ROLEXROLEXROLEXROLEXROLEXROLEXROLEXROLEXROLEXROLEXROLEXROLEX
4 August 2022, 12:50 PM | #1 |
"TRF" Member
Join Date: Oct 2020
Location: London
Posts: 181
|
Did QE Cause Inflation?
Having read a number of explanations about how QE (Quantitative Easing) works, I initially concluded that it “only” caused asset price inflation by driving down long term bond yields in the developed world (US, EU, UK and Australasia).
Now the assertion in the mainstream media is that QE is one of the causes of the current bout of high inflation. (I’m not sure whether significant QE was used to provide the monetary stimulus to cushion the CV19 pandemic but I understood that money printed via QE only went to banks as payment for bonds rather than payment directly to taxpayers.) The growing narrative that central banks are either partly or completely responsible for the high inflation levels is also challenging to refute without unbiased deep understanding of the causes. It seems as if the central banks are easy targets. Can anyone on TRF from a major financial institution/bank/private equity background shed some light on the causes of inflation from major financial institutions’ perspectives please? Thanks in advance. |
4 August 2022, 12:53 PM | #2 |
Banned
Join Date: May 2012
Real Name: CJ
Location: Kashyyyk
Watch: Kessel Run Chrono
Posts: 21,112
|
I’ll get the coffee going.
|
4 August 2022, 04:55 PM | #3 |
2024 Pledge Member
Join Date: Nov 2020
Real Name: Mitchell
Location: EST, EAT
Watch: Trusty Explorer
Posts: 1,085
|
From my readings, there is little consensus among practitioners, academics and Fed officials about what central bank bond buying does to the economy and how.
Japan was considered the first country to implement QE practices (~2001), yet they’ve experienced low growth, low inflation numbers for 20+ years. People love doom and gloom, but who knows. TL;DR- new territory, strong opinions with largely unknown consequences. |
4 August 2022, 08:07 PM | #4 |
2024 Pledge Member
Join Date: Jun 2009
Real Name: Rocky
Location: Australia
Watch: Grail:Bluesy
Posts: 17,850
|
From my secondary-school economics, I had always assumed that QE (printing money) would cause inflation, regardless of the mechanics of how this was applied in the economy.
It is a question that had been in my mind also in recent months and I look forward to opinions from those more qualified than me. (although there seems to be a general concensus these days that most of the old "rules" of economics are "out the window".)
__________________
Cellini 4112. Sub 14060M. DJ 16233. Rotherhams 1847 Pocket-watch. Foundation Member of 'Horologists Anonymous' "Hi, I'm Rocky, and I'm a Horologist..." |
4 August 2022, 08:14 PM | #5 |
Banned
Join Date: Nov 2017
Location: up a hill
Posts: 1,979
|
I'm no economist, but QE has been going on for years, whereas inflation has only recently started going up.
|
4 August 2022, 08:32 PM | #6 | |
"TRF" Member
Join Date: Jun 2009
Real Name: Brian
Location: Northern Virginia
Watch: One of Not Many
Posts: 17,892
|
Quote:
__________________
IWC Portugieser 7 Day, Omega Seamaster SMP300m, Vacheron Constantin Traditionnelle Complete Calendar, Glashutte PanoInverse, Glashutte SeaQ Panorama Date, Omega Aqua Terra 150, Omega CK 859, Omega Speedmaster 3861 Moonwatch, Breitling Superocean Steelfish, JLC Atmos Transparent Clock |
|
4 August 2022, 10:10 PM | #7 |
2024 SubLV41 Pledge Member
Join Date: Nov 2012
Location: USA
Watch: addiction issues
Posts: 37,356
|
It without question contributed. Sole cause? That’s impossible to say. Supply chain disruptions from covid, increased cost of labor and disruptions in the oil market from the Russian war certainly have significant irons in the coals.
__________________
|
4 August 2022, 11:00 PM | #8 |
"TRF" Member
Join Date: Jun 2018
Location: East Coast
Watch: 16610
Posts: 4,933
|
I mean it’s basic economics that interest rates and prices are connected. We had an era of historically low interest rates for a long time, and that has to be considered. Lots of cheap money. Now, inflation is not just a one country problem, it’s global. So geopolitics play a role, but much of these things are behavioral economics as well and those factors and less understood. But the increasing monopolies (not political look it up. Only a few companies control things like meat, baby formula etc.). This mean if they are hit, there are real challenges that must be overcome.
Then You have companies that were out of work, they know folks got a lot coin from the govt and want to recoup that and so raised prices, add fuel prices to the mix and you gave companies a massive cover to recoup those old losses. Once one did, (lumber first) all did and now it’s almost a joke, why things are high, supply chain, Covid. At this point it’s largely being maintained by consumer behavior that has not yet pulled back. |
4 August 2022, 11:21 PM | #9 |
2024 Pledge Member
Join Date: Oct 2017
Location: nyc
Posts: 6,722
|
i don't think the fed realized the impact locking down and then working from home would have on demand. the middle class just started to have way too much money from all the extra savings due to not commuting, going out, traveling, etc. all that extra money had to go somewhere to keep people sane and it went towards materialistic things, stocks and crypto, or real estate, causing assets to go up and giving them more money to then spend again. i personally think that was the major reason we're where we are
|
4 August 2022, 11:24 PM | #10 |
2024 SubLV41 Pledge Member
Join Date: Jul 2013
Real Name: Brian (TBone)
Location: canada
Watch: es make me smile
Posts: 78,136
|
IMHO, energy costs are the main cause followed by printing money.
It doesn’t help that we’ve come from such historically low rates. Everything seems to be swinging in extremes. |
5 August 2022, 12:51 AM | #11 |
"TRF" Member
Join Date: Jun 2009
Real Name: Brian
Location: Northern Virginia
Watch: One of Not Many
Posts: 17,892
|
True, however there is across the board price gouging going on worldwide. What is being called inflation is greed caused by pricing power. Now we will get demand destruction.
__________________
IWC Portugieser 7 Day, Omega Seamaster SMP300m, Vacheron Constantin Traditionnelle Complete Calendar, Glashutte PanoInverse, Glashutte SeaQ Panorama Date, Omega Aqua Terra 150, Omega CK 859, Omega Speedmaster 3861 Moonwatch, Breitling Superocean Steelfish, JLC Atmos Transparent Clock |
5 August 2022, 01:02 AM | #12 | |
Banned
Join Date: Aug 2015
Location: down by the river
Posts: 4,926
|
Quote:
There’s been some fuzzy logic on this point. Take meat producers, for example. The same people claiming “supply chain issues” are preventing product from hitting the market are also claiming there’s pricing power, e.g. monopolistic power. Yet a monopolist makes money by holding back supply. So which is it? Are they refusing to provide and sell more meat, or are they trying to sell the meat and hitting a traffic jam (e.g, a lack of proper trucks or drivers) somewhere in the chain? It can’t be both. |
|
5 August 2022, 01:08 AM | #13 |
"TRF" Member
Join Date: Jun 2009
Real Name: Brian
Location: Northern Virginia
Watch: One of Not Many
Posts: 17,892
|
It seems that is a great explanation
__________________
IWC Portugieser 7 Day, Omega Seamaster SMP300m, Vacheron Constantin Traditionnelle Complete Calendar, Glashutte PanoInverse, Glashutte SeaQ Panorama Date, Omega Aqua Terra 150, Omega CK 859, Omega Speedmaster 3861 Moonwatch, Breitling Superocean Steelfish, JLC Atmos Transparent Clock |
5 August 2022, 01:11 AM | #14 |
Banned
Join Date: Aug 2015
Location: down by the river
Posts: 4,926
|
|
5 August 2022, 01:29 AM | #15 |
"TRF" Member
Join Date: Aug 2019
Real Name: Phillip
Location: Right here
Watch: SD43 Daytona Blusy
Posts: 2,125
|
Better start two pots.
There's not just one item that caused inflationary pressures to exceed what was the norm. I don't buy the argument that there hasn't been inflation in the past 40 years as the price of everything has gone up including housing, cars, food, watches (to keep it TRF friendly). What's changed is the measure of inflation to make it seem as if it's lower. Interest rates have been artificially low since the great recession but hasn't caused the high level of inflation we have now. Monetary and fiscal policies on a worldwide basis, supply chain issues, high energy prices followed by pent up demand after lockdowns all caused this perfect storm we're experiencing now. If I had to rank the top 3 issues causing it it would be 1. Helicopter money from the govt 2. High energy prices which affects everything that is brought to market 3. Supply shortages of goods and services |
6 August 2022, 01:46 PM | #16 |
"TRF" Member
Join Date: Jun 2012
Location: God Bless Texas
Watch: Smurf, DD40, SkyD.
Posts: 1,517
|
This. But I would add in "Government mandated shutdowns during the pandemic" as the #1 and move everything else down a spot. The government shutdowns caused the 3 you listed.
|
6 August 2022, 01:54 PM | #17 |
"TRF" Member
Join Date: Jun 2012
Location: God Bless Texas
Watch: Smurf, DD40, SkyD.
Posts: 1,517
|
The "sanctions" on Russian oil have only made them richer, and have had the complete opposite effect as intended. They are now making more money on oil than they ever have in the past.
|
6 August 2022, 08:58 PM | #18 | |
2024 Pledge Member
Join Date: Aug 2010
Real Name: H
Location: North Carolina
Watch: M99230B-0008
Posts: 5,675
|
Quote:
As the article references, QE can have a host of effects, inflation being only one. Lately I have been thinking about two other effects listed by Forbes, increasing income inequality, and creating asset bubbles. Also been thinking about the enormous power those that wield this "tool" have.
__________________
The King of Cool. |
|
6 August 2022, 09:12 PM | #19 |
2024 Pledge Member
Join Date: Oct 2015
Real Name: Brett
Location: Florida
Watch: 5205R
Posts: 5,160
|
You sir are EXACTLY right. These plus a minimum wage of $15 an hour kicking in around most of the country isn’t helping. The final nail in the coffin will be the inevitable tax increase these people can’t help themselves from initiating this weekend. Look on the bright side though. The luxury market is crashing and will continue to so those “prices are falling” threads will flourish.
__________________
Morality does not derive from consensus. It only comes from one place. Pride goes before destruction, and haughtiness before a fall. Often times unbelief is disguised as wisdom Instagram - patton250 |
6 August 2022, 10:34 PM | #20 | |
2024 SubLV41 Pledge Member
Join Date: Nov 2012
Location: USA
Watch: addiction issues
Posts: 37,356
|
Quote:
That’s the fault of the countries willing to do business with them.
__________________
|
|
6 August 2022, 10:44 PM | #21 |
2024 SubLV41 Pledge Member
Join Date: Jul 2013
Real Name: Brian (TBone)
Location: canada
Watch: es make me smile
Posts: 78,136
|
|
6 August 2022, 11:05 PM | #22 |
"TRF" Member
Join Date: May 2014
Location: detroit
Posts: 546
|
Supply of everything was strangled by govt lockdowns and oil regulation.
Demand of everything increased due to spare savings as mentioned above and govt printing money. Interest rates were more of kindling to exacerbate above in my view. Adding corporate taxes and printing more money sure won’t fix the issue in my opinion. Deregulate, end subsidizing people not working to up supply along w interest rate hikes would work in my morons opinion. However I knew massive inflation was coming long enough ago to refi while our treasury secretary says it was a surprise and nobody knew it was coming lol. |
6 August 2022, 11:28 PM | #23 | |
"TRF" Member
Join Date: Aug 2015
Location: Houston
Watch: SkyD, SD43, GMT2
Posts: 5,061
|
Quote:
No product would ever go on sale, no company would ever offer promotions, if the sole objective was to maximize profit. |
|
6 August 2022, 11:29 PM | #24 |
2024 Pledge Member
Join Date: Oct 2015
Real Name: Brett
Location: Florida
Watch: 5205R
Posts: 5,160
|
Countries do business with America right? Perhaps you might remember we’ve done our fair share of invading other countries over the last 60 years or so.
__________________
Morality does not derive from consensus. It only comes from one place. Pride goes before destruction, and haughtiness before a fall. Often times unbelief is disguised as wisdom Instagram - patton250 |
6 August 2022, 11:31 PM | #25 | |
2024 Pledge Member
Join Date: Oct 2015
Real Name: Brett
Location: Florida
Watch: 5205R
Posts: 5,160
|
Quote:
Best comment on this thread so far brother. You nailed it. The problem is the truths you posted have a tendency to hurt some peoples feelings so it won’t go over too well. At least not here. I’m glad you said it anyway.
__________________
Morality does not derive from consensus. It only comes from one place. Pride goes before destruction, and haughtiness before a fall. Often times unbelief is disguised as wisdom Instagram - patton250 |
|
7 August 2022, 12:05 AM | #26 |
Banned
Join Date: Aug 2015
Location: down by the river
Posts: 4,926
|
As a general rule, when anyone tells you about your moral obligation to do anything, they’re planning to screw you over.
|
7 August 2022, 12:44 AM | #27 |
"TRF" Member
Join Date: Jun 2016
Location: USA
Watch: All Rolex
Posts: 7,024
|
Do bond purchase programs impact interest rates/term structure at the other portions of the yield curve?
If the answer is yes, then it had an influence on inflation. 10 years of QE is almost permanent QE. It should’ve ended in 2012 at the latest. Now you add on top irrational energy policy that does not consult or instill trust in the producers. In turn that impacts upstream energy because they do not know if they will get blindsided by new regulations later that will render their work a waste of money. Couple on top, extraordinary public sector spending that probably resulted in a crowding in effect in addition to crowding out effect in certain sectors and you have an economy out of equilibrium. Now with the pandemic, it allowed shutdown of industries in an unpredictable manner and you end up with a market that lacks one of the biggest factors that makes a market effective, transparency. Play some politics on top in advance of Presidential and mid-term elections along with promotion of basket products that do not purchase based on intrinsic value but rather market capitalization i.e buy high sell low, and you end up with an extremely volatile market when you have black swan events emerge. Imo that’s what we’re looking at. So those trying to focus on QE exclusively are really just passing the buck along and trying to distract from their $4 trillion in spending. But both are relevant. Just like single factor regression models have lower explainable than multi-factor as it’s never a single factor just degrees of estimated contribution of each factor. |
7 August 2022, 02:32 AM | #28 |
2024 SubLV41 Pledge Member
Join Date: Nov 2007
Location: San Francisco, CA
Watch: Date & No Date
Posts: 10,868
|
I think it was a combination of things, but I personally feel it was exaggerated due to overly amplified stimulus injections that weren’t necessary in early 2020.
__________________
"You might as well question why we breathe. If we stop breathing, we'll die. If we stop fighting our enemies, the world will die." Paul Henreid as Victor Laszlo in Casablanca |
7 August 2022, 02:54 AM | #29 |
Banned
Join Date: Apr 2020
Location: here AND there...
Posts: 2,240
|
YES... as the world's reserve currency, fractionalization of that currency by MORE THAN 45% in less than a year would have massive inflationary results... there is no debate that if MORE DOLLARS are chasing the same goods, that the pricing on those good will increases by similar orders of magnitude (Rolex bubble, housing bubble, BTC bubble)
is it the only reason... no, is it the main reason... yes. |
7 August 2022, 04:51 AM | #30 |
2024 Pledge Member
Join Date: Oct 2015
Real Name: Brett
Location: Florida
Watch: 5205R
Posts: 5,160
|
Excellent point. After all morality is nothing more then expressions of peoples personal taste.
__________________
Morality does not derive from consensus. It only comes from one place. Pride goes before destruction, and haughtiness before a fall. Often times unbelief is disguised as wisdom Instagram - patton250 |
Currently Active Users Viewing This Thread: 1 (0 members and 1 guests) | |
|
|
*Banners
Of The Month*
This space is provided to horological resources.