This makes sense, but doesn’t address my concern. All loans are not equal in their effects on the consumer spending CPI tries to track, and therefore on inflation. Car loans are spent on cars. Home loans are spent on homes. Loans of different types are spent on different things, which may or may not be on the CPI. The problem is from the perspective of financial institutions they are all substitutes. To the extent that bonds which do not directly affect the CPI compete with bonds that do (say a loan for speculating on stocks vs. a loan for a car), I suspect more money is being injected than necessary. (I speculate) this leaves the surplus as asset inflation. This is what I was imagining when I said ‘stays in the financial system’.
Reflecting on the savings point, I also note that the overhead costs (the fees and such that make up the salaries of financial employees) go overwhelmingly to people who have a high savings rate, invest in financial instruments, and pay the most in taxes.
I note that there are plenty of reasons to think the current system is good apart from asset inflation. I also have no real sense how fast the transactions take place—as you point out, it is quite fast to sell a loan—so if it turns out that all money eventually hits stuff on the CPI and the money velocity is high enough, I would be persuaded this is not a problem. I could also be persuaded by seeing something which shows (or at least describes) the inflows/outflows of money with respect to the Fed and goods by which inflation is tracked. My google-fu has failed me to date.
This makes sense, but doesn’t address my concern. All loans are not equal in their effects on the consumer spending CPI tries to track, and therefore on inflation. Car loans are spent on cars. Home loans are spent on homes. Loans of different types are spent on different things, which may or may not be on the CPI. The problem is from the perspective of financial institutions they are all substitutes. To the extent that bonds which do not directly affect the CPI compete with bonds that do (say a loan for speculating on stocks vs. a loan for a car), I suspect more money is being injected than necessary. (I speculate) this leaves the surplus as asset inflation. This is what I was imagining when I said ‘stays in the financial system’.
Reflecting on the savings point, I also note that the overhead costs (the fees and such that make up the salaries of financial employees) go overwhelmingly to people who have a high savings rate, invest in financial instruments, and pay the most in taxes.
I note that there are plenty of reasons to think the current system is good apart from asset inflation. I also have no real sense how fast the transactions take place—as you point out, it is quite fast to sell a loan—so if it turns out that all money eventually hits stuff on the CPI and the money velocity is high enough, I would be persuaded this is not a problem. I could also be persuaded by seeing something which shows (or at least describes) the inflows/outflows of money with respect to the Fed and goods by which inflation is tracked. My google-fu has failed me to date.