No it hasn't.
Real GDP:
Q4 2019 19.20 Trillion
Q2 2022 19.69 Trillion
> It doesn't appear that the Fed needs to wind down much, if any, of that liquidity at all, since it seems it's been absorbed perfectly by the global economy.
This comment is extremely misleading. For starters, I don't know how you can say that. It's obvious it wasn't absorbed perfectly because we experienced bubbles in many markets. And those bubbles have caused harm to large groups of people. For example; crypto, equities, housing, etc.
Let's just dive into housing. We have a system that has disproportionately enriched incumbent homeowners at the expense of new entrants. 2 years ago: 30-yr mortgage rate was 2.87% & median existing home price in the US was $310k. Today: 30-yr mortgage rate is 6.02% & median home price is $390k. Increase in monthly payments from $1,029 to $1,872. This is regressive and has exacerbated inequality. The magnitude of this will be lasting. Real wages have not kept pace.
I also suspect the fed will reverse course but that's because the American (and the rest of the American led global) system now expect it. Our markets are dysfunctional and depend on this centralized control. It would take too much time and pain to return markets to their natural pricing.
Natural pricing simply means whatever the market was prior to COVID , with all its imperfection, including the central banks' 2% inflation target
The OP's point was the inflation being experienced today isn't primarily due to monetary policy issues but actual supply contraction and the Fed's response of using monetary policy to resolve a supply issue is having several negative consequences, such as making the housing crisis worse as you point out.
So that's why we're getting 8-9% inflation rates? Because of the perfect absorption?
So parent seems right refuting this claim:
> since it seems it's been absorbed perfectly by the global economy.
Inflation the broad-based change of purchasing power of the dollar by proxy of a basket of goods and services. This is a function of many, many things - cultural norms, commodity prices, labor supply, fiscal policy, supply chain efficiency, interest rates and yes, to a degree, monetary base.
I think you’ll need to do a better job convincing me than that.
Money supply growth is not inflation. Inflation is a broad-based reduction in purchasing power caused by any number of things. By definition.
Here's why. A 50% sales tax would be inflationary without changing the money supply. Conversely, a trillion dollar coin minted and put into a vault wouldn't have any inflationary effect whatsoever because placing it into the vault has a commensurate reduction in velocity.
The idea that 'more money' necessarily immediately means each unit is worth less doesn't stand up to any scrutiny and many counterexamples exist all over the world - and at home. Just look at Japan's monetary base expansion since the 90s [1], while inflation was dead flat zero [2].
Your model is too simplistic which is why it is not generally accepted.
What we’re saying is that everybody knows supply and demand affects money, also.
And if you’d like examples of hyperinflation from over-supply of money, you can just look around.
> It’s complicated, therefore supply doesn’t matter for money, only demand?
I never said supply doesn't matter. Re-read my initial reply. ("... and yes, to a degree, monetary base").
Money in a modern centrally banked economy enters the system on a pull model - not push. Banks don't push money into the system. Borrowers create money when they take out loans and that money obtains its value from the obligation to repay the debt that created it. Once repaid, that money evaporates. Money is always being created and destroyed, which is how interest rates control supply of money through demand of loans. This means supply follows demand so it's harder to devalue due to supply increases as a supply increase inherently follows a demand increase. In ordinary course, when not subject to interventions.
> And if you’d like examples of hyperinflation from over-supply of money, you can just look around.
Hyperinflation isn't what happens when the money supply increases a lot, it's what happens when the population rejects the currency and is usually tied to an exogenous event like a war, corruption, regime change or onerous foreign-denominated debt. Most often a combination - it's a completely different beast. [1] Folks conflate the two because "hyperinflation" sounds like "inflation but more!" - the increase in money supply is a symptom, but it's not the cause. It's effectively an economic and monetary collapse.
I'm not sure you'll be able to actually find an example where oversupply of currency in isolation led to hyperinflation, but if you can find an article demonstrating a causal relationship I'd love to read it.
[1] https://www.businessinsider.com/the-truth-about-hyperinflati...
Not to mention the massive asset price inflation.
The macro-economy is solely for the wealthy and when they need a billion or more to see a return on a billion or more, shrinkflation and price increases go up; hard to make a billion back on long time scales at 2010 prices.
I’m not saying they intentionally operate on that philosophy. I’m saying reliance on data trends means they prioritize responding to data regardless of the externalities to the masses.
Only the rich can afford assets so assets are priced for the rich.
He’s keeping the public out of the way of elites. Banks are raising savings account rates to keep cash stashed. VCs are scaling back. Prices on say, homes will crash, rates will be too high for average people, elites build property management portfolios and expand their rent seeking.
The recent era of spread the wealth has been put on pause while the asset class shores up public agency that was getting away from it by creating too many elites. If everyone is an elite the current elites have no power. That’s the simple game they’re playing, leveraging technical indirection to obfuscate.
Rates should have gone up years ago, but a stubborn fed kept putting it off (and COVID didn't help either). The Fed does not benefit from everyone being poor. And I'm someone who thinks cynically all the time, check my post history, but this is just uninformed.
Claiming I am uninformed because I don’t recite the spoken traditions that even the expert in charge admits to not fully understanding is just regurgitating memes from memory; you don’t come off well informed, but like a skipping record.
They don’t have an incentive to NOT keep people poor either. They don’t really care since they’re going ahead anyway with policy they admit will hurt households; deny it again, please. I need a laugh.
The outcome will be one of making cars and homes harder for poorer people to buy; Powell admitted that today and at every other rate hike. He’s testing “what the market will bear”.
Human biology rules us, not social principles hashed out on paper. See my comment history. The result will be clear; haves will be able to afford buying up assets as prices come down. Have nots will be priced out.
Don’t forget too our Congress refuses to deviate from our social history. The Senate was described by Madison as a firewall to protect the opulent minority from the majority. You can carry on that’s “not how it works” all you want. But “on the ground” the result is clear.
Although a noble cause, the Fed's goal isn't to protect people in developing countries from starving. I don't see why this would impact their decisions at all.
Foreign countries defaulting because of the difference in currency valuations could cause the US economy to go into a recession - which is something the Fed does care about...
Food, beverage and feed: $133 billion. ... Crude oil, fuel and other petroleum products: $109 billion. ... Civilian aircraft and aircraft engines: $99 billion. ... Auto parts, engines and car tires: $86 billion. ... Industrial machines: $57 billion.
You simply cannot say that with any certainty. A rise in price level is always precipitated by too much money chasing too few goods. No one would argue that global energy and wheat prices are a supply side shock, but to say that a stimulus package of unprecedented size injected into a largely healthy economy has no effect on prices is ludicrous.
It doesn't appear that the Fed needs to wind down much, if any, of that liquidity at all, since it seems it's been absorbed perfectly by the global economy.
What we are seeing is the Fed deliberately causing the economy to contract below its capabilities in an attempt to slow down the growth of prices, which is NOT caused by monetary reasons, but since the Fed only has control over monetary levers that's what they're using. Classic case of everything looking like a nail if all you have is a hammer.
If energy prices go back down to more "normal" levels, I suspect the Fed will be forced to inject more money into the system again, to rev up the US economy, and weaken the hyper strong dollar to protect people in developing countries from starving.