Printing More Money vs. High Card Prices

[UKCardGuy]

The short answer is that yes, in general "printing money" drives inflation. It's not related to the stimulus checks but to the money supply. Here's a very simple illustration.

Imagine an economy with just 2 people, a can of BBQ beans and $100. In this economy a person has to spend all their money every day. One person starts with $100 and the other person starts with the can of beans. Because there's only one product, the price of that can of beans is $100. Now if we print another $100 and leave just the one can of beans. So there's still one can of beans and $200 available to be spend each day. The price of the can of beans is now $200.

I know the illustration isn't perfect. It's a ridiculously simple example, to show the effect that printing money has on inflation. Most goods are replaceable (e.g. food, clothes, etc. etc.). More corn will grow and more clothes will be made. So long as there aren't major shortages, prices might rise with demand but nothing outrageous.

For assets that are in limited supply like real estate, art and vintage baseball cards things work differently. The supply of these assets is limited. When more money is slushing around the system, some people choose to save that money...but others choose to spend it. A small number of people jumping into a an asset can make a big difference. That's where printing money drives asset prices (e.g. bubbles). It's not the only way that an asset bubble can happen, but it is one way.

People assess the value of assets in relation to other assets. That also helps to increase demand. "John's house just sold for $500K but the house that I want to buy is bigger. I'm willing to pay $700K for it." or "Geez, that 2010 Trout Refractor just sold for $500K. A T206 Cobb should be worth more than that". This further increases the demand and creates a sense of normalcy in people's minds that the prices are justifiable.

Asset bubbles aren't new. Bubbles tend to pop when there's a shock that changes the economic balance. In 2009, it mortgage defaults started to increase and banks stopped lending. It was the plentiful, cheap loans that helped drive the bubble. When the banks stopped lending, the bubble burst.



What'll change this time around? Will the Fed stop printing money? Will interest rates start to rise? Will someone find a warehouse full of "one of a kind" Mike Trout Refractors? Will a new MLB doping scandal cause the bottom to fall out of the modern card market? Take your pick and make your bets.