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qnt | 5 years ago
I take what you say as ‘losing buying power’ to mean that a lower quantity of real goods and services can be purchased for the same amount of currency. There isn’t any evidence that this has happened following the Fed’s QE programmes, despite most mainstream economists freaking out about the same point at the time.
The creation or destruction of dollars has no bearing on the purchasing power of the dollars held by anyone else. It is only when new dollars are used to make purchases in excess of existing supply constraints that you create inflation and erode the purchasing power of the currency. That is not to say it is a useless metric, but you need to look at what is being done with the money rather than just looking at the amount outstanding.
Japan is an interesting example of this with 30 years of history to look at. Money supply has expanded by multiples, while consumer prices have remained constant since the mid 1990s.
I also think this fundamentally misrepresents the mechanical operations taking place when the federal reserve “prints money” (guessing to mean QE). They are simply creating dollars to purchase bonds from the private sector - it is essentially an asset swap. The financial institutions give up their bonds, and gain dollars in return. No new money is injected into the private sector by doing this. The dollars that the banks receive usually just sit in their account at the federal reserve, not doing anything in the real world. Your examples would be more valid if discussing government fiscal stimulus programmes, for example spending $2T on infrastructure, since that is a direct injection of nominal wealth to the private sector.
pdonis|5 years ago
It's not a matter of quantity, it's a matter of which goods and services get bought. Shifting buying power means shifting demand, which means shifting the economic incentives for producing goods and services. In the case of the Fed's QE, which gave printed money to financial institutions to back mortgage and commercial construction loans, the result was to shift production of goods and services into those sectors and out of other sectors. Hence, as I said, McMansions galore and empty commercial real estate all over the US, while at the same time other things that many people need or want are in short supply.
> The creation or destruction of dollars has no bearing on the purchasing power of the dollars held by anyone else.
Yes, it does. See above.
> you need to look at what is being done with the money
Exactly. And when the government plays favorites by printing money and giving it to particular entities, the wrong things get done with the money: too much of things that people don't want or need, not enough things that people do want or need. In short, misallocation of resources, resulting in waste and unnecessary scarcity. The historical evidence for this is massive, going all the way back to at least the Roman Empire.
qnt|5 years ago
Look at US private home starts [1] for example. All the misallocation was done well before QE started, and no-one was building new homes for years following the Fed MBS purchases.
[1] https://fred.stlouisfed.org/series/HOUST
baconandeggs|5 years ago
AAPL in feb ~$320 AAPL today ~$385
TSLA in feb ~$900 TSLA today ~$1500
Inflation is not equal across all sectors of the economy, is a transfer of wealth that disproportionally benefits some.