Inflation is at a 40 year high. What can history teach us? • Hacker News Board

Re: Inflation is at a 40 year high. What can history teach us?

#61

Post by joycian » Tue, Oct 04, 2022, 8:59 PM UTC

ForHackernews wrote: post #24

WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.

I like that you're asking for the mechanics. Many people just repeat their mantras.

If QE led to inflation quickly and in a simple way, we could have known that long ago. We didn't even have to do it ourselves: Japan did the experiment long before we did.

If you know, please explain it to me.

Re: Inflation is at a 40 year high. What can history teach us?

#62

Post by ryanisnan » Tue, Oct 04, 2022, 9:00 PM UTC

foobarian wrote: post #20

WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

> History teaches us that inflation will continue as long as the government keeps printing fiat money. Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say rai…

I'm not very versed in economics, but can you explain "No inflation is bad because the economy stops."?

Re: Inflation is at a 40 year high. What can history teach us?

#63

Post by mc32 » Tue, Oct 04, 2022, 9:00 PM UTC

avgcorrection wrote: post #56

mc32 wrote: post #11

Earlier quoted context omitted.

What is there left to say when someone advocates for something so far outside common understanding? It defies belief. But, if most economists are wrong and Biden is right, well, we can look forward to his administration proudly proposing higher inflation.

I gotta say, I should not be surprised at someone treating economics like a religion. And I am not.

Ok. Show me economies that did well with high inflation. Where did that work, where is it working today? Are economists wrong to treat it as an electric third rail?

Re: Inflation is at a 40 year high. What can history teach us?

#64

Post by bombcar » Tue, Oct 04, 2022, 9:00 PM UTC

kelseyfrog wrote: post #52

foobarian wrote: post #20

Earlier quoted context omitted.

> History teaches us that inflation will continue as long as the government keeps printing fiat money. Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say rai…

Why are interests rates as a money sink preferable to the more direct approach of simply sinking money out of supply via tax? They seem to amount to the same thing at the end of the day - siphoning dollars out.

Because you don't have to subject it to a vote. People vote against taxes, they kinda ignore moderate interest/inflation.

Re: Inflation is at a 40 year high. What can history teach us?

#65

Post by jnwatson » Tue, Oct 04, 2022, 9:00 PM UTC

zie wrote: post #28

WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

This is a very simplistic viewpoint. One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed. The US govt has been on a spending spree as of late, but hasn't yet bothered to mention how they are going to pay for it. In 2008/2009, the US govt was also on a spending spree, but did promise to pay the bill eventually. Inflation didn't spike in 2008/20…

We have very educated guesses.

The primary difference between 2008 and now with respect to monetary policy is money velocity. Increasing money supply is a necessary but insufficient condition for inflation.

In 2008, much of that money sat uninvested, so it didn’t impact the price of goods. In 2020, most of it got used to buy and invest.

Re: Inflation is at a 40 year high. What can history teach us?

#66

Post by wpietri » Tue, Oct 04, 2022, 9:01 PM UTC

jrm4 wrote: post #42

I'm no crypto fanboy by any means, but it's hard to not think that, if crypto doesn't completely die out this bear market, it's likely to be at least a somewhat significant factor in all of this. Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.

If you compare the volatility of common cryptocurrencies with the volatility of pretty much any major currency, crypto is way worse. (E.g., GBP and US inflation are around 9%, this year, but Bitcoin and Ethereum are down by 70%). The most important thing for a store of value is that it actually holds value, but crypto has a poor track record there.

Re: Inflation is at a 40 year high. What can history teach us?

#67

Post by jollybean » Tue, Oct 04, 2022, 9:01 PM UTC

rnernento wrote: post #45

lagrange77 wrote: post #26

Earlier quoted context omitted.

> History teaches us that inflation will continue as long as the government keeps printing fiat money. That's what you hear a lot, especially these days. But is it really true? What exactly is the signal path, that leads from more money to a higher inflation? I guess, there is a fair amount of psychology involved.

I mean it's pretty straightforward right? There are now more dollars in play all after the same amount of goods, each dollar has less purchasing power. Why are you so quick to throw out the simplest explanation?

Because the 'simple straight forward explanation' doesn't make much sense.

As economies grow and expand, they need more money supply to keep prices stable. If you're using 100 tons of Gold as your 'fixed money supply' then you run into deflationary problems.

Also, if there is a crisis in which people get really anti-liquid and tend to hoard and do other bad things, and/or the system needs to allocate resources somewhere fast or else face destruction - then if you only have a big pot of gold split between owners, you are screwed. Mad Max style. If a country is invaded or has a pandemic, most regular levers may not work. But helicopter money can help. It implies an 'unfair' re-balancing of who owns what, but so long as the community at large accepts that, then it's fine. It means a price adjustment for everyone.

Re: Inflation is at a 40 year high. What can history teach us?

#68

Post by seydor » Tue, Oct 04, 2022, 9:01 PM UTC

jrm4 wrote: post #42

I'm no crypto fanboy by any means, but it's hard to not think that, if crypto doesn't completely die out this bear market, it's likely to be at least a somewhat significant factor in all of this. Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.

Maybe we don't want people to store their wealth forever. Imagine having the same billionaires running the world for centuries.

Re: Inflation is at a 40 year high. What can history teach us?

#69

Post by prottog » Tue, Oct 04, 2022, 9:01 PM UTC

ForHackernews wrote: post #24

WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.

The price of anything that can be converted to a monthly payment, which is most things in this highly financialized economy, inflates when the interest rate is artificially suppressed. The CPI understates that kind of inflation because it looks at the monthly payment, and not the final price. So there are plenty of things like houses or college degrees that have inflated a lot more than the CPI in that "quite a while". There is no reason to believe that the value of money is immune to the law of supply and demand.

Besides, if you have an argument to make, you can make it without calling somebody an 8th grader.

Re: Inflation is at a 40 year high. What can history teach us?

#70

Post by BitwiseFool » Tue, Oct 04, 2022, 9:02 PM UTC

ForHackernews wrote: post #24

WalterBright wrote: post #15

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the…

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.

I have only a layman's understanding of financial markets, so keep that in mind.

The explanation I've heard is that most of the QE in the 2010's was metered out in such a way that the average person wasn't receiving funds and the money wasn't quickly and directly going into the economy. The post 2008 QE purchased troubled assets and freed up institutions to lend money. It could be said that most of that QE money wound up in stocks and assets such as real estate, which is why valuations were going so crazy over the last decade while consumer goods stayed relatively flat.

All of the Covid stimulus, loans, and bailouts were different because so much more of that money went directly into the consumer economy. Price increases were exacerbated because of supply chain disruptions, needing to recoup losses from lock-downs, and the price hikes due to raw materials shortages. There is also a self-fulfilling prophecy that inflation is both higher than reported, and that our officials are lying to us about how bad the problem is. When everyone else is raising prices, it is a lot easier for a business to follow suit.

That's the explanation I've gathered while trying to understand the question and it seems reasonable to me. It may be entirely wrong, however.