World may be on cusp of new inflationary era, BIS central bank group says
https://www.reuters.com/business/finance/world-may-be-cusp-n…
I wonder if there is any connection:
80% of all US dollars in existence were printed in the last 22 months (from $4 trillion in January 2020 to $20 trillion in October 2021)
https://www.sofx.com/2021/12/28/80-of-all-us-dollars-in-exis…
World may be on cusp of new inflationary era, BIS central bank group says
That is a major argument for higher taxes.
<80% of all US dollars in existence were printed in the last 22 months (from $4 trillion in January 2020 to $20 trillion in October 2021)>
I always like to double-check assertions like this. I am going to add the federal government deficit. Federal Reserve actions are monetary stimulus (which tends to increase asset prices) while federal government actions are fiscal stimulus (which goes directly to consumers and tends to increase consumer price inflation). M1 is the money supply that can be spent immediately. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts.
Date 1/1/2020 3/30/2022 % increase
Fed total assets (Trillions) $4.17 8.93 114%
Federal Debt (Trillions) $23.22 29.61 27%
M1 (Billions) $3993.6 20,694.2 418%
[https://fred.stlouisfed.org/series/WALCL](https://fred.stlouisfed.org/series/WALCL)
[https://fred.stlouisfed.org/series/GFDEBTN](https://fred.stlouisfed.org/series/GFDEBTN)
[https://fred.stlouisfed.org/series/M1SL](https://fred.stlouisfed.org/series/M1SL)
It looks like the article was referring to M1. The numbers are accurate. They include the most liquid form of money but don't include the immense additional stimulus added by other forms of less liquid money, such as federal debt (held as Treasury bonds which are not included in M1) or Federal Reserve debt (which is held as Treasury and mortgage bonds, also not included in M1).
This tsunami of money is the source of the asset and consumer price inflation we are seeing now.
Wendy
Reformatted for clarity.
<80% of all US dollars in existence were printed in the last 22 months (from $4 trillion in January 2020 to $20 trillion in October 2021)>
I always like to double-check assertions like this. I am going to add the federal government deficit. Federal Reserve actions are monetary stimulus (which tends to increase asset prices) while federal government actions are fiscal stimulus (which goes directly to consumers and tends to increase consumer price inflation).
M1 is the money supply that can be spent immediately. M1 consists of (1) currency outside the U.S. Treasury, Federal Reserve Banks, and the vaults of depository institutions; (2) demand deposits at commercial banks (excluding those amounts held by depository institutions, the U.S. government, and foreign banks and official institutions) less cash items in the process of collection and Federal Reserve float; and (3) other liquid deposits, consisting of OCDs and savings deposits (including money market deposit accounts.
Date 1/1/2020 3/30/2022 % increase
Fed total assets (Trillions) $4.17 8.93 114%
Federal Debt (Trillions) $23.22 29.61 27%
M1 (Billions) $3993.6 20,694.2 418%
https://fred.stlouisfed.org/series/WALCL
https://fred.stlouisfed.org/series/GFDEBTN
https://fred.stlouisfed.org/series/M1SL
It looks like the article was referring to M1. The numbers are accurate. They include the most liquid form of money but don’t include the immense additional stimulus added by other forms of less liquid money, such as federal debt (held as Treasury bonds which are not included in M1) or Federal Reserve debt (which is held as Treasury and mortgage bonds, also not included in M1).
This tsunami of money is the source of the asset and consumer price inflation we are seeing now.
Wendy
It looks like the article was referring to M1. The numbers are accurate. They include the most liquid form of money but don’t include the immense additional stimulus added by other forms of less liquid money, such as federal debt (held as Treasury bonds which are not included in M1) or Federal Reserve debt (which is held as Treasury and mortgage bonds, also not included in M1).
This tsunami of money is the source of the asset and consumer price inflation we are seeing now.
If you look carefully, you will see they changed what is included in M1.
“As of May 2020, the old M1 would have had a value of around $5 trillion. The new M1 has a value of $16 trillion, a substantial increase and a clear break in the time series.”
https://fredblog.stlouisfed.org/2021/05/savings-are-now-more…
PSU
If you look carefully, you will see they changed what is included in M1.
“As of May 2020, the old M1 would have had a value of around $5 trillion. The new M1 has a value of $16 trillion, a substantial increase and a clear break in the time series.”
https://fredblog.stlouisfed.org/2021/05/savings-are-now-more…
Thanks, PSU. It didn’t pass the sniff test, to me, that liquid assets had increased 418% from ~$4 trillion to ~$20.7 trillion in two years. As your link shows, the definition of M1 changed to include savings deposits during that time frame, and comparing like to like the change is more like ~$4 trillion to ~$6.8 trillion. Still a substantial jump, still certainly part of the inflation story, but not a 400% increase.
Thanks for pointing this out, PSUEngineer.
I saw that one of the M1 series had been discontinued and did not use that data. I used the continued M1 data series without realizing that the Fed had changed the parameters in May 2020 but continued using the same chart! That’s ridiculously bad technique which I would never do (and I’m sure that you wouldn’t either).
M1 was $16.2 Trillion in May 2020, using the new technique. It was $20.7 Trillion in Feb. 2022, and increase of 28% in less than 2 years.
This compares with an increase from $3663(May 2018) to $4003 (Jan 2020) or 9.2% during the same period before the change in Fed technique and before the CARES Act helicopter money.
https://fred.stlouisfed.org/series/M1SL
Inflation is complex but there’s no mistaking the impact of sending cash to consumers.
https://data.bls.gov/timeseries/CUUR0000SA0L1E?output_view=p…
The money came in pulses which went into savings but then spent.
https://fred.stlouisfed.org/series/PSAVE
Wendy
Personally, I am shocked to find that the original link supplied by Divitias was inaccurate.
80% of all US dollars in existence were printed in the last 22 months (from $4 trillion in January 2020 to $20 trillion in October 2021)
https://www.sofx.com/2021/12/28/80-of-all-us-dollars-in-exis……
How could that happen using such reliable sources as can be found on the internet - if you just look hard enough. 
Inflation is complex but there’s no mistaking the impact of . . .
+++
+++
CHANGING the composition of the CPI and using this newer slimmed down version “adjust” for inflation is another example of the gubbermint moving the goal posts {again} while the game is still in progress.
https://www.investopedia.com/terms/c/consumerpriceindex.asp#…
srm,
The goal posts needed to be moved. The shopping bag is limited to just the middle classes and not weighted. It gets out of date.
CHANGING the composition of the CPI and using this newer slimmed down version “adjust” for inflation is another example of the gubbermint moving the goal posts {again} while the game is still in progress.
When the goalpost was moved, were historical numbers restated using the new methodology?
The calculation of unemployment data was also changed, iirc in August or September 2020, and historical data was not restated, so the data generated with the new methodology was useless because it could not be compared to previous data.
Steve
I’m amused by the ‘doublespeak’ of Carsten.
Instead of say the interest rates must rise Volcker style he says:
“Most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand,” Carstens said, acknowledging that it could make them unpopular.
Pretty meaningless really - like Powell he is making the right noises while knowing that we cannot do anything effective without the medicine killing the patient.
Keep printing - Zimbabwe here we come!
Pretty meaningless really
It is not meaningless. You are putting your opinions ahead of your comprehension of what was said. Slow down and work through understanding the comments coming out of the FED.
Real interest rates include a percentage for the risks of inflation, a percentage for risk, and a percentage above the FF rate. While interest rates were zero the situation was ridiculous coming into this inflationary period.
The simplest interpretation is that interest rates will normalize. This is much better for savers.
Looking further at the US economy while there may be a shallow recession demand in the economy is the strongest since the 1950s. With the normalization of interest rates inflation may return to very low levels. The FED may actually need to work by 2024 to keep inflation up to the 2% target. Meaning real GDP growth rates can be ultra high.
I was referring to Carstens’ comments which i did go through very carefully and found them pretty meaningless.
The simplest interpretation is that interest rates will normalize. This is much better for savers.
But what does this mean - 5%, 10% or Volcker’s 20%?
Inflation is probably in double figures and rising fast:
Inflation drives UK food price rises as cost of staples such as margarine and tomatoes soars by up to 45%
Numerous basic food products have been subject to enormous price rises over the past year
https://inews.co.uk/news/consumer/inflation-uk-food-price-ri…
Any rise in interest rates will kill the economy stone dead. Governments and central banks have no alternative to not dealing with inflation while making all the right noises about dealing with it.
Inflation is probably in double figures and rising fast:
With central bank tightening in most of the major economies we have more than likely begun down a road of disinflation.
“Most likely, this will require real interest rates to rise above neutral levels for a time in order to moderate demand,” Carstens said, acknowledging that it could make them unpopular.
If the current price gouging, enabled by media promoted “shortage” hysteria, doesn’t “moderate demand”, what makes anyone think higher interest rates will kill demand?
Steve
If the current price gouging, enabled by media promoted “shortage” hysteria, doesn’t “moderate demand”, what makes anyone think higher interest rates will kill demand?
It’s not “media induced.” It actual, you can see it in the futures markets and in the spot price of oil.
Higher interest rates will tamp down consumer purchases, notably of homes, which are huge consumers of raw materials and transportation to developments and buildings. Higher interest rates also tamp down demand for refinancing which is also a big driver in the rehab market. It makes borrowing more expensive for companies, so they borrow less and consume less. Consumers get the message that things are tightening and spend less, and probably drive less. That reduces demand, and that reduces prices. It’s a carom shot, it’s not a direct line to the lower price at the cash register.
2. Higher interest rates will tamp down consumer purchases, notably of homes…
Goofyhoofy,
Perhaps higher interest rates will also reduce the yield spread between the single-family residential carrying costs and rental income for owners like Blackstone, REITs, and hedge funds, which have been major beneficiaries of zero interest rate policies (ZIRP) for the last 14 years.
Starting in 2009 the nation’s starter-home lenders negotiated massive block sales of single family HUD, Fannie Mae and Freddie Mac foreclosed homes to Blackstone, REITs and hedge funds. Thanks to ZIRP, deep-pocketed corporations offered an “easy way out” for the laziness and personal greed of management at the nation’s single-family lenders, banks, and loan servicers. These residential mortgage “finance professionals” were unwilling to invest the time and effort necessary to negotiate with individual and families seeking to buy REO (real estate owned) foreclosed properties in the wake of the subprime crisis.
A $60 Billion Housing Grab by Wall Street
Hundreds of thousands of single-family homes are now in the hands of giant companies — squeezing renters for revenue and putting the American dream even further out of reach.
By 2016, 95 percent of the distressed mortgages on Fannie Mae and Freddie Mac’s books were auctioned off to Wall Street investors without any meaningful stipulations, and private-equity firms had acquired more than 200,000 homes in desirable cities and middle-class suburban neighborhoods, creating a tantalizing new asset class: the single-family-rental home. The companies would make money on rising home values while tenants covered the mortgages… [Emphasis added.]
https://www.nytimes.com/2020/03/04/magazine/wall-street-land…
Once risk-free interest rates are high enough, it will benefit these corporate arbitrageurs to unload some starter home portfolios that have been rental cash cows but for which property taxes and maintenance costs are rising fast with inflation.
If they unload properties at the present peak market for single-family homes, Blackstone and others will reap billions of dollars in capital gains thanks to Fannie’s, Freddie’s, and big banks’ generosity in selling to them at deep discounts a decade ago. So long as they do so before Congress increases the long-term capital gains tax rate, they may have succeeded at timing the market (selling high after buying low).
For well over a decade, the nation has been done a disservice by the very entities whose raison d’etre used to be for the purpose of making housing more affordable for the average American family.
Either the Fed, the Office of the Comptroller of the Currency, or Congress could easily have imposed regulations and conditions prohibiting block sales of homes by federally-insured and/or subsidized lenders after foreclosure.
Instead, for 14 years, they sat idly by and enriched their cronies - making most new families perpetual renters and denying an entire generation the opportunity to build equity in the fastest run-up of single home real estate values since the Civil War.
Perhaps higher rates will usher in a time when young families can again find starter housing stock accessible via a down payment and 30-year mortgage. It would be nice to see a new generation learn to individually negotiate a home purchase without competing with deep-pocketed corporations.
I’m not holding my breath, though.
95 percent of the distressed mortgages on Fannie Mae and Freddie Mac’s books were auctioned off to Wall Street investors without any meaningful stipulations, and private-equity firms had acquired more than 200,000 homes in desirable cities and middle-class suburban neighborhoods,
Ok, a lot to unpack here. There are about 83 million detached single family homes in the US. 200,000 of them would be 2-tenths of one percent, so it is difficult for me to see this as some cataclysmic problem. Perhaps it is and I’m just not sensitive to it, but I can’t think of another industry - even supremely important ones like oil or gold - where a 0.2% deviation would qualify as catastrophe. And it’s not as though those houses were burned, they’re still available, just as rentals. Since almost 40% of Americans are renters (a number which is relatively stable over long periods) this is a blip in the ocean, isn’t it?
(This is just single family detached homes. If you include condos and others the percent gets even smaller.)
If they unload properties at the present peak market for single-family homes, Blackstone and others will reap billions of dollars in capital gains thanks to Fannie’s, Freddie’s, and big banks’ generosity in selling to them at deep discounts a decade ago.
Yep. Same thing happened after the S&L debacle in the 80’s. My Dad bought one of them from the RTC at a favorable price. They needed to offload a huge batch of real estate and do it quickly, lest the government end up the largest landlord in the land. I assume the complaint is that the private market spotted this opportunity and took it? OK.
The lower interest rates allowed a measured recovery from the worst economic debacle since the Great Depression. If I have to choose between that recovery and this one I’m going to go with “low interest over a prolonged period” every time. That there were other effects may or may not be unfortunate, but I don’t know of any remedy that is perfect. Do you?