[cephaslr]

Is part of the issue that there is just too much money has been printed and hoarded and its creating some weird effects?

The government has been printing money for a long time, to stimulate the economy, provide spending money, etc. Due to 80/20 rule, rich get richer effects, etc, a large portion of money the government prints ends up in the hands of a relatively small group who doesn't spend it but rather tries to invest it to get more money. Government prints money again trying to stimulate the economy and again most of it ends up in a few hands. At some point don't you have what we have today? A 1% that owns lots of wealth and doesn't know where to put it while the majority of the economy is still relatively broke? How does it play out? Do the 1% just buy all the assets at some point?

I am not trying to make a statement about inequality but rather curious about the result of printing money for 70 years and having that money end up with relatively few parties each round. Perhaps someone with more knowledge can speak to this.

[tomp]

It's not just "rich get richer". It's also that everybody bought into the "just buy the market" idea hook line and sinker. Pension funds, individual investors, everybody.

How retirement works on paper: you save the money by buying the market and get 20% more when you retire in 40 years. How retirement works in reality: younger people work to supply the old with food and medical care. The real transfer is happening now, while the financial transfer is happening over decades. I don't think this creates a healthy, sustainable dynamic.

[mFixman]

The Conservative Party in Great Britain has been trying to make home ownership a reliable method of saving for the last century. They pretty much succeeded: house prices have been going up almost constantly since the war, and owning a house all but guarantees you'll be able to built generational wealth.

This came at high costs: once a large enough part of the population buys houses at inflated prices with the expectation of their price further increasing, the government needs to protect them from housing crashes and depreciation to inflate the bubble further and further.

Now that pretty much everyone has their money invested in the stock market, I see the same thing happening in the US. The Fed needs to keep the interest rate artificially low and guarantee policies to keep the stock market up so that people don't lose money, but also making sociery overall worse.

[pas]

Central banks keep interest rate low not because of the stock market.

People focus too much on stocks. The real question is about the real economy, about price stability and unemployment. Especially in case of the Fed ( https://www.chicagofed.org/research/dual-mandate/dual-mandat... , but of course other central banks are also tracking labor markets too, even if de jure it's not their target - https://ideas.repec.org/p/fip/fedbsp/70.html ).

And we can say whatever we like about how the rich get richer, our current economic system do responds to what central banks do. Cheap money (an oversupply of low and even lower interest rate debt) helps persuade people to buy/invest/order things. It helps finance stimulus bills, and so on.

The savings are "just" an indicator. Sure, when the savings crash, the economy crashes too, but the causality is backwards. If/when the economy crashes (when industries stop, when people stop buying, when businesses let people go) savings will also become "worthless", because after all they represent future income, and if the economy tanks its productivity (income) tanks too.

[empthought]

> 20% more

Where did this number come from? At 4% compounding over 40 years, you will have at least 130% again over what you put in.

[sudosysgen]

The issue is two-fold - assuming that all the money comes at beginning, and forgetting about inflation, and not taking into account the shift in risk towards the later ten years, and assuming that your income stays the same. When taking into account the increase in income both absolute and in real terms after necessary expenses, you realize that a lot more than the majority of the money is invested in the latter 25 years.

But yes, it would be more than 20%, though a lot less than 130%.

[mrep]

"The average annual total return and compound annual growth rate of the S&P 500 index, including dividends, since inception in 1926 has been approximately 9.8%, or 6% after inflation" [0]. If you have a 40 year career, money you put in at the start would approximately be worth 10 times what you put in adjusting for inflation, and even money you put in midway would approximately be worth triple.

[0]: https://en.wikipedia.org/wiki/S%26P_500_Index

[empthought]

No, I came to my conclusion by putting away $100 every month for 40 years. $48000 is put in, $114000 is present at the end with a (historically unprecedented low) 4% overall return. Exactly the same amount of money is put away in the last 25 years as in the first 25 years.

The shift in risk should be accompanied by changes to the portfolio mix, of course.

[sudosysgen]

But it's not how people save. The average person has too many expenses and not enough income at age 22 to save up as at age 45. And in those later years, the returns diminish.

Sure, if you have sufficient income to be able to save up enough for retirement just as soon as you get a job, that works. But that's not the reality for the average person. Most people don't get a high-paying job straight out of school.

[empthought]

I am not sure what you are arguing. Someone said that retirement works “on paper”, and you get 20% more. I pointed out that “on paper” you get more than double what you put in.

All of these other issues you raise have nothing to do with the financial illiteracy leading to the idea that you save for retirement just to get an incremental return rather than a multiple (or two, really, depending on timing) of what you put in. Perhaps if this were more well known, people would invest more at age 22.

tl;dr we’re talking about “on paper” here, investment works as advertised (In fact, much much better than the original poster believes it advertised). All of the things you bring up here are about scenarios that aren’t “on paper” any more.

[pas]

Is there any serious idea about how a fair pension scheme could/should work without just buying the market? (So in some countries the pension system is just mandated by law, managed by the government. And might be even "guaranteed by law" to track inflation. But in this case it's again exactly the same, your purchasing power of your pension income depends on the strength of the country's economy - which depends on the global market.)

[tomp]

Well, as I expand in the second paragraph above - the ONLY real pension scheme is having kids, and more kids. Everything else is just an obfuscation and/or securitization of this basic fact. If you don't want to work, someone else has to. And if we (jointly as a society) decide that "old" people are more deserving to not work, then, well, we need to make & have enough non-old people.

That's why to some degree I think asset-hoarding (S&P, real estate, cashflow-positive businesses etc.) is a good idea and actually my preferred plan, because I fundamentally don't trust the governments (they're all delusional with their long-term plans re: pension obligations, education, family planning & birth rates, immigration, ...), but at the same time I'm aware of the fact that while this strategy works individually (i.e. if I own more property, I'm better off than the next retiree), it doesn't quite work for the whole society. Pension as a social transfer really is the only way to go.

[charwalker]

Printing money has recently shown to have little impact on inflation. This is likely due in part to lack of consumer spending (can't inflate prices if nobody is buying it anyway) as well as spreading the USD across billions of people in dozens of interconnected economies that base off the dollar.

The recent $5 trillion injection from the Fed (buying bad debt/assets) and Treasury (stimulus/PPP) may simply show that we could afford universal healthcare and a bunch of other programs that cost $$$. Now is the time to spend that money and, at least it appears, avoid some long term costs. I'd argue the benefits of things like expanding education, investing in mental and physical health, and doing more to support our youth will have a much greater return than potential long term inflation or other issues from the $5 trillion.

I commented more on this last week here: https://news.ycombinator.com/item?id=23778819

[Quinner]

Printing money has not had much impact on consumer prices. But it seems very plausible that it is causing inflation of asset prices, including equities, and that that is a distortion of the market that could have negative long-run repercussions.

[cure]

This. For years now everyone has been saying "where is the (consumer price) inflation"? Meanwhile real estate prices are rising fast (in desirable parts of the country) and the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.

This is a dangerous trend. The rich (who tend to own those assets) get richer and and the poor (who rent/live paycheck to paycheck) get more and more desperate. If we don't find a way to reduce the inequality, this is going to mean serious trouble down the line.

[mrep]

> Meanwhile real estate prices are rising fast (in desirable parts of the country)

Mainly just the west coast and that's because their cities are built in valleys with a fixed amount of land, restrictive zoning on said land causing a fixed amount of housing and thus the bidding up housing prices.

For the rest of the country, inflation adjusted price per square foot hasn't really changed [0].

> the stock market has been on an epic bull run. It's obvious that the inflation is in the asset prices.

Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1]. Albeit, if you just started in 2009, it has been quite epic considering it was the longest bull run in US history.

[0]: https://www.supermoney.com/inflation-adjusted-home-prices/

[1]: https://dqydj.com/sp-500-return-calculator/

[pas]

Piketty tried to analyze this, and the idea is to have a minimal wealth tax. (I have no idea what's the current best evaluation/assessment of his work and this idea, but Land Value Tax is something many economists already favor, and it'd help decouple the pain of growing cities from housing as an investment.)

So similarly there is probably some sense in trying to counteract low-interest-rate inflated asset bubbles via some kind of tax or other financial structure. (A progressive capital gains tax might help, but that might just make markets less efficient by introducing a chilling effect on the high end.)

In the end this is a purely political question, because obviously the problem is not that it's unfair that some very "desirable" assets price inflates, but that the majority of the population did not have the means to buy into it before the inflation happened to reap the capital gains.

There's already serious trouble due to inequality. (The recent protests about police brutality follow a long series of other symptoms that highlight how socioeconomic inequality manifests and persists on an ethnic level.)

[mixmastamyk]

> inflation is in the asset prices. The rich… get richer

Numbers rising don’t equal values rising, the definition of inflation. It benefits borrowers as well.

[misja111]

Exactly this. The FED and the ECB have been printing money like crazy for years, however this money did not go to the man in the street but to banks and indirectly to other financial institutions. And those don't spend their money in the grocery store but in the stock market.

The classic economical laws are not broken, they are still in full effect and we see their effect in the inflated share prices.

[pas]

It doesn't "go" to financial institutions, it goes through them. (Of course they make a "healthy" profit. Though it's arguably too much, if this many banks can survive: https://www.statista.com/statistics/184536/number-of-fdic-in... )

So who is buying equity (so stocks)? And one argument is, that "retail investors" are driving this. (So end users, the folks on the WallStreetBets subreddit, and whoever uses RobinHood, or anyone that puts money into a passive index fund: https://www.reddit.com/r/econmonitor/comments/hnohi6/us_equi... )

Also savings increased a lot, since people were not spending (they were staying at home), so where to put the money? They put it into index funds.

[mrep]

Meh, most of what they are buying is just our own governments debt [0]. Now, you can certainly argue investors are buying more equities now that there aren't as many treasury securities to buy, but equity returns aren't even abnormal from historical returns. Inflation adjusted Annualized S&P 500 Returns with Dividends Reinvested for the past 15 years are 6.738% versus 7.690% for the 15 years before that [1].

[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm

[1]: https://dqydj.com/sp-500-return-calculator/

[stult]

You're comparing one of the strongest economic expansions in US history (1991-2001, brief, small recession, then 2001-2007, stopping at 2005 of course) to a period bookended by two of the worst recessions in US history (2007, 2020). It should be concerning that equity returns don't differ very much. That means they aren't correlated with the underlying economy.

[mrep]

The great recessions was definitely one of the worst, but it was followed by the longest bull run in the history of the united states and it is way to early to claim this crisis as being one of the worst recessions in US history.

[aaronblohowiak]

This is the most important and often under-looked thing in this whole thread. This will further lead to wealth gaps and difficulty for working people to "get ahead".

[elliekelly]

I think we're long past the days when working people were trying to "get ahead" and they are now just trying not to fall too far behind.

[charwalker]

And that is on top of the mismanagement of PPP funds after the IG over that was fired and replaced with a loyalist. We are only starting to see where billion of tax dollars went including a large chunk to churches and millions to Kanye West and campaign donors/supporters. If one has an issue with looting by protestors, they really need to look at the looting by the wealthy. Not just PPP loan abuse but also historically low tax rates and a pass for environmental abuse too.

[aaronblohowiak]

This is an inherent problem with need-based things -- they are ripe for abuse. If you have universal things, the abuse is part of the design ;) IOW: if instead of PPP being only for certain kinds of companies or institutions it were all of them then a) there is far less to administer b) they get more support and c) you dont have moralistic temptations or arguments. UBI vs SSI, universal healthcare vs medicare, etc etc.

Yes, this means wealthy people will get the same checks as the poor -- but that is a feature, not a bug. Sorry for the soapbox.

[charwalker]

There was oversight for PPP, but the president fired the IG over the program and replaced them with a loyalist right before the fund went live. The administration then refused to provide data on who got loans until sued. Now we know that the Sec of Transportation and husband Mitch McConnell, the new USPS head who appears to be trying to crush mail in voting internally, and many other government officials received loans for millions. If one was to condemn protesting due to looting, imaging the response to misappropriating billions in tax dollars to corporations, supporters, and corrupt officials.

[cephaslr]

This seems likely to me, lots and lots of money injected and consumer prices are stable yet art, real estate in desirable urban locations, equities, and some categories of luxury goods/experiences are soaring. Am I wrong?

[AnimalMuppet]

Yes and no. You're right about what happened in the aftermath of 2008, though it took a while to get there. You're wrong (so far) about what's happening in 2020. Currently, the market (or at least the Dow) is down about 10% from its high.

[bob33212]

People are chasing gains. TSLA has at a chance of succeeding at either autonomy or cheap energy storage. If that plays out it could be a 500B company in 8 years. Why not get in now with a hope of a 6% annual return?

[sudosysgen]

If you're looking at which company is most likely to achieve a breakthrough in battery tech, Tesla isn't where you should be looking.

[charwalker]

For the record, I support this view. CPI inflation does not track with individual financial assets/tools or specific costs like education.

[mrfredward]

Printing money to get through a recession vs printing money as the primary way of funding government programs are wildly different things. The mere suggestion that U.S. officials were serious about running a deficit of a large percentage of GDP could send people fleeing U.S. dollar denominated assets, and thanks to the exchange rate effects cause a spike in inflation before the programs even started.

The thing that makes a green piece of cloth valuable is the powerful government and the massive reserve bank behind it. If a dollar bill starts to look like an IOU from an entity that has no capacity to pay, it will be valued as such.

[qqqwerty]

We haven't even rolled back the quantitive easing from the last recession. These financial rescues are now becoming permanent fixtures on our balance sheets. At least with health care, we would have something to show for these massive injections of money. Instead we just get inflated asset prices and growing wealth inequality.

[pas]

Why is it a problem that they are still on the balance sheets? The instruments that have maturity will eventually vanish on their own, and the Fed can sell off the rest later.

It's better to do QE than "wait out" a recession, or wait for Congress. (Plus QE keeps the national debt service costs down too.)

The asset bubbles are not the real signs of inequality. After all, if every US citizen would have some savings and some of that in passive index funds, no one would complain about this. The problem is that people have no money, no disposable income, no savings, no job security, etc.

[charwalker]

I think the comment above is suggesting that, either instead of or alongside, current Fed cash injections and distributions by the Treasury we need to push for and implement programs that leverage us out of the QE cycle. A universal healthcare system, student loan forgiveness and free or reduced cost education, a basic income over complex safety net benefits, that sort of thing. As it stands, QE is preventing a massive crash but it's not a long term solution.

[pas]

I'm all for universal and single-payer healthcare, education reform, basic income (negative income tax is the best version of UBI), and so on.

But still, QE might be here to stay. It's hard to stay, I know very-very little about these things. (Even compared to - let's say - healthcare costs [see https://randomcriticalanalysis.com/ ].)

[mwfunk]

Have they been printing money? Has more USD been created, physically or virtually? This is something I don't understand, I'm hoping someone here can explain it.

I was under the impression the last 40 years of US deficit spending has been mostly financed by selling US bonds to China, Japan, etc., while counting on growth and inflation to take the edge off when they come due. And selling more bonds instead of defaulting, so the debt just keeps growing. Printing money causes inflation but not deficits or lingering debt.

I don't know though, I'm not an expert. I would appreciate any corrections or clarifications from anyone.

[svachalek]

At a large scale, the question "what is money" actually gets pretty complicated. This may help:

https://www.khanacademy.org/economics-finance-domain/ap-macr...

[msteffen]

Yes--see https://www.investopedia.com/ask/answers/082515/who-decides-... under "How the Fed Creates Money With QE":

"The Fed can indeed create money "out of thin air." To be more precise, it does so with keystrokes on a computer. This was illustrated with its QE program, also known as open market operations. That's when the Fed buys an asset from a financial institution and pays for it with money it simply creates."

[thorwasdfasdf]

and i know this is technically fully legal. but conceptually, it seems like fraud. I mean, they're just creating money at will and buying up assets. if anyone else did that, they'd be in jail.

[lumost]

The Fed is playing off the same dynamics as fractional reserve banking. This has been the standard form of banking for ~2-3k years, and allows a bank operating in its own currency (Bank Notes) to create arbitrary amounts of money. This is the same process by which loans are generated.

https://en.wikipedia.org/wiki/Fractional-reserve_banking

[brobdingnagians]

It is wealth transfer from the people to the government; the Romans did it, until their economy collapsed from the strain of perpetual warfare and government spending [1]

[1] https://en.wikipedia.org/wiki/Roman_currency#Debasement

[pas]

but it's not anyone else, it's the central bank of the USA, as mandated by Congress.

they provide price stability (by keeping the money supply corresponding to the demand) and they try to maximize employment (by helping the economy through providing liquidity, every central bank is the "lender of last resort" but that's for emergencies, usually they operate simply by providing forward guidance and conducting open market operations to keep the interbank interest rate close to the target rate).

don't think of them like just a bank, it's more like the Mint, combined with an expert panel that tries to smooth out the fluctuations of the economy ( https://en.wikipedia.org/wiki/Real_business-cycle_theory )

Also, as long as they don't try to get clever - like the Bank of Japan did with strategic loans ("window guidance" back in the 80s).

[mrep]

Most of those assets they are buying are just our own government's debt and the profits they make from it (100 billion dollars in 2015 for example) go right back to our government reducing our budget deficit. I don't understand why people get so upset about this especially considering basically every country is doing this.

[pas]

Generally lowering the interest rate causes inflation only if the economy is already at capacity.

Printing money to keep up with economic growth is also an important function of central banks.

Deficit spending is ultimately simply financed by paying off the debt in the future via taxes. (And the growing economy and the stable but low inflation helps with this.)

[frandroid]

Look up Quantitative Easing, since 2008