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

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

#111

Post by boole1854 »

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 with no backing.

The government (to be correct we should say: the Federal Reserve) has not been "printing money" for around a year now. Monetary base has actually declined by ~12% in that time:

https://fred.stlouisfed.org/graph/?g=UrKo

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

#112

Post by marcosdumay »

tsimionescu wrote: post #39
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…

You keep claiming this, but it is fairly obvious that prices can be forced up by factors that have nothing to do with the money supply - most notably, constrained supply in basic raw materials (especially oil and its derivatives) can force virtually all prices up, regardless of the amount of currency available.

Not all prices at the same time.

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

#113

Post by WalterBright »

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…

> Of course, that is almost a tautology

Inflation lags the money printing, so it isn't a tautology.

> So what do you do to get that sweet spot of about 1-2% inflation?

I'm amazed that propaganda of a sweet spot gets so heavily embedded into the popular wisdom.

If there is a sweet spot for inflation, it's 0%.

Note that the US had net 0% inflation from 1800-1914, while growing from subsistence farming to superpower.

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

#114

Post by boole1854 »

seydor wrote: post #104
boole1854 wrote: post #95

Earlier quoted context omitted.

I have spot checked the data cited there to compare with the Census data... The 'median' earnings data they cite comes from the BLS 'usual weekly earnings' release. One can check that release on the bls.gov website. It is labeled "Series Id: LES1252881500". I compared Q1 1994 to Q1 2021, inflation adjusted using the PCE index: 1994: $750 2021: $983 That is an increase of 31.1%. The Census data which I cited previousl…

no increase in purchasing power though. what good is more money if you can't buy more things

Both the Census and BLS data I cited above is adjusted for purchasing power differences between 1994 and 2021.

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

#115

Post by go_elmo »

sometimeshuman wrote: post #98

Unfortunately I leaned on history to make investment decisions during this period of rising inflation. Gold, stocks, and real estate were historically good hedges against inflation and cash holdings should be minimized. But that conventional wisdom has been a bad strategy this time. As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs…

Afaik inflation devaluates stock relative to bonds and its small 101 of economics but Im no expert

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

#116

Post by chasd00 »

7speter wrote: post #50
ForHackernews wrote: post #24

Earlier quoted context omitted.

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.

No one wants to talk about the actual problem, and will blame government printing money. What’s different now from any point in the last 12 years is that we are at full employment. Going over that causes the economy to overheat. As a study partner for an economics course put it (he took more economics than I did): too many hands competing for goods, the prices go up.

Right, the thing the Fed is doing by raising rates is increasing unemployment but trying to not come right out and say it. Increasing unemployment decreases demand and therefore prices. A hard recession is how this is going to end IMO.

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

#117

Post by vel0city »

UncleMeat wrote: post #41
rnernento wrote: post #36

Earlier quoted context omitted.

I don't think you realize just how much of the money has been printed in the last 2 years. See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttren... See M2 over time: https://fred.stlouisfed.org/series/M2SL

So? The argument is that inflation always happens when there is fiat printing. We printed a shitload of dollars between 2000-2020, yet inflation was low throughout that period. So the explanation is clearly insufficient.

Compare 2000-2020 on that M2 graph compared to 2020-2022.

Jan 2000 - 4,666.2 Jan 2020 - 15,401.8

An increase of 10,735.6 over 120 months, average monthly increase of 89.46.

Aug 2022 - 21,711.4

An increase of 6,310 over 20 months, average monthly increase of 315.52

M2 grew 3.5x faster on average since 2020 than previously.

I'm not directly stating this is the main or only reason for inflation, but I imagine the rate of increasing the money supply 3.5x faster than before could have some kind of effect.

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

#118

Post by dasil003 »

WalterBright wrote: post #101
dasil003 wrote: post #59

Earlier quoted context omitted.

There’s also a tipping point where inflation is self propelled because everyone is used to it so they just proactively raise prices on a regular basis. I experienced this growing up in Brazil in the 80s and 90s. It’s hard for Americans to relate, but essentially the mentality is spend/invest every penny you get before it loses value. Took some creative policy to break the cycle: https://en.m.wikipedia.org/wiki/Plano_…

> There’s also a tipping point where inflation is self propelled because everyone is used to it so they just proactively raise prices on a regular basis. This is called cost-push inflation. Unfortunately, that theory doesn't explain where the extra dollars come from.

Why would you expect there to be some unifying theory of inflation? It's an emergent phenomenon resulting from the actions of many individual actors. I'm quite sure the people raising the prices every week had no idea how much cash was in circulation.

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

#119

Post by nichohel »

saynay wrote: post #100
nichohel wrote: post #46

Earlier quoted context omitted.

The "signal path" is simply the presence of more money, which means that purchasers have more money to pay.

That is a bit of an oversimplification. The presence of money is no sufficient, that money must be in circulation. For example, they can print all the money they want, if they just toss it all in a big bank account and never remove it, there will be no inflation. That was a big reason why printing a lot of money in the past did not contribute to a lot of inflation: most of that money ended up sitting in the accounts…

You have a sort of a point; what I should have said was, 'The "signal path" is simply having more money in the hands of buyers, which will then necessarily cause an increase in prices.'

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

#120

Post by DoingIsLearning »

Syonyk wrote: post #21

> But if the main driver of inflation is the demand side, or inflation expectations, history indicates that a painful recession could be the only way to curb inflation. That's certainly the expected path forward, at least in the circles I associate with. "When the tide goes out, you find out who's swimming naked" seems a reasonable guess as to what's going to happen. Both at larger bank/investment firm scale and at t…

>That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well.

By backup you mean for heating? Can you safely burn kerosene indoors? I thought you would have all sort of pollutants on top of monoxide?

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