Comment by 300bps | Hacker News Reader

Comment by 300bps | Hacker News Reader

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The Federal Reserve has taken on $9 trillion onto their balance sheet to flood the economy with money.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

They’ve lowered short-term interest rates to effectively 0 and kept them there for quite a number of years.

Federal and State governments have flooded the economy with stimulus.

There is so much money that has been injected into the economy that it is no wonder that every asset has gone up so much. It is no wonder we have such high inflation. The trick now will be to stop it before we have a wage-price spiral where employees demand higher wages to compensate for higher prices which leads to even higher prices.

Expect the Fed now to be raising interest rates, taking $47.5 billion out of the economy per month starting in June and then $95 billion per month starting in September.

https://www.federalreserve.gov/newsevents/pressreleases/mone...

I think what’s coming is going to look at lot more like the dotcom bust than it will 2008. So I think the article’s caution on buying dips this time around is warranted.

I honestly think that’s not the main reason we have inflation now. Since every country in the world is seeing similar inflation I would think it’s supply side and not something any central bank can fight.

I’ve always been Keynesian, but it faces the same problem as everything else, you need to be able to predict the future to do it well.

Fed balance sheet is about $9 trillion.

This article gives details on $5 trillion in government stimulus.

https://www.nytimes.com/interactive/2022/03/11/us/how-covid-...

To put those numbers in perspective, the market cap of the entire S&P 500 is about $40 trillion.

I hear what you’re saying about supply-side inflation but you don’t think flooding the economy with so much unearned money might be driving up demand a bit?

A beach town near me, I paid $4,000 for a week to stay there two years ago. This year, an equivalent house is $15,000 per week. So now I’m driving six hours away to get a house for $10,000 per week.

When people make $20,000 per month in stock market/cryptocurrency gains, it starts driving up demand for everything dramatically.

They blamed inflation in the 1970's on supply side issues as well. Sure, the oil embargo contributed to price increases, but looking back, it was pretty clear it was fed monetary policy that drove most of it. And monetary policy by Volker that fixed it.

No different today. Massively expand the money supply and you (eventually) get inflation. Add in a few supply issues and you amplify the problem. But I agree with you that without the massive monetary expansion, the supply issues would be minor blips.

That’s the problem, in bad times you pour money into the market either directly or with interest rates. Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.

>> Then I’m good times the opposite is supposed to happen. But this time the good times never arrived and now we are trying to fix it in the middle of a war, pandemic and massive supply shock, including for energy. It’s too easy to get it wrong and make the problem bigger.

Good times happened recently, and they've happened in the past. But no POTUS ever wants rates to go up and money to be tightened under their watch, no matter what the situation is.

We're doomed to a bust/boom cycle, because it's all we can tolerate. We can't tolerate minor pain or minor corrections if they're preventative. We can only tolerate unavoidable catastrophe.

The situation we're in now is pretty close to what some people were warning about back in 2008 when the feds decided on their massive monetary expansion.

By the time inflation starts to heat up (it doesn't happen right away), there will be immense pressure to delay any monetary contraction for fear of dampening economic growth. Then Covid hit and the economy was goosed with another massive injection while everyone worried about a recession.

Then once inflation starts it's too damn late to put the genie back in the bottle so you just spend the next 5-10 years trying to get it under control while not entirely tanking the economy.

>>> the good times never arrived

First two years of Trump were economically pretty good. Low unemployment - particularly for minorities. The Fed was raising rates!

Mostly we spent it on tax cuts for the rich instead. You don't cut taxes in good times, that more than offset the minor rate hikes.

Spent what? I don't see economic growth as a reason to expand government spending, though many disagree.

The economy was good, unemployment was low, rates were rising.

USA was still spending it's treasure protecting Afghanistan poppy fields.

Right, so the theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times. Spending can take many forms, but the traditional ones are lower interest rates and tax cuts.

The issue is that we lowered taxes significantly in the middle of good times. It's like feeding ice cream to kids already on a sugar high.

There is no room to lower taxes anymore as we are already running a significant deficit, and there is a recession coming where we are going to need to juice the economy.

This is simplistic thinking in line with the “what if the government budget was a household budget” memes that float around.

> theory is that in good times you put on the brakes so there is something in the tank you can spend during bad times

The government is not a squirrel with acorns. It can spend during both good and bad times, as the past 30+ years have shown. The only backpressure is inflation. Nobody seems to actually care about debt, despite the hand wringing.

> There is no room to lower taxes anymore as we are already running a significant deficit, and there is a recession coming where we are going to need to juice the economy.

Yes there is, they just adjust the tax rates down further. There is no floor other than zero.

I’m not talking about rubbing the country like a household, still there are considerable reasons to do some accounting.

1. Even the most spend willing economists agree there is some limit to debt that is sustainable. It’s just way higher than what most are comfortable with.

2. There is also political/popular will. If this is not there it doesn’t matter what makes economical sense. In the U.S. we are firmly against that.

3. About that inflation …

Tax-cuts to the rich meant they had more money to invest in stock-market. And the tax-cuts to the corporations meant they made more profits which made them a more attractive target for stock-investors. Both effects meant the stock-market went higher and higher. And so here we are stock market doesn't seem to be going up because there are no new tax-cuts to the rich.

There is inflation which is bad for the poor people. But people have work and are getting paid. That increases demand which causes inflation. Would it be better if people did not have money to buy anything, which would cause prices to go down?

If supply-side could flex then inflation would not happen, but it can not because of pandemic which is still closing up China and Russia whose oil is out of the market for many would be buyers, and Ukraine whose wheat is not reaching world markets.

Trying to blame Biden and Fed for the inflation is Monday-morning-quarter-backing. For anybody who blames them I would like to say: Are you seriously asking us to believe that if you had been elected president of USA, or of Fed, things would be so much better now?

I think, even without hindsight, that I could have done a better job for the economy than the previous president. Biden? Probably not, he has not done much yet. He also does not have large enough majorities to do anything as any tax increases will probably be blocked by the more conservative members of his party.

You could have done (a better job). But that is uncertain, and untestable. Nobody can prove you are wrong when you say so. But not a lot of people will believe you either. Or they say yeah maybe. As to the previous president, I believe you. :-)

Biden raised taxes.

Decades of deficit spending demonstrate the feds can print adequate amounts of fiat currency, and issue debt, to continue to bail out the banksters, bail out foreign cruise line owners, and attempt to police the world and police outer space. USA could drop the federal personal income tax and continue on with the charade.

Can you be specific here? Which taxes has Biden raised (not proposed to raise)?

Love your relatively simple (that’s a compliment - I’m sure you can go deeper) yet 100% accurate (IMO) take on this topic.

Just want to mention that we shouldn’t forget that the fed’s balance sheet ballooning started with the 2008 crisis. If I recall correctly, they had _just_ started to lightly unload all the things they gobbled up like fiends during that period before COVID smacked. Of course they hard turned 180 degrees and got on the throttle again, going in to stabilize the usual markets along with new additions people never would have anticipated they’d touch, ever.

I guess my point is this has been very very long running and is another data point that says (to me) it’s not just a supply side issue that’s driving what we’re seeing.

Oh I’m not saying the feed is not causing inflation at all. I think the primary driver is supply side, but clearly there is more going on.

And that I’m not so sure anymore if federal banks are net positive.

leverage

Every other country did what the Fed did for the same reason: We've experienced (and are still experiencing) a once a century global pandemic. The measures to limit pandemic deaths would have completely destroyed the economy had the governments and their associated banks not taken the measures they took to support people during this difficult time.

It's not the Feds fault, it's the pandemic.

There is still considerable debate if those measures were actually effective. Did closing down entire industries, closing borders, making 20 year olds WFH etc really move the needle on Covid deaths in retrospect?

And even if it did, was it ethical, fair and is it a reasonable price to damage the economy and life prospects of hundreds of millions of young people who weren’t at statistical risk?

Its important because it means the current and future mess is down to bad science and politics and not an act of god.

The measures were certainly very effective under the metric of limiting deaths.

British Columbia and New Zealand have about the same population, both are rich jurisdictions. BC was relatively open (compared to other Canadian provinces) while NZ was more locked down. BC has dramatically more deaths than NZ.

And then if you compare BC, which was more locked down than various US states, BC had less deaths than them.

It seems pretty clear to me that the "lock downs" worked.

(putting "lockdowns" in scare quotes here because really the only thing BCians were prevented from doing was going to restaurants and bars. You could still go to the grocery store and home depot etc with a mask on)

If you have some other metric well I dunno, but I don't think there's any better metric than deaths avoided.

You're comparing population size and the fact both are "rich", but leave out the fact that New Zealand is an island...

Also not just restaurants and bars, gyms, the border, etc. were all closed.

> There is still considerable debate if those measures were actually effective.

Not really. I agree with the thrust of your post but there is definitely no considerable debate being had on this topic, because Near-Zero COVID is the only acceptable policy, and saving lives at any cost along with it.

If you're the Chinese Communist party, that's it.

I'm not willing to ruin my life on the chance some 90 years old may catch the flu and die. If they're worried about COVID they can isolate.

I happen to agree with you. Unfortunately, that debate isn't allowed to happen in the US. Or most modern countries.

Not sure what you mean here. In the U.S. there has been considerable debate, vaccines are free, safe and available same day. Finally we have given up on almost all safety measures as long as the healthcare system can handle the load.

Can you be specific in the change you want or which debate isn’t allowed?

Thanks to you authoritarians deciding for us, we will never know for sure. Comparing countries with similar densities (like Sweden and Finland) and different COVID policies seems to point out to a resounding no. Most likely we would have had a few more mostly elderly deaths, we won't have ruined the mental health of a generation and we won't have enriched big pharma even more.

Even with the pandemic going on it would have been better to suffer during the pandemic than cause a recession. The same people who were hit by lockdowns would be hit 10 times worse by a recession.

What recession?

Employment numbers in my jurisdiction are back to normal and thanks to the sort of government intervention we're talking about very few companies went out of business. Where I live everything is pretty much "back to normal."

The government successfully shut down big parts of the economy, kept people alive, and avoided companies going out of business. They did it.

If there is any recession, and it remains to be seen if there will be, it won't be because of local factors, but rather because goings on in China and supply issues stemming from our over-reliance on their manufacturing.

The US fed is the biggest whale in the whole market

And every major economic union is duplicating what the fed does

Even if the second part wasn’t true, the first part would cause inflation in those economic unions

It buys bonds from ANY bondholder indiscriminantly. It didn’t matter where they are, they get new dollars, and dilute the value of their area.

This is a good point, but there is a counter-argument as well. America is currently divided into the rank-and-file class vs. the stockholder class. The governments' actions so far have been heavily benefitting the latter. Workers get a $1000 cheque, stockholders get a 20% net worth increase. Mom'n'pop shop closes due to lockdowns, Walmart eats up their niche due to being exempt.

Taking too much money out of the economy at this point would harm the interests of the stockholder class, so they would try to do as little of it as possible. Of course, that would only deepen the divide and push Gen Z into accepting more socialist demagoguery, but the short-term stock market dip might be somewhat less than in the dotcom times.

Workers (well, unemployed ones) got $2400 a month. "We just got a $2000 check" is a meme from people who weren't unemployed and are looking for more free money.

What percentage of the population is unemployed?

That's not the question, the question is what the percentage was in 2020.

People who were still working got 1. PPP loans 2. support from their customers still being able to buy things.

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