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USA and Economic Nuclear Option - 4%


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2 hours ago, warpig said:

The FED's balance sheet has already ballooned from $4 trillion in mid-March to roughly $7 trillion. Where's the inflation?

It is subject to the velocity equation of money:

MV=PY

https://staffwww.fullcoll.edu/fchan/macro/4equation_of_exchange.htm

Where:

 M = the money supply, usually the M1

 V = the velocity of money

 P = the price level

 Y = real output, or real GDP.

When prices stay stable following a massive printing exercise (which increases M) that is the case because the Velocity of circulation (V) has dropped, i.e, the frequency with which money moves through the economy (think of a Tenner being earned, spent, which means someone else earns, spent again, earned and so on) drops. When it drops, the same tenner gets spent fewer times.

If the combined value of MV (i.e M x V) actually fell, then the vale of P x Y would need to fall - so either prices would drop, or nation income (think GDP) would drop. So printing is designed to stop this.

The inflationary problems then arise once confidence returns and the Velocity of money (frequency the Tenner is spent) picks up. The term MV rises, and so term PY also rises. If just Y, national  income, rises that is considered good. But more often than not, it is a  combination of both - ie rising national income plus inflation. Of course, if national income  is flat,  then rising V without a reduction in the money supply would cause straight inflation.

 

 

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3 hours ago, warpig said:

The FED's balance sheet has already ballooned from $4 trillion in mid-March to roughly $7 trillion. Where's the inflation?

This could be Pandora's box, and if it's opened there is no putting it back in. 10 trillion could very well shatter confidence in the dollar. It is not going too well lately for the dollar. And I feel it will tie the Fed's ability to extend further their QE.

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2 hours ago, Mikhail Liebenstein said:

It is subject to the velocity equation of money:

MV=PY

https://staffwww.fullcoll.edu/fchan/macro/4equation_of_exchange.htm

Where:

 M = the money supply, usually the M1

 V = the velocity of money

 P = the price level

 Y = real output, or real GDP.

When prices stay stable following a massive printing exercise (which increases M) that is the case because the Velocity of circulation (V) has dropped, i.e, the frequency with which money moves through the economy (think of a Tenner being earned, spent, which means someone else earns, spent again, earned and so on) drops. When it drops, the same tenner gets spent fewer times.

If the combined value of MV (i.e M x V) actually fell, then the vale of P x Y would need to fall - so either prices would drop, or nation income (think GDP) would drop. So printing is designed to stop this.

The inflationary problems then arise once confidence returns and the Velocity of money (frequency the Tenner is spent) picks up. The term MV rises, and so term PY also rises. If just Y, national  income, rises that is considered good. But more often than not, it is a  combination of both - ie rising national income plus inflation. Of course, if national income  is flat,  then rising V without a reduction in the money supply would cause straight inflation.

 

 

Seeing as printed money ends up in assets where does the velocity come from ? 

Assets are producing no velocity unless sold and spent or rented to produce income rent velocity is far less that the parked potential velocity locked away in assets.

If anything velocity has dropped over the last 2 decades. Fag packet thinking mind 

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3 hours ago, Mikhail Liebenstein said:

It is subject to the velocity equation of money:

The problem is the US exports its inflation around the world because it's the world's reserve currency. So whilst that privilege remains in place, they can get away with it. The dollar is considered a store of value (best horse in the glue factory) and so for some of those dollars the velocity = 0. It makes me wonder how many dollars they'll print to stave off deflation... 10... 20... 30 trillion?

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2 hours ago, Freki said:

This could be Pandora's box, and if it's opened there is no putting it back in. 10 trillion could very well shatter confidence in the dollar. It is not going too well lately for the dollar. And I feel it will tie the Fed's ability to extend further their QE.

By the nature of compound interest, printing ever increasing amounts of money, with diminishing marginal value was always going to be the ultimate outcome. There is definitely no putting it back in... but this all started back in 1971 not 2007. The dollar will lose its reserve status... but not for quite a while yet.

Edited by warpig
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7 hours ago, longgone said:

Seeing as printed money ends up in assets where does the velocity come from ? 

Assets are producing no velocity unless sold and spent or rented to produce income rent velocity is far less that the parked potential velocity locked away in assets.

If anything velocity has dropped over the last 2 decades. Fag packet thinking mind 

You miss the point.

When someone buys an asset, the money ends up somewhere. Either to be spent on more assets/invested or just spent. On the way through though it could also help create debt.

The only exception might be taking cash and sticking it in the ground. If you put it into a savings account the bank will lend it out.

 

Edited by Mikhail Liebenstein
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29 minutes ago, Mikhail Liebenstein said:

You miss the point.

When someone buys an asset, the money ends up somewhere. Either to be spent on more assets/invested or just spent. On the way through though it could also help create debt.

The only exception might be taking cash and sticking it in the ground. If you put it into a savings account the bank will lend it out.

 

Indeed - and of course they are allowed to hypothecate the deposit by some ridiculous multiple to the loanee. (I.e your 10k savings can now represent a 100k loan iirc).

I approve of your portfolio 👍 Hope it includes a little in some extra cryptographic/pm punts too. 

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35 minutes ago, Frugal Git said:

Indeed - and of course they are allowed to hypothecate the deposit by some ridiculous multiple to the loanee. (I.e your 10k savings can now represent a 100k loan iirc).

I approve of your portfolio 👍 Hope it includes a little in some extra cryptographic/pm punts too. 

Indeed it does. Not huge sums, mainly XRP, BTC, ETH and CHSB. Took profits (and losses) on some of the small cap Cryptos and I have now consolidated into the main 3, plus SwissBorg (CHSB) which was one of the ICOs that is genuinely building a business. I did well with on a couple of the masternode coins by running masternodes bought on a dip, and then took profit as they generally seem to follow a path and eventually get diluted.
 

Got blown out by Bitcoin Private and AML Bitcoin which seemed to have scammy aspects to them - still hold the worthless coins/Tokens, but little damage done as they were only small punts. I have also got 500K of SwiftDemand Tokens, they were are all given away free as Basic Income, but that project still needs to build a blockchain.

 

 

Edited by Mikhail Liebenstein
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50 minutes ago, winkie said:

M1 money in UK is notes and coin....

https://moneyterms.co.uk/m1/

 

Or is that M0? https://en.m.wikipedia.org/wiki/Money_supply
 

I think the distinction is fairly fine, M0 being cash + bank reserves, M1 being cash + bank reserves + overnight deposits 

 

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8 hours ago, warpig said:

 

The problem is the US exports its inflation around the world because it's the world's reserve currency. So whilst that privilege remains in place, they can get away with it. The dollar is considered a store of value (best horse in the glue factory) and so for some of those dollars the velocity = 0. It makes me wonder how many dollars they'll print to stave off deflation... 10... 20... 30 trillion?

My issue with your reasoning is you see this in a fairly linear term when at the end of the road it is exponential. Where is the end of the road, nobody knows but there isn't unlimited confidence in the dollar. If suddenly the US wanted to print 1,000T USD, I doubt the world would absorb it and accept it as tender. 

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9 hours ago, warpig said:

 

The problem is the US exports its inflation around the world because it's the world's reserve currency. So whilst that privilege remains in place, they can get away with it. The dollar is considered a store of value (best horse in the glue factory) and so for some of those dollars the velocity = 0. It makes me wonder how many dollars they'll print to stave off deflation... 10... 20... 30 trillion?

Less a problem, more a functional necessity. How else is the global economy to grow if the stock of money in circulation doesn't also increase? Conflict arises when the sovereign currency issuer is too small relative to the rest of the world to fulfil its role as lender of last resort necessitating huge current account/trade account deficits relative to the size of its domestic economy. Corporate America managed to overcome this constraint, first encountered in the 1980s, by exporting its manufacturing base to the Far East and by supplementing domestic demand with debt, to the detriment of mainstream US living standards.

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2 hours ago, Mikhail Liebenstein said:

You miss the point.

When someone buys an asset, the money ends up somewhere. Either to be spent on more assets/invested or just spent. On the way through though it could also help create debt.

The only exception might be taking cash and sticking it in the ground. If you put it into a savings account the bank will lend it out.

 

indeed money whizzes about but every article seems to suggest velocity is slowing, why would it rise in a recession that`s coming too 

all the printed money has only benefited those with shares and homes. 

maybe they need to fire up the super printer and just print 100 trillion a day as it seems all other charts are meaningless as any wobbly bits the same process is continued over and over. 

https://stockhead.com.au/news/think-big-the-velocity-of-money-and-how-the-us-economy-has-put-the-brakes-on/

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4 hours ago, Freki said:

My issue with your reasoning is you see this in a fairly linear term when at the end of the road it is exponential. Where is the end of the road, nobody knows but there isn't unlimited confidence in the dollar. If suddenly the US wanted to print 1,000T USD, I doubt the world would absorb it and accept it as tender. 

It's most certainly exponential and it's guaranteed the dollar will be dethroned as the reserve currency towards the end of this business cycle... in about 8 years is my best guess.

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3 hours ago, zugzwang said:

Less a problem, more a functional necessity. How else is the global economy to grow if the stock of money in circulation doesn't also increase? Conflict arises when the sovereign currency issuer is too small relative to the rest of the world to fulfil its role as lender of last resort necessitating huge current account/trade account deficits relative to the size of its domestic economy. Corporate America managed to overcome this constraint, first encountered in the 1980s, by exporting its manufacturing base to the Far East and by supplementing domestic demand with debt, to the detriment of mainstream US living standards.

I wouldn't disagree with any of that.

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