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Comment by rvba | Hacker News Reader

Central banks printed billions to "save" the stockmarket. Leading to gigantic hidden inflation.

Poor are poor. Middle class are screwed (money on bank account basically has negative interest due to inflation). So you can be a pseudo rich by just holding stock/bitcoin/peoperty - since they increase in value purely due to money print.

If you are a middle class person the central bank basically screws you to save the stock market.

Unpopular opinion but the central banks are the main source of inflation.

Now the economy is completely unglued from any fundamentals.

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> Unpopular opinion but the central banks are the main source of inflation.

I mean, that seems obvious, there can't really be inflation if the money supply doesn't increase, can there?

If the money supply stays fixed, then some people will save/hoard money. Some people will also be more able than others to acquiring money (possibly because they already owned assets/rental property), maybe they were born rich. The amount of money that is circulating will automatically decrease. That tends to produce deflation.

The problem is that if you have deflation in your economy, it also increases the incentive for people to save/hoard money even more. Why would you spend your money today when it will be worth more later? You have a feedback loop where the amount of money circulating just keeps decreasing, and so prices automatically have to go down.

> I mean, that seems obvious, there can't really be inflation if the money supply doesn't increase, can there?

Depending on your definition, sure there can be. Private lending is the primary driver of inflation. Most wealth is on paper anyway, so long as people don't try to get actual cash, then an economy can experience significant inflation with a fixed supply of money.

You don't even need lending to drive inflation without a money supply increase. There are lots of bitcoin millionaires out there who can't actually liquidate their holdings for cash, but could, in theory, actually buy other physical goods with it at roughly face value.

Central banks don't have a monopoly on inflation, despite everyone's apparent belief that they do. They are a major influencer, yes, but at USD-scale, they don't have all that much control. You can see this in how the Fed almost always misses their inflation targets.

The Fed's primary concern with interest rates is the US Government going, essentially, bankrupt. The stock market is much further down the list.

4% * $50 trillion = $2 trillion in just interest per year. The US Government will be at roughly that debt level perhaps within a mere 12 years at this point (assuming one normal recession in that time).

So as you can see, the US Government can afford no meaningful climb in the average interest rate it's paying on its swelling debt. Normally as a massive borrower gets more shaky in its finances, the rate it would expect to pay would climb at an accelerating pace with its fiscal implosion. To avoid that fate, the Fed has to step in and become the primary buyer of the garbage US Government debt (which will be endlessly recycled as they will never pay any of it down now). The financing problem with the US Government is so enormous at this point that there are no other nations or private pools of capital large enough to keep up with it on a consistent annual basis, currency debasement - eating the value of anything held in dollars, including most US assets - is all that is left to fully fund the government (and the entitlement costs will only keep spiraling higher this decade and next).

The stock market is a laughably trivial concern next to that problem. Which is also why one of Biden's immediate priorities is raising taxes (if they don't, the Democrats know it'll put the welfare state & entitlement programs they've put so much effort into building over many decades into jeopardy sooner (collapsing demographics may take care of that regardless)).

Raising taxes to pay for a bankrupt government just seems like such a backwards way of doing things.

>Central banks printed billions to "save" the stockmarket.

I agree with most points but that wasn't the main motivation. It was to keep the economy going in terms of people spending money when much real production was stopped due to covid. Now covid is mostly over, at least in the west, and spending is rising leading to inflation, bank printing will probably stop and the stockmarket fall. Which is not necessarily a bad thing.

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