You've got the causality backwards. It's the writing-off that causes inflation (because now you have all that extra cash out in the economy that never comes back to the Fed in the form of loan repayment), not the other way around.

Only if they continue to buy.

As shown in 2018, the fed has the power to massively deflate the currency simply by indicating that they might want to unwind or reduce stimulus.

But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again.

I'm not sure I understand what's stopping the Fed from buying back these loans that it issued? If it can't for some reason, what's stopping Congress or the states from creating "banks" to buy it back?

Didn't people say before '08 that inflation was caused by the money supply, and then we did QE, and inflation didn't happen? So now they're saying inflation is tied to velocity, or M1 vs. M2?

> But the Fed QE from '08 didn't make it back if I understand it correctl...I think we managed to unwound about a quarter or a third (?) of the outstanding debt before this crisis hit and the Fed had to issue new QE all over again.

I disagree. We never unwound and all that stimulus did come back, but only in things that people wanted: healthcare, education, real estate, and stock prices.

Things that were discretionary like air travel and electronics were stuck and have generally stayed there in nominal dollars.

We will see this again. The best lie the Fed ever created was to convince people that you have to see inflation everywhere for it to be real inflation. It would be very hard to achieve the sort of 1930s German inflation, or a Zimbawean scenario. What you'll see is that your food costs 50% of your income and rent is the other 50%. Social programs will either be cut or become ineffective, as more of the government's budget is devoted to servicing debt.

Given how little labour goes into making food (~3% of the population feeds the other 97%), and how low the margins on farming and food distribution are, inflation or not, your food will not start costing 50% of your income.

What's actually going to happen is that food, air travel, and cars will remain cheap, while investments, like stocks, houses, etc, will rise in price. That's the direct consequence of QE.

There is. When the Fed buys bonds they get the coupon payments for those bonds and they can wipe the money off the books then if they want. They can also sell the underlying bond if they want to remove the cash from the economy immediately. And--since they got a good deal by buying when the market was down--they can afford to sell a little below what the same bond would currently trade at and fixed income investors will line up around the block to buy

> since they got a good deal by buying when the market was down

Assuming the price goes back up later, you mean. But if that were guaranteed then the price wouldn't have been down much in the first place. It could stay down, or even go lower, in which case the Fed will lose money when they go to sell.

I would make the loan repayment conditional in a similar way to Lambda school: borrowers that go on to earn a high enough income have to make payments, but nobody else does. Then investors can make bets on who will make enough money to pay the loans back. They won't pay full price, but they'll pay something, and that will hold back inflation a bit.

So, move the income tax over to the Fed as well?

Don't give them ideas...

https://en.wikipedia.org/wiki/Constant_purchasing_power_acco...

This seems interesting but is surprisingly dense for wikipedia. Can you explain how this works?

You have a "virtual" unit of account which has an exchange rate to the local currency. The value is updated daily and is tied to the consumer price index, basically it gets inflation adjusted.

Whenever you take out a loan, at the moment of signing the contract the value is converted from the local currency to the unit of account. Loan payments are then made in the unit of account, every month this fixed value is converted back to the local currency according to the current exchange rate. This way loan payments get inflation adjusted.

The idea is that banks and foreign investors have no inflation risk, companies and consumers take all risk.

Thanks....Is this setup still actively used? I'd think that the Loan payments are then made in the unit of account aspect would make it fairly obvious to consumers that their payments could increase suddenly.

Yes, I live in a country were we have such a system but as far as I know there are some others with similar systems.

Loan payments increase every month, also some other services like insurances are charged this way. But of course your salary is paid in the local currency and doesn't get adjusted at all. The problem is that it is all we have access to, every loan in the country works this way. So there is not much the consumer can do, people want houses, people need to pay for college, people need a car.

In most countries inflation works in your favor, here it works in the banks favor.

Wow that doesn't seem very fair unless the banks themselves are exposed to major risks, mind saying which country?

On the other hand, sounds like a possible major opportunity if you provide a solution that is better for the people.

Chile

Regulations probably prohibit anything else but I haven't looked into it.