2008-2016 with low interest rates/money printing- why didn’t we get high inflation during that time period? ‘because low interest rates don’t necessarily mean inflation’ ok but can you go into it a bit further than that? What made it different than 2020?

Question

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In: Economics

Answer 1

We did get inflation, in assets for rich people.

To formula for inflation is

Inflation = quantity of money x velocity of money.

You create a bunch of money via quantitive easing, which means you have very low interest rates and artificially low bond returns.

That excess money goes into stocks, housing and other types of assets. These assets are not real things, the price of stocks can go to infinity without any physical disruption taking place.

So money supply went up, but velocity was basically zero. The money went into savings and that savings went into investments.

In 2020, you created a bunch of money in a very short time period, but gave it to poor people.

Poor people did not save this money, they bought cars and Bitcoin and meme stocks but also physical things. So the prices of those physical things are scarce, so changes in demand for real assets lead to changes in price more so than nominal assets.