In 2022 the Fed will buy $60B in bonds per month and do up to 3 rate hikes | Hacker News Reader

In 2022 the Fed will buy $60B in bonds per month and do up to 3 rate hikes

cnbc.com

12 pointsTekMol18 comments

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If I understand it correctly, the FED currently has 6.3 Trillion dollars out in the market.

Adding 12x60 Billion next year would increase that by 11%, right?

Does that mean we can expect prices to go up another 11%?

> Does that mean we can expect prices to go up another 11%?

No, there's much more to the economy than just cash. Cash is actually a tiny part of the overall wealth in circulation.

Property, houses, cars, inventories, commodities, and other assets all add up to far more than the total money supply.

> If I understand it correctly, the FED currently has 6.3 Trillion dollars out in the market.

You're referring to "money supply", which is more than just QE measures.

For reference, total US household wealth is closer to $150 trillion. Most wealth isn't stored in dollars.

    there's much more to the economy than just cash

That is true. But prices are in cash aka dollars. So when we create 11% more dollars, the dollar loses 11% of its value. Of course many other things also influence prices. But the effect of the 12x$60B printed Dollars should be an increase of prices of 11%.

But people's purchasing power includes assets. If someone has $10k in cash in the bank, and $1M in stocks, then they will feel like they have $1M when deciding whether to spend $1k, despite having nowhere near that amount of cash.

Furthermore, asset valuation is not proportional to the amount of total dollars. For example a small amount of money going into an illiquid market (eg real estate) will drive up valuations across the board, making asset owners feel much richer in total than merely the incoming dollars. On the flip side, asset owners who are not in a position to liquidate their asset (eg personal homeowners) might not feel any richer at all.

I would like to understand why you focus on the feelz. Of more importance are actual prices and money velocity.

The decision to purchase something or not, in the context of discretionary spending, is fundamentally an emotional one. Sure you can describe it in rational terms, attempt to constrain your own impulses with rationality etc, but at the end if it it's a heuristic. That's all I meant.

In case you didn't get my larger point. Take two people both with $10k in cash. One has $1M in the stonk market, the other does not. The first will spend that cash like a millionaire (because they are), where the second one is likely to hold back because that cash is their emergency fund. Even though they have the same exact amount of M2, their purchasing powers are defined by the amount of non-monetary assets they hold.

> So when we create 11% more dollars, the dollar loses 11% of its value.

No, it we have 11% more dollars, distributed and chasing goods and services the same way, sure, but that's...more than just creating them.

Goods, services and assets.

The FED buys the bonds from people and gives them money.

What do these people do with the money? Chase goods, services and assets.

Mostly save it (stocks and housing) and then pay higher prices for existing assets.

Working class and poor don't really have investments. They have cash for paying bills. These groups are particularly hurt by inflation because they can't afford to have investments. The rich don't care as much because the rich have investments which track inflation.

Fed balance sheet is closer to $9 trillion right now, and it was under $1 trillion in 2009. But I can't think of any major asset class, let alone consumer goods, that have experienced 900% inflation in the past 12 years. If the relationship was that linear, the Fed's job would certainly be a lot simpler.

    I can't think of any major asset class, let alone consumer
    goods, that have experienced 900% inflation in the past 12 years

Nasdaq is up about 1000% since 2009

Bitcoin is up more than 10,000%

The major indices have risen more than 470% over gdp growth in the last 5 years.

It would be simpler, much cheaper, and more transparent to use a formula. But that wouldn't allow the continuous charade of banker bailouts and unlimited federal government spending.

Not really. The velocity of that new money is what matters, not the money itself.

You think if we give everyone as much money as they already have (aka double all account values) prices would stay the same?

It’s not 12x60 but rather: $60B in Jan $30B in Feb $0 in March.

So $90 billion total.

> Does that mean we can expect prices to go up another 11%?

Prices of what?

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