The inflation from all the Pandemic Spending isn't even here yet, but it will be
Curious why all the massive money-printing globally hasn't resulted in more inflation?
Trillions of dollars has been created out of thin air to help stimulate the economy and keep things humming along while the pandemic ravages economies world wide.
Globally we are over the equevalent of $10 trillion.
In the US alone, we have spent roughly $4 trillion, well depending on who you ask and how you define "spent".
Either way, it's at least several trillion that didn't exist prior.
Check out the increase in money supply over the last several years:
(Source: https://twitter.com/PrestonPysh/status/1335600320626499587/photo/1)
As you can see the money supply has been expanding at a rapid pace for a while now, but it really accelerated the last several months.
If it this were a stock chart, I'd call this the blow off top phase.
With all this money printing, why hasn't there been more inflation?
So far with all this new money printing, there hasn't been much inflation, well there has been some, but not like you would expect to see with this kind of expansion in the money supply.
There are several reasons for this, but the main one has to do with the velocity of money.
Specifically that it's slowing down.
Check out the velocity of money over roughly this same time period, and pay special attention to the far right side of the chart:
(Source: https://twitter.com/PrestonPysh/status/1335600320626499587/photo/2)
As you can see the velocity of money has fallen off a cliff these last several months.
If it were a chart it'd call this the capitulation bottom.
So, what's going on exactly?
Basically we have a scenario where a ton of new money was created but it's not really moving around much currently.
However, as the economy starts to open back up and economic activity starts to pick up again, we sill this trend start to change.
We will have all this new money, and we will have the velocity of that money start to pick up as the money makes its way through the broader economy.
At that point we will start to see asset prices across the board start to go up as too much money chases too few assets.
Currently much of that newly created money is sitting in bank accounts, in stocks, in bonds etc, but that will likely change as the economy starts to recover.
What do you think will happen to the price of bitcoin when inflation starts to become a factor?
I have a guess...
Stay informed my friends.
-Doc
We already have an inflation. But its not yet affected into the consumer prices.
But if you take a look at stocks and real estate - the inflation has already begun.
Yep, exactly. It starts there first and then moves out into the broader economy as activity picks up again.
Bitcoin value will go signed integer overflow... There is a definite limit of how big numbers can be represented accurately with current computers... It's basically 263-1 as we need one bit for negative numbers... Floating point numbers would overflow earlier as standard-conforming floating point numbers have only 53 significant bits.
Velocity slowing down because all the liquidity is pouring into various asset markets... crazy to say but i think the stock market will continue to go up until something crazy happens again. What a time to be alive.
Yep, same here. The path of least resistance is higher for stocks regardless of the underlying economy due to the continued money printing.
Stock market is becoming less of an accurate proxy for the health of the economy, and the published unemployment rate is also less meaningful as people are underemployed rather than unemployed, and gig workers don’t participate on Wall Street. Most jobs that are gone are not coming back, so the inflation is offset by the cratering of the economy in lost activity (both dropping wages and dropping prices.) We will only know several months or a year from now how badly this has actually affected the global economy. And things don’t look good for the US dollar. Not sure if the World Bank will continue to track against the USD as a stable global currency or switch to EUR or RMB. Probably won’t be BTC yet but certainly gives BTC and maybe crypto in general an opportunity to carve out a niche. Pandemic has accelerated a lot of already established global trends (workforce automation, remote work, gig work, online shopping, contactless delivery, e-commerce) and crypto is right up there. Crypto portfolio is doing well, but otherwise it’s a tough time for most people. But certainly proving to be interesting to see what happens on the other side of this.
Yep I agree on many fronts here. The one thing that I think will happen though is that I think there will be an economic recovery and I think it will happen sooner than many realize. That being said, there are also likely to be structural economic changes happening in the workforce which may mean some sort of UBI is needed at some point down the road, which would only continue to hurt the dollar and would also make bitcoin that much more attractive. Overall though, I have faith that the government will continue to kick the can down the road and things will mostly bounce back, it's what's happened every other time previously.
Agreed. Recovery will be quicker than most realize because (1) global economy is by nature more resilient than it used to be, and (2) fear shows up in the media and the stock market in ways that don’t necessarily reflect reality but drive markets nonetheless. 2008 was the end of the world, until it wasn’t (by about 2009-10.) UBI will be needed but government will be slow to make it happen (if current US political gridlock over stimulus is any indication) so over time people lose trust in government. Enter global markets and crypto.