Comment by kylebenzle | Hacker News Reader

Comment by kylebenzle | Hacker News Reader

Everybody knows, recession is coming if not here already. Doubling the money supply will only exacerbate the problem long term, leading to greater unemployment when the dollar needs to be reigned in again like in the 1970's to avoid runaway inflation.

The FED's balance sheet now hold almost every asset imaginabe, interest rates are 0% and they are out of tools.

1. Globally? China's growth rate was faked for at least a decade, so if that comes out that the 6.8% rate was fake, that instantly drags the World's second largest economy down. [1]

2. It is already BY FAR worse than the 2008 recession in every way. This is a health, economic and societal issue.

3. Inflation is ugly and usually avoided at all costs. The world is diving head first into the shallow end of the pool by printing unlimited money. Over the next year prices will sky rocket and many will starve. E.g. Egg prices are at record levels [2].

4. Stop printing money to help the short term. Build hospitals, NOW and Return to a sane monetary policy (will never happen).

[1] https://www.investors.com/politics/editorials/new-study-shin...

[2] https://www.ams.usda.gov/mnreports/pybshellegg.pdf

There's a lot of misinformation going around on the internet, and one of the ones I keep seeing over and over is the idea that the Fed is buying stocks (which it is not).

The Fed's balance sheet only holds US treasuries, and a small amount of high quality corporate bonds. They are considering purchasing municipal bonds (i.e., local government debt) but I don't think that's happened yet.

The Fed primarily provides liquidity, and it does that by purchasing bonds (aka debt) that nobody else wants to buy, but it's primarily US treasuries (i.e., US government debt).

Yes this will lead to inflation (if you look at real numbers, not the shady official CPI numbers), but the USD is also the world's reserve currency, so the US will probably come out mostly unscathed as other countries look to horde USD.

Im not an economist, but doesn’t the value destruction even this out?

If your houses and stocks are worth half what they were, isn’t the money printing offset?

If nobody is spending, doesn’t that offset price rises?

I think when we return to good times, the extra money splashing around is inflationary. But it doesn’t feel like we need to personally be concerned with inflation for the next few years at least?

People in the market aren't expecting inflation:

https://www.clevelandfed.org/our-research/indicators-and-dat...

So I don't know why people on HN so often are.

Probably because of a misunderstanding of QE. At first glance it seems obvious that it would cause excess inflation (more money==less value) but that's not generally the case (at least not to the extent that one would assume).

There are a lot of goldbugs/bitbugs/Austrians here for some reason.

Inexplicably, I'm not entirely reassured.

Official economic dogma is that inflation is caused by pay rises. This has always been self-serving nonsense, but it's particularly unhelpful now because it disguises the real causes of commodity inflation - which is a combination of supply/demand shocks that spike the prices of essential commodities, combined with loss of trust in national currencies, often made worse by foreign debt obligations.

(Asset price inflation is a different thing, and is caused by too much cheap money pumping up the cost of rent-seeking assets - which happened after 2008. If you're on the wrong end of the rent-seeking process it's still price inflation, but it's usually considered a good thing rather than a bad thing in official figures.)

It should be obvious that there's a danger of at least some of the above. Down-to-the-bone commodities like food and medical supplies will become more expensive, and there may be some spill-over into industrial commodities.

Luxury and "entertainment" commodities - which have driven the Chinese economy - are going to take a severe hit, because part of their customer base is going to be wiped out financially.

Rent-seeking assets are probably going to have a bad time too. As is bricks and mortar retail. I'd expect a wave of bankruptcies and default among landlords at all level. Even those who own property free and clear may struggle.

tl;dr: A rebalancing away from luxury/investment/speculation towards basic essentials, which will spike in price, with a lot of collateral damage at all levels.

One of these days the chickens are gonna come home to roost.

There's a difference in time scales.

In the short run, while everything is locked down, there's been a near total destruction of demand and (generally) a fall in prices. Businesses are not making any revenue, they can't afford to pay workers, the workers are being laid off, and nobody can afford to buy anything even if they were allowed to go outside anyway. That's deflationary.

The Fed's monetary policy response has been to pull out all the stops to reverse that. There'll be trillions of dollars injected directly into the economy within the next month.

The problem comes when lockdown ends and people start buying things and going out again. That should be right around when the supply chain impacts of the virus hit (there's usually about 1-2 quarters worth of product buffered in various stages of the supply chain). High demand + low supply + basically free money = lots of inflation.

It's also hard to eliminate inflation from the economy once it starts, because the Fed's primary tool is interest rates and you have to get ahead of the inflation rate. The real interest rate = nominal rates - inflation, so if inflation is running at 20%, then to raise real interest rates to just 10%, you need nominal rates of 30%. Particularly if inflationary expectations are increasing, your policy tools may not be sufficient to temper those expectations.

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