An acquaintance who works in finance said that the USD was devalued during COVID but hasn’t yet experienced much inflation except in household goods because money is still expensive. What does that even mean? How can money be expensive? And how does that differ from being valued/devalued?
I would think “money is expensive” means something along the lines of “there isn’t much liquid cash”, but I thought the money injected into the economy was liquid cash.
Would someone more into finance/trading than me explain how this is possible? Thanks!
You must log in or register to comment.
Usually “expensive money” means that it’s hard to borrow.
“Devalued” refers to purchasing power. “How much food will $1 buy me?”
They’re describing different things. In terms of the economic relationships that result in the current scenario, I’m not even going to try. Ignoring that we don’t really know and a lot of traditional economics rely on the assumption that actors are rational (which we now know is absurd), I’m far from an expert in macro-economic theory. Systems are complicated.
Ah, I see. So being “devalued” is like mixing base metals in your gold coins, while “cheap money” is like loaning out the treasury. Both contribute to inflation, but in different ways.
Not quite. Cheap money is more that a loan doesn’t cost that much money to pay back. It isn’t the treasury loaning out the money, but individual banks judging based on inflation.
Some other good answers already but here’s a sound byte version:
It’s currently expensive to borrow money, and then the borrowed money isn’t as useful as it used to be.
you can think of the prime interest rate as being the cost of money. high interest rate money is expensive, low and its cheap. Because its the cost of the loans. Its actually not expensive now I would call it about normal. we have been running cheap for a long time now before recent times. at or just above zero.
Whenever anyone talks about how high interest rates are now, I remember when my wife and I bought our house in 1997. We were pre-approved for a 30-year fixed rate mortgage at 7.5%, and we were told to take it.
What we were actually told was, "you’ll never see a rate this low again.
To be fair, at the time that was the best rate seen in the previous 20 years.
My student loans was double digits at one point.
“Money is expensive” = interest rates are high.
I’m guessing he means expensive to borrow. Otherwise, yeah, that wouldn’t make much sense.
I think, printing more money under the same conditions is the primary inflation/devalue, while the federal interest rate determines the baseline for loan interest rates. If the federal rate of return is high, it makes no sense for anyone to buy loans for a lower rate as the US gov has a longer upstanding record of paying back those debts/returns. If the fed is paying a high baseline rate, so is everyone else. Why would a bank or anyone buy your debt if they can put that money in government bonds and get a higher or the same rate of return. So money is expensive because the federal rate is high. At least that is my most simple understanding.
Not bad, just get rid of your first clause.
Hard to know without more context.
However, one thing people have not mentioned yet is exchange rates and foreign trade. The republican candidates have reportedly been talking about devaluing the dollar in order to increase exports and reduce the trade deficit. A strong dollar makes US exports more expensive for people overseas, and imports cheaper in the US. Devaluation runs a big risk of creating huge inflation domestically even if it props up exports.
“How come pennies are cheap, but I need a lot of them to buy a car?”
The less something is worse, the more of it you’ll need to match the value of products and buy them.
the more
It’s all fake. Literally. Its made up. It only exists to the extent we all participate in the con.
Grow a garden. Trade with your neighbors.
Fuck the banks. Focus on your village.
Was just thinking, MMT for a small portion of the populace, austerity economics for everyone else. But we can do better, for our own and global neighbors.
