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How does massive liquidity pumped into the economy cause inflation?
Here is my list:
1. Massive liquidity pumped into the economy can cause inflation. Liquidity floods result when there is too much money on the sideline suddenly moving back into the market. The sudden buying drives asset prices higher, triggers higher yields in debt securities, devalues the dollar, and raises worries of inflation.
2. High commodity prices can be a drag on economic recovery and push up job losses.
3. US Treasuries for the 5, 10, 30 year denominations roses on concerns the fed would have to raise interest rates sooner than expected.
4. Consumer spending is unlikely as households are weighted down under tremendous debt and trillion of lost dollars of net worth. More households are falling behind on their mortgages.
5. The fed may respond by buying more treasuries to keep the interest rate low, but incurring more public debt.
Has the Fed stepped in enough to keep interest rates low by buying up treasuries fast enough?
Will treasury yields plateau at 3.86 percent or surge higher as liquidity heats up the economy?
1. Massive liquidity pumped into the economy can cause inflation. Liquidity floods result when there is too much money on the sideline suddenly moving back into the market. The sudden buying drives asset prices higher, triggers higher yields in debt securities, devalues the dollar, and raises worries of inflation.
2. High commodity prices can be a drag on economic recovery and push up job losses.
3. US Treasuries for the 5, 10, 30 year denominations roses on concerns the fed would have to raise interest rates sooner than expected.
4. Consumer spending is unlikely as households are weighted down under tremendous debt and trillion of lost dollars of net worth. More households are falling behind on their mortgages.
5. The fed may respond by buying more treasuries to keep the interest rate low, but incurring more public debt.
Has the Fed stepped in enough to keep interest rates low by buying up treasuries fast enough?
Will treasury yields plateau at 3.86 percent or surge higher as liquidity heats up the economy?
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Too much money transferred into the cash flow does cause inflation. Let me give you an example. In a city of 100, there is only one shop. If the amount of money the citizens have increases, without the quantity of items in the shop increasing, the shop would decide to sell its goods at a higher price since. This is what happens during inflation.
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voted helpful: williamwaco
Simple supply and demand. More money for banks to lend with no increase borrower income or productivity. So, banks charge higher interest to offset accelerated defaults. This creates a ripple effect of everyone trying to collect more money in a shorter time WITHOUT increasing the actual intrinsic value of anything at all.
voted helpful: beast1oh1
Today inflation is moderate because:
Banks are loaning to big companies not small or medium, so I don't think the reason stands.
The investors overreacted on fears the fed would raise interest rates early.
Skepticims in a Commodity boom and the belief that China is economically recovering.
Banks are loaning to big companies not small or medium, so I don't think the reason stands.
The investors overreacted on fears the fed would raise interest rates early.
Skepticims in a Commodity boom and the belief that China is economically recovering.
more money = money not as valuable (less rare) = more money to buy same things
voted helpful: williamwaco
Show me the money. Translation how fast 100 dollars as devalue over the last money due to inflation. What is the real wage?
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