31–40 of 83 posts
Fuel prices have skyrocketed in the past with little impact on inflation. I think one could argue they exacerbate inflation - rising prices can trigger more price increases, but in the end its money supply that drives an erosion of the value of currency.
https://www.reuters.com/business/retail-consumer/carrefour-p....
I imagine its like this all over which each part of the logistical chain opportunistically cashing in using the excuse of inflation.
Full disclosure: My understanding of economics is heavily influenced from what's called the Austrian School. On that understanding, we have two main factors that are contributing to the rise in prices. Only one of them is, properly speaking, inflation. Putting the subject of inflation aside for the moment, the first cause is the destruction of capital. Capital destruction, which broadly speaking includes our ability…
Some price hikes on products and services just don't seem to have any economic rationale behind them.
And not all of them are quite obvious because you may get a full product or service with a reasonable price increase that follows inflation but of lot less value.
Take for example hospitality (hotels and restaurants) and home services (roofing, plumbing, landscaping)
My theory is with the pandemic many businesses realized they can reduce quality and level of service without impacting profits.
It's pretty normal today to pay $200/night for a hotel and not get room service for 4 days or more, or go to a restaurant and get a mediocre food and service and still be automatically charged 20-25% on the final bill, in some places even after tax!
My hope is we will reach a point of BS that businesses will start competing again for quality and service and gradually bring things to pre pandemic levels, but that may take a decade or more.
Meanwhile I am cooking a lot more at home, traveling to places where I can hike and camp and do a lot of small projects at home myself.
In the real world - both can happen simultaneously.
When interest rates rise, not only does higher cost of borrowing discourage investments and spending (an attempt to kill demand to bring down prices) it also reduces the money supply of the economy.
The money supply refers to all the liquid assets and cash that are in circulation in a country's economy. It is important because it is closely related to the credit market.
But money supply works in conjunction with market risk - which often branches out to two functions - liquidity preference and risk premium. The former is a theory that suggests that an investor might prefer 6% over 10 years than 3% over 5 years. The latter suggests that one investor might pick the 3% (lower yield) option because it has better risk premium - say the 6% is a bond in a DVD store, and the 3% is a government bond (example).
What we're witnessing now is the spiralling, second order effects of rising rates - which on the one hand attempt to kill demand and curb prices for consumer goods, but on the other, affect the money supply and force investors to rebalance their portfolio and start evaluating different risk premiums.
The Fed has dug itself into a hole because monetary policy changes have massive spillover effects into other areas of the economy, not just inflation and cost of borrowing, but also things like how participants in the economy view liquidity and risk premiums.
Can't A/B test monetary policy, or life. Institutions, like people, will learn to face the consequences of their actions and learn to live with their choices.
The short answer is we don't know for certain. The long answer is that today's inflation doesn't seem to be monetary in cause, because nearly every country is experiencing inflation simultaneously. If the Fed had printed too much money and that was why the US was inflated, that dynamic shouldn't really affect, say, Germany, or Brazil. (Caveats abound, of course). Despite that, we're seeing nearly every major country…
Full disclosure: My understanding of economics is heavily influenced from what's called the Austrian School. On that understanding, we have two main factors that are contributing to the rise in prices. Only one of them is, properly speaking, inflation. Putting the subject of inflation aside for the moment, the first cause is the destruction of capital. Capital destruction, which broadly speaking includes our ability…
I would also add there may be an speculative factor as well, perhaps exacerbated by the pandemic. Some price hikes on products and services just don't seem to have any economic rationale behind them. And not all of them are quite obvious because you may get a full product or service with a reasonable price increase that follows inflation but of lot less value. Take for example hospitality (hotels and restaurants) and…
To paraphrase the last psychatrist (Miss you!), if you go there it's for you.
The short answer is we don't know for certain. The long answer is that today's inflation doesn't seem to be monetary in cause, because nearly every country is experiencing inflation simultaneously. If the Fed had printed too much money and that was why the US was inflated, that dynamic shouldn't really affect, say, Germany, or Brazil. (Caveats abound, of course). Despite that, we're seeing nearly every major country…
Every country printed money during Covid.
Keep in mind that this forum is very competent when it comes to software discussions, while tending to overstate its economic knowledge. To your question: what it comes down to is that the fed is charged with managing inflation and unemployment. Regardless of the effectiveness of their tools, they are required to do what they are able to do. With that in mind, it’s possible that there is a better course of action. Pe…
Politicians have a long track record of picking out the conclusions they like from an economic theory and doing some combination of ignoring the preconditions, being unaware of the preconditions, and being too mathematically illiterate to understand the concept of preconditions. I'll leave the exact balance as an exercise for the reader. If our governments ever ran true Keynesianism, they didn't do it for long before…
Politicians spend because it’s popular, they cut taxes because it’s popular. In reality they don’t need a theory to justify their behavior. The budget deficit has been ballooning for decades before MMT even became a faint part of the public consciousness.
It’s ridiculous to assert that academics are somehow responsible for the behavior of politicians. What matter is that they develop theories that are correct and true.
Keep in mind that this forum is very competent when it comes to software discussions, while tending to overstate its economic knowledge. To your question: what it comes down to is that the fed is charged with managing inflation and unemployment. Regardless of the effectiveness of their tools, they are required to do what they are able to do. With that in mind, it’s possible that there is a better course of action. Pe…
This is a pretty exhaustive text on why this is the case, I found it quite convincing:
"The inflation economy" https://graymirror.substack.com/p/the-inflation-economy
"The golden age of informal securities" https://graymirror.substack.com/p/the-golden-age-of-informal-securities
"Bitvana or the bitcaust" https://graymirror.substack.com/p/bitvana-or-the-bitcaust