You cannot infuse trillions of extra dollars into the economy without inflation. There's no magic pill - there must be consequences.
There are some incredibly complex feedback loops in the economy - especially in the housing market - but inflation isn't the issue for most first home buyers. Inflation does, however, hit people with savings harder - every dollar you have in a savings account is slowly losing value. That, however, is quite intended since savings accounts are poor tools for economic growth (banks can leverage the value for loans but there are more efficient investment methods - and that leaves us with all our eggs in one basket which might be a quite irresponsible bank that's pumping out subprime mortgages).
1. In a very very infinitesimally unmeasurably minor manner.
Great point. And to explicit what you're alluding to: we live in a world where factories around the world are running 24/7 producing trillions of items with infinitesimally small values relative to global wealth. But none-the-less, these goods at up to real value.
But, in short, those depreciations are far outweighed by value creation right now.
* https://fred.stlouisfed.org/series/MYAGM2JPM189S
Their central rate has been <1% since 1995.
Stocks and equities in the US have been going up for 10+ and the infusion of "trillions of extra dollars" wasn't present for all of those years. Canada has had increasing home prices, barely slowing down in 2008, and it hasn't had QE.
The CAD has tracked the USD pretty closely in terms of value so even if there wasn't explicit QE there was definitely sufficient inflation to devalue the Canadian dollar.
It matters who gets the new money and what they spend it on.
Actual inflation is generally low aside from short-term issues, but "asset inflation" if you want to call it that is high. I think the most important thing in terms of day-to-day existence is CPI-type measures that reflect your ability to consume things with money. If you can't do that anymore, then it becomes a real problem for everyday life, as people are unable to afford things they need. But that's not that situation we're in.
The situation we're in is that assets are over-valued across the board, including in the stock market and housing. I think the risk here is that once you're in this situation, getting out of it is really hard. If we allow housing prices to fall (by raising rates, for example), what happens to all the people who are now underwater on their mortgages? If value is erased from the stock market, a lot of people are going to be left holding the bag. Is there a plausible way we can get out of this situation?
Yes, tax the hell out of the wealthy in order to reduce their total share of the money supply (which is driving asset inflation), shield the middle class, and provide better housing, social services and benefits to the working poor. Home prices would settle because supply would go up and the range of bids on a given property would be more egalitarian.
If we are responsible with the new revenues (we won't be) we would also destroy about $5-7T of what's collected to remove it from the overall supply to prevent reoccurrence.
On topic: my experience of housing prices in NZ is that people bid up house prices to the point that they can only just afford the mortgage payments.
Creating more housing doesn't "fix" the problem, because the more wealthy buy two or more houses, and are happy to leave one empty. I've left a house vacant in a tight rental market because the hassle of a tenant was not worth the risks for me (possible gain was a very small percentage of my income).
I am in New Zealand, and New Zealanders bid against each other in an almost zero-sum game for the properties that exist... We are borrowing from overseas to pay for it, so most New Zealanders gain nothing and global finance is the real financial winner.
Yet, politically the game is difficult to change... We have a left leaning party strongly in power, and they are struggling to create a more level playing field so that people can afford to get a home (rather than pay rent, which is more expensive than a mortgage).
Edit: also we can only lock in fixed interest rates for up to 5 years and most people only lock in for 1 or 2 years because short term rates are cheap - the 30 year mortgage system is completely foreign to us.
This surely can't go on forever though. People's ability and desire to consume housing is not infinite, particular in a given locale. If they're buying them to rent out, then a flood of other wealthy people looking for tenants reduces the landlords' bargaining power in the market, which means rents have to drop eventually. If this isn't happening yet, it's most likely because the amount of housing being produced is still too small.
You can't purely demand-side subsidy your way out of housing being expensive. You have to build.
https://www.interest.co.nz/borrowing
kiwi dollar is the original bitcoin.. small usage, wild volatility, widely traded.
Housing has become more affordable.
People worry about inflation, but forget how awful deflation is.
(And on a side-rant, it’s really bizarre how the hyperinflation of Weimar Germany is cited as enabling the rise of the Nazi party. The timing doesn’t work. They came to power during the depression-era deflation.)
Or really strong deflationary market expectations, for whatever reason.
I am also bewildered. So many bad effects of deflation.
Inflation is based both on measurements and on judgement calls by economists responsible for calculating it. It's more objective than LIBOR or some crap, but (way way) less objective than the price of something on the stock market, or some other pure price signal.
'Asset' inflation isn't even part of CPI(like stock, cost of owning a house, tho rental is), is it? It's not even a claim to say that the dollar is devaluing against assets, it's just like tautologically what it means that asset prices are booming.
Yep. This is true. The issue is that the OP seemed to suggest that the price of assets (e.g., housing) was wholly explained by the devaluation of the dollar.
Only a teensy tiny portion of "value" in the economy is actually on printed bills - but even the abstract value we can track won't tell the whole story.
No: If you're approved for a $100K loan, you are credited with $100K balance to draw from your account, and the money supply is recorded as going up by $100K.
But if you don't withdraw any money from the account (e.g., a HELOC that you intended only for emergencies), then how can it be inflationary if it's not circulating in the economy? But it is registered as increased money supply.
Many business may have them. As I mentioned, HELOCs are a thing as well.
Neither may be used to the absolute limit, but only on an as-needed basis.
1: https://www.bls.gov/cpi/quality-adjustment/questions-and-ans...