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RE: This is a problem
The issue is revenue. And bailing out banks or giving companies loans won't create revenue. This is why helicopter money seems the best solution to me, however most of the money will still be spend top down. Out of 6 trillion package only 200m will be spend on people directly.
The thing about this "recession" is that it seems very temporary. The coronavirus disruption will go away in a month or two as quickly as it came and everything will go back to normal. Companies can start producing revenue again just like before. Unlike previous recessions that were caused by actual issues affecting companies' revenues, here it's just a temporary forced shutdown. So it seems that if the govt just provides enough money for everyone to get through the shutdown period then everything will go right back to normal afterwards.
"The thing about this "recession" is that it seems very temporary. " This seems to be consensus. But I don't believe it to be so. If the economy was not leveraged this certainly would be true. But because everyone has bills and costs to cover the reality is different.
Even a very short term falling of GDP combined with massive lay-offs will lead to a deflation which will render many companies and people insolvent.
All that should also not be in issue normally, but there is this financial system that makes it so that everyone has debts that need to be serviced.
Think about the guys that buys a few apartments on mortgages and rents them out via R&B. If he would own the property there would be no problem: he makes no money for a few months, big deal. But now because he has to pay 10 mortgages he will be broke right away. He probably has a safety net to deal with 3 of his 10 places to be empty. Sure the gov could bail him out.
This is also a problem for his bank as they will also go broke. Since they can only deal with one of is mortgages defaulting not all of them etc.....
This is an extreme example, but effectively most of our economy is leveraged like this. And so many companies won't be able to deal with this sort of disruption. And if they can it will lead to lay-offs. Which will lead to less economic activity ..... its a snowball that just started rolling off.
After looking at this comment a few weeks later, it seems now that you were right. Thought I am not sure the last words have been said.
I certainly hope you were and are right, even though I had placed my bets a bit differently.
The problem is that the more money you print (which is essentially what is happening with a large portion of this), the less valuable it is. Inflation literally means an increase in the money supply. The effect is higher prices. That combined with the fact that more things are shutdown so that there are fewer things to spend money on does not bode well.
Inflation has nothing to do with money supply. Inflation is about price. Money supply can go up and inflation can go down, like we have had in the last decade if velocity of money goes down. Money supply is just one part of the equation. It's an important one and longterm will impact, but does not have to in the short term.
Inflation quite literally means an increase in the money supply (when speaking in economic terms). Inflation can go up and prices can go down but that isn't likely. An increase in money supply inevitably causes an increase in prices in terms of that money supply. Don't confuse the term with so-called "inflation" indexes like cpi.
"a general increase in prices and fall in the purchasing value of money." google
1: an act of inflating : a state of being inflated: such as
a: DISTENSION
b: a hypothetical extremely brief period of very rapid expansion of the universe immediately following the big bang
c: empty pretentiousness : POMPOSITY
2: a continuing rise in the general price level usually attributed to an increase in the volume of money and credit relative to available goods and services
-webster
noun
Economics. a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency (opposed to deflation).
the act of inflating.
the state of being inflated.
-dictionary.com
Even the definitions that conflate inflation with rising prices state that the rise of prices is attributable to an increase in the money supply. What is being inflated? The supply of money. As a result, prices rise.
"Inflation has nothing to do with money supply." Really?
this is incorrect. if true could never calculate USD inflation as the money supply is not known. its about price
You can't calculate exact inflation (or at least I don't know how you would). You are conflating our government's definition of inflation with a general definition of inflation. The U.S. government calculates inflation using a certain formula (more specifically, the consumer price index). Other countries do it differently. They are indexing it indirectly by looking at prices of certain goods and services. It's accuracy as a measure of inflation (or cost of living indicator which is what it really is) is debatable.
Inflation is an official term with an official number published every quarter by the government. Maybe do some homework. Inflation is an economic term that is used by economist and mentioned by main stream media a lot. Google is your friend. Good luck.
No, it is not. The U.S. Department of Labor's Bureau of Labor Statistics has various indexes that measure different aspects of inflation, the most well known and reported on is the Consumer Price Index (CPI). This is one measurement of the effect of inflation, not the definition of inflation. Like I said, other governments measure the effects of inflation differently. Argue semantics all you want, it doesn't change my original point that the more dollars you print, the less they are worth. There's a term for that expansion of the money supply...oh yeah, inflation. Google is your friend. Good luck.