The ballooning money supply may be the key to unlocking inflation in the U.S. • Hacker News Board

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#221

Post by throw0101a » Tue, Oct 13, 2020, 9:11 PM UTC

api wrote: post #182

neilwilson wrote: post #160

Earlier quoted context omitted.

Reserves have nothing to do with the amount of bank lending. Only the price of such lending. https://onlinelibrary.wiley.com/doi/abs/10.1111/pbaf.12249

Doesn't reducing the price of lending tend to lead to more lending?

> Doesn't reducing the price of lending tend to lead to more lending?

Theoretically, yes. If loans are 2% instead of 4% then that may induce people to take one up to do some kind of economic activity (start business, renovate house, buy a new car, etc).

But it is not guarantee: people may feel too financial vulnerable to take risks with borrowed money. This is where the limits of monetary policy are run it.

There are points where the government starts spending on various projects: if a contractor is hired to build a bridge, and it will take "x" years, then all of its employees may feel more confident and do more spending because for the next "x" years they're set. Their money then goes into other people's pockets, into other people's pockets, etc.

Public/government spending to kickstart demand is what Keynesian economics basically is.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#222

Post by rory » Tue, Oct 13, 2020, 9:11 PM UTC

rllearneratwork wrote: post #70

rory wrote: post #34

Earlier quoted context omitted.

All the things you enumerated are included in the fed's calculation of CPI. Are you arguing their weightings are bad?

yes

How then? Higher education and houses, sure, but car price inflation has been tame since the 90s, and equivalent electronics plummet in price over time.

As far as I can tell entertainment has only gone up sharply in price where it's supply-limited (e.g. Hamilton, the Super Bowl), because more people are rich than in the past. I'm most curious about that one, since there are so many interesting substitutes and prices are all over.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#223

Post by marcosdumay » Tue, Oct 13, 2020, 9:12 PM UTC

lordnacho wrote: post #214

I don't often write meta-comments, but it's interesting to see the two large threads here. One of them is about whether the Fed is printing money. The other one is about what inflation is, or how it ought to be measured. I find it fascinating that there's so much confusion about all these economic terms. I don't have a simple answer to either, but it's thought provoking that there isn't an established theory that eve…

Monetary theory has some very well defined concepts. But those only appear on the equations, and when people go naming them they go and mix with the same names they use on unrelated discussions.

And then we get some completely ridiculous things like people arguing that the Keynes return of investments apply to each investment inside an economy.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#224

Post by leetcrew » Tue, Oct 13, 2020, 9:13 PM UTC

cle wrote: post #217

nitrogen wrote: post #165

Earlier quoted context omitted.

It's zero sum. The people who desperately needed hand sanitizer or toilet paper today had less money left to spend elsewhere, but overall averaged demand wasn't all that different. Traditional suppliers probably know that jacking the price of one item can lead to losses elsewhere. Hoarders/scalpers are not aiding price discovery, they are manipulating the price by artificially changing supply or demand. They don't ha…

I'm definitely not advocating for hoarding or scalping, I'm just curious about what specifically the systemic inefficiencies are that prevent sellers from undercutting the hoarders and scalpers by raising prices on their own.

rightfully or not, raising prices in these situations is considered distasteful by most people. the long-term damage to the brand is probably not worth the short-term profits. retailers would rather just run out of stuff or limit customers to two boxes of pasta to maintain their image.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#225

Post by throw0101a » Tue, Oct 13, 2020, 9:15 PM UTC

nostrademons wrote: post #124

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

Bank reserve ratios [1] operate as a percentage, so by creating more bank reserves, you create more money that can be lent out. Say that the reserve ratios requirement is 10%, which it currently is. Then for every dollar it has in reserves, the bank may create $10 in loans. The bank reserves don't themselves circulate as money, but they let the bank create more credit, which does circulate as money. [1] https://www.i…

> Bank reserve ratios [1]

For the record, reserve requirements are not universal. Canada, for one, eliminate theirs in 1992:

* https://en.wikipedia.org/wiki/Reserve_requirement#Canada

The main thing limiting how much Canadian banks can lend out would be to remain profitable: too many loans, to too many bad investment ideas, means losses.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#226

Post by marcosdumay » Tue, Oct 13, 2020, 9:15 PM UTC

keeganpoppen wrote: post #146

diob wrote: post #60

Earlier quoted context omitted.

Right, I've posted this before, but long term wealth building is becoming too expensive for the average person. The only reason food hasn't become too expensive is wealthy people don't have a reason to go out and buy up all the food. They do, on the other hand, have reason to go out and invest. This is, however, starting to fall apart for goods that don't normally have reason to be bought up. In other words, folks wi…

> The only reason food hasn't become too expensive is wealthy people don't have a reason to go out and buy up all the food sometimes i get the idle premonition that if they started trying to do this tomorrow they could do a shockingly good job , to the point that you could almost claim that the only thing holding together social order at this point is that they are not. not saying i believe this-- i don't even really…

We got very near this with the ethanol fashion at the end of the last decade. People with money got an extra reason to buy food and it did completely disrupt the social order all over the world.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#227

Post by roenxi » Tue, Oct 13, 2020, 9:15 PM UTC

jganetsk wrote: post #129

JSavageOne wrote: post #95

Earlier quoted context omitted.

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory. Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is…

When the government borrows money like the US does, then it is setting itself up to either run a hefty surplus or go with money printing. Both of those are pretty unpleasant for someone (either borrowers or savers). So yes, fiscal policy is where the eventual pain is locked in.

But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count.

I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#228

Post by dogman144 » Tue, Oct 13, 2020, 9:17 PM UTC

jfengel wrote: post #158

freeone3000 wrote: post #115

Earlier quoted context omitted.

Inflation (in the consumer goods sense) only happens when the value of money goes down for the average person. The price of lettuce isn't going to rise because the fed isn't buying lettuce with faerie money, they're buying securities. And the stock market has gone up and to the right, despite all logical indicators on the ground indicating it should go solidly opposite. Securities are hugely inflated.

That turns out to be the answer I've been trying to figure out for years: regardless of the technicalities of "printing money", all this quantitative easing should have been causing inflation. And it is... in the stock market, which doesn't figure into the consumer price index. The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy mu…

It's been a hot, hot minute from my econ degree, but here goes...

I believe the big question of "Where is the inflation" has to do with lending excess reserves. The amount banks have to keep in reserve is set, but it changes. They can lend the balance after that, although there's a rate set by the fed that also works as a lending/holding incentive too.

"Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities"

So, this money actually hasn't really hit circulation. It doesn't really explain what's up with the SP (perhaps: credit based on reserve holdings, to hand wave a ton of complexity...), but it explains why there's no direct pipeline from Fed money prints -> my wallet -> CPI.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#229

Post by rory » Tue, Oct 13, 2020, 9:17 PM UTC

chrischattin wrote: post #75

rory wrote: post #34

Earlier quoted context omitted.

All the things you enumerated are included in the fed's calculation of CPI. Are you arguing their weightings are bad?

Home prices are not included in the CPI.

You're right, housing inflation measurement != house-price inflation measurement.

Not sure how much that distinction really affects the median person though, if housing (rent) inflation is under control. I suppose people with kids may prefer to buy for long-term consistency, so CPI misses them in a way.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#230

Post by jganetsk » Tue, Oct 13, 2020, 9:18 PM UTC

wcoenen wrote: post #171

jganetsk wrote: post #129

Earlier quoted context omitted.

No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory. Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is…

> I think what the poster is saying is that running a government deficit is printing money. The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)

There exists many values of X where borrowing money from X constitutes printing money. For example, when you borrow money from a bank, the bank prints money. It credits your account with new money, it does not transfer money into your account from another account.

It's fairly straightforward to prove that increasing the size of the government deficit = printing money.

1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this.

2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest.

3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money.

4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments.

In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system):

- The assets side gains a treasury instrument

- The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars.

- No change is seen in the quantity of bank reserves