When some of neighborhoods have seen a 70% rise in rent compared with two years ago, we will still have to wait for at least another half year for the Fed to stop the purchase of assets.
-- It means the bottom 20% will probably not be able to see any rate hike since there is no way for them to manage to afford food and shelter by then
-- It means the spoiled stock and housing market will not care about the tapering since, without a rate hike or Fed’s reducing its treasuries holding, we still have a large M2 VS what they can redeem for
-- And we’d better cross our fingers to beg the next “crisis” not to come too soon since the QE can only be used for at most another 1-2 times
QE caused Fed's balance sheet double in the past 2 years and swell by 10 times in the past 10 years. As a result of unparalleled growth of M2 and GDP, the ratio of US M2 VS total social wealth has gone up quickly from 1:50 (2008), 1:10 (2019), to today’s 1:5.
The 1:1 ratio of M2 VS total social wealth is the theoretical ceiling, under which the US dollars’ state credit is still considered safe as these dollars are still backed 100% by their theoretical collaterals - US social wealth. However, considering that the social wealth devalues as this ratio gets bigger and the US dollar' credit gets weaker, its theoretical ceiling may be smaller than 1:1.
From this point of view, the US economy must be given enough time to grow before another two doubles of the Fed's balance sheet makes the ratio grow to 1:1.25 if we can assume that the Fed will not be able to shrink its balance sheet significantly before more QEs.
As long as this ratio has been pushed up at the current level or higher potentially, the US dollars’ holders will not stop competing to redeem their money for collaterals - the relatively shrinking social wealth.
Therefore, surging prices in housing, stocks, commodity, or consumers’ goods and services have actually gained strong support from the current surging ratio of M2 VS total social wealth.
However, as this ratio goes close to 1:1 and thus jeopardizes US dollar-based pricing of social wealth, the only valuable collaterals of dollars will be those assets that can meet global demands.
