[telephone2]

People seem to forget that 6 trillion dollars of liquidity was injected into the US monetary supply in 2020 (close to a 50% increase in the total USD monetary supply). The 2008 financial bailout popularized by "The Big Short" pales in comparison to what happened in 2020. While there are situations where creating liquidity via monetary policy is necessary - it sucks that it directly impacts the savings and wages of everyday people through inflation.

Total bitcoinization would be dystopian but as a lifeboat against the inexorable spread of the negative side effects of inflation and the skyrocketing price of assets due to the cantillon effect - it is remarkably effective.

Hate to be a parrot but... "zoom out".

[arcticbull]

Can you find any article anywhere which quantifies the magnitude of the Cantillon effect because I certainly have looked and found absolutely nothing.

Crypto is hardly inflation-proof, with major cryptos having fallen 80% or more in the last 6 months putting it on pace with the Lira - if you then adjust it for inflation you lose another 10%. It's somehow managed to do all that in the single most inflationary period in 50+ years. I was pretty sure we'd given up on that silly narrative. Crypto is a high-beta speculative play on US dollar liquidity in the global financial system, not a hedge on inflation.

Wanna save money from inflation? Buy some I-bonds.

So uh, zoom back in ;)

[edit] Also, liquidity per (as defined by the size of the Fed's asset book) se isn't really correlated with asset prices, which is why we're doing interest rates. I recommend listening to the Odd Lots podcast with Kashkari in re: inflation.

[imtringued]

Honestly, the cantillon effect is a red herring because any form of spending, it doesn't matter if the money is physically printed as a bank note with no debt backing it or simply spent from savings in a gold standard. If you divide the economy into two sectors, your bank account and the rest of the economy, then spending off your bank account will create a net increase in the money supply in the rest of the economy, this will raise prices in close proximity to you. Or in other words, the cantillon effect describes how price signals propagate through the economy. The strange thing is that people have this fixation on "printed" money causing inflation but as I mentioned, the cantillon effect also applies to normal spending of money that was received via taxes. If you ban the "printing" of money as we have already done by establishing central banks the cantillon effect remains.

Where do we find proof of the cantillon effect then? Government spending as a percentage of GDP and subsequent public sector employment but then again, this isn't something new, it is boring and obvious, not some conspiracy of the government scheming against you.

[soared]

How would crypto be immune to inflation? If prices of housing, assets, etc go up, crypto does too.

[imtringued]

Bitcoin went down from 68k USD to 20k USD...

[skybrian]

USDC isn't a inflation hedge. It's pegged to the dollar, after all. Looking at the chart, Bitcoin is worse than an inflation hedge for anyone who bought in 2021 or later.

If you're worried about inflation then I-bonds seem like a less risky way to handle this. (Though the limits are too low for many people, and the website is pretty bad.)

[imtringued]

RAI isn't really meant to be an inflation hedge but in theory people can create a price index and then index RAI bonds against it which would then allow you to maintain your purchasing power.

TIPS and I bonds are in my opinion the way the economy should work everywhere. Yes it means nominal yields can be negative but the entire point of the concept is that the unit of account should be stable and not inflating. Even if rates are excessively negative, it is still more predictable than inflation and you know exactly how much you are losing and prices will stay the same so your salary doesn't shrink over time.

[skybrian]

What's an RAI bond? My search didn't find anything.