected returns of other money falling. Hence the expected 'time discounted cash flows' are increasing, simply because the discount rate is falling. Or, in simpler terms, stocks prices are rising because people with a lot of money to spare need to put that money somewhere. And these people are getting a lot of extra money.

This effect is not a total waste. It should mean it becomes easier for new ventures to raise money on the markets. This could enable the creation of new businesses and innovation.

However, it could be a lot more effective to give this money to people who would do more with it than try and find a place to store it where they can still make some money of off it.

i've been following Krugman who basically says this is the case, just doesn't use the word 'inflation' in the context of the stock market - but indeed this is exactly what he's describing: free money is driving stock prices up. financial institutions don't buy food and gas, they buy financial instruments, so we don't see inflation in food and gas prices, we see inflation in stocks and t-bill yields?

There's no impact because people are sitting on cash rather than spending it.

What the Fed accomplishes by handing out the $1 trillion is this: they kept all the _other_ money circulating. If people wanted to hoard $1 trillion because they're scared about the future, well, now they've hoarded it. They feel safe and they spend the rest of their money, and the economy keeps humming along.

If instead they'd tried to hoard that $1 trillion without Fed intervention, there'd be an economic collapse.

People or Corps? Seems like stimulus money is eventually just finds its way to a handful of companies that are making piles with it.

People run corporations. When you see a round of layoffs it doesn't come out of mere cold blooded economic necessity. The leadership gets scared, and no longer feels optimistic thus they cut projects.

Sure, you can give all the money directly to the common people, but you'd end up having to do that forever since the wider economy would collapse as rich share holders first feel doubt, then have those doubts confirmed in a self fulfilling prophecy.

Common people should have non emergency sources of welfare, and governmental aid to rely on. If they don't, then the situation is aleady dire.

“ Common people should have non emergency sources of welfare, and governmental aid to rely on. If they don't, then the situation is aleady dire.”

The pandemic is showing that most people and state governments are willfully unprepared to provide such welfare even in an emergency.

If the Fed create $1T new money the worst thing you can do is sit on cash. That’s a guaranteed negative return.

No, the guaranteed negative return is only if you expect rising inflation. Whether $1T in new money turns into inflation depends on what people choose to do with the new money. If they're all terrified about economic uncertainty, they won't spend the new money, and there won't be inflation.

But you're right insofar as the Fed is trying to change inflation expectations by printing money. But so far they've failed because no one believes they'll actually let inflation happen once the economy recovers. Hence Jerome Powell's recent statements about the Fed changing how it trades off inflation against economic growth. It's a way to more credibly commit to letting inflation actually happen.

It seems much of it got dumped into TSLA.

Didn’t the fed announce they would run inflation a bit hot for a while just last week?

Even if a bunch of people used cheap money to buy TSLA, that means a bunch of other people now have lots of money they made selling TSLA.

So someone, somewhere, is sitting on cash, which is deflationary and not what you want in a weak economy.

The cure for that problem is cheap money plus expected inflation (cheap money so people can get cash, expected inflation so they go spend it). The Fed can make money cheap, but it can't force people to expect inflation. It can do stuff to encourage that expectation, though, and yeah it's doing just that.

so basically...yes, it sucks either way.

We spent so many years hearing it trickles down that we didn't realize how inherently backwards it really is - why would anything trickle down into actual purchases, they're always asset price pumps

Rather than trickle down economics I like to call it:

Deluge up economics.

We're all struggling to pay rent and groceries and transport costs

They're all struggling to find somewhere to park another hundred million, billion / trillion? Whatever.

Inflation for luxury goods or the types of things the 10% buys (which has some overlap with everyone else: they too, need food, housing, etc). But most households don't need more than 1 washing machine. So you gift any amount to the top 10%, but washing machine prices aren't going anywhere.

Healthcare, education, housing prices go somewhere though.

Just about every thing limited by domestic labor has been inflating for decades.

Globalization is certainly a very important factor but technology also has to be mentioned. In lots of industries it has massively reduced the bargaining power of the working people. Mostly because increasing output is much less dependent on labour than in the past.

Technology does not reduce labourers bargaining power. Legislating away workers protections, union busting, and allowing unchecked capitalism to depress wages while skimming the profits off the top and socializing the externalities reduces bargaining power.

Inflation is mitigated by all products you buy come from china.

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