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RE: If the government is printing trillions why is there no hyperinflation?
The amount of money is only one factor that determines the rate of inflation. The velocity of money also needs to be known. If people are nervous of their economic future they will hild onto money for longer i.e. not spend it so quickly, and this will be deflationary.
Yep.. but velocity is also multi-tiered because different categories of people have different ways of moving money and different effect on the market. Those who are into debt, for example, or with very low income, always have their velocity maxed out (they have to spend their money as fast as they get it anyway to cover debts, pay rent, buy fuel and put food on the table etc). At the other extreme, say a large fund who is shifting investments, stocks etc, may move money around pretty fast but not move the consumer index at all.
At the lower to mid-end of society an increased velocity is also an indirect way to remove liquidity from the system due to taxation. If most purchases have some level of tax associated with them, then if the money moves too fast, it is also taxed too fast (and liquidity is reduced). It's like trading fees impacting the trader - but on steroids, because taxes are not 0.2% per trade. In some cases VAT could be 20-25% per trade.
In general it needs careful analysis of the patterns (what type of money is moved around and for what purpose) to understand the impact... Last year Greece had an explosion in velocity of money due to capital controls. As the money got locked into the bank accounts and almost no cash could be withdrawn, people fearing a bail-in started spending the amounts on their bank accounts for purchases, tax and debt repayments, buying property, etc. Despite the rapid increase in money velocity the impact was minimal on the inflation. It actually went down a bit (annual index 100, june was at 100.69, july -when the capital controls were implemented- down to 98.91).
Great point(s) ! just wanted to add: When cash is pumped into the system the velocity is also restricted at loan level because of reluctance to incur more dept and only those large enough to be "bailed out" are willing to risk more loans (debt) ..
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