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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?

#161

Post by lagrange77 »

nichohel wrote: post #119
saynay wrote: post #100

Earlier quoted context omitted.

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.'

> The "signal path" is simply having more money in the hands of buyers, which will then necessarily cause an increase in prices.

So from that point on, the mechanism is supply & demand right? Buyers with money increase demand, therefore the prices increase.

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

#162

Post by [deleted] »

gumby wrote: post #23
seydor wrote: post #6

Earlier quoted context omitted.

> total chaos, riots, and unrest looks like we come full circle

Not really. We don't have the assassinations. The national guard doesn't shoot people; that's been democratized to police and private citizens. The big violent demonstrations are gone. What passes for it these days is a pale shadow. One "benefit" of the increased inequality is that people making less than the median are too exhausted to demonstrate, much less rebel. Rebellion has always been the act of those who belo…

[deleted]

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

#163

Post by lagrange77 »

WalterBright wrote: post #125
jollybean wrote: post #67

Earlier quoted context omitted.

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 somewh…

Some good questions. The answer isn't simple, but I'll try. It comes down to how banks work with fractional reserve banking. (To keep this post short, I'll refer you to google if you don't know what it is.) Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? But, banks don't loan money unless there is collateral . The next part is tricky to understa…

> Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it?

I've heard about that, and it's really amazing.

If i understand it correctly, the loan interest i have to pay is money that also does not exist yet, at the point of time, when i get the cash. The bank faces the risk of me not being able to generate (get from others, who potentially also take loans) that extra money, so they demand a collateral as an insurance against that risk.

> Inflation happens when the government prints money that has no collateral, and has no correspondence to added value in the economy and so it dilutes the value of the money that is already in circulation.

What instance decides, if some printed money does or does not have collateral?

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

#164

Post by maxerickson »

Syonyk wrote: post #142
mrep wrote: post #129

Earlier quoted context omitted.

Where are you at? I ask because I have 2 mortgages and a car loan in the US and 2 are fixed rate for the entire lifetime of the loan and 1 I have 10 years until the ARM starts applying so I'm laughing all the way to the bank. 90% of US mortgages are fixed for the entire loan.

I'm in the US. I certainly could do something like that. I just won't. I hope it works for you. That's a level of debt-based risk that neither myself nor my wife have any interest in. There have been a lot of people throughout history who thought similar arrangements were "sure things," and they were, up until they weren't and it all came down around their ankles. We live in a very modest ( manufactured, gasp! ) home…

Concern over US natural gas supply is not warranted. At all.

If producers decided not to produce during a period of high prices (unlikely), we have gas in storage, right now, to last through the typical winter.

https://ir.eia.gov/ngs/ngs.html

(unfortunately, export capacity is a rounding error, so we can't do a whole lot to help Europe out. https://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm )

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

#165

Post by lagrange77 »

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?

Another example: A big tech company goes bankrupt, threatening thousands of jobs to disappear. The gov prints some billions to restore the liquidity of the company, which then recovers. After saving the company and its employees, those employees get the same salary as before and therefore aren't spending more. In that case the printing of money did not generate more demand, which could cause the prices to increase, or am i missing something?

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

#166

Post by RickJWagner »

beerdoggie wrote: post #54

In California, people fitting certain economic criteria are now being issued $1000 checks for inflation relief. This is beyond ludicrous. We have printed so much money, the only solution is to... print more? It's almost like it is all a sneaky backdoor to letting the government redistribute wealth without real oversight...

Distributing more money is almost certainly unproductive.

During Covid large checks were mailed out. Reddit was full of 'casual investors' throwing money at meme stocks that explained it was 'covid money' and thus didn't matter much to them.

Student loan debt forgiveness is the latest madness.

The end result? Those with the least money (the poor, and those on fixed incomes) are totally hosed. If you can't afford rent at $800, you surely can't afford it at $1400. More handouts only make the problem worse.

The Fed's response (raising interest rates) will make cars and houses out of reach for many.

Vote for politicians of any party who pledge fiscal responsibility. As a litmus test, judge their reactions to government handouts.

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

#167

Post by wpietri »

WalterBright wrote: post #137
wpietri wrote: post #123

Earlier quoted context omitted.

> The US had zero net inflation from 1800 to 1914. This is just absurd. Not only is this a period so different than a modern economy that it's not useful for comparison, but during that period it was a roller coaster of inflation and deflation, both of which are terrible for people. Those curious can see the volatility here: https://commons.wikimedia.org/wiki/File:US_Historical_Inflat...

> This is just absurd. Not only is this a period so different than a modern economy that it's not useful for comparison, I hear that a lot. Nobody is ever able to explain what law of economics changed in 1914. The Law of Supply & Demand was just the same as it always was. > but during that period it was a roller coaster of inflation and deflation, both of which are terrible for people. Those curious can see the volat…

This is a straw man:

> what law of economics changed in 1914

Again, you're just ignoring the fact that our most stable period of low inflation was under fiat money. And that wasn't just true here. Central banks with well-managed money supplies brought price stability to many countries.

I understand that goldbuggery is a religion, which like many religion requires ignoring inconvenient facts. You're welcome to keep proselytizing, but if you do, I'll take my leave.

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

#168

Post by Syonyk »

maxerickson wrote: post #164
Syonyk wrote: post #142

Earlier quoted context omitted.

I'm in the US. I certainly could do something like that. I just won't. I hope it works for you. That's a level of debt-based risk that neither myself nor my wife have any interest in. There have been a lot of people throughout history who thought similar arrangements were "sure things," and they were, up until they weren't and it all came down around their ankles. We live in a very modest ( manufactured, gasp! ) home…

Concern over US natural gas supply is not warranted. At all. If producers decided not to produce during a period of high prices (unlikely), we have gas in storage, right now, to last through the typical winter. https://ir.eia.gov/ngs/ngs.html (unfortunately, export capacity is a rounding error, so we can't do a whole lot to help Europe out. https://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm )

> Concern over US natural gas supply is not warranted. At all.

How'd that work for Texas a couple winters ago? Or a decade ago? Supply is more than just what's in the ground - it's the entire infrastructure related to delivering it to the various loads, and we've demonstrated at various points that it's not in as good of shape as people like to assume.

Also, someone is literally blowing up pipelines over in Europe. Don't think US infrastructure is better guarded.

If you don't think it's an issue, great. Hopefully you're right. If you're wrong, hopefully the outages are short lived. Because otherwise people die.

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

#169

Post by WalterBright »

zie wrote: post #152
WalterBright wrote: post #99

Earlier quoted context omitted.

> perhaps it's more correct than your version. My version has lots and lots and LOTS of history backing it up. Did you know that the US had inflation when on the gold standard during the California and Yukon gold rushes? Did you know that Spain experienced massive inflation during the period when they were shipping the silver in S. America across the Atlantic? I could go on and on. > One could also argue that Inflati…

I agree that there is lots of data that shows your version has some merit, but that doesn't mean it's 100% correct. I know of at least one instance where your version was incorrect(2008/2009). Again, I'm not arguing my version is correct, and I'm not even arguing that your version is completely wrong, because we literally do not know. Read some John Cochrane[0] if you want a more academic defence of my version(which…

> I know of at least one instance where your version was incorrect(2008/2009).

One one hand, we have thousands of years of history with what causes inflation.

On the other hand, we have one instance.

I'd say one has to examine the one counterexample for something missed. (Your cite makes no mention of 2008/2009.) Extraordinary claims require extraordinary evidence.

Recall my other post here about how making loans creates money, and paying the loans back destroys it. Bankruptcy destroys money. I wonder if all the bankruptcies, defaults, haircuts and writedowns removed a vast amount of money from circulation, and the deficit spending simply filled that hole rather than creating more inflation.

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

#170

Post by jollybean »

lagrange77 wrote: post #163
WalterBright wrote: post #125

Earlier quoted context omitted.

Some good questions. The answer isn't simple, but I'll try. It comes down to how banks work with fractional reserve banking. (To keep this post short, I'll refer you to google if you don't know what it is.) Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? But, banks don't loan money unless there is collateral . The next part is tricky to understa…

> Banks loan out a multiple of their deposits. In other words, banks create money when they make loans. Amazing, isn't it? I've heard about that, and it's really amazing. If i understand it correctly, the loan interest i have to pay is money that also does not exist yet, at the point of time, when i get the cash. The bank faces the risk of me not being able to generate (get from others, who potentially also take loan…

This is kind of a misunderstanding.

Banks retain assets for loans they make. They don't print money.

But imagine this scenario: you deposit $10 at bank A, they loan that $10 to person B, that person B puts their $10 account at Bank C, thank bank loans out that $10 to person D etc..

You can see all of a sudden, $10 turns into $100! or $1000 in assets!

So what we require banks to do is keep a part of the assets they receive. So if they get $100 in deposits, they can only lend out $90 i.e. they have to keep '10% in reserve'.

This means that banks are leveraged at 90%.

It also means that if there is a calamity, and a 'run on the bank' or it loses 10% of it's assets, the bank is wiped out.

So what all of this means is that there is 'leverage' in the system, and it means there is 10x money going into the economy than is released by the Fed. It definitely adds a lot of flexibility to the system. Banks are still responsible for evaluating risk of their loans and paying the price if they fail.

"The interest on the loan" is mostly a function of risk and the cost of that bank managing that money i.e. getting the depositors to loan you the money in the first place.

The OP's definition of 'inflation' is a bit warped.

Inflation is when there's more money than demand for stuff.

If stuff is harder to make or is more rare, prices will go up irrespective of money supply.

If you throw money in the economy for no reason inflation will happen.

But most economies are expanding a bit, and so they need more money in the supply to keep prices stable, which is why we like to have just a bit of money printing.

All money loaned out - even given out by the central banks has collateral. The Fed keeps mostly TBills (Government Debt) and real estate as collateral.

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