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HOT TOPIC The consequences of this massive cash injection

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mon_fi

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While businesses are closed, the governments around the world are massively injecting cash into the system. In normal times, these should trigger inflation and devaluation, but this period is all but abnormal. What will happen once the economy will be back on track? What will be the impact on the system of all that money?
 

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Rivoli

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While businesses are closed, the governments around the world are massively injecting cash into the system. In normal times, these should trigger inflation and devaluation, but this period is all but normal. What will happen once the economy will be back on track? What will be the impact on the system of all that money?
Wouldnt It not change anything? As long as their normal pay checks replace the trumpchecks
 

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I'm a little worried about holding masses of cash right now. It's a good time to have assets in resilient business operations (especially relocatable ones), and/or perhaps to be a net debtor (since presumably you'd be paying back with cheaper money than you borrowed).

I listened to an enlightened representative on the radio earlier, vomiting her brilliant economic theory (it began with a rancid wet burp of Karl Marx).

HER idea was that we need to inject lots and lots of cash into the economy. But absolutely not into successful people's hands... they would waste it by "just sitting on it." No, she asserts, we need to give money to people who will "spend it all right away." Because somehow spending money on crap and not producing anything will save us all, obviously.

Where does the cash come from? We take it away from people. Why do we take it away from people? So we can give it to people? Why do we give it to people? For votes. #fml

So, that's an elected official, with direct inputs into the direction of our economy. If people like that gain full control... start saving money so that you can burn it for fuel in the winter. That's all it will be good for.
 

Silverfox148

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Let's be real here, at this point any cash injection would be used to service debt/landords/etc.

It will absolutely happen in the near term as the whole economy is based upon debt, expect some good sized payments per adult of over 2K monthly.

This would not provoke massive amounts of inflation as the bulk of the money will be used for mandatory debt servicing.
 

Tourmaline

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One big difference is that these are SHORT TERM LOANS.

It's not just money being handed out......
 

Silverfox148

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1 trillion dollar package in the works, I'm starting to wonder if some of the conspiracy theorists are right. I wonder if the government detected some underlying weakness in the economy and are using this crisis to do a massive cash injection at this point to keep the party running.

Awfully convenient, prior to the start of this virus I was starting to detect traces of fatigue in buying/asset prices/equities etc, now here comes this virus and massive cash injections now in the works.
 

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Let's be real here, at this point any cash injection would be used to service debt/landords/etc.

It will absolutely happen in the near term as the whole economy is based upon debt, expect some good sized payments per adult of over 2K monthly.

This would not provoke massive amounts of inflation as the bulk of the money will be used for mandatory debt servicing.
Except that it really will trigger inflation, and here's why I think that. They won't use cash on hand to pay out the money, or if they do they'll finance it with new taxes or debts to keep other budgets from eroding.

So they'll be putting money, a trade medium, into the economy, without increased production. In fact, production is likely decreased because people are sick or laid off. Now, same number of good or services or less, but greater amount of exchange medium. What does it mean? It means that the medium of exchange decreases in value relative to goods and services. The medium of exchange is that green stuff in your bank account :) So when it becomes less valuable unit-for-unit compared to the goods and services you need, you're experiencing inflation.

Now... if they engineered it some other way, and did not increase the amount of cash flowing in the economy, they might dodge inflation. But they would have to sacrifice other projects that they already got your money for, in order to do that. They're already talking about keeping government on payroll while no government services are offered, so you can see where that will go.

We have a second layer of problems because of the currency structure we use. Through the banking system, we create a multiple of debt for every dollar that is issued. The more dollars per unit of production, the greater the urgency to pay back that debt. We've reached over $20 of debt per dollar of actual currency. You can't issue enough for everyone to pay back their debts, because whenever a dollar is issued as a debt through the banking system, 90 cents of that already-owed dollar can be lent out again. Then 81 cents of that twice-owed 90 cents can be lent out. All the way down to the last cent. That's how we end up with more debt than we have money in existence. Pump money faster in a system like that, and all you do is force someone to default. Maybe it's property owners, maybe it's banks, or maybe it's poor folks. But the system has to break somewhere, because it's a rather delicate balloon that is bein inflated rapidly by politicians running a circus.
 

Rabby

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Ahahaha. It amuses me so much that every time I typed "cents" (talking about actual currency) it created a link to "get a full explanation of the CENTS framework. Thanks for making me laugh, @MJ DeMarco .
 

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Silverfox148

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Except that it really will trigger inflation, and here's why I think that. They won't use cash on hand to pay out the money, or if they do they'll finance it with new taxes or debts to keep other budgets from eroding.

So they'll be putting money, a trade medium, into the economy, without increased production. In fact, production is likely decreased because people are sick or laid off. Now, same number of good or services or less, but greater amount of exchange medium. What does it mean? It means that the medium of exchange decreases in value relative to goods and services. The medium of exchange is that green stuff in your bank account :) So when it becomes less valuable unit-for-unit compared to the goods and services you need, you're experiencing inflation.
Absolutely 100% agree, but they were doing it prior to this virus crisis anyway, now however with this virus crisis they are going to go all out to keep everything propped up. I agree it has no foundation to it, it's just to keep the show going, but that unfortunately is the character of our nation at the moment at least when it comes to the economy.

It is what it is.......
 

PizzaOnTheRoof

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The Fed is injecting trillions into the markets because were actually facing DEFLATION.

There’s a massive lack of liquidity in the market, the dollar is getting stronger compared to other currencies, and oil is tanking, and trade/money is being blocked up.

A bucket of chicken cost more than a barrel of oil now.

A deflationary spiral is just as bad (if not worse) than a hyperinflationary spiral.
 

Rabby

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The Fed is injecting trillions into the markets because were actually facing DEFLATION.

There’s a massive lack of liquidity in the market, the dollar is getting stronger compared to other currencies, and oil is tanking, and trade/money is being blocked up.

A bucket of chicken cost more than a barrel of oil now.

A deflationary spiral is just as bad (if not worse) than a hyperinflationary spiral.
Also a scary thought. Although those of us with cash savings would be buying up all the land and hiring people for 1 cent per day, if the 1930s are any indication.
 

Rabby

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You think we have been having deflation in the US? Do you know what deflation is?
I assumed he was theorizing that we could have future deflation as a result of the current situation.

For example, if market uncertainty reached the level where spending slowed down significantly, the supply of currency would be effectively reduced (in a bad way). Less currency would be available to an individual at any given time because cashflow is reduced, and very likely banks are tightening lending requirements.

So the relative value of currency would increase (it's hard to get more of it), while the cost of goods and services (that nobody is buying because they're scared shitless - low demand) decreases. Deflation.

That said, with government people whizzing on the money supply, only God knows what will really happen. We don't even know what policies they'll make up tomorrow, in some misguided (or very rarely, not-misguided) attempt to save us all.
 

PizzaOnTheRoof

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You think we have been having deflation in the US? Do you know what deflation is?
I said FACING deflation. Due to fear and liquidity issues.

Of course we’ve been inflating over the past 100 or so years, doesn’t mean that trend can’t/isn’t reversing.
 

lewj24

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I said FACING deflation
I read your post correctly. "Facing" is present tense. It sounds like you meant to say we will be facing deflation in the future. I don't agree with that at all. I think we will have more inflation due to all the gov't money printing.
 
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mon_fi

mon_fi

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I read your post correctly. "Facing" is present tense. It sounds like you meant to say we will be facing deflation in the future. I don't agree with that at all. I think we will have more inflation due to all the gov't money printing.
This is exactly why we have this thread. The government is printing (hence creating inflation) but no one is buying anything (hence creating deflation).
 

PizzaOnTheRoof

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I read your post correctly. "Facing" is present tense. It sounds like you meant to say we will be facing deflation in the future. I don't agree with that at all. I think we will have more inflation due to all the gov't money printing.
China is killing their currency right now. Look at UUP.

Bonds, gold, the entire market is liquidating into cash. Even governments are moving into the dollar.

This is so much more than more printing = inflation. Too many variables.

$20 OIL PEOPLE. THIS HASN’T BEEN SEEN SINCE THE OIL CRISIS.
 

hellolin

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China is killing their currency right now. Look at UUP.

Bonds, gold, the entire market is liquidating into cash. Even governments are moving into the dollar.

This is so much more than more printing = inflation. Too many variables.

$20 OIL PEOPLE. THIS HASN’T BEEN SEEN SINCE THE OIL CRISIS.

I am pretty sure there is gonna be a oil surge and buying spread once this pandemic is over, China is already heading back to work slowly but surely, and in a month this will pass in the US, meaning the biggest consuming machine will be back spending again. We just don't know exactly when, but we know this time it will happen one way or other.
 

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PizzaOnTheRoof

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I am pretty sure there is gonna be a oil surge and buying spread once this pandemic is over, China is already heading back to work slowly but surely, and in a month this will pass in the US, meaning the biggest consuming machine will be back spending again. We just don't know exactly when, but we know this time it will happen one way or other.
No no no no. Ok, a few things:
  1. CDC has said we won’t see peak number of cases for about 45 days. Hospitals will continue to be overrun just like Italy. Health insurance companies will get hit HARD. Some will go bankrupt and consolidate.
  2. Large companies are already predicting mass layoffs. It’s already baked into their forecasts. Some have already started. Predictions say 20% jobless rate is possible.
  3. Oil is down not because of demand, but because of SUPPLY. The Saudis and Russia are dumping oil into the market to squeeze each other and US shale out. They’re playing chicken with the global economy and there’s little we can do. Low demand only adds to the problem.
  4. China is using this crisis to get a leg up on the US. As their currency weakens, trade is more favorable for them and the US dollar deflates. Tariffs don’t mean shit.
Peel back the layers of onion my friend.
 

hellolin

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No no no no. Ok, a few things:
  1. CDC has said we won’t see peak number of cases for about 45 days. Hospitals will continue to be overrun just like Italy. Health insurance companies will get hit HARD. Some will go bankrupt and consolidate.
  2. Large companies are already predicting mass layoffs. It’s already baked into their forecasts. Some have already started. Predictions say 20% jobless rate is possible.
  3. Oil is down not because of demand, but because of SUPPLY. The Saudis and Russia are dumping oil into the market to squeeze each other and US shale out. They’re playing chicken with the global economy and there’s little we can do. Low demand only adds to the problem.
  4. China is using this crisis to get a leg up on the US. As their currency weakens, trade is more favorable for them and the US dollar deflates. Tariffs don’t mean shit.
Peel back the layers of onion my friend.

So ok in 45 days we will be back up then, the consumer machine will be back, like I said, just don't know when, perhaps in as little as 2 weeks, but maybe 2 month? And that's ok too, because there is a come back, just sometime in the future. It took about 2.5 month for China to come back, and I expect slightly shorter time here due to less people and better conditions such as density and pollution. The service industry is the first ones getting hit right now, as nationwide 'social distancing' policies are just being kicked into effect this week. I agree we might see conditions worsen if this does not get better in 2 weeks, but I know for sure it will be back sometime within 2 month.

Good thing my company's customer is the government, from the looks of the Trump administration, they seems to be eager to inject made believe cash into those governmental institutions such as the military, so far working from home and getting paid the same is pretty sweet.
 

PizzaOnTheRoof

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So ok in 45 days we will be back up then, the consumer machine will be back, like I said, just don't know when, perhaps in as little as 2 weeks, but maybe 2 month? And that's ok too, because there is a come back, just sometime in the future. It took about 2.5 month for China to come back, and I expect slightly shorter time here due to less people and better conditions such as density and pollution. The service industry is the first ones getting hit right now, as nationwide 'social distancing' policies are just being kicked into effect this week. I agree we might see conditions worsen if this does not get better in 2 weeks, but I know for sure it will be back sometime within 2 month.

Good thing my company's customer is the government, from the looks of the Trump administration, they seems to be eager to inject made believe cash into those governmental institutions such as the military, so far working from home and getting paid the same is pretty sweet.
Glad you’re doing ok, but a lot of people are about to be in a world of hurt.

And peak cases does not mean back up and running. Like I laid out, this is more than just the virus, this is a potential global economic meltdown.

Potentially worse than 2008.
 

hellolin

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Glad you’re doing ok, but a lot of people are about to be in a world of hurt.

And peak cases does not mean back up and running. Like I laid out, this is more than just the virus, this is a potential global economic meltdown.

Potentially worse than 2008.
The 2008 meltdown was a system meltdown, like as, there are something wrong with the system itself, and there were shaking confidence as to how the system is going to be fixed, will it even be fixed, and such.

This time around, this is really a natural, global disaster, as much as I hate to say it, the goal of industrialization and global capitalism is to help human kinds to overcome stuff of nature such as this one (Even through that is up to debate if bats are really to be blamed), no one is at fault here, we all know it is gonna be ok in a few month, just have no idea when the recovery will begin.

I realize 20% unemployment is great depression numbers, but this time is different because it is not an systematic risk as to how the machine is functioning, but more like a stress test on how global capitalism can enhance its own resiliency against shocks like this.
 

BizyDad

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So ok in 45 days we will be back up then, the consumer machine will be back, like I said, just don't know when, perhaps in as little as 2 weeks, but maybe 2 month? And that's ok too, because there is a come back, just sometime in the future. It took about 2.5 month for China to come back, and I expect slightly shorter time here due to less people and better conditions such as density and pollution. The service industry is the first ones getting hit right now, as nationwide 'social distancing' policies are just being kicked into effect this week. I agree we might see conditions worsen if this does not get better in 2 weeks, but I know for sure it will be back sometime within 2 month.

Good thing my company's customer is the government, from the looks of the Trump administration, they seems to be eager to inject made believe cash into those governmental institutions such as the military, so far working from home and getting paid the same is pretty sweet.
45 days everything will just be back to normal, huh? many people will have lost their jobs, consumer confidence will not be nearly what it was a month ago, and businesses won't be so quick to hire with all these new regulations being put in place.

And then all the reports will come out about lower profits, sending the stock market spiraling again, making people even less confident, do I need to keep going?

It doesn't take a weather man to see which way the wind is blowing...
 

PizzaOnTheRoof

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The 2008 meltdown was a system meltdown, like as, there are something wrong with the system itself, and there were shaking confidence as to how the system is going to be fixed, will it even be fixed, and such.

This time around, this is really a natural, global disaster, as much as I hate to say it, the goal of industrialization and global capitalism is to help human kinds to overcome stuff of nature such as this one (Even through that is up to debate if bats are really to be blamed), no one is at fault here, we all know it is gonna be ok in a few month, just have no idea when the recovery will begin.

I realize 20% unemployment is great depression numbers, but this time is different because it is not an systematic risk as to how the machine is functioning, but more like a stress test on how global capitalism can enhance its own resiliency against shocks like this.
That’s exactly the problem. It’s a natural disaster. We could spend and legislate our way out of 2008.

Not this time.
 

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The 2008 meltdown was a system meltdown, like as, there are something wrong with the system itself, and there were shaking confidence as to how the system is going to be fixed, will it even be fixed, and such.

This time around, this is really a natural, global disaster, as much as I hate to say it, the goal of industrialization and global capitalism is to help human kinds to overcome stuff of nature such as this one (Even through that is up to debate if bats are really to be blamed), no one is at fault here, we all know it is gonna be ok in a few month, just have no idea when the recovery will begin.

I realize 20% unemployment is great depression numbers, but this time is different because it is not an systematic risk as to how the machine is functioning, but more like a stress test on how global capitalism can enhance its own resiliency against shocks like this.
What are you talking about man? Recovery in 2 months? Its not even BAD yet......... it hasnt even started lol, or do you know someone that lost their job yet?
 

hellolin

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What are you talking about man? Recovery in 2 months? Its not even BAD yet......... it hasnt even started lol, or do you know someone that lost their job yet?
I know, but those jobs are non-skilled nor essential, most workers who actually produce are still at their jobs, or are working from home. It is mostly the low skill sector getting hit hard right now.

I have no problem seeing the US bounce back as quick as they can as soon as the virus fear goes down. If China can start recover in 2 month, we sure can. And yes, 45 days everything will be back to normal, sure it won't happen in a day or two, but in a month? Yes, you guys are highly over-estimate the importance of your jobs, most jobs have people that can be replaced and rehire within weeks, those who can not, have yet to lay off their workers yet.

But of course, I am saying this as my customer is the government (military), who isn't gonna go out of business anytime soon, but I also have confidence in Americans and their can work attitude, certainly more confident if you compare with to say, Europeans.
 

sonny_1080

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The 2008 meltdown was a system meltdown, like as, there are something wrong with the system itself, and there were shaking confidence as to how the system is going to be fixed, will it even be fixed, and such.

This time around, this is really a natural, global disaster, as much as I hate to say it, the goal of industrialization and global capitalism is to help human kinds to overcome stuff of nature such as this one (Even through that is up to debate if bats are really to be blamed), no one is at fault here, we all know it is gonna be ok in a few month, just have no idea when the recovery will begin.

I realize 20% unemployment is great depression numbers, but this time is different because it is not an systematic risk as to how the machine is functioning, but more like a stress test on how global capitalism can enhance its own resiliency against shocks like this.
I agree 2008 was systematic meltdown. I agree this is a naturally occurring global disaster.

If I'm understanding you correctly, I don't think it is gonna be ok in a few months. We were already long overdue for an economic contraction. This global disaster is much more than a catalyst for said contraction. The ripple effect has already been catastrophic in regards to the stock market, emergency fiscal policy (government packages), and the Fed's monetary policies (slashing rates and so on). I think @Rabby and @PizzaOnTheRoof are on to something. Btw, Rabby's second post was on point - thanks for that.

Its a very interesting time indeed. I see the functioning of the economic machine not nearly prepared for something like this. I think its gonna be worse than 2008 because there's a lot more wrong with our economic house of cards than just subprime loans and bank bailouts. I don't see it being apocalyptic or anything but I foresee a lot of economic pain going forward.

Every aspect of our macroeconomy is going to slow way down. It is going to continue to contract in a sort-of "domino effect". It will not be able to rebound as fast as it fell. It will be a long volatile process as the inertia has shifted and the momentum needs to be built back up again. That takes time. As far as when the recovery will begin... I think the panic will subside in the next couple months and people will shift from fear of what's going to happen to acceptance of the situation and making the necessary incentivized changes. Once that happens, the contraction will start to slow down.

Deflation is possible. Which is worse than inflation. What will probably happen is what @PizzaOnTheRoof said in #22.

Before all of it though, I see a moratorium. If not at the federal level than at the state or local levels.
 

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