Readit News2. Increased demand for consumer staples, if met with increased supply won't lead to inflation, if suppliers and entrepreneurs see the increase in demand as stable, they will make investments to increase supply. As long as we allow the price seeking mechanism of the market reach equilibrium, inflation will be at most momentary.
3. Velocity of money doesn't, by itself create inflation. Said another way, it's not a sufficient condition to bring about inflation. Sometimes a massive increase in money is just hoarded and doesn't enter the economy in any real sense.
4. Taxes don't necessarily have to rise in a regressive way such as sales tax and instead could be redistribution. I suspect what we would see is less inflation in the luxury art and real estate market if taxes were increased and the proceeds redistributed.
https://www.chrisstucchio.com/blog/2019/basic_income_reduces...
https://news.ycombinator.com/item?id=22493537
2. Assuming that the equilibrium point remains at the same price level is difficult. It requires assumptions about the elasticity of demand and the elasticity of supply. Generally, if UBI has disincentivized work, you would expect less work, less supply, and a higher equilibrium price.
3. Under a constant money supply, increased velocity of money does create inflation. This is fairly standard economic theory. Increased hoarding is definitively a decrease in the velocity of money.
4. Fair enough, but it requires you to trust the politicians to pass a tax that impacts only the extremely wealthy. This is not guaranteed or even likely.
>Once the economy recovers, the reserve requirements will be reimposed.
I bet they aren't, until something awful happens, again.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm...
Taking this one step further, auto repair businesses can't very well repair cars if there are no parts available, and those parts come from Fremont. Therefore, the Tesla factory would (at least in part) theoretically already qualify for an exemption under the existing order.
One could also make the argument that (given that private transportation has been deemed an "essential" service) replacing worn out or destroyed cars is essential, and thus manufacturing finished cars qualifies for an exemption.
The factory that makes hydraulic fluid for Tesla's presses that stamp out car parts is also part of the transportation supply chain, As is the oil refinery that supplies feedstock to the hydraulic oil vendor.
Throwing out a credit lifeline can be a practice that benefits everyone in times of crisis.
I'd think a reserve at the banks is a good protection of solvency, and should be increased instead of decreased. Is my layman interpretation completely wrong? It feels like they ran out of bullets and have thrown the gun.
Fractional reserve banking has produced a tremendous amount of wealth for the world over recent centuries. It encourages assets to be used in a productive manner rather than hoarded, which is essentially wasteful.
Typically, the loans get paid off to the bank over time, and the bank originates new loans to continue to make a profit. Currently, there are two systemic risks:
1. If borrowers begin to default, the bank still must cover its expenses. Under stressful circumstances, they would normally not be allowed to draw down their reserve to meet their expenses. This change allows this. Once the economy recovers, the reserve requirements will be reimposed.
2. It encourages banks to continue issuing new credit to borrowers. This keeps economic activity flowing and prevents a situation where borrowers have nowhere to turn to find money to keep their business afloat until profitable times return.
You mention Venezuela which is a totally different scenario. They had an economy overly dependent on imports paid for by the revenue from oil exports, so when the price of oil crashed, so did their economy along with it. With resulting large amounts of foreign denominated debt, their only options were to 1. default 2. print money to pay off those foreign-denominated debts. They went with option #2, and their currency collapsed. Furthermore their country has extremely weak property rights (eg. businesses being seized by the government), enormously high levels of corruption, and ridiculous price controls.
Now what does any of that have to do with UBI?
1. On the margin, UBI reduces employment and production. This contributes to inflation.
2. On the margin, UBI increases consumption of consumer staples. This contributes to inflation.
3. On the margin, UBI increases the velocity of money. This contributes to inflation.
4. Under most assumptions, UBI increases government spending. Either taxes will rise, increasing the real cost of goods and services, or the money supply will increase, contributing to inflation.
UBI advocates should not dismiss these effects outright but should argue that they are small in comparison to the benefits of UBI. The lack of proper consideration of these arguments (and other arguments) by UBI advocates is pretty dang spooky.
The 0% interest rate cut was supposed to be the last bullet and the Fed has very likely used it up too early. I suspect there was pressure from Trump to do something right this instant, because I don't see the Fed doing this out of their own accord. Possibly election related, we'll never know.
What can they do now? Negative interest rates? Everybody will withdraw their accounts at the same time. Combining this with the zero reserve requirements that was put into force for most banks, this is a recipe for a disaster unlike any we've seen before.
QE was the bullet the Fed still had in 2008, and it is the bullet the Fed still has in 2020. It seems that QE worked better than the negative interest rates Europe used.