Title: How the Economic Machine Works - Ray Dalio Source:
[None] URL Source:https://www.youtube.com/watch?v=PHe0bXAIuk0 Published:Aug 20, 2020 Author:Ray Dalio Post Date:2020-08-20 23:18:54 by Pinguinite Keywords:None Views:135 Comments:2
A 30 min illustrated example of how money is created and destroyed via economic expansion and contraction. I watched this some 3 times, and it's very pertinent now with all the stimulus money being injected into the economy due to covid. There are principles shown here I was never aware of in spite of the great number of years I've been a critic of the Fed and paper money.
I didn't see a recent comment there matching your description, but I guess what I saw as a good takeaway from this is cascading effect of money creation simply when people borrow money to spend, meaning every time borrowed money is spent from one party to the other, credit is added.
This increases the money supply exponentially as a matter of course, without even any direct actions by the fed or any banks. Your comment above is correct, but Dalio doesn't make any statements to the contrary, so far as I can see. To the contrary, he points out the printing press role in inflation, and that printing press is in full operation with the stimulus activity.
Combining that lesson with the one on the related thread of the increase of the M2 money supply, the moral seem to be that right now, with the stimulus money pumped into an economy with low money velocity, there's minimal effect on inflation. But what happens when things open up and money velocity starts to increase? All this stimulus cash starts getting spent with causes the M2 money supply to exponentially expand outside of the Fed's control. THAT would seem to be the point when serious inflation, maybe hyper inflation, starts to kick in, and when gold, silver and I think crypto prices start to really take off as a result, along with everything else, of course.
The Fed could respond by greatly hiking interest rates as they did in the late 70's, but that would mean the interest on the national debt would greatly increase as well and to unsustainable levels. But failure to do that means the dollar loses lots of value.
That's the value I see at this time in that particular lesson in the vid above. When the lockdowns end and the economy starts to open up is the time when people start spending money, and also the time when inflation starts to really get noticible. Not before.