Come to think of it - if the things that are predominantly bought by the 1% are devalued by 25% due to stimulus increasing the supply of money, but the things that are bought by everyone are not becoming much more expensive, isn't that empirical proof that trickle down economics doesn't work?
Consumer prices don't change as fast. It will be interesting to see if commodity prices go down, or how much of the increase is passed on to consumers.
In the US - 41% of electricity generation is mostly debt-financed - Nuclear and renewables - which is cheaper because of the Fed setting the price of debt. Another 40% is natural gas, which is also getting cheaper because its production is largely financed with debt - which is also set by the Fed.
So the price of electricity & housing is largely price fixed by The Fed. I would expect inflation there to stay "stubbornly low" indefinitely.
On your first statement, it's less that the dollar is not losing value, and more that scarce items are gaining value compared to non-scarce things. So your Netflix subscription is staying the same, but the house near the coast has doubled. Inflation is never the same across the board. All it means is that a smaller group of people are laying claim to the scarcest items, and they are crowding out the hopes of an increasing number of people to one day be able to afford those scarce items.
If the securities don't sell for much more than it was bought, accounting for fractional reserve banking, the money supply increase is effectively permanent.
So if we take in the permanence of the increased money supply, can we really say we are still in a bubble if the value of the dollar against securities is simply lower?
Measuring cpi is also incredibly complicated. I was shocked it's been so low forever considering over 50% of the index is housing, healthcare and education, three products for which we've seen high price growth for decades. So the official number may be "managed" especially considering that trillions in pensions and social security cost depends on it's reporting.
But the money supply grew so fast, i don't think any massaging of the data will be able to hide it indefinitely
There's no political will for things like higher interest rates or reduced spending, among either political party. The new generation has never seen mortgage rates in double digits
I see future price controls and other draconian measures to try to deal with the fallout. Example is gas lines in 1970s. It'll eventually hurt the real economy as artificial scarcity from price controls hurts business.
Only thing is somewhat certain about is something will happen. This seems insane that a unit of account can just grow 25% in one year with no signs of stopping with no consequences
I mean, barring massive inflation, a double-digit mortgage rate would put so many home owners in default that it would make the global financial crisis of 2008 look like a birthday party for small children.
The "something will happen" part I agree with. I think we will need to come to terms with the fact that our world has crossed the inflection point on the S-curve that all growing populations are confined to. And that will mean dismantling current financial mechanisms such as "interest rates".
I'm dead serious - I don't know how the financial system will look like in 2100, but I'm convinced that "interest rates" as we know and use them today will be something taught only in "history of economics" class.
In May 2019, adjustable rate mortgage applications were only 6.2%:
https://www.mba.org/2019-press-releases/may/mortgage-applica...
Not necessarily. The percentage of new mortgages that are ARMs (adjustable rate) is very low.
> ARMs accounted for just 2.6 percent of mortgage applications in recent weeks and fell to 2.2 percent this week, according to the Mortgage Bankers Association.
Not sure about existing supply but I think it would be single digits as well. And most ARMs are longer (e.g. 7-1 or 10-1) meaning the floating rate portion doesn't kick in until 7 or 10 years in (respectively). Mortgage rates have been low so long I imagine most people with older arms refinanced long ago or built up enough equity where they'll be able to refinance at higher rates if they had to.
So existing mortgage holders wouldn't be hit with higher costs. However the valuation of their home would likely tank making a lot of mortgages effectively underwater (you owe more than the asset is worth). You will see a lot of people do strategic defaults or try to re-negotiate their balance. If I owe 500k on a home worth 450k, I might be fine with it, but if the home was only worth $250k, I would definitely consider a "strategic default", walk away from my mortgage, take a hit on my credit and buy essentially the same home at half the price. But lenders aren't stupid more realistically they'd negotiate down my balance and there would be federal programs to encourage refinancing.
https://www.bankrate.com/mortgages/arms-disappear-from-mortg...
Worth noting that not everyplace is California (although half of HN may live in CA, I donno).
There are 12 non-recourse states in the US: Alaska, Arizona, California, Connecticut, Hawaii Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington.
Outside of those states, you couldn't necessarily just walk away.
The equation of exchange is MV=PQ, not M=PQ. The velocity of money (V) is falling right now as the money supply (M) is growing, that’s why increasing the money supply hasn’t had consequences (yet).
I don't know enough to estimate the likelihood of that happening but it seems like the obvious danger.
They also printed money to buy billions $ worth of corporate bonds like General Electric Ford, GM, AT&T, etc: https://www.google.com/search?q=%22federal+reserve%22+buys+c...
Example list: https://www.investopedia.com/the-fed-s-corporate-bond-portfo...
https://www.cnbc.com/2020/12/16/fed-decision-december-2020-f...