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I think we can all agree that work will always need to be done, and money is a good way to decide who does what work and for what reward. To begin to answer the question above, there should be enough money to continue to incentivize people to work.
This can malfunction in both directions. Too little money and you reward the idleness of those who already have money. Too much money and you reward the idleness of those who don't have money. Orthodox economics says a little inflation is good, because then you are tracking the growth of the economy.
Many people have been predicting too much inflation, hence stagflation, for years now given the growth in the money supply. However it hasn't happened. It is true that the money supply has increased faster than the economy has grown, witness increasing asset prices. What is missing from their analysis?
The velocity and distribution of money. Despite more money being created than ever before, it is not making its way to those who have the least. Thus they are still incentivized to work. At the same time, those who get first dibs on this money supply invest it, pushing up asset prices and maintaining the incentive to work among those who have investible money.
In a nutshell, inflation for those who have money and deflation for those who don't. I'm calling it idioflation, as in idiosyncratic or particular to each case. It's neither deflation nor stagflation, because the economy continues to grow. Nor is it steady state, because asset prices are rising faster than growth. Rather it is a means of inflating only certain goods, in this case investible assets.
Is this the Goldilocks zone? The economy hums, the great and good wax, what's the problem? I'm looking for the flaw in this model that will undermine it, much like the flaw in the interpretation of the Phillips curve undermined the postwar consensus. Where does this model reach its limit?
I'm thinking negative interest rates will be the trigger. The postwar Keynesian model failed from inflation of staples and necessities. It was a model intended to help the middle class, and it ended when the beneficiaries no longer saw a benefit. Likewise the current regime is a model intended to help investors, and I think it will end when investors no longer see a benefit.
Negative interest rates will decimate fixed income securities and push everyone into speculation. Just like the stagflation of the 70s forced workers to chase their own tails, so negative interest rates will force investors to do the same. Returns will become more difficult to obtain for the same amount of work.
When investors lose faith in the current regime, they will stop fighting workers and workers will have their way politically, just as workers lost faith in the postwar model during the 1970s and investors seized the opportunity.
I think we can all agree that work will always need to be done, and money is a good way to decide who does what work and for what reward. To begin to answer the question above, there should be enough money to continue to incentivize people to work.
This can malfunction in both directions. Too little money and you reward the idleness of those who already have money. Too much money and you reward the idleness of those who don't have money. Orthodox economics says a little inflation is good, because then you are tracking the growth of the economy.
Many people have been predicting too much inflation, hence stagflation, for years now given the growth in the money supply. However it hasn't happened. It is true that the money supply has increased faster than the economy has grown, witness increasing asset prices. What is missing from their analysis?
The velocity and distribution of money. Despite more money being created than ever before, it is not making its way to those who have the least. Thus they are still incentivized to work. At the same time, those who get first dibs on this money supply invest it, pushing up asset prices and maintaining the incentive to work among those who have investible money.
In a nutshell, inflation for those who have money and deflation for those who don't. I'm calling it idioflation, as in idiosyncratic or particular to each case. It's neither deflation nor stagflation, because the economy continues to grow. Nor is it steady state, because asset prices are rising faster than growth. Rather it is a means of inflating only certain goods, in this case investible assets.
Is this the Goldilocks zone? The economy hums, the great and good wax, what's the problem? I'm looking for the flaw in this model that will undermine it, much like the flaw in the interpretation of the Phillips curve undermined the postwar consensus. Where does this model reach its limit?
I'm thinking negative interest rates will be the trigger. The postwar Keynesian model failed from inflation of staples and necessities. It was a model intended to help the middle class, and it ended when the beneficiaries no longer saw a benefit. Likewise the current regime is a model intended to help investors, and I think it will end when investors no longer see a benefit.
Negative interest rates will decimate fixed income securities and push everyone into speculation. Just like the stagflation of the 70s forced workers to chase their own tails, so negative interest rates will force investors to do the same. Returns will become more difficult to obtain for the same amount of work.
When investors lose faith in the current regime, they will stop fighting workers and workers will have their way politically, just as workers lost faith in the postwar model during the 1970s and investors seized the opportunity.
Depends on how you expand it and what you expand it for.
Expansion should not be allowed to pay off another loan because all you really are doing is just changing the terms of the original deal, and paying it to someone else. If a private individual or company (which is just individuals) wants to "loan" out, they have to use hard currency they have on hand.
Or else perhaps everyone should be allowed to just expand the supply? Why do banks exclusively have the right? I should be allowed to start bank with just $20 dollars, or else its class discrimination. I "loan" myself $20, then have $40, and loan myself $40, and have $80, so on and so forth just like Bankers get to do. And if I run into any problems, the FED bails me out or if I feel like I want more money creation faster.
Depends on how you expand it and what you expand it for.
Expansion should not be allowed to pay off another loan because all you really are doing is just changing the terms of the original deal, and paying it to someone else. If a private individual or company (which is just individuals) wants to "loan" out, they have to use hard currency they have on hand.
Or else perhaps everyone should be allowed to just expand the supply? Why do banks exclusively have the right? I should be allowed to start bank with just $20 dollars, or else its class discrimination. I "loan" myself $20, then have $40, and loan myself $40, and have $80, so on and so forth just like Bankers get to do. And if I run into any problems, the FED bails me out or if I feel like I want more money creation faster.
There are a limited number of banks because that makes it logistically possible for the federal government to regulate lending.
If they did allow wildcat banks as you propose there would be a lot of shenanigans leading to frequent financial crises.
Re: the bolded. The money supply is expanded to create debt which incentivizes work. Issuing new debt to roll over old debt is not bad if the extra work instigated by the new debt is enough to pay off both the old and new debt within the terms. Whether this happens in reality would be indicated by a stable total debt percentage relative to GDP.
What I am worried about are diminishing returns available to investors as the risk free rate of return goes to zero. The increasing losses due to risky speculation among investors struggling to keep pace is what I think will end the current regime.
There are a limited number of banks because that makes it logistically possible for the federal government to regulate lending.
If they did allow wildcat banks as you propose there would be a lot of shenanigans leading to frequent financial crises.
Re: the bolded. The money supply is expanded to create debt which incentivizes work. Issuing new debt to roll over old debt is not bad if the extra work instigated by the new debt is enough to pay off both the old and new debt within the terms. Whether this happens in reality would be indicated by a stable total debt percentage relative to GDP.
What I am worried about are diminishing returns available to investors as the risk free rate of return goes to zero. The increasing losses due to risky speculation among investors struggling to keep pace is what I think will end the current regime.
If there is going to be a "limited" number of lenders then entire industry should be a like a utility or cable provider. We dont need privately issued indebtedness to incentivize work. The desire to eat, have a place to sleep, and be able to pay for entertainment should be enough. Are you saying rent is not enough reason to work? There is no need for extra debt on top of the original debt. If the extra debt never happen you still have to pay the original debt.
The necessity to increase the money supply to convince the original creditor to let you off the hook or change terms in your favor, makes us all just like the Banks and other big Corps during the GFC bailouts. We have no right to complain about the bailouts.
If we can invest money just to have more money created, then work will really be de-incentivized for certain segment of population. Once you reach a certain level of wealth you can just invest, and never have to be useful to society ever again. I guess that is what society deems "retirement" or hopes by retirement you have enough and invested enough to not work anymore. But lets face retirees will find it harder and harder to get to that income level if the money they work for is devalued over and over again by the same thing they hope to achieve.
The velocity and distribution of money. Despite more money being created than ever before, it is not making its way to those who have the least. Thus they are still incentivized to work. At the same time, those who get first dibs on this money supply invest it, pushing up asset prices and maintaining the incentive to work among those who have investible money.
Much of the recent new money first does go to those most in need. Thing is, they are not in any position to save it. So they spend it now. i.e. stimulus is better spent, not saved. And when they spend it trickles up to the owners and investors and the rich who can save. And why money supply wise stocks will continue to fly 2021 at least.
Much of the recent new money first does go to those most in need. Thing is, they are not in any position to save it. So they spend it now. i.e. stimulus is better spent, not saved. And when they spend it trickles up to the owners and investors and the rich who can save. And why money supply wise stocks will continue to fly 2021 at least.
I agree that the recent stimulus payments did go to those most in need. However that's a fraction of the new money created since 2007, most of which went to banks first.
I agree that the recent stimulus payments did go to those most in need. However that's a fraction of the new money created since 2007, most of which went to banks first.
Can you show me the money going to banks since 2007?
No doubt the Fed has created massive new moneys since then, most to purchase a like amount of debt from banks. i.e. banks get more reserves in exchange for debt paper.
Can you show me the money going to banks since 2007?
No doubt the Fed has created massive new moneys since then, most to purchase a like amount of debt from banks. i.e. banks get more reserves in exchange for debt paper.
The 2008-2009 Wall Street bailout and subsequent stimulus bill cancel each other out, when adding up aid to banks vs aid to workers.
The Federal Reserve's balance sheet ballooned following their March 15, 2020 announcement to carry out quantitative easing to increase the liquidity of U.S. banks. It reached 7.24 trillion U.S. dollars as of November 17, 2020.
All told there has been about $6 trillion in QE since 2007.
The recent stimulus packages amounted to $3 trillion and $900 billion, however not all of those went to those in most need. Within the CARES act, $2 trillion was direct stimulus payments to middle and working class individuals and small businesses. The remainder of the CARES act was for lending to distressed businesses.
All told there has been about $6 trillion in QE since 2007.
The recent stimulus packages amounted to $3 trillion and $900 billion, however not all of those went to those in most need. Within the CARES act, $2 trillion was direct stimulus payments to middle and working class individuals and small businesses. The remainder of the CARES act was for lending to distressed businesses.
All the new money that went to banks 2008-2013 was not a gift. With QE's they exchanged debt for money of equal value.
All the new money that went to banks 2008-2013 was not a gift. With QE's they exchanged debt for money of equal value.
I didn't mean to imply it was a gift. I meant they had first dibs to the money as it trickled its way down through the financial system.
As you pointed out, most of the gift money given to consumers gets spent and circulates up. I'm not trying to frame the money creation as a gift to any party, but rather as the power to decide how it is spent. This spending power is highest for those first in line. This affects which assets inflate and which assets don't depending on the route the newly created money takes before it leaves circulation.
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