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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?

#471

Post by merpnderp »

Spooky23 wrote: post #459
watersb wrote: post #361

Earlier quoted context omitted.

> Every student debtor is 7.5% less in debt in real terms than they were last year. Because Federal Student Loan payments were deferred last year, interest free. Such loans can also be forgiven -- canceled and considered paid in full -- for borrowers which qualify for certain programs. One of the most widespread are programs for Public Service job holders, Teachers, and National Guard members. These borrowers are cre…

The point is, instead of giving investors risk free returns, inflation is effectively a tax on the people and entities hoarding wealth with no productive purpose, and it benefits debtors. We’ve had a carnival ride of cheap debt forever, which has powered and established many really dumb businesses. IMO, we’d benefit from a few years of 5-10% inflation.

You only have to look at how the US faired in high inflation periods in the past to realize how awful this is for normal working people. I'm amazed at how many people are so flippant about something with hard data showing how destructive it is.

Re: Have we been thinking about inflation all wrong?

#472

Post by Einstant »

Inflation is an important topic to discuss when looking at the hackernews algorithm. Central banks breaking their inflation-control commitment can lead to a lot of negative consequences, like market distrust and higher rates. It's therefore important to be honest and keep your promises if you want to maintain stability in the economy. For example, Reagan's tight monetary policy helped to tame inflation in the 1980s. Nixon's decision to break the gold standard in 1971, on the other hand, caused a lot of instability in the economy. The Gold standard and inflation are complex topics, and further reading is recommended for those interested in learning more.

https://www.investopedia.com/articles/investing/121015/what-... https://www.investopedia.com/terms/i/inflation.asp https://www.federalreserve.gov/monetarypolicy/inflation_targ...

Re: Have we been thinking about inflation all wrong?

#473

Post by bubbleRefuge »

missedthecue wrote: post #455
bubbleRefuge wrote: post #390

Earlier quoted context omitted.

MMT 101. The federal government is a net payer of Interest to the private sector. Thus, when interest rates are increased, Interest income to the private sector increases. Interest paid by the US treasury to the private sector is kind of printing money. When interest rates go down, interest income to the private sector decreases.

The total amount of interest paid by the government to all parties, domestic, foreign, private, and public sector was about $400 billion in 2021. Meanwhile, America borrowed $1 trillion in new debt in the same year. Lower rates contribute to a higher money supply far more than raising interest rates adds to the interest income paid to the private sector.

When considering non-government sector burrowing due to lower interest rates, these transactions net to zero for the private sector, because an asset and a liability is created to the private sector. In the case of government paying interest to the private sector, the private sector balance sheet nets positive.

Re: Have we been thinking about inflation all wrong?

#474

Post by bubbleRefuge »

missedthecue wrote: post #455
bubbleRefuge wrote: post #390

Earlier quoted context omitted.

MMT 101. The federal government is a net payer of Interest to the private sector. Thus, when interest rates are increased, Interest income to the private sector increases. Interest paid by the US treasury to the private sector is kind of printing money. When interest rates go down, interest income to the private sector decreases.

The total amount of interest paid by the government to all parties, domestic, foreign, private, and public sector was about $400 billion in 2021. Meanwhile, America borrowed $1 trillion in new debt in the same year. Lower rates contribute to a higher money supply far more than raising interest rates adds to the interest income paid to the private sector.

Please consider what your $400B number would be if the FFR were 5%. Here we are talking about perhaps 3 billion. Thats the point. Fed is trying to hit the brakes but actually is hitting the accelerator. MMT 101.

Re: Have we been thinking about inflation all wrong?

#475

Post by quadrangle »

randmeerkat wrote: post #466
quadrangle wrote: post #462

Earlier quoted context omitted.

Up and down are perceptions that we evolved specifically to indirectly sense gravity. "nothing to do with" is wrong, it's like saying that thermometers have nothing to do with temperature because various versions of them can get miscalibrated and are really visual devices.

> Up and down are perceptions that we evolved specifically to indirectly sense gravity. I disagree. We evolved to orient ourselves in the environment that we operate in. Does a giant squid perceive up / down based on gravity or pressure differences in the water depth..? > it's like saying that thermometers have nothing to do with temperature I also disagree with this analogy. Gravity is a force of nature, unlike a th…

I don't know how squids perceive things, but obviously water pressure is correlated with gravity in their case.

There's no way to have up and down without gravity. It's meaningless. It's not that gravity can't exist without up and down. Gravity exists independently of anyone perceiving anything. But up and down do not exist without gravity. Either up and down are the perception of gravity, even though indirectly through our perceptual mechanisms, or they don't exist and have no meaning.

Re: Have we been thinking about inflation all wrong?

#476

Post by digisign »

TremendousJudge wrote: post #449
digisign wrote: post #347

Earlier quoted context omitted.

In the last few years the Real has dropped about 50% compared to gold and the dollar.

Inflation != value compared to the dollar Unlike other Latin American countries, Brazil's economy is mostly decoupled from the dollar -- people don't save in dollars, they save in reales. Prices are all in reales (including housing and cars, something that is usually in dollars in other countries), and most importantly, the national debt is in reales, and mostly internal. A rise in the price of the dollar is not nece…

I compared it to gold first. Other currencies are additional datapoints:

https://www.xe.com/currencycharts/?from=XAU&to=BRL&view=5Y

Re: Have we been thinking about inflation all wrong?

#477

Post by jbay808 »

specialist wrote: post #432
zozbot234 wrote: post #129

Earlier quoted context omitted.

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…

Tangentially: > unstable equilibrium point Is anyone looking at economics thru the lenses of chaos theory (complex adaptive systems), control theory, or cybernetics? I've foraged a bit, no joy, but really don't know where to start looking. I only ask because... Anthropologist David Graeber's book Debt: The First 5000 Years muses about the fragility of market based systems. Like maybe capitalism contains the seeds of…

> economics thru the lenses of chaos theory, control theory, or cybernetics?

I'm looking too. In my mind this is absolutely the way to look at the macroeconomic landscape, and as a control theorist, I don't like what I see, which is a widespread lack of respect for delayed responses and positive feedback loops.

I'll evaluate what hope we have for stability once I see the control being executed sensibly.

Re: Have we been thinking about inflation all wrong?

#478

Post by missedthecue »

bubbleRefuge wrote: post #474
missedthecue wrote: post #455

Earlier quoted context omitted.

The total amount of interest paid by the government to all parties, domestic, foreign, private, and public sector was about $400 billion in 2021. Meanwhile, America borrowed $1 trillion in new debt in the same year. Lower rates contribute to a higher money supply far more than raising interest rates adds to the interest income paid to the private sector.

Please consider what your $400B number would be if the FFR were 5%. Here we are talking about perhaps 3 billion. Thats the point. Fed is trying to hit the brakes but actually is hitting the accelerator. MMT 101.

We are a long way from 5%. Fed is looking at raising rates a total of 0.75% over the next 12 months.

Re: Have we been thinking about inflation all wrong?

#479

Post by wbsss4412 »

baryphonic wrote: post #413
wbsss4412 wrote: post #394

Earlier quoted context omitted.

> If you destroy your productive capacity but money supply remains the same (which is honestly a bit odd, since real prices are always relative), then you get substitution effects that don't affect the general price level, only the price levels in particular segments of the economy. Because the destruction of capacity somehow didn’t affect the substitutes? That’s magical thinking. There’s a shortage of new cars => us…

> > Inflation is really always and everywhere a monetary phenomenon. > It can be one, and that is certainly a contributing factor here, but if you can see the obvious supply chain/shift in demand due to covid effects, then you’re just blinded by dogma. I didn't realize Jerome Powell commented on Hacker News! If you can't see how the change in the money supply over the past two years[0] may be the dominant and, dare I…

Yes yes, look at big number. Ignore any possible alternate explanation because reasons.

Re: Have we been thinking about inflation all wrong?

#480

Post by prewett »

NumberWangMan wrote: post #373
prewett wrote: post #250

Earlier quoted context omitted.

People who have debt is the canonical set for whom deflation would be bad Including everyone who has a mortgage: your payments stay the same, but you earn less, so they take up a larger portion of your income. Naturally this can lead people who have debts that they could have serviced without deflation now cannot service them, so they go bankrupt. This also happens with any company that has debt (which is pretty much…

Ok, so full disclosure -- Austrian monetary theory makes sense to me in a way that no other form of macroeconomic theory has since. I'm open to being convinced that monetary inflation is a necessary or good thing, but I haven't yet. Most of the arguments I've heard seem to take the form of -- we've been doing this thing (increasing the money supply) and if we stop, everyone who has debt is suddenly going to be in a l…

I think the usual argument for expanding the money supply is that you want to target for a small amount of inflation (I think the Fed targets 2%) to avoid deflation, since the deflationary spiral is a huge problem. Also, historically populations have been increasing, so you'd need more money just to keep the same amount per person. I'm not financier, but an (ideally) constant 2% inflation seems low enough to not be a problem for wages, but also predictable and plannable. Most investing calculations take into account inflation, and a constant 2% is a easy to include in the calculations.
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