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June 26, 2019, 05:07:06 AM |
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I think that the market has long been dominated by the aftereffects of quantitative easing, and the current thing is just another ripple of that. There's simply a worldwide glut of money.
In QE, the Fed bought MBSes and treasuries, which basically amounted to printing $3 trillion and giving it to everyone who was holding those things; namely, banks and various investors (mostly institutional). For comparison, M3 money supply is currently $14.5 trillion. What do these groups do when they get tons of money? They're investors, so they reinvest it, especially in bonds/stocks, but also in things like BTC. They don't buy food or gadgets or whatever. IMO this is why stocks have been going up at an unnatural rate for a while even though the CPI doesn't grow out of control. Eventually the money makes its way out to ordinary shareholders, but shareholders also have a tendency to reinvest rather than spend, so the process of money escaping the investment universe is slow.
The Fed has been slowly unwinding QE, though they're talking about stopping that (after eating only about a quarter of what they printed). They also continue to print money in their open market operations.
I don't know how this will play out long-term. I suppose that the inflation in investment-asset prices will eventually have to leak into CPI, but it might be gradual enough to not cause a catastrophe. It might end up being a sort of loan, paid to investors, and paid by holders of dollars over the next several decades.
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