How will Fed bailing out banks increase inflation?

[avikz]

So we all heard now the Fed provided liquidity to all these banks which had tons of unrealized losses due to their bond portfolios.

This is an expected behaviour of a regulatory agency. It's not just in US, rather Central banks all over the world steps in when they see a need for stepping in to revive a bank. Economy largely depends on the circulation of money and that's why banks are important.

The fed balance sheet basically erased months and months of declines in the last week due to this. Now my question is will this increase inflation or not?

Nope! This is money getting circulated in the economy. FED is not expected to print money here. Unless they are printing new money, there's no impact on inflation to a huge extent.

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[odolvlobo]

You might claim that inflation lags the money printing, but how long is that lag? How do you explain the low inflation rate for the 13 years between 2008 and 2021, even though the USD monetary base increased by 500%.

I explained it to you in the post just above this one but you chose to ignore it. Inflation measured as CPI is manipulated downwards by governments, and does not take into account asset inflation. To the supposed low inflation of those 13 years, add the inflation of assets like Real Estate, stock market and Bitcoin among others and you will see where the FED's money has gone.

I don't subscribe to the manipulated CPI conspiracy theory, but the asset inflation is a good point.

[Wind_FURY]

You might claim that inflation lags the money printing, but how long is that lag? How do you explain the low inflation rate for the 13 years between 2008 and 2021, even though the USD monetary base increased by 500%.

I explained it to you in the post just above this one but you chose to ignore it. Inflation measured as CPI is manipulated downwards by governments, and does not take into account asset inflation. To the supposed low inflation of those 13 years, add the inflation of assets like Real Estate, stock market and Bitcoin among others and you will see where the FED's money has gone.

I don't subscribe to the manipulated CPI conspiracy theory, but the asset inflation is a good point.

The effects are not instant. It could take months to years before a policy from the Federal Reserve/a Central Bank could take effect in the entire economy.

Asset inflation happened because the money newly printed goes to those entities who have first access to them. The government, the banks, the rich and wealthy. BUT do we really expect that all that printed money would never go down to the lower parts of the system, to the plebs? Inflation will happen sooner or later.

[Kakmakr]

In my country inflation are manipulated by adding or removing products or goods to the inflation basket that has minimal impact. The inflation statistics are a poor reflection of the true inflation in the country. Example : Vegetable Oil went up the most and it was removed from the inflation basket. 

The Reserve Banks play "smoke & mirror" games with the money printing and inflation and citizens does not understand the long-term impact of those measures.   

[Wind_FURY]

In my country inflation are manipulated by adding or removing products or goods to the inflation basket that has minimal impact. The inflation statistics are a poor reflection of the true inflation in the country. Example : Vegetable Oil went up the most and it was removed from the inflation basket. 

The Reserve Banks play "smoke & mirror" games with the money printing and inflation and citizens does not understand the long-term impact of those measures.   

Haha, that's true! The devil is always in the details. In the United States' inflation data, there was a month when there was a reduction in inflation, I don't remember the month or if it was a month-on-month reduction or a year-on-year. But what it really was, there was one item in the inflation basket that had a very high reduction in price, I think 50%, which distorted the data. Do you know what that item was? Flowers. They prolly added it in the inflation basket after Valentine's Day.

¯\_(ツ)_/¯

[jrrsparkles]

You might claim that inflation lags the money printing, but how long is that lag? How do you explain the low inflation rate for the 13 years between 2008 and 2021, even though the USD monetary base increased by 500%.

I explained it to you in the post just above this one but you chose to ignore it. Inflation measured as CPI is manipulated downwards by governments, and does not take into account asset inflation. To the supposed low inflation of those 13 years, add the inflation of assets like Real Estate, stock market and Bitcoin among others and you will see where the FED's money has gone.

I don't subscribe to the manipulated CPI conspiracy theory, but the asset inflation is a good point.

The effects are not instant. It could take months to years before a policy from the Federal Reserve/a Central Bank could take effect in the entire economy.

Asset inflation happened because the money newly printed goes to those entities who have first access to them. The government, the banks, the rich and wealthy. BUT do we really expect that all that printed money would never go down to the lower parts of the system, to the plebs? Inflation will happen sooner or later.

Yeah you're right, this may not create an instant negative impact such as uncontrollable inflation but the money will roll out to the lower end sooner because rich people is controlling the business and banks so when they are going to withdraw money then it will go to the hands of other side which ends up in circulation so there will be inflation due to this. But FED did this to revive the bank and that's what we can expect from the Central Bank.

[Alpha Marine]

I don't think the Fed bail-out increases inflation. The money doesn't go back into circulation.
Increased rates led the banks to a state where they required bailouts. The reason for the increased rates was to curb inflation. This is based on the theory that higher interest rates will reduce borrowing and spending. While this does not always work, it's working in this case because even if the banks are kind of safe to an extent right now, the lending, spending, and investment expansion have been reduced, thereby reducing inflation rates.

[Hispo]

My opinion is that at first glance those measures should not generate as much inflation as a direct injection of money into the system would, it will create some because there will be an increased of theorical supply, which may be the addition of the unrealized value of the bonds added to the cash which the clients of the bank are receiving from the government in form of artificial liquidity.

In the end it is all matter of whether those banks will be able to recover the money form their investments to pay back the FED, otherwise, the USA government is slowly buying positions on a future bankrupted bank without knowing about it, turning all that situation into a bailout. Bankers save their money, and goverment takes the hit, what people forget sometimes is that the taxpayers are the ones who indirectly pay the bailouts. The money comes from them.

[sana54210]

My opinion is that at first glance those measures should not generate as much inflation as a direct injection of money into the system would, it will create some because there will be an increased of theorical supply, which may be the addition of the unrealized value of the bonds added to the cash which the clients of the bank are receiving from the government in form of artificial liquidity.

In the end it is all matter of whether those banks will be able to recover the money form their investments to pay back the FED, otherwise, the USA government is slowly buying positions on a future bankrupted bank without knowing about it, turning all that situation into a bailout. Bankers save their money, and goverment takes the hit, what people forget sometimes is that the taxpayers are the ones who indirectly pay the bailouts. The money comes from them.

Even the word of it makes it go up, that is the point. Like if you "say" you printed 1 trillion dollars, even before you print it, there will be price increases. Economy is as much numbers as it is psychology and that is a known fact. You could even fake it, not really print anything but the president could go out and said you did and the economy is in shambles, and then it will be in shambles, it will get worse.

Data haven't changed, numbers haven't changed, you did absolutely nothing, you just made president say 2 sentences, and suddenly it al goes terrible, that is how it works. This is why inflation with more printed money is a reality, it's both bad in amount and impacts it, but also terrible for the psychology of the market at the same time as well.

[Hispo]

My opinion is that at first glance those measures should not generate as much inflation as a direct injection of money into the system would, it will create some because there will be an increased of theorical supply, which may be the addition of the unrealized value of the bonds added to the cash which the clients of the bank are receiving from the government in form of artificial liquidity.

In the end it is all matter of whether those banks will be able to recover the money form their investments to pay back the FED, otherwise, the USA government is slowly buying positions on a future bankrupted bank without knowing about it, turning all that situation into a bailout. Bankers save their money, and goverment takes the hit, what people forget sometimes is that the taxpayers are the ones who indirectly pay the bailouts. The money comes from them.

Even the word of it makes it go up, that is the point. Like if you "say" you printed 1 trillion dollars, even before you print it, there will be price increases. Economy is as much numbers as it is psychology and that is a known fact. You could even fake it, not really print anything but the president could go out and said you did and the economy is in shambles, and then it will be in shambles, it will get worse.

Data haven't changed, numbers haven't changed, you did absolutely nothing, you just made president say 2 sentences, and suddenly it al goes terrible, that is how it works. This is why inflation with more printed money is a reality, it's both bad in amount and impacts it, but also terrible for the psychology of the market at the same time as well.

Perhaps it is also about choosing the least psychologically negative measure. What you say makes sense, but we also need to consider how the people would feel psychologically if banks started to fail and lack liquidity, prompting people to run to their banks out of fear.

We should not underestimate the goverment and the steps they take to cold down the negative perceptions and preserve the trust of the investors and those who deposit their money in the traditional banking system. In that sense some inflation may be not so bad in comparison to massive defaults.

[Fortify]

So we all heard now the Fed provided liquidity to all these banks which had tons of unrealized losses due to their bond portfolios.

The fed balance sheet basically erased months and months of declines in the last week due to this. Now my question is will this increase inflation or not?

Because this money doesn’t go to the people to spend. All it does it prevented a customer from losing all their money over $250K. They provided the liquidity and most likely will give the money back once the bonds mature in 10 years time.

What does everyone think of the feds actions?

It just goes to show that the illusion of central bankers being highly skilled, professional forecasters and experts in monetary policy is a joke. They bumble along in the good times, aka the easy times, but in moments of panic they are marginally less clueless than the average person on the street and quite often make poor decisions. For example if they were wise they would not have left rates so low for so long, it allowed all this cheap money to flood and slosh around in the market but when inflation went crazy they had to tighten up so sharply it threw the whole economy out of tilt. Now they're going to cause pain for a lot of people, people borrowing loans and mortgages, probably forcing a recession with the blind aim of bringing down spending & hoping prices for fall.

[Iadegbola34]

It's true that they provided liquidity to banks that were facing significant losses due to their bond portfolios, and this did erase months of declines in the Fed's balance sheet. However, the question remains as to whether this will ultimately lead to inflation.

It's worth noting that the money provided by the Fed isn't going directly to consumers, so it's not necessarily going to drive up demand and prices. Rather, it's helping to prevent customers from losing their money if banks were to fail. And as you mentioned, the Fed will likely get their money back once the bonds mature.

It's difficult to predict the long-term impact of these actions, but for now, the Fed is doing what it can to stabilize the financial system and prevent a larger economic crisis. It's understandable to have questions and concerns about their approach, but hopefully, we'll see positive results in the coming months and years

[Smartvirus]

It's obviously there business. The fiat currency is there product and the banks helps them to act as its custodians but, the feds are very much in the business of its management so, bailing out its custodians to ensure there is trust between the banking system and its customers is definitely what the feds would like to keep going.
Unfortunately for the rest of us, it is a manipulation in the scale of things which would in most cases have a negative effect and that is inflation. Your actually pumping more money into the system and that has got to effect price by some means. Price becomes unstable to accommodate and suck up the excess cash in circulation until it stabilises. It's there business and they've been working it goo.

[Don Pedro Dinero]

I don't subscribe to the manipulated CPI conspiracy theory, but the asset inflation is a good point.

As for the 'conspiracy' just look a couple os posts below:

In my country inflation are manipulated by adding or removing products or goods to the inflation basket that has minimal impact. The inflation statistics are a poor reflection of the true inflation in the country. Example : Vegetable Oil went up the most and it was removed from the inflation basket. 

That is just one example. The 'conspiracy' is not to say that if the CPI says inflation is 3%, the real inflation is 30%, but surely 6 or 7%, which is not so outrageous in absolute terms but in percentage terms (100% higher or more).

Although I suppose if governments changing the basket that makes up the CPI is seen as a conspiracy, I'm not going to convince you.

[gunhell16]

Even when inflation really becomes the headache of all countries around the world in the past few decades until now it has not disappeared or been eliminated. The number one hit is the banks and stocks in the market, in short, the economy of each country is really affected.

I hope they can fix this somehow, although the one who really benefits from this happening is the government anyway because the government will not agree that they will not get anything.