Now wealth income can easily be spent on large amounts of things that are typically seen as CPI items. At any moment the top 10 billionaires can choose to spend their wealth on an extravagant amount of labor, drastically rising labor incomes, but they choose not to as it lowers their long-term utility.
The fed's mandate is to create a system where they don't mix. It must always be the case for wealth assets like fancy homes and stocks to on average rise in value more than CPI items. If at any point the reverse is true, all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process) and instantly transfer their wealth into the thing that brings the best returns. If the best returns is GPU's, gamers won't get to game. If the best returns is on beans and rice, people will starve.
One of the best ways that the fed does this is by intentionally creating recessions whenever CPI inflation kicks up. Whenever oil money starts targeting water money, the fed kicks up interest rates above the 30 year[0], triggering a yield curve inversion, which triggers a recession. The recession forces employers to let employees go, which drives down the demand on CPI items, and that reduces inflation. At the same time, they put interest rates below what it was when it started, and the wealthy move their money back to oil.
(Note: I'm not an economist, just a programmer with an interest in economics and an eye for details. I'm mostly posting here for feedback, and I know I'm not exactly correct, but every post is one more chance for clarity.)
Per se, it is speculation (in higher prices) rather than investing (in future cash flow).
> If the best returns is on beans and rice, people will starve.
Farmland and equipment are assets, but they are valued based on cash flow from selling produce. Produce is perishable and can only be sold as food, so it will be sold at a market prices regardless of speculation in farmland.
> all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process)
Not "all of the wealthy". Relatively little is required at the margin to crash the stock market, and the majority of "wealth" would follow the market down. Only a tiny proportion would be able to exit at the right moment.
Asset depreciation is an adjustment of the relative value of labour vs. assets.
A possible delineation between "water" and "oil" is whether the thing can be legally used as collateral for loans and how the value is booked. But idk.
If Bitcoin goes to 1 million USD, will that drown out all other energy? Energy is a piece of the CPI, so that's something we need to watch.
Economies are very much complex systems, not a steady state systems. At times it behaves like a steady state, but at other times there are significant shifts that break the previous paradigm. You only have to consult any history book of the 20th century to prove this to yourself. I strongly suggest that this a Pascal type wager that you do want to take. You want to assume my argument is correct and hedge against massive inflation. Your livelihood, and possibly your life depends on it.
One way you might convince yourself is if you look at similar situations in economies that were not governed by the Fed. There are many: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...
I would argue that the Fed, IMF etc actually agree with my position and that is what is driving their desire for new Central Bank Digital Currencies (which IMO are a sham to profit of the public ignorance of actual cryptos and provide a smoke screen while a new global currency is rolled out that will be used to economically control everyone) however I strongly doubt that they will be able implement such a thing before the collapse begins (and it merely delays the inevitable anyway).
Therefore governments (where they can) will default to precious metals to back their currencies. The major winner will be China, as it has the world's largest actual gold reserves (despite the official figures). The US will then be using a gold dollar and China will dictate its price. China now effectively rules the world.
The run on the dollar will be an epic calamity. Epic.
You can already see American rich voting with their wallets. Some believe it is better red, than broke, and taxed to death.
https://www.afr.com/world/asia/forget-politics-foreign-inves...
Clearly wrong. Specifically consider the velocity of money. If it falls as the supply increases there will be no inflation. It is falling <https://fred.stlouisfed.org/graph/?g=AzYM> (from another comment). Why? Will it continue to fall or will it rise? You don't know and can't figure out.
Also, how much liquidity is required to maximize economic growth -- the "size of the cake"? In recessions (liquidity crunches) growth falls. Would it rise further if we increase liquidity beyond "the usual"? Would it rise enough to wash out the inflationary effect? You don't know and can't figure out.
Your positions and other similar ones depend on the situation being subject to simple reasoning but this is wrong. The interactions are complex and the obvious variables do not provide a clean way of decomposing the system.
However the well established hyperinflation trend is the money supply is increased as the velocity is falling until the point where confidence in the currency collapses. Then the velocity spikes and the value of the currency goes to zero.
So we know exactly where we are. We are currently in the deflationary period that precedes all hyperinflation. And we know it will be hyperinflationary because of the amount of money being printed and the lack of economic growth.
If the money supply had increased 5% in the past year then I wouldn't say we're about to have hyperinflation. But the M0 money supply increased from 3T to 5T in about a year. No system, no matter what it is can sustain that level of growth. All exponential growth is short lived.
It's bad because making everyone a millionaire by decree, or printing more units of currency is necessarily the same thing as devaluing the currency. Such that the population as a whole has exactly the same amount of buying power, and now each unit of currency is worth much less.
The inflation of the M0 money supply, base money, WILL lead to an increase in consumer prices for everything including essentials like food. The only reason people can try to convince themselves otherwise is because of the time lag between when the money is printed and when it shows up in consumer prices. So when the government quadruples the base money supply and the price of a loaf of bread doesn't quadruple in price, people start to think this inflation is no big deal. Well just wait. That loaf of bread will more than quadruple in price. And it will happen all of a sudden.
The majority of the printed money is going into assets like equities. These have increased massively in value, despite the fact that revenues have not increased that much, or have even decreased. This is a bubble and it will collapse. When that happens, then you will see all those printed dollars. Investors will rapidly divest themselves of their shares and will be putting those dollars into others assets that are seen as much safer investments like commodities including food.
By this point governments have no ability to reverse course, in fact they are committed to exacerbating the situation. Printing money is necessary to plug the deficit of government spending. You could turn off the money supply but it will mean devastating cuts to government spending. So they won't do it. Instead they will start implementing wide-scale, all pervasive capital controls in an effort stop people divesting themselves of the rapidly weakening dollar. This is an economic straight jacket and will shrink the economy further, massively stunting tax revenues, in turn reducing government spending, in turn shrinking the economy further.
Calls to 'tax the wealthy' will be eventually implemented, but there isn't anywhere near enough wealth there to tax to cover the effects of a money supply that has grown exponentially. Regardless new tax bills will be introduced. The very wealthy will have already moved their wealth into non taxable assets, domestic and overseas. (This is already happening). The law makers know this, yet regardless this taxation burden will fall squarely on the rapidly diminishing middle classes and ballooning lower classes. You can read the above again to see exactly how printing money is a highly effective tax in it's own right and it did not require any legislation to write.
At this point the world is caught in an economic death spiral and it won't recover until the currency has completely bottomed out and begins again with a new currency and confidence slowly returns. There is no telling how much long term economic damage will have been done by this point.
There is no magic or mystery here. This is not complicated. It is not new, unknown and to be determined. This will be a carbon copy repeat of exactly the same follies experienced by numerous economies in recent history. The only open question is, much like a coming earthquake, when? The answer unfortunately is very soon.