Stimulus checks effect on inflation??

Question

Why is it that no one is talking about the potential inflationary effects of putting $168 billion of (new money) on the market in a little under 3 months?

Also, why do I get a strange feeling that the CPI numbers to be released on friday will to staggering??

Answer 1

You are correct. Nobody wants to talk about the inflation of the money supply. The reason is simple 99.999% of the people think inflation is the rising of prices. That is like saying that wet streets cause rain. It doent. Wet streets are the effect of rain not the cause of it. The rising of prices is the effect of inflation not the cause of it. Inflation is caused by an increase in the money supply deluting the value of the existing money. Just as stocks are deluted when a new public offering is announced.

As for the CPI, that doent measure inflation. They strip out food and energy. True inflation is running at over 17%. Its called M3. The FED stopped issuing the M3 data in 2006 to prevent Congress from finding out the true inflation. Today M3 is figured by private sources. The total amount of money in circulation is $18.1 trillion. Therefore the Stimulus checks inflated the total money supply by 0.93%, or almost 1%.

Answer 2

There are so many forces at work on driving up inflation that I doubt one more will even be noticed.  We have the free money policy of the Fed.  We have the demand/supply equation for energy and food.  We have China and India taking their places in the world economy.  We have a president that squandered out natural resources in Iraq.  

Sort of surprises me that inflation is not 3x what the government reports it as.  Mine certainly is.  Of course we all know how the government lies to lie.

Answer 3

A few people are talking about it.  But it isn't popular because everyone likes "free" money, and doesn't want to think about where it comes from (a loan to ourselves) or what its side-effects might be (inflation).  That's why few talk about it.

I don't think the CPI numbers will be all that bad, simply because government data always has a tendency to lag and look "prettier" than it actually is.

Answer 4

The majority of people are using the checks to pay for bills which have already been incurred.

Answer 5

I agree with Schwartz. People are using it to pay down bills and existing debt. Hopefully this will cause a decline in borrowing and actually have an anti-inflationary effect. Either way, the effects of this will likely not be seen for six months to a year.

Answer 6

It's not really "new" money - it's just redistributed - and for the average person - it's not enough to make much of a dent in anything.

Answer 7

$168 billion of new money is not such a big amount compared to the many trillions of dollars of new money created in USA recenly.

USA allows its banks and various financial institutions to create new money through a mechanism called 'fractional lending'.

Basically, when a bank has some money from investors and depositors.  Then the US government allows this bank to lend out to others many times the amount of money it actually has.  A bank may have only $5 billion dollars.  But it can lend out $50 billion or more.  That's why you read in financial news once in a while that some financial company is 'leveraged' 10, 20, 30, or more times.

A lot of US financial companies have been leveraging themselves like this a lot in recent past.  Which means that they've been creating new money like crazy.  Many trillions of dollars they have created.  And this new money has been used to pay for US government deficits, for the US trade deficits, and to inflate the housing prices.

A lot of this new money is now in the hands of foreigners who have sold oil and various goods to USA.  These foreigners have a lot of dollars to spend.  And it's their spending that is now causing inflation in comodity prices, oil, and all the things they produce for export to USA.

Oil producing countries such as Saudi Arabia, Russia, Venezuela, and others now have a huge inflation problem.  Their prices are going up like crazy.  And this means that they want more money for their oil, when they sell it to USA and to other countries.

China, India, Vietnam and other exporting countries also have have a huge problem with inflation.   Their prices are going up like crazy.  And its only a matter of time before they too will want more money for the goods they export and sell in USA.

Basically, we have a global economy where the US dollar is used for trade and exchange.  And the recent enormous creation of new money in US dollars is now causing global inflation.  It's only a matter of time before this inflation will reach USA too.