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Inflation on the horizon?

With interest rates now at 0%, no requirement to hold reserve assets by banks, and QE on the order of hundreds of billions, do you think there is a risk for (hyper)inflation?

I've read several of your articles discussing why the financial crisis didn't result in inflation, but it's one concept that never really set in... Most other events accompanies by a lot of QE did result in inflation.

I'm curious what your thoughts are on what will happen this time?

I also wonder if this crisis will end up being the severe exogenous event that causes hyperinflation (although I doubt it at this point).

I would also like to know Cullen's suggestions on how his recommended $800 billion in deficit spending would best be spent.

Sorry for the slow response. CRAZY TIMES. Plus, we had a baby on March 7th so it's been nuts....

I still don't see much inflation risk. Commodities are down 30%+ across the board here. This event is massively deflationary. All the Fed and Tsy policies are barely going to offset that.

Remember, QE is just asset swapping. It's not money printing in any real sense of the words. The deficit spending is more akin to money printing, but in an environment in which we're gonna lose 5T of GDP and deflation is looming I don't see how 2T of deficit spending does much....

"Pragmatic Capitalism is the best website on the Internet. Just trust me. Please?" - Cullen Roche

Even though I'm subscribed to the topic, I somehow didn't get a notification...

I'm sure you've written about this before, but which article should I read to understand the difference between deficit spending and money printing?

5T of GDP and deflation is looming I don't see how 2T of deficit spending

This is actually a really interesting point. The reduction in GDP will offset (not completely) the money "being injected" into the economy, so in a way, we maintain the same balance?

Money printing at the Fed to create accounting entries doesn't equate to deficit spending.  Maybe if the money printing Fed bought Treasury bonds by monetizing them with its accounting credits, it might be feasible, but Cullen previously shot that idea down also.

There would be a risk of hyperinflation if the economy stayed shuttered and people lost faith in the USD and by extension the U.S. government to fix things.  Short of WWIII or Communist takeover, it won't happen.

Here's another perspective.  She's pretty sharp: https://www.lynalden.com/great-depression/


Here: https://mcusercontent.com/78302034f23041fbbcab0ac6d/files/d9dee8cc-40e5-4056-8730-238382f4b387/iimr.special_e_mail_2004_US_money_growth.pdf

Is someone who is 'forecasting' inflation?

"Variations in the ratio of money to nominal GDP (or “velocity”) do occur, but large variations are unusual. In the medium term they are ironed out as the underlying stability of agents’ money holding behaviour takes over. It follows that – at some point in the next two/three years – the growth rate of US nominal GDP will accelerate towards a figure in the teens per cent. Given that the trend growth rate of real output is not much more than 3% a year, a big resurgence in inflation is implied by our analysis. The only way to prevent this is for the Fed not just to end its current stance as ready financier of the government deficit, but to withdraw the money stimulus (i.e., to cause the quantity of money to fall by the “excess over normal growth” now being recorded.). In a Presidential election year, that seems very unlikely.”




Quote from MachineGhost on 04/10/2020, 10:58 PM

Here's another perspective.  She's pretty sharp: https://www.lynalden.com/great-depression/


Great link MachineGhost - thanks for the resource. Any others like it with deep, interesting research with a practical bend, given she's active in equities.