2- So if banks have a zero-collateral requirement, then it’s safe to say they don’t need the Fed to print money in order for them to lend more.
They only need more motivation and risk appetite, which they presently lack due to the state of our ailing economy.
3- Rather, the Fed is printing money primarily (though not exclusively) to lend to the US government by purchasing USTs.
The govt, in turn, is slowly injecting this newly printed money into the bloodstream of the economy by giving it directly to individuals and corporations.
3A- This is very impt, as it represents a shift from asset inflation to price inflation via increased fiscal measures financed by the Fed.
While efforts to stoke price inflation in the last 20 odd years have not succeeded, don’t be fooled: money creation is still inflationary.
3B- It’s just that it shows up in different places depending on how the printed money is allocated.
Basically, it can be allocated either to production (i.e. capital, which spurs asset inflation), or consumption (i.e. labor, which spurs price inflation).
5- In addition, I don’t think @coloradotravis is framing the question correctly to get a proper sense of the future of the purchasing power of the dollar.
The question we should be asking is, what would have happened had the Fed not printed these trillions of dollars? ...
6- And I think we can all agree that the entire corporate domino world would have collapsed and taken the whole banking system with it.
It would not have been a pretty sight...
7- Now, do you think the problem has been solved or the collapse averted?
Or, do you think that they just covered up the unsupportable levels of debt by creating more debt, and covered up the unsupportable levels of economic distortions by creating more economic distortions?
8- If you believe the latter, as I do, that not only has the Fed not solved the problem but in fact made it worse, then I must ask:
What will happen the next time the economy crashes, as it inevitably will due to the now greater levels of debt and economic distortions?
9- You guessed it. The next crash will be far greater than the previous (aside: it may involve the implosion of highly levered R-P funds, as explained in pinned tweet).
Then, in response to that, the Fed will have no choice but to print even greater sums to “avoid” the collapse.
10- So now let’s do several iterations of this and imagine what will happen to the purchasing power of our money...
Zimbabwe anyone?
11- Ok, Ok... Fine. Likening the US to Zimbabwe is not really fair, given that nobody cares about the Zimbabwe Dollar except for Zimbabweans (if even them), and the USD has tremendous external demand for its currency.
12- But in relation to the stuff we need to survive & prosper, I don’t see how, esp. after a few more iterations of ‘crash & print’, the dollar’s value could rise from here.
I mean, how can you honestly think this sort of money creation portends anything but further debasement?
Why We’re on the Precipice of Another Bitcoin Mania...
A thread.
Note: it has nothing to do with Bitcoin replacing fiat money anytime soon.
1- We can quibble all day about whether BTC is “the future of money”.
Briefly, I think not, since I fundamentally believe that any money must have “non-monetary use value” in the free market before it becomes money. (Yes, this would disqualify govt-issued paper money too.)
2- But I digress, as debating Bitcoin’s status as “money” is not the aim of this thread.
Rather, the aim here is to persuade you that *institutional buying* of Bitcoin will likely propel the third big Mania at some time in the not-so-distant future.
2- Inflation persists throughout history for a number reasons. One important reason is that the structure of democracy is conducive to it, esp. as people figure out they can ‘vote themselves money’ and the inflation tax becomes a transfer mechanism for public demands.
3- Inflation is also the political path of least resistance, especially when governments around the world are saddled with gargantuan deficits and even larger debt-piles.
Think about it. Much easier to conjure endless trillions from thin air than to default on social security...
1- We’re seeing a massive and unprecedented expansion of the money supply, and at at alarming rates. I don’t care what you think about M2, this sort of growth should not be dismissed.
Longer term, this will shape up to be ‘Project Zimbabwe’, as @hkuppy has coined it.
2- While this sort of monetary inflation first manifests in the capital markets (most noticeably as a boom in stocks), it eventually raises the prices of goods & services too (imperfectly proxied by CPI).
For this to happen, we need higher money velocity, now at an all-time low:
1- The Fed is fighting deflationary forces because nature is trying to collapse unprofitable zombie companies that specialize in capital destruction. Since our monetary system is debt-based, a collapse of zombie companies creates a collapse in the money supply, i.e. deflation.
2- Deflation can feed on itself because it causes asset prices to fall. When asset prices fall, the asset side of companies’ balance sheets fall. But the liabilities side does not. So equities are wiped out.
3- The Fed is deathly frightened of deflation, which they think are falling prices, because they associate that with the Great Depression of the 1930’s. To offset falling prices they print massive amounts of currency and use it to buy everything in sight to lift asset prices.