What impact of printing a lot of money on inflation and Bitcoin

[wnctalker]

6 trillion U.S. dollars will be pumped into the U.S. system alone, that is about $48,000 per family if distributed evenly (definitely not). What is your estimated impact on inflation in half year, 1 year, 3 years etc, and on Bitcoin?

I read from the great book "The Bitcoin Standard" that U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years., but the actual average yearly inflation seems to me like about half of those numbers. Is it false or something like improved productivity due to improved technologies, more efficient business models, or profits/wealth taken from other countries that keep the inflation much lower than printing money?

Thanks for any comment and discussion.

[gmaxwell]

The relationship between the change in prices and the supply of money is complicated.  The classic econ-101 equation is MV=PQ-- you can inject arbitrarily large amounts of money without increasing prices, so long as the money doesn't circulate (or offsets a loss of circulation elsewhere).

Personally I wouldn't expect immediate inflation from the stimulus as it's being injected into a massively slowed economy. Longer term? interesting question.

There is just as much to ask about the effect of low interest rates on velocity... An additional 6 trillion dollars has an additive effect on the MV side of the equation, interest rates have an inversely multiplicative effect.

 

[wnctalker]

Thanks for the quick reply and education on Econ 101. I am still very much puzzled why the inflation rate has been so low for so long (decades) in the U.S. (~3%? per year), China etc in apparent big conflict with what economic theories prescribe, and what trigger the supper inflation in other countries. If printing huge amount of money periodically (e.g., after 911, 2008-2009, currently) will not cause big inflation over the long run (years or decades as in the U.S.), we should welcome more such money pumping, Econ 101 needs to be revised and most people's understanding or faith in Bitcoin's superior advantage over fiat currency (or at least U.S. dollar) may be wrong.

Would appreciate any input from any angle

[mk4]

Technically since the fed is doing so much printing, we would expect the USD's value to somewhat drop. But actually, the USD has gained value recently(against SGD, AUD, etc) due to I assume people moving their funds to USD because of the USD being stronger than currencies of most countries. As for long term, ones the epidemic dies down, I have zero idea.

As for bitcoin, currencies of some countries doing more and more quantitative easing should theoretically be a good thing. But let's don't forget that most people today are still holding bitcoin as a speculative investment rather than a hedge.

[kryptqnick]

6 trillion U.S. dollars will be pumped into the U.S. system alone, that is about $48,000 per family if distributed evenly (definitely not). What is your estimated impact on inflation in half year, 1 year, 3 years etc, and on Bitcoin?

I read from the great book "The Bitcoin Standard" that U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years., but the actual average yearly inflation seems to me like about half of those numbers. Is it false or something like improved productivity due to improved technologies, more efficient business models, or profits/wealth taken from other countries that keep the inflation much lower than printing money?

Thanks for any comment and discussion.

I am pretty sure that all this financial aid money will come from overprinting banknotes and hoping that hyperinflation does not come. And maybe it won't, but the US is definitely playing with fire here. Even before the pandemic, I've been writing about my concerns that the next global economic crisis which would hit Earth around 2020 is going to result in the collapse of the most trusted fiat, such as USD and EUR. With what's happening in the world right now, this is even more likely to happen. Especially with USD because Trump's reaction to the pandemic is still ridiculous, and the US is now the country with the largest amount of active cases. They've been thinking about the economy, but they'll have to think about healthcare very soon.

[20kevin20]

The numbers are very scary indeed. I bet there are unofficial numbers too besides those you've mentioned.. I guess the impact overall is diminished through various ways so we don't feel it, when in fact the truth is horror.. hence the inevitable recession.

Bitcoin will most likely show the true change months after we're buried in this situation. Everything is too uncertain right now to know for sure which way we're going, but one thing is sure: the economy is collapsing. If Bitcoin gets to pass this first stage of the recession successfully, I'd personally expect a big positive change of Bitcoin's price.

On the other markets, I'm expecting exactly what happened to the Hungarian Pengo. Those who have missed buying some toilet paper will probably be able to use the dollar bills to wipe their ass because it's gonna be worthless. They're still trying to hide the real face of the economy, but you can already see it won't last much longer.

[Nadziratel]

This was a situation we already knew for a long time. All FIAT currencies are assets that are designed to be playable at any time. The US government can steer the market as it wishes by increasing or decreasing money emissions. As long as the export advantage is in hand, this will continue like this. This increase in money supply has a chance to reflect positively on Bitcoin price. But nobody knows what will happen in the future.

[avikz]

6 trillion U.S. dollars will be pumped into the U.S. system alone, that is about $48,000 per family if distributed evenly (definitely not). What is your estimated impact on inflation in half year, 1 year, 3 years etc, and on Bitcoin?

I read from the great book "The Bitcoin Standard" that U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years., but the actual average yearly inflation seems to me like about half of those numbers. Is it false or something like improved productivity due to improved technologies, more efficient business models, or profits/wealth taken from other countries that keep the inflation much lower than printing money?

Thanks for any comment and discussion.

Let me analyze it little for you. Printing free money is not a great step at all because it reduces the purchasing power of a currency. Every government prints money to deal with the inflation rate and to align the economy accordingly.

Let's assume a government has $100 in its treasury with this amount they can buy a bag of rice in 2019. Now the central bank of that country calculates the inflation rate as 7%. So the government will have to print $7 to be able to buy that same bag of rice in 2020. There are other factors as well, but largely it is the main concept. This is called purchasing power.

Now when a country prints money without looking at the inflation rate, it decreased the purchasing power of that currency which in turn creates hyper-inflation. We have two classic examples available, Zimbabwe and Venezuela. You can Google about it to know more.

So I expect bitcoin to see a huge increase in coming future because bitcoin is deflationary by nature, while the purchasing power of US will certainly go down at the same time. Hope this makes sense! 

[carter34]

The American system has a way of regulation to avoid inflation. I guess if they have pumped in money to the system, they are looking for stimuli to drive the economy again and if that starts happening and the economy gets to respond, they are likely to increase interest rate which will enable the system to suck back the money pumped in form of interest. I think pumping in money is a way to regulate and control the economy.

[fiulpro]

When we are talking about the printed money and inflation they won't be changing the price of Bitcoins directly.
The outcome of printing more money will do so.
That is inflation .

Inflation will affect every part of the society and therefore Bitcoins will also be the one getting hanged in the system.
The more the government prints , the lesser will be the value of their money .
If they increase the printing of money by the percentage you stated then in less than15 years , their money will be less than half of the value and the people will be affected a lot worse .
I

[Lizzylove1]

Printing trillions of dollars from thin air is courting for trouble, but the people need a stimulus package but trillions of USD is huge and could crash the fiat based system of money. I watch a video by a Canadian billionnair last year that the USD may collapse this year but I don't know how this is going to happen.

[squatter]

Now when a country prints money without looking at the inflation rate, it decreased the purchasing power of that currency which in turn creates hyper-inflation. We have two classic examples available, Zimbabwe and Venezuela. You can Google about it to know more.

It remains to be seen what the inflation rate will look like in several years time. gmaxwell makes some good points as to why immediate inflation shouldn't be expected as a result of the stimulus, let alone hyperinflation.

[wnctalker]

None of the replies or comments above has addressed my questions: According to "The Bitcoin Standard" book,  U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years or decades. Why the actual average yearly inflation rates seem to be less than half of those numbers? Why the huge injection of U.S. dollars after 911, 2008-2009 Great Financial Recession, and 2020 Health and Financial crisis don't seem to cause any jump in inflation but only the mild or steady inflation many or most people desire?

We need more experts' input!!! Thanks.

[johnyj]

None of the replies or comments above has addressed my questions: According to "The Bitcoin Standard" book,  U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years or decades. Why the actual average yearly inflation rates seem to be less than half of those numbers? Why the huge injection of U.S. dollars after 911, 2008-2009 Great Financial Recession, and 2020 Health and Financial crisis don't seem to cause any jump in inflation but only the mild or steady inflation many or most people desire?

We need more experts' input!!! Thanks.

Normally when you pump in lots of money, you should have corresponding increased products/services/assets that can be traded with those money. That is what happpened in China, their money were used to modernize their country that billions of people are living

But this time, due to the total lock down of the whole city and whole country, transport is disrupted world wide, there are less products, services and assets available to be traded. If the virus can not be controlled in a few weeks, then there will be shortage of many things in every shop. Even with purchase quota, those who simply double the price will have no problem to sell. Unless the whole country fall into a communist model that uses planned economy, there will be run away inflation, because now everyone have received some cash, unlike 2008 that only banks received the money

[bgaf]

We need more experts' input!!! Thanks.

I am not sure what answer you are looking for, but inflation doesnt work that way. You see figures that you did mentioned cant be followed because there are politicians who trapped those supposedly used money on goods and services. Production level on different sector cant increase it as we are having a huge crisis here. Same like what happened before, as you mentioned there is a huge dollar injection during 911 attack but inflation doesnt increase than supposed to be needed. Corruption is the answer. The money has been shattered into dots of those selfless politicians instead boosting one's economy. Nice discussion OP.

[Darker45]

Injecting as huge as 6 trillion USD in the economy by way of stimulus is definitely a cause for a much higher inflation. But I guess monetary, economic, and financial experts could also put up mechanisms to curb the rising of prices especially in times of crisis or calamities. The current situation calls for it. There must be efforts to somehow balance out its effects. For sure, profiteering is a grave offense in times of disaster like we are right now. Sooner or later, when the dust of this crisis settles down, the government could also shrink the amount of circulating money to control inflation to a tolerable rate.

[Debonaire217]

As per my basic understanding of economy, one government and country could only print money based on their economy, their income, GDP, GNP, and other factors affecting it. They couldn't just print any amount they want because it can incur price inflation just like what happened to Venezuela and Zimbabwe wherein they encounter a hyper inflation because they tried to pay their wages by printing more money. As a result, people are buying groceries with lots of cash, they are sometimes called, poor millionaires.

Meaning to say that, if printing of money in US or other country is based on economy, and it is logically increasing over time, it has a positive impact to the market of bitcoin as more people have the chance to convert more fiat currency to BTC.

[Kurokonobasuke]

Printing more money doesn’t increase economic output because it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, so that there’s a shortage in a product. And the price of the bitcoin will also go down. So that printing more money is not a solution for the economic growth.

[Wind_FURY]

The relationship between the change in prices and the supply of money is complicated.  The classic econ-101 equation is MV=PQ-- you can inject arbitrarily large amounts of money without increasing prices, so long as the money doesn't circulate (or offsets a loss of circulation elsewhere).

Personally I wouldn't expect immediate inflation from the stimulus as it's being injected into a massively slowed economy. Longer term? interesting question.

There is just as much to ask about the effect of low interest rates on velocity... An additional 6 trillion dollars has an additive effect on the MV side of the equation, interest rates have an inversely multiplicative effect.

 

This might actually be a sad event for the lower-class. Yes immediate inflation won't be felt by the economy, BUT, the only people who have close-access to the newly-printed money, are mostly ONLY the upper-class.

Once the newly-injected money finally reaches the lower-class, inflation has already been felt.

[DooMAD]

It remains to be seen what the inflation rate will look like in several years time.

It's also difficult sometimes to know what the real rate of inflation is.  Different governments use different formulae to calculate it, giving the impression that they prefer to fudge the numbers a little to make the situation appear less dangerous than it really is.