CENTRAL BANKS prints money like THERE IS NO TOMORROW! Is there any other option other than to join that madness?
INTRODUCTION
It seem to be a fair claim to say that anyone with basic financial knowledge may see end of FIAT currencies coming in rapid way. Amount of newly printed money in 2020 has been extraordinary and it would be naive not to expect severe consequences in the upcoming future.
And today I would like to talk about this topic, hoping to start up another interesting and valuable discussion. So if topics related to financial markets are your thing, then continue reading. Otherwise just simply scroll down, drop and upvote and consider resteeming this post.
EVERYONE'S PRINTING
Pretty much all central banks across the globe are printing new "funny money" and pumping liquid FIAT it into markets like there is no tomorrow. Just few days US Authorities signed 900$ billion relief bill. I still cannot get over that news.
It's important to mention, that not only amount of newly printed money matters. Way of distributing those funds is as important and it seem to me, that very small fraction of all those relief bills is entering "real economy".
Regardless on how all those money are distributed - bottom line is that all central banks around the world follow same narrative: pumping more liquid FIAT into global monetary system.
And that make me wonder ....
TO PRINT OR NOT TO PRINT - this is the question
What should countries with smaller economies do? Follow this trend or control their monetary policies and limit that madness?
That question is valid especially for those countries which depend heavily on export of their goods and services. Simply because such a countries require weak local currency.
What if authorities of some countries (like my own one, Poland) would decide to avoid printing more money. What if political pressure would be so high, that our authorities would avoid this path. Let's say that those in charge would understand, that creating more debt in times of recession may fire-back. Let's say that they are aware of future consequences of local FIAT currency losing it's value, which would result in high inflation. Which usually result with high social unrest, which no politicians want.
Let's imagine for a moment, that some countries would say "NO" and would decide to avoid drowning in debt just to "save the day". What would happen?
MY PERSONAL VIEW
Im afraid, that entire export in those countries would collapse. If value of all major FIAT currencies will continue declinging because of increased money supply on the market, then our own local currency would be relatively growing in strength. And that would wipe out all local businesses which are exporting their goods and services. Am I right? Or perhaps my line of thinking is corrupted?
I came to conclusion, that the only way to maintain some sort of "balance" between FIAT currencies is to follow this new monetary trend. Meaning: to print more new "funny money". Just as all major central banks around us do.
SHARE YOUR VIEW AND RESTEEM
I would love to hear your opinion on that topic. I read all comments. I would also appreciate every single Resteem (which would naturally help me to bring more traffic).
Remember to visit my recent post:
 | ONE OF THOSE MOMENTS I WILL TREASURE FOR YEARS TO COME ----- Publication date: 09/01/2021 |
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Yours, Piotr
@project.hope founder
I used to be a Field Economist for the United States Department of Labor and I researched inflation which is the devaluation of money. The United States government controls the value of money in two ways.
The first is through monetary policy and that one is controlled by the Federal Reserve Bank.
The second is fiscal policy and that one is controlled by congress. The 900bn relief package that you are writing about is through congress and I expect there will be another one in excess of 1 trillion in a couple of months.
I separate monetary and fiscal because the net effect is slightly different. The Federal reserve monetary policy has led to inflation of investment assets. That is why stocks, bonds, gold, crypto, real estate, oil, and other commodities are all rising.
At the same time the job market in the United States has not recovered and the consumer price index is still low, so consumer inflation is low. Now enters fiscal policy.
The relief package (fiscal policy) can cause consumer prices to go up slightly as more of that money will go into the hands of people who will spend it through unemployment benefits. Some of it will be saved though. There is some data that suggest that some of this money will be saved and some of this stimulus will go towards more equity purchases.
In this case there will not be a large effect on inflation for consumer prices, but you will see some uptick in asset prices. This is just the demand side--spending.
On the supply side you do see commodity prices rising which implies that there will be an uptick of manufacturing. As long as you are creating goods faster than people are spending money then that would also limit inflation.
As for the effects of inflation on people. Inflation is the devaluation of money. If the Dollar or the Euro is lowing value then you are harmed if you hold Dollars or Euros. The more you hold the more it hurts. However, the opposite is true if you are poor and you are in debt.
If you hold no money or you are in debt inflation is helpful because you get to pay back your loans with money that is less valuable then when you borrowed it. Also, as a side effect the inflation that is driven by extra dollars being in the market also creates jobs. There is an inverse relationship between liquidity and unemployment in most of the data.
As for your question on what non US central banks should do? That is going to be dependent on the current state of each of those countries. The United States can print money almost indefinitely because it is currently the reserve currency of the world, but everybody else is limited in how much money they can print. I won't go too much further into this as my comment is already too long. If anybody wants to know more about this they can reach out to me.
Thanks for this comment... I believe that printing money today does not raise inflation as much as it did 50 years ago.
Yes, the data in Europe and Japan seems to suggest deflation and that is why interest have stayed near zero for a long time and in some places are at negative interest rates. I am not saying that inflation is impossible, but the trends seems to be that the forces that create deflation are winning against the forces that create inflation.
I have not done research on this, but my intuition tells me that wealth inequality will be a big driver of deflation. The ultra wealthy aren't living paycheck to paycheck so a large percentage of the money that the wealthy receive go straight into investments. This drives the price up in the different asset classes, but it does not drive consumer inflation. At least we aren't seeing evidence of consumer inflation in any of the large economies yet.
Thanks for reply
Wow. Amazing feedback @therecantonlybe1
I trully appreciate your comment and your time you took to share your thoughts with me. Big THX.
As "net effect" you mean ... way that new currency is being distributed?
I would like to reach out to you. Do you use Discord ? I would like to invite you to our community server: https://discord.gg/uWMJTaW
Hope to see you posting more often within our PH community :)
Stay safe buddy,
Yours, Piotr
"As "net effect" you mean ... way that new currency is being distributed?"
Correct, the distribution as to who gets the money and how the money is spent. Monetary policy is really a supply side solution while fiscal policy sometimes shows up as a demand side solution.
Biden will push for an infrastructure and climate change bill sometime around March and this bill will probably be branded as another "stimulus package". I suspect a lot more of this money will go directly to local, state, and government agencies rather than the private sector for this particular package. When that money goes to the local, state, and government agencies then that money will be spent for sure.
In monetary policy, the money supply expansion tends to put banks and investors in control of the money and if banks are afraid to lend then there is little to no liquidity effect. You saw this in 2008.
The other issue is that the Fed and the private banks tend to drive asset prices up. Most of the money gets "invested" in stocks, bonds, and bitcoins. That is different than money being "spent" on every day things like construction, food, and rent.
The Fed has been putting a lot of pressure on congress to pass fiscal stimulus because they know that monetary stimulus only has a limited effect on the economy. Its very top down. While fiscal if done correctly, could be a little more bottom up or "decentralized". It really depends on exactly what the fiscal package looks like.
Biden has picked Janet Yellen to be the new Secretary of Treasury. Janet Yellen was the former Fed president, so now you will have two Fed people. Powell leading the Fed, and Janet leading the treasury. I suspect more fiscal and less monetary in the future.
We will see how things turn out.
Wow. Thank you for taking the time to reply @therecantonlybe1
Amazing comment.
ps. I'm not sure if I ever invited you to our Project.hope community discord? Consider joining: https://discord.gg/uWMJTaW
Cheers, Piotr
i agree that fiat will stop existing eventually but i don't know when or what will lead to that. For example, in many countries due to corruption the only way the economy is working and many people are actually live is through "black money"
If for example tomorrow we say: fiat money is prohibited use only cards the economy will be destroyed. With that being said I don't know we will go to that phase
Thanks for dropping by and sharing your thoughts with me @filotasriza3
I also appreciate you resteeming my post. Hope to see you posting more often within our PH community :)
Stay safe and enjoy your weekend,
Piotr
I read this post with a lot of interest. I am sorry that there is this situation in Venezuela. Thanks for your testimony, thanks for sharing your experience. Now I know something about Venezuela that I didn't know before.
Dear @madridbg
Thank you for your amazing comment.
Well. US controls oil trade and is enforcing all countries to use USD to trade oil. Which is forcing countries to consider USD to be a world reserve currency.
That surely will come to an end one day
Buy bitcoin and hold no matter the outcome!
This is a good strategy, and it is also a simple and clear strategy.
@crypto.piotr I think physical currency will dominate the world, whatever quantity we print it will be their as small people only have this means of trade with them they don't know crypto currency or any other currency. As we know more then 50% of the world population is low average in terms of money.
So printing more money will decrease it value but cannot be neglated by the world.
Hi @crypto.piotr Thanks for the post.
Printing so much money causes inflation in economy. That's what has started to happen in USA recently. There is a fact in the world that there are countries; developed, developing and undeveloped. Thus, the rate among FIATs will be remain somehow similar. I don't think that export in the world would collapse entirely.
Hi @videoaddiction
I trully appreciate your comment and your time you took to share your thoughts with me. Big THX.
Stay safe buddy,
Yours, Piotr
There are a few related problems - and only one solution :-)
You can see exactly what is happening in those countries that still publish their M3 money supply figures, eg see UK here and click the 5-year chart.
All that "funny money" is NOT going into the actual economy, to actual businesses that help feed real people. That money is used to inflate bankster earnings, prop up the stockmarkets and to drain each nation of its wealth by sucking in the taxes needed to then pay the interest on these loans.
The US Fed stopped measuring M3 in 2006. Why? Good question!
You can see that all this money is merely propping up the current system by looking at something like the debt-to-GDP ratio - here for UK.
So governments, and their people, are being bled dry by their banksters. They were sold a con that central banks should be "independent", without specifying "independent of what?" They are now nearly all privately-owned cartels that are laughing at the stupidity of people.
The solution is to re-nationalise the central banks and bring back control of one's own money supply. Oh, yes, you don't trust politicians... so you trust private leeches instead?
The national debts are being inflated in preparation for the so-called great reset scam. Just as they have done with third world nations, they will write off the debt they themselves have created in exchange for total control, probably with a huge land claim. Then you will all be indentured serfs. Good luck.
Hi @accelerator
I trully appreciate your comment and your time you took to share your thoughts with me. Big THX.
Stay safe buddy,
Yours, Piotr
Hi Piotr, this is not an easy question and there is no general solution. There are some major differences between countries. Let's take a look at USA first. US dollar is an export asset for USA. Selling printed US dollars is a big business for USA. As the main reserve currency USA have this luxury to print these fancy green bills and sell them as money. Inflation is then shared with emerging counties (especially oil exporters) and US doesn't suffer from it.
Other countries have to consider consequences for money printing. Weakening your local currency may seem good for exporters yet it hurts the poorest part of population. As at least half of goods is produced somewhere abroad, things like phones, TVs, clothes, foreign food become more and more expensive. People don't like it and they don't feel they need to vote for politicians playing with money printing. So the government will think twice before starting printing money.
So going back to your original question - what should countries do? The answer is - it depends on particular country. If it is a rich country with a strong economy, then they can afford printing some more money. If not, then they should consider this really carefully.
this is quite a good answer. there are nuances to this.
Thanks for dropping by and sharing your thoughts with me @cryptohumster
I'm not sure if I asked you already or if I didn not. Do you use Discord?
Consider joining our PH community discord server: https://discord.gg/uWMJTaW
Stay safe and enjoy your weekend,
Piotr
Hi friend @crypto.piotr
This is an important issue. Many may not care much, or may not understand anything about it, but like it or not, care or not, the medium-term future could hit you hard with a harsh reality.
We have a hard blow to the currencies of each country, and we are clear that the fact that the Dollar and the Euro (especially the former) are devalued by a massive printing of fiat money affects the global economy. Regardless of whether, for example, Poland prints en masse or not.
I think that's the big problem when we see economic power centralized in one currency, like the dollar in this case.
I particularly think that this year, economically speaking, it could be much worse than last year, and in general terms there is not much we can do. But we must personally prepare for what is to come.
Yes.... fiat is dropping. Everyone is moving to Blurt. Https://blurt.buzz