A base de chutar dinero, han conseguido que las bolsas de EEUU cierren en máximos… ¿Reflejan la realidad económica del país? Ni por asomo. Son esos desvíos que se acaban corrigiendo volviendo a la media, tomando beneficios cuando no se sabe por qué… Pero lo acaban haciendo y corrigen el exceso de valoración que tienen.
The Government Has Printed 40 Cents For Every Dollar That Existed In March
Print enough money and you can increase asset prices under any circumstance.The government has printed 40 cents for every dollar that existed in March.
All things equal, this would translate to 40% inflation as prices rise due to increased money supply. Of course, in reality inflation increased less than 1%...
... because economic activity slowed down so much and savings rates skyrocketed.
While it can seem like the lack of inflation gives the government a free pass to print, the printing is not without consequences. The money is flowing through to higher financial inflation and lowering the value of the dollar relative to other currencies and gold.
The combination of massive printing and historically low rates is producing bubble like behavior in many markets like crypto-currencies, much like in 2017. Of course in 2017, the Fed began to withdraw liquidity and crushed many of those asset bubbles.
This time around we are also seeing a torrent of new casual day traders, reminiscent of stories you read about the Roaring Twenties. Below I show the indiscriminate price appreciation across the board since the government rescued the markets in March.
As you can see, the 40% increase in money supply didn’t go into the real economy, but sloshed all around the financial markets. The price of anything is measured in the form of dollars per unit whether it is $/share, $/bond, $/house, $/barrel, etc. So the price of everything comes down to those two things, supply of assets and the quantity of money chasing those assets. More money chasing fewer assets means higher prices, and vice versa. This year has been an extreme example of how if you print enough money, you can increase asset prices under virtually any circumstance.
Going forward, I believe the Fed and the Treasury’s top priority will continue to be the real economy. Asset bubbles are an unfortunate side effect of massive liquidity, high savings rate and low interest rates. They’ll need to carefully manage those bubbles as recover from COVID such that the bursting won’t topple the real economy.
Abrazos,
PD1: Hoy el recadito va para mis hijos y nietos. No seáis malos, que cuando sea muy mayor e impedido, lo que necesitaré son cuidados paliativos y mucho cariño vuestro. Así que ni se os ocurra darme la papeleta de ayudarme a morir con la eutanasia que aprueban hoy. No. Dejar que la vida siga su curso y se termine cuando se tenga que terminar. Quizás tenga que purgar mis pecados. Quizás lo quiere así Dios. Lo que os aseguro que no debe querer, es que decidamos nosotros cuándo es el punto final de nuestras vidas. Así que, aunque se apruebe hoy la maldita eutanasia, y muchos mayores sean castigados por la pesadez de cuidarles tantos años y el duro esfuerzo que supone, no lo hagáis conmigo…
