Here’s the logic.
1) Trillions of dollars were printed in 2020. This created absolutely no new goods and services, but simply used the chaos of COVID to dilute down your USD balances for the state to redistribute.
2) Due to the Cantillon effect, the state and state-affiliated actors received the benefit of that printed money first. Just like a counterfeiter benefits first from a new bill.
3) The 23.98% reduction in purchasing power is like a wealth tax. It applies to literally every dollar you own, not just incoming money.
4) Bitcoin holders unaffected. Trusting the US establishment in any way is the only way to lose. If you trust the media to report the truth, the police to protect you from crime, or the banks to safeguard your funds, you’ll have a bad time.
5) In particular, journalists and bureaucrats will fake the stats all the way to the bitter end, just like they did in the 2008 financial crisis with AAA mortgages. After that point, who coulda knew? It is on you to distrust them en masse and exit this system now to the maximum of your ability.
6) Even the 23.98% aggregate number is probably an underestimate and would be worth recalculating with the old methodology that also includes the (enormous!) impact of rate hikes on personal interest payments. Larry Summers below estimates that to be 18% in one year alone — which would mean the compounded wealth seizure since Jan 2020 will probably be around 50%.
7) Credit to Professor Summers for his important post, clarifying exactly how they’re cooking the books this time. He’s one of the best of the establishment guys and that’s why the proto-wokes canceled him in 2005. He will always be my (Harvard) President
6) Even the 23.98% aggregate number is probably an underestimate and would be worth recalculating with the old methodology that also includes the (enormous!) impact of rate hikes on personal interest payments. Larry Summers below estimates that to be 18% in one year alone — which would mean the compounded wealth seizure since Jan 2020 will probably be around 50%.
7) Credit to Professor Summers for his important post, clarifying exactly how they’re cooking the books this time. He’s one of the best of the establishment guys and that’s why the proto-wokes canceled him in 2005. He will always be my (Harvard) President
5 comments:
If you look at the numbers the aggregate wealth held by households has also grown since the pandemic began, due in part to appreciation of the stock market and real estate, including people's residences and rental properties : this is more than enough to make up for the loss in purchasing power of the dollar.
https://www.federalreserve.gov/releases/z1/dataviz/z1/balance_sheet/chart/#units:usd
https://www.federalreserve.gov/releases/z1/dataviz/dfa/distribute/chart/
Part of Larry Summer's argument is that the higher cost of debt is hurting borrowers,
https://www.nber.org/papers/w32163
The consumer credit situation is reasonable though, as the largest segment of consumer debt is mortgage loans, and most of these are still at lower rates:
https://thehill.com/business/4404959-nearly-nine-in-10-us-homeowners-have-mortgage-rate-below-6-percent-report/#:~:text=Some%2088.5%20percent%20have%20a,a%20mortgage%20below%204%20percent.
The current high rates of course help savers, 3 month treasury bill yields are at 5.48% and bank CD's are comparable.
https://dailyhodl.com/2024/03/18/worrying-metric-shows-18-inflation-spike-hit-us-339-higher-than-reported-former-treasury-secretary-larry-summers/
Is this the Larry Summers post? I think he is saying that the reall inflation rate is higher than what is indicated by standard measures.
Summers has been screaming about mass inflation since 2021 but some say he wrong wrong
https://nymag.com/intelligencer/2023/06/larry-summers-was-wrong-about-inflation.html#
Maybe he is just trying to say "I was right all along" if you look at other data.
Here is my theory I think the current inflation rate is correct and it has gone down from the peak. The question is why are people still stressed about prices...inflation has gone down! Sure prices are no longer rising at the same
a high rate which is good but prices did not go down. A year or two of high inflation means those prices are now higher than they were and will stay that way. The pice increase during the inflationary period is now permanent. This of course is how inflation periods always worked but have had low inflation 20 years or more so it was a big shock.
I believe inflation does reduce the value of a pension just as it reduces any income. The thing is wages increase faster during inflation while pensions will not so it hits pensions harder.
Inflation may have hit some people unequally, for example rents rose sharply in some parts of the country, along with prices for basic foodstuffs, used cars, energy, and so on -- this may have hurt the working poor, or elderly or disabled people on fixed income. At the same time wages for many people have not kept up with rising costs.
That is people do not reason in terms of aggregate statistics, but rather in terms of their individual circumstances, and it could be that on an individual basis people are indeed less well off.
There is also of course, a widespread anticipation or fear that the future may be problematic, for example there could be a recession, job loss due to AI, stagflation, higher taxes, and it will be harder to build wealth by purchasing a home, starting a business, or through white-collar jobs.
Furthermore of course, there could be other crises which would destroy wealth such as wars, pandemics, financial crises, global warming, or the fact that China could become the dominant superpower, with the loss of dollar reserve currency status.
"If you look at the numbers the aggregate wealth held by households has also grown since the pandemic began, due in part to appreciation of the stock market and real estate, including people's residences and rental properties : this is more than enough to make up for the loss in purchasing power of the dollar."
I agree but what if you do not own stock or a house? You can see why people who rent and live paycheck to paycheck are being hit. Sure maybe they got a few good raises but they did see the value of their home swell, or see todays all time stock high.
I though the richest 0.01 got even more wealthy during Covid.
Sounds like a good time for LLNS to increase the remaining workers contributions.
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