I don’t understand how that graph cannot represent some kind of crisis in the making. Is there really a way to walk back from this without blowing up the dollar?
What is new here is that you cant really see it because all major currencies are increasing their supply at similar rates.
So stocks, houses and apples increase in value rapidly as more money exists than there are things to buy, but the relative inflation of any economic union is completely masked.
Therefore the classic concern - speculators loosing confidence in the currency - isn't quite a classic concern.
They don't have an alternative as all major currencies are doing the same thing. To play that script they would need to be exiting fiat currencies, so watch for that.
But the macro trend is worldwide speculators pounding against the dam for negative interest rates in the US. Thats the season finale for now and cliffhanger, with no real prediction on the next season’s contents.
the yield curve flattening was a big headline long before and seen as a bearish sign, its not important that COVID spooked everyone to selloff and its not interesting that Congress and the Fed stepped in because of that.
All the monetary policy and the fiscal policy decisions were written in advance and just placed on Congress’s desk when they were scrambling for a solution. 5,000 page bills werent just made overnight.
the entire game is to put your losses on the balance sheet of the biggest whale in the market (a sovereign with no consequence) and keep all the profits for yourself, and reaching a place in society where that is practical. there is no andrew jackson to dismantle the central bank for the specific reason he dismantled the first one. so the outcome is always predictable, the cause and effect is easy to understand. the mechanism that all central banks (except china’s) use to flood the market with cash is by purchasing an ever expanding universe of bonds, with pushes the bond price up and interest rates of those bonds down.
But yes, for now the central bank and legislative actions far outweigh my uber drivers and unemployed dates talking about daytrading, as more money is going to hit the market. US Congress is going to create/distribute $2 trillion more dollars and the US Federal Reserve is still purchasing corporate bonds, creating new money in every transaction. Babies better be daytrading on abacuses.
The price of gold has gone up a bit during the crisis, but nothing close to the increase in M1. So it would seem that markets are indeed sticking with fiat currencies in spite of the huge supply expansion...
Markets might not be choosing fiat currency for a store of value, but they’re still apparently choosing it for a medium of exchange.
What this will do is erode faith in the USD. If demand for cryptos, for example, stays the same, but suddenly everyone has more $$$ to throw around, crypto will keep skyrocketing in value while the USD buys less and less of the things people actually need. At that point there will be runaway demand for crypto because people will start "believing" it's more stable than the USD.
Crypto may be seen as an alternative in the future, but right now it’s all over the map. No one is using it for their savings account (or checking account, for that matter).
Honestly though, a crypto-based brokerage probably isn't too far off. Might even be a billion dollar idea.
Lenders so far stay in the market because they actively trade the debt object even if they lose the business of earning interest. (With debt, the price of the contract increases as interest rates go down)
Wages/work notably excluded so hardly masked as has been the case to anyone looking at the share of taxable income over the past 40 years
* https://clintballinger.wordpress.com/2021/01/12/the-myth-of-...
As a linked-to IMF paper observes (Benes and Michael Kumhof 2012, p. 12):
> To be fair, there have of course been historical episodes where government-issued currencies collapsed amid high inflation. But the lessons from these episodes are so obvious, and so unrelated to the fact that monetary control was exercised by the government, that they need not concern us here. These lessons are: First, do not put a convicted murderer and gambler, or similar characters, in charge of your monetary system(the 1717-1720 John Law episode in France). Second, do not start a war, and if you do, donot lose it (wars, especially lost ones, can destroy any currency, irrespective of whether monetary control is exercised by the government or by private parties).
> This suggests that the rapid acceleration in M1 since May 2020 is mainly from money moving out of the non-M1 components of M2 into M1, rather than reflecting any acceleration in the demand for transaction balances.
The chart looks shocking without context, but it’s also very misleading without the context.
From January to December of 2020, M1 increased by $14 trillion, while M1 “only” increased by $4 trillion. So not as steep at 25%.
This is largely a function of a re-categorization of certain types of accounts: https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
From what I can understand a lot of accounts that used to be categorized as M1 are now categorized as M2.
M1 is a component of M2. So to get a better understanding of the real impact we should look at how M2 has changed: https://fred.stlouisfed.org/series/M2NS
The increase in M2 is around 25%.
Still pretty substantial and it looks to be way beyond the historical norm, so I think we should be concerned.
But maybe we should re-calibrate our concern by an order of magnitude.
Not that there isn't any danger. Even better would have been if the Fed was ok going into negative rates (like the ECB did a few years ago). They wouldn't have had to create so much money. People, businesses and banks are just hording government money instead of private assets because it offers above market returns of 0% while marginal safe assets on the private markets have had negative returns (on a risk adjusted, liquidity adjusted basis). With sufficiently negative Fed rates more in line with the markets, people would have kept their assets instead of hoarding government paper and the Fed wouldn't have needed to print so much.
What matters more is the functional status / size of the economy. If the economy ceases to function then you should be alarmed. Of course the economy has been damaged during the past year but to what extent is not still fully known and is not easily gleanable from changes in the money supply.
Politicians go very wrong with this when they assume that pumping the money supply has a causal effect on the economy. At small scales it can but generally it doesn’t. You can throw millions of dollars at a pig, it will never be able write software for FAANG.
They were printed in order to be spent and "stimulate" the economy, not make already rich people look richer on paper.
The bonds themselves pay interest to the Fed (which will take money out of circulation). Even if the Fed does nothing, the whole thing will reverse itself when the bond reaches maturity, and the principal is paid to the Fed.
I'm not understanding your logic - it seems backward to me.
Also we have never actually done "trickle down", it's a bogyman people like to trot out, not something actually done.
I also agree that they have debt for that as well. No reason not to use debt to gain real assets when the fiat debt loses value regularly.
That's not how any of this works. Rich people generally have much less of their assets as cash or cash-equivalent than poor people. They also in general have much more debt than poor people, both in absolute values and as proportion of their net worth. (Simply because they are able to take more debt, and with the neverending low interest rates, taking more debt and investing it is basically free money.)
If it's in a bank account, it's being lent out and is working, no?