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Comment by bsimpson | Hacker News Reader

42% of US Dollars didn't exist a year ago.

If you're wondering why it's been such a bad year to be in cash despite the economy crumbling around you, it's because no one knows where else to put their money. Stocks and houses are being bought with inflated dollars.

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Although people think that the Fed buying bonds is "printing money", it is actually mistaken for liquidity events. If you provide cash to someone for an asset, the second party loses an asset and gains cash. Its a zero-sum trade, assuming the asset is worth its price (which with a corporate bond is undeniably true). Banks are the ones who create money, by creating loans to multiple parties and using leverage.

this is incorrect.

I highly recommend anyone who is interested in this topic listen to this talk: https://m.youtube.com/watch?v=14I1BdncYVo

Both banks AND the Fed create money. The Fed this year has also directly made loans (from newly printed money) and purchased ETFs on the open market (from newly printed money).

If you think the Fed isn’t doing anything when they QE, then ask yourself why they do it.

not “inflated dollars” but a weakened dollar that naturally inflates assets

Are you sure about that? The current inflation rate for 2020 is 1.2%, which is almost half what's it been each of the last three years.

https://crystalbull.com/federal-reserve/quantitative-easing-...

Thank you for this!

Probably referring to the money supply M0, 3.32 in Nov 19 and 4.92 in Oct 2020. Prices have not inflated, but there is more money in circulation.

The underlying idea here is that the velocity of money has dropped significantly; each dollar is changing hands less often than usual, so you need more money in the system to facilitate the same amount of commerce.

What happens when the velocity of money picks back up?

It depends where. If the money flows from one stock to another :no inflation. If it trickles down (very unlikely) we get inflation.

The Fed sells the assets it bought back to the banks it bought them from.

But very slowly, very carefully, and perhaps never at all.

See: Taper tantrum.

he is referring to the m1 money supply.

> Stocks and houses are being bought with inflated dollars

How do we know the number of dollars is inflated? Maybe there were too few before?

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