'Big Short' investor Michael Burry warns of a massive bubble and epic market crash

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#71
Actually the failure of Neo-monetarism since Greenspan and the success of Neo-Keynesian bail outs gave credence to the idea of Modern Monetary Theory that increasing local debt is not an issue as the Central Bank is there to monetise it

The 2 forces of productivity gains and imported deflation from China depressed inflationary forces from monetary loosening that continued to COVID-19 until supply chain issue and stimulus that’s withdrawn too late is panicking the Fed

If the Fed had started to QT back in 2H21 instead of saying inflation is transient and started raising rates with BoE in Dec 2021 the scenarios would have been very different.

https://www.valuebuddies.com/thread-5133...#pid165437

(13-05-2022, 08:50 PM)BlueKelah Wrote:
(13-05-2022, 12:33 PM)CY09 Wrote: In my view, its quite simple to tame inflation without raising interest rates too high. During 2020, the Fed was doing QE at approx rate of $120 billion per month. So for this QT, just do the same set it at $120 billion per month (or perhaps $200 billion), instead of the $95 billion now.

A QT of this magnitude will have about the same effect as a 1% hike, without increasing interest rates. However, the Fed does not seem intent to expand QT because it affects the stock markets and silicon valley companies. In my opinion, deflating the latter 2 affects the rich disproportionally and the Fed does not want to hurt the rich too much. However, again my view, it will definitely tame inflation which affects all income levels in society--> a 1%-1.25% interest rate environment with aggressive QT will do the trick.

Inflation is caused mainly by expansion of M2 monetary supply. 

In 2020 FED did not just expand their balance sheet by doing QE of 120b ( actually i think it was 80b a month, not that that matters ) The US gov also have a big multitrillion $$ deficit to fun the stimilus programs and checks and infrastructure builds etc...

There were trillions injected into the economy for 2020 and also 2021. If you refer to the chart below the expansion of M2 Money supply from just ~15.5trillion in Jan 2020 to 21.8trillion in march 2022. Thats an addition of 6.3trillion++ in the span of 2 years. thats almost the same amount as the amount from the past decade jan 2010 to jan 2020(~7trillion) Thats roughly 40% over 2 years, so roughly 15-20% inflation per year over next 1.5 to 2 years as this wall of money chases limited goods. USA CPI is misleading as if they used their original CPI calculations from decades ago, it would be roughly 10-15% at least. you will also notice most food/goods will have corresponding price increases of at least 10%-15%, even in singapore over next couple years if not already.

M2 money supply chart link below.
https://fred.stlouisfed.org/series/M2SL

If you expand the money supply by so much, in such a short span of time you gonna get massive inflation. --> basic macro economics which the economists at FED are all paid millions but "no one expected it" according to one of the FED people trying to push the blame on. [note the rapid expansion during the 1970s from 600billion to 1.5 trillion, almost 200% over 10 years, thus they had 15-20% inflation and needed a 20% interest rate in early 1980s by their new FED chair to finally control inflation]

Fed can reverse the QE with QT which they have broadcast intention to do so by reducing balance sheet. However when market crashes there will be no one to buy up these junk debt and other securities that FED has bought over the years. FED balance sheet now 8,94trillion https://www.statista.com/statistics/1121...-timeline/

With the negative CPI signalling start of a possible recession, FED will be unable to do any QT at all i reckon. And it cant hike rates above 2%, unlike in 1980s where it could afford to pay its debts at 20% interest rate.. which means it will just let the country go to stagflation and just try to inflate away the debt and prop up the USD. 

well who knows, perhaps trump will win the year end election again and we start seeing some civil unrest/riots/conflict in usa due to high inflation.
Before you speak, listen. Before you write, think. Before you spend, earn. Before you invest, investigate. Before you criticize, wait. Before you pray, forgive. Before you quit, try. Before you retire, save. Before you die, give. –William A. Ward

Think Asset-Business-Structure (ABS)
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