261–270 of 319 posts
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…
If anyone is interested in hearing some incredibly knowledgeable and relatively apolitical people discuss this topic check out: https://www.youtube.com/watch?v=B4xcCO9v-Os&t=13s Jeff Snider is the most knowledgeable person I have ever heard speak on international monetary issues.
Inflation has been here for a while, house prices have exploded, education and healthcare are unaffordable too. Sure TVs, cars and clothes have reduced in price so now they really make a tiny impact on your budget. The real problem is CPI isn't reflecting the real world.
Inflation metrics as reported by the Fed are entirely disconnected from what the average consumer is actually facing.
Higher education, housing, and healthcare costs are the biggest expenses one faces in their life and the Fed ignores these to justify money creation.
Fortunately for the 1%, that money is used to buy assets mostly owned by them.
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…
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All this money HAS generated a lot of inflation already, you're just looking at the wrong place. Look at the S&P over the last decade, and especially look at the "V shaped recovery" of 2020.
Inflation is not just a term that we can define how we like, it's an economic official indicator ergo, there is not discussion possible about if has happened or not. You are talking about a bubble.
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New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money. The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's…
Of course the existence of reserves doesn't force a bank to lend. It increases their capacity to lend, which, assuming there is sufficient demand for credit, increases the money supply.
Also, a bank is not limited by reserves to lend. In fact, in practice, banks first lend and then search for the reserves in the inter-bank market. Those demand-offer dynamics between banks determine the interest rate. If the Central Bank doesn't want to loss control of the interest rate, it has to increase reserves in the system when there is demand.
Central Banks have to choose, or they control the quantity or reserves or they control the interest rate. They target the later. The quantity is kind of irrelevant.
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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?
On this chart [0] you can see how lending increase when crisis started, kind of matching inflation of the dollar. But lending is slowing down, and no amount of QE can speed it up, indicating probable deflation of the dollar.
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> 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…
Sure, there are limits. But fundamentally, holding all else constant, increasing bank reserves decreases the cost of lending, which increases the quantity of lending, which increases the money supply.
Earlier quoted context omitted.
It was once thought that the money supply was directly related to inflation, but they were never the same thing. The classic equation was MV = PY, and M (the money supply) and P (the price level) are different . They are only proportional (according to this equation) if everything else remains the same. In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we…
I think we agree on the point, but disagree in the definitions. Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties. My point is more on the government saying it needs inflation, when even without price increases inflation might be happening. We have increasing productivity, cost has been falling, so if prices stay fixed, th…
It’s not that price increases are good in themselves, but that it would be good if people spent more, and if it results in prices being a little higher, this is okay.
I suspect what the article is talking about is Core Personal Consumption Expenditures:
> The Labor Department’s latest report on core consumer prices showed the index down for a third consecutive month in June for the first time since 1957. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge, increase 0.9% on a year-over-year basis in June, the smallest advance since December 2010.
BEA reports that the index is up 1.4% YOY in August, which follows 1.1% in July and 0.9% in June:
https://www.bea.gov/data/personal-consumption-expenditures-p...
The use of the word "unlocking" suggests a benefit to surging headline inflation, which is very strange because inflation by itself implies nothing about what the economy itself is doing.
I suspect all the talk from central banks is just jawboning. It wants to raise the specter of a big bond market decline to get certain kinds of investors out of treasuries and into risk-on assets. Recent history has shown that doing that is highly stimulative.