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Have we been thinking about inflation all wrong?

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Re: Have we been thinking about inflation all wrong?

#211

Post by prichino »

uses wrote: post #173
dnautics wrote: post #120

> If inflation were allowed to run a bit higher, it could deliver a long-overdue win for young people who have had to face a combination of stagnant wages and rising housing costs what the hell? Inflation exists as a policy to stiff wage-earners. This is arguably more likely to go exactly the other way than the author expects. Take it from a nobel laureate: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi…

Inflation doesn't exist as a policy to stiff wage earners. Inflation exists as a reality of a growing economy (more goods and services needs more money to cover them). The alternative is deflation, which would be extremely bad. So what we aim for, is low inflation. Which we've had for ~40 years. Low, controlled inflation is the vastly preferable alternative to any amount of deflation, so it's the side of the scale we…

This deflation is bad meme comes straight from the big international bankers of the early 20th century (JPM et al.). They cared mostly about liquidity and stable exchange rates. Unless you are one of them, please stop parroting "would be extremely bad". Would it be different from now? Probably. Extremely bad? For whom?

Re: Have we been thinking about inflation all wrong?

#212

Post by FrameworkFred »

Well, I guess the question is what will happen when Not-Canada manages to achieve stable prices while Canada lets theirs "run hot." It seems to me the rest of the world would make sure to hang on to Not-Canadian currency while being very willing to swap Canadian currency for everything else, which would increase the supply of Canadian currency, causing further Canadian inflation.

Or is the author suggesting we should somehow convince the entire world to let their currencies "run hot"? What if a few holdouts went rogue and (gasp) maintained a relatively low rate of inflation for their currency?

I can reason out why a low and steady rate of inflation might cause folks to keep money moving around in an economy, but a do-nothing approach seems silly and unworkable over the long term on a global scale.

Re: Have we been thinking about inflation all wrong?

#213

Post by nimbius »

jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

absolutely agreed, but the feds also faced with a none too enticing sword of Damocles in raising interest: corporate credit.

The fed never acquiesced to its prior commitment to end quantitative easing measures after the great recession of 2008, instead they simply shifted their weight to bond buybacks during covid and shoveled yet more coal into the engines of commerce...the result was a booming stock market during paradoxic unemployment levels and low GDP. the market had become divorced from the concept of anything but money itself earning more money based on its own worth.

"transient" inflation became a death-chant in the halls of the fed last year and as christmas sales languished and inflation pushed past five percent eventually the feds bond buyback program which was slated to "taper" in july was signalled to "end" in march. its hard to see that happening however, as using the market as a litmus for policy can never truly happen seeing as it seems entirely removed from the human condition, the worker or any tangible product outside investment itself.

the relief is the prime interest rate, but raising it would immediately cause a corporate credit crisis after a major pandemic as companies have for now over a decade enjoyed zero percent, or even negative interest. the ones who are over-leveraged are the ones that cant find chips due to the chip shortage, or cant ship product due to "supply chain." in short, the usual suspects.

So my guess is the feds going to try to ride out double digit inflation until somehow supply and demand return to normal, with a tacit nod to the end of high-roller credit being the bond buyback ending and an eventual december...maybe next january interest rate raise. One hopes it worked better than the QE tapering in 2011, which tanked the market six hundred points in a day and was immediately backtracked.

Re: Have we been thinking about inflation all wrong?

#214

Post by dnautics »

jbay808 wrote: post #157
dnautics wrote: post #132

Earlier quoted context omitted.

> If your goal is stability this is the thing to be questioned. Stability, at what cost? Is it worth tearing up the environment, tricking people into buying shitty disposable consumer products, financializing the economy, and stealing from the poor and unborn to give to the rich in the here and now? I don't really see anyone challenging the tradeoffs of stability in the economic discourse, it's just so often given as…

Hmm; all of those things are what I would associate with breaking the stability promise, that is, reneging on inflation control and holding interest rates low. That encourages borrowing and propels the price of assets. I'd expect your objection to be associated with growth at all costs , not with stability.

Stability in the current economic discourse implies growth at all costs due to the way that our monetary systems are organized. "If we didn't raise the debt limit our economy would collapse"; discourse on "countries must meet their growth targets" e.g.

Re: Have we been thinking about inflation all wrong?

#215

Post by imtringued »

zozbot234 wrote: post #129
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

Yup. The kernel of truth behind Austrian theories of macroeconomics/the business cycle is that interest-rate based policy setting is inherently an unstable system. If the central bank makes policy errors that fail to stabilize the underlying target (whether inflation, nominal income, exchange rates, whatever) the whole system starts spiraling away from that unstable equilibrium point, and the subsequently needed corr…

No, they completely miss the point. The fundamental problem with money is that you can delay your spending indefinitively thereby breaking the concept of supply and demand.

Imagine an economy where you are self sufficient and sell but never buy anything ( cough germany).

You keep accumulating more and more money and you could in theory spend it all, thereby cause a huge amount of inflation. That is the core of the deflation inflation paradox.

There is never enough money in one part of the economy while the part with too much poses a threat that can deploy instantly without any warning.

Selling and selling isn't a free market, it's not even a market.

Re: Have we been thinking about inflation all wrong?

#216

Post by ericmay »

scottiebarnes wrote: post #165
dragonwriter wrote: post #151

Earlier quoted context omitted.

> then it makes the currency utterly terrible to invest and save in in the long term. That's why it's called “current-sy” (only slightly joking) It's for current use as a medium of exchange. For investment/savings, you go to productive assets. That's the whole point. Mixing those functions doesn't help anything.

No, money is supposed to be good at storing value as well. That's why gold evolved as the world currency over the last 8000 years, and that's why central banks still hoard it in bunkers. You can't easily devalue it by creating more of it. You're failing to understand that treasury bond markets have an important function in the macro economy; ideally, a safe way to save and store value with low risk. And they are larg…

> No, money is supposed to be good at storing value as well.

I think you’re confusing wealth/assets with mediums of exchange. Gold for example is a pretty decent store of value but a nightmare for exchange. Want to buy a pack of gum? Why don’t you shave a tenth of a gram off right here on the counter so I can measure it.. etc. You can see how crappy that is.

USD however have never been great stores of value but are great currency because they’re so liquid. Everybody accepts dollars. It’s easy to trade and convert to other assets. How much is that pack of gum? Oh it’s a dollar. Ok here you go. And that’s that.

The name of the game has always been converting dollars to productive assets.

Along comes Bitcoin and cryptocurrency and now crypto currencies in general have features. Bitcoin sucks as a currency for buying stuff but is great at storing deflationary value (or so it seems). Monero sucks as a currency compared to the dollar but has privacy features. Etc.

Re: Have we been thinking about inflation all wrong?

#217

Post by dnautics »

jokethrowaway wrote: post #199
friedturkey wrote: post #195

Earlier quoted context omitted.

Yeah, deflation is awful. Imagine our continuously increased production and efficiency resulting in goods becoming cheaper and the value of the working person’s dollar going farther. Horrifying.

With deflation there would be no reason to invest your money, paralysing the economy. Some inflation is needed; what we don't need is https://brrr.money/

"no reason to invest your money"

You mean with deflation people will suddenly no longer want for more money? Sign us up!

Re: Have we been thinking about inflation all wrong?

#218

Post by BitwiseFool »

NovemberWhiskey wrote: post #45
sneeze-slayer wrote: post #33

Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and…

> The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans. I mean they could also just stop subsidizing corn production quite so much; that would probably be preferable to providing a larger subsidy to grow other things.

I wonder how much of an impact the Iowa Caucuses have on our government being so darn corn farmer friendly.

Re: Have we been thinking about inflation all wrong?

#219

Post by LoveGracePeace »

overtonwhy wrote: post #122
scottiebarnes wrote: post #56

Earlier quoted context omitted.

> but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. This is the general problem with central banking. Politicians and governments will ALWAYS take action to "save the economy", whether that is a small downturn or a big one. There's too much pressure to not use the magic money printer. Short term election cycles incentivize everyone to just fix the problem as…

Disregard new accounts that claim the sky will be falling. The debt will always be going up and there will always be inflation. That's how fiat currencies work. Research the federal reserve and it's stated objectives to understand why.

No post body was provided.

Re: Have we been thinking about inflation all wrong?

#220

Post by imtringued »

clairity wrote: post #162
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

an inherently unstable but critical element of an economic system shouldn't be allowed to float on the whims of a few humans, especially with overwhelming corruptive pressure lapping against them incessantly. a central bank should be trying with all its might to precisely match the amount of money in the system exactly with the amount of productivity being generated. it shouldn't be trying to implement 'fiscal policy…

That's impossible without demurrage or negative interest rates.
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