Author Topic: Are the governments printing money to combat the epidemic?  (Read 766 times)

MrsPennyPincher

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Are the governments printing money to combat the epidemic?
« on: April 03, 2020, 07:18:29 AM »
Can’t help but wonder if the money for massive economic aid packages are coming from the printing press (in the US and everywhere).  Should we be worried about inflation on top of recession when we finally emerge from the lockdown?

Boll weevil

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Re: Are the governments printing money to combat the epidemic?
« Reply #1 on: April 03, 2020, 08:54:58 AM »
I think it will depend on how much of the money makes it to consumers and how the Fed shuts it back down.

During the 2008 crisis, the Fed was fairly confident inflation wouldn’t be an issue because the unemployment rate was moderate. The line of thinking goes that one of the drivers of inflation is wages, wages don’t go up until there’s a shortage of workers, and the indicator that there’s a shortage of workers is a low unemployment rate.

The aid currently being developed is based on MASSIVE unemployment. Applying the 2008 situation to today, inflation isn’t going to be driven by high wages.  (There have got to be other drivers of inflation I don’t know about, and those may override the unemployment aspect.)

So then it becomes an issue of how they shut it down when the economy picks back up. If they can manage to withdraw the aid at about the same rate the economy picks back up, then there shouldn’t be too much extra money in the system to drive inflation. On the other hand, if they’re slow on withdrawing the money, then I would expect some inflation.

On second thought, they’re bound to screw up the withdrawal. So never mind. Expect inflation.  How much will depend on the fortitude of the Fed.

Michael in ABQ

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Re: Are the governments printing money to combat the epidemic?
« Reply #2 on: April 03, 2020, 09:03:01 AM »
At a certain point we will have A. inflation, B. higher taxes, or C. default. There's really no other way that to handle our national debt that is well over 100% of GDP.

If interest rates rise to a modest 2% the national debt of $23.7 trillion (and growing) would eat up $474 billion a year in interest. And by the end of the decade the national debt will almost certainly hit $30 trillion which would mean even higher interest payments. It wouldn't take much more for interest on the debt to eclipse defense spending - which is already the largest "discretionary" part of the budget at around $750 billion.