The increase in the money supply caused by these massive infrastructure spending bills will inflate the money supply and cause inflation to go up.
The total money supply hasn't been a factor in inflation since WWII. It is caused by supply chain and production costs and problems. Governments often create money to produce velocity necessary to enable the people to purchase goods that have risen in price due to scarcity, but that is almost always a "following" factor in response to the real cause of inflation.
Some are calling for an immediate rise in interest rates to bring some sanity back to the system. The sad fact is the USA can not afford to pay it’s debt bills if they do raise interest rates much.
Higher rates, especially on short term instruments, only put more reserves in the system when they mature. They also exacerbate income inequality, which is at historically dangerous levels already, and destroy jobs as businesses have to pay more to borrow. Only taxation destroys reserves permanently, so if you feel the money supply is the problem you should advocate for higher taxation on those holding the bulk of money.
Also, the US can "ALWAYS" pay any obligation denominated in the dollars it can create at will and that it has an infinite supply of. Your thinking became obsolete in '34 domestically and in '71 in international trade, along with the gold standard.
THE VELOCITY OF MONEY REMAINS STUCK AT ALL TIME LOWS: This means the economy is basically stalled and not running well while prices are going up due to supply chain issues.
At least you got this right, but probably not in the way you think. As the American consumer has to tighten his/her belt velocity slows because it is always upward in a capitalist economy. When consumers slow down their consumption, regardless of the reason, investors clamp down on their spending as well, moving it into safe parking until velocity picks up again.
Our divided government has all but abandoned any serious fiscal policy that would inject money at the bottom of the chain, effectively cutting the middle class in half and flatlining economic mobility by cutting much needed spending on infrastructure, safety nets, and education.
Your advice to anyone who "can" horde some spare cash is probably good, but that is a much smaller segment of the population since we were convinced/conned into trickle down. The vast majority of the people are just praying their car they use to get to work doesn't require a repair of more than a couple hundred dollars as that would end any hope of avoiding personal economic collapse.
The remedy will be more stimulus, more money printing to stimulate the failing economy, and inflation will skyrocket as jobs evaporate.
It is more than simply "printing" (not how it works) money, but you may be right that it will be too little too late. The time to "invest" in our supply chain problems was long ago when we took the risky path of privatization of everything possible in our economy and our federal government abandoned our future in neoliberalism.
It isn't the fault of foreign suppliers that we don't have a reliable supply chain. The stuff they sold us is sitting just offshore waiting to be distributed. It is the fault of our government which decided to let capitalists make critical decisions about our system based purely upon shareholder profits and made no allowance for any hiccups.
The nation that used its power of the purse to create the most massive military in history almost overnight now can't produce the trailers to move goods away from clogged up ports. "Just in time" inventory may have done wonders for shareholder equity, but it has no slack capacity that could now be restocking shelves.
This appears to be a controlled demolition of the global economy that is underway globally.
We agree here. The trend seems to be "destroy government's ability to function and then point to its dysfunction to motivate more cutbacks and create more distrust of government". This cycle has been in play in the US since '80 and it was immensely successful for business that sought to destroy government's ability to regulate. It is hardly any surprise that the trend would catch hold in other capitalist economies.
GOVERNMENTS ARE RAISING TAXES: This is being done to pay for all those handouts that were required by the forced government lockdowns that prevented everyone from working. So first the governments caused the shortfall and now they are taxing the masses to make them pay for it!
The only reason for this is the grand lie perpetuated since the '70s that our taxes fund our government and any shortfall must be "borrowed" from those who have money to lend. As long as there is slack productivity in an economy spending in deficit won't cause inflation, which is the only real constraint on spending of a sovereign fiat currency.
Government providing for its citizens is hardly a "handout". It is the "PURPOSE" of any government that doesn't view its citizens as only cogs or consumers. Also, most tax proposals I have seen aren't aimed at "the masses", but a very elite group of high earners that our system has generated for over 50 yrs without really demanding anything of them. It is only appropriate that, after being told that money grows on rich people for decades, the people look to them when their government (falsely) believes it needs "funding".
US DEBT IS ACCELERATING UPWARD AND CAN’T BE PAID BACK:
Of course it can't be paid back, and you should hope we don't make any real effort toward such a foolish goal. The deficit spending (red ink) of our federal government is the only net source of US dollars (black ink) the private sector has. It is our "net" money supply and savings from our commerce with our government.
Those dollars created by deficit spending in the private sector are necessary to fund economic and population growth as well as are the only way to net retire private bank debt. All of that disappears should the debt ever be "paid", and becomes much more difficult as politicians get close to "balancing" the national budget. The last seven times they succeeded in even getting close resulted in almost immediate recessions or depressions.
Treasury debt/bonds are not necessary to "fund" spending and only offer incentive for thrift and a tool to influence lending and rates, but the word "debt" is widely viewed as negative and that has been misused in creating the illusion that the people "fund" their government with their taxes and lending. This gives rise to scrutiny and mistrust of the government that is the bane of capitalism because of its ability to tax and regulate.
THE BUFFET INDICATOR SHOWS MARKETS ARE 75%+ OVERVALUED RIGHT NOW AND POISED FOR A DROP:
This is likely true. The overvalued markets are an indication that investors don't believe that their standard productive investments in consumer demand will hold up. To keep up with the insatiable quest for profits, largely driven by CEO bonuses and shareholder demands, Wall St is devouring itself.
Right now his indicator is flashing RED and of course the reason it’s RED is due to all the $120 Billion of monthly bond buying the US Fed has been doing for the past year plus due to the pandemic.
The pandemic is not responsible for this. It is my fear that the casino type investment in derivatives and mortgage bonds never really stopped and the Fed is simply getting ahead of them by using its shared balance sheet with Treasury to absorb losses so we don't see a repeat of '08. Knowing that those losses will be socialized only emboldens the players into making higher risk gambles.
This will, of course, continue to drive the real estate markets and harm consumers when it eventually unravels. Perhaps the next time will convince the people that only common sense regulation of banking and Wall St will give us a stable economy going forward, if the economy survives next time.
Has anyone thought about how the Fed is BUYING but never SELLING anything? This means the Fed will eventually OWN EVERYTHING!
This is utter nonsense. The Fed is simply the clearing bank of Treasury. When it "buys" bonds it does nothing more than convert them to liquid reserves deposited to the bond owner's account where they originated to purchase bonds. It is this glut of liquidity that is currently driving much of the investments causing inflated prices in select markets, so no, I'm not a fan either.
However, my concern is with the quality of the bonds, not the process which creates no net money which is fundamentally unchanged. The Fed cannot purchase bonds except on the secondary market, so the net is zero sum as all liquidity swaps are.
What form of government exists when the government owns everything and the average persons owns nothing, but is happy?
There is nothing to own, as the combined balance sheet with Treasury and the Fed simply erases any gains made by applying them to the debt, where the currency/reserves meet their maker, literally. The money came from thin air and it returns to thin air as soon as it enters the government sector. The government holds debt and the private sector holds reserves and they always balance.
All the menial jobs will be replaced by robots in 2022 and the world will be full of unemployed people.
Great! Perhaps our government will finally dislodge itself from the ba!!sacks of the donor class and begin to comply with its mandate to coin the currency for the "general welfare" and find a way to pay the unemployed sufficiently to purchase the goods made elsewhere or by robotics. It makes little difference where the money is obtained as long as goods and services are available to absorb the money deployed in the economy.
My preference would be for a federal job guarantee that would pay workers, at their discretion, for public service work in communities. However, given our propensity to try all stupid things before getting around to anything smart, we will likely attempt a UBI of some sort first so we avoid setting a real minimum wage/benefit floor and simply shovel federal money to the already wealthy using the workers as the medium.
