Fed announces $300 billion "quantitative easing"

If I'm earning 20% less money, but food prices have not been allowed to drop 20%, that is going to cause me some anxiety.

You don't understand how it is a terrible thing to stop deflation that is in response to falling wage levels?

 

Everyone notice how there are so many here on the Left who WANT inflation.

Neo-liberals included.

 

How much more likely are you to be earning 20% less money if the money supply has decreased 20% than if it has increased 20%, hmmmmmmmmmmmmmmmm?

How much more will wage levels fall if the money supply decreases too, hmmmmmmmm?

 

<sigh> Deflation causes and worsens downturns. Hello?

Not if you understand their mutual interest in having more money in circulation.

Destroying the economy. Right.

 

Proving you have completely misread the situation we are in. Listen carefully.

The economy does not need "stimulating" when workers have been ordered to stay at home, with no wage income. (duh).

But workers still DO need access to food in supermarkets, ability to pay rents utilities etc.

The only way this situation is sustainable - while the pandemic forces a lock-down of the non-essential economy, is for the currency-issuer to change the digits in the bank accounts of laid-off workers.

NOW can you see the sheer idiocy of that assertion? We don't want "stimulation", we want to maintain a much-reduced economy on 'life-support'.

Dear god........the problem is laid off workers, many of whom already live in a state of chronic financial insecurity from pay check to pay check in our obsolete and evil neoliberal system, now don't even have access to a wage in this pandemic.

The problem most certainly IS "lack of money" for the laid-off workers.

How hard is that to understand? I hope you can accept your initial confusion re "stimulation" has led to your completely irrational concerns about inflation, at this time.

Stephanie Kelton has just released her new book "The Debt and Deficit Myth".

Required reading for anyone commenting on this topic; and by the way, the Federal government doesn't need to borrow ONE CENT, during this period in which it must maintain the economy in induced 'hibernation', in order to avoid a national health catastrophe, whether by starvation of the population deprived of a wage income, or by infection with covid-19.

 

You have to be insane to think that.

 

What has been deflating?

 

The amount of money in this situation we are discussing has not actually decreased. Deflation can be caused by other factors beside the money supply going down, in this case lower wages.

What we are talking about is to allow deflation to happen, naturally on its own, rather than use (monetary) inflation as a weapon to prevent the deflation (even if no overall inflation takes place because the two cancel each other out).

Then you make the ridiculous point that if there was 20% more money in the money supply, wages would end up being 20% higher. In nominal unit terms, perhaps, but not in purchasing power. This should be obvious! (e.g. Having twice as many dollars will do you no good if those dollars are each worth half as much)

 

His argument is that we should prevent the risk of deflation in the economy at all costs. And this involves the Central Bank pumping out more new money.
That's his solution to the problem.

Even if there is not deflation actually happening, he was pointing out that there could likely be deflation if the Central Bank was not having more money printed.

I get frustrated when I have to explain this to people like you, because everything I just stated should have been obvious (I feel).
Well, I hope that helps you catch up and understand what we are arguing about.

I didn't say they want lots and lots of inflation, I just said they want some inflation. And they really really don't want any deflation, even small amounts.

There's nothing insane about my statement. If you don't believe me, just ask them here. Ask them what they think is good for the economy.

 

Lower wages don't just happen spontaneously.

Deflation is always dangerous, and is more dangerous the more debt there is in the economy.

I said no such thing.

But it's better than NOT having twice as many dollars.

 

No they don't. What is your point?

Why would a small amount of deflation be dangerous?
You don't think a small amount of inflation is dangerous.

That seemed to be what you were implying. If that was not, what was your point saying that?

 

Without knowing why wages are falling, it is not possible to diagnose the monetary situation.

As already explained: positive feedback.

A small amount of inflation stimulates the economy, as people try to spend money before it loses value. A small amount of deflation damages the economy, as people refrain from spending money because it will be worth more later. I have explained this to you before.

If someone needs money, it's better for them if there is more money around rather than less money.

 

And what good is that if you are out of work without any compensation whatsoever?

Deflation typically comes with insurmountable employment loss. Which is the US is a real misery, because unlike Europe loss-of-employment does not bring with it social-support mechanisms. Meaning spending-money. Which also means life-goes-on, but not as well as before.

And, at the very least, one does not find themselves without a roof over their heads ...

Have you forgot already the Great Recession of 2008 in the US? It was so strong it even affected Europe ...

 

That statement makes the assumption that inflation is somehow connected to reducing unemployment.

I think that's a pretty tenuous connection, being that the vast majority of purchasing power from newly issued money does not go to the unemployed.

(And besides that, you don't really need inflation to come up with the money, allocating money from tax revenues would work even better)

Do you care to explain the connection between inflation and unemployment?
Because maybe I am totally not getting the point of your statement.

 

But why should it?
Excessive inflation also typically brings employment loss.

Yes, deflation often occurs along with unemployment going up, but which is the cause?
I would think that it is rising unemployment that contributes to deflation (or deflationary pressure, perhaps we should say to be more precise), and that is the explanation for the correlation, not the other way around.

 

Because people like you naively think that when unemployment is massive that the country authorities should employ some sort of miracle!

There IS NO MIRACLE. There is only what is called the Time Factor. Ultimately, Demand reasserts itself. It's human nature.

Not some manipulation of the money-supply ... !

 

I'm not the one arguing so strongly in favor of action by a Central Bank, in fact I'm mostly arguing against it.

I'm not sure if I can tell exactly what you're saying, but I think you're either being hypocritical, have me mixed up with another member here, or have misunderstood what I have been trying to say.

If it at any time I seemed to agree with another member here about action by the Central Bank, it was mostly conceding a particular point while overall disagreeing with them. The whole point in starting this topic was to argue that the $300 billion quantitative easing from the Central Bank was a bad idea.

 

THE RIGHT CONDITIONS

What caused the Great Recession in 2008?

• Housing prices increased, then fell, due to the subprime mortgage crisis. ...
• Banks went into crisis. ...
• The stock market plummeted, erasing wealth leading to government actions such as:
• Troubled Assets Relief Program (TARP) offered assistance, and
• The American Recovery and Reinvestment Act (ARRA) that fueled growth and,
• Ended the recession, but not enough to rebuild growth because the Replicants would not pass any more Stimulus Spending bills.
• And whyzzat? Because they sought to destroy Obama's chances at reelection in 2012
• (And America's workers paid-the-price of that interference for four more long years of reduced employment levels.)

Yes,I agree with the blue above. But what causes rising unemployment? Lack of Demand. And whyzzat?

Something at the time (2008/9) called the sub-prime mortgage crisis brought about by mortgage lenders that expanded willy-nilly the meaning of credit-worthy borrowers. Thus extending mortgages to buyers with poor credit histories who were not acceptable borrowers. The market for house-loans went berserk. And markets in general started to plummet as consumers feared the worst and pulled out their investments. But people could not resell the properties they had bought at superb prices!

All of this causing a mental-disjunction in Consumer Demand that happens easily enough (as history teaches us) given the right conditions.

Bingo! Unemployment skyrockets ... !

 

Okay, so then the question is does expanding the money supply actually increase demand?
And I think the answer is no. I've discussed this in other threads.

(this one in particular: Can government print more money without causing inflation? )

 

ECONOMIC CESSPIT

It all depends. The Money Supply is an old and highly discussable topic in economics. The number of doctorates in the matter is amazing.

I have never found the subject very interesting. Different national economic contexts derive different consequences when the MS is either too tight or too free. And, as such, everyone has a different opinion at any given time. And the MS is ALWAYS contextual - the context being "Demand".

Obama proved that when the shat-hit-the-fan in 2008, and he implemented a massive government expenditure plan (expanding the money-supply) to stop the erosion in employment. But not much else because it took another 4 to 5 years to come back up to more-or-less "fuller employment". But not the historic high.

Once again, I submit for inspection the E-to-p historic graphic from the BLS. The graphic says this:
*December 2006 at 63.4%
*November 2009 at 58.6 (bottom)
*February 2014 start of bottom climb-out (four long years later!)
*February 2020 high-point of 61.2%
*Today May 2020 at 52.8% (OK, OK - that's due to Covid-19)

But even before Covid, the rate was 61.2 and nowhere near the historic high-point December 2006 rate of 63.4% ... !

Yes, and no - but I frankly do not care. Each situation is specific to a time and the extant economic context within the country.

There is no One Really & Truly Honest Answer in "all cases" because "all cases" can be a highly variable economic-cesspit. Well worth a doctoral-dissertation but alas not much more.

Methinks ...

 

M r a ...

 

We are in uncharted waters. One thing is 100%... the USA Fiat dollar will crash and be wiped from existence. When is the question. I was surprised to hear Alasdair McCloud call for the end of this year. I think he is under the impression it is being implemented by The world.

Anyeay you look at it, over priced stocks, poor work force, poor pay and benefits, the vast $$$$ at the top owned by so few. Something will change, as long as the Media is in on it, nothing will change without huge problems.

Just watch CNBC and how they are basically feeding the market, the high traders get from seeing green each day while making so little money. Only the RICH really make big money.

 

Yes, well, you are wrong. The historical data are crystal clear: up to a quite generous limit, issuing money increases production.

 

Well that is a different debate, and one we have already discussed specifically and extensively in other threads.

No doubt it's too complicated of a thing to derail this thread with here. Let's not go down that road here. It's a subject unto itself, which deserves its own dedicated discussion in its own thread.

 

It's already been pointed out to you that expanding the money supply might be the correct policy in some circumstances.

As to the Fed borrowing trillions to prop up zombie companies, hedge funds, and Wall St that has no relation to the real economy, that's the madness of US neoliberalism - supporting the top, while workers' wages stagnate.

But YOUR solution to the present situation ie withdrawal of all Fed support, would certainly have dramatic results:
the entire US financial ponzi scheme, which survived the GFC, would totally collapse, bringing in the greatest depression ever in the US.

Then we would see the superiority of the state-funded Chinese economic system.

https://ellenbrown.com/2019/06/14/the-american-dream-is-alive-and-well-in-china/