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?

#331

Post by JamesianP » Wed, Oct 05, 2022, 7:45 AM UTC

tsimionescu wrote: post #298

WalterBright wrote: post #80

Earlier quoted context omitted.

Since you know all the obvious answers, try these on: 1. Where does all the money come from to pay for increased gas prices? 2. When gas prices go down (and they often do go down by multiples), why doesn't deflation happen?

1. There's no extra money - poorer people just consume less. 2. Because companies just take all of the difference as extra revenue, and prefer to increase salaries (if not just keep everything as profit) rather than reducing prices. Note that I'm not claiming that increased money supply doesn't cause inflation. It obviously does. I'm claiming it's not the only cause of inflation. It's sufficient, but not necessary fo…

It's not so simple though since there's indirect effects that immediately follow.

1. Everyone consume less. Even rich people have to buy less of something else to pay for the higher-priced gas. So demand goes down elsewhere driving down other prices.

2. If margins or salaries increase then it increases the incentive for competition to enter the market and compete on price.

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

#332

Post by californical » Wed, Oct 05, 2022, 7:45 AM UTC

xorfish wrote: post #307

Negitivefrags wrote: post #208

Earlier quoted context omitted.

You would think that there would be something more useful to do with the money, like fixing the infrastructure.

Fixing infrastructure is not always useful. Infrastructure for low density suburbs is a money pit that bankrupts cities. Here is a good playlist that explains why this is the case: https://www.youtube.com/watch?v=y_SXXTBypIg&list=PLJp5q-R0lZ...

Thank you for posting this! Suburban infrastructure essentially steals from the economically productive areas and gives to the wealthy and unproductive regions

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

#333

Post by simongray » Wed, Oct 05, 2022, 7:46 AM UTC

ALittleLight wrote: post #312

badlucklottery wrote: post #292

Earlier quoted context omitted.

> You can't create energy by printing money. Yes but the energy crisis isn't evenly distributed across the world. NA, for example, is still doing relatively well. While Europe is being hit relatively hard by the shortage and will likely have to import from more expensive sources than previous years to make it through the winter.

How would European governments printing more of their own currencies to give handouts to their citizens, resulting in inflation, resulting in their currencies becoming weaker, help buying energy from NA?

The energy has already been paid for since European countries have been overcharged for gas during most of 2022 in order to fill their storage to at least 80% before winter. Energy bills are usually paid by the quarter or by the year—not daily—so in some cases the worst part has yet to reach consumers.

Furthermore, the way the European electricity market works[1], other energy sources are also bid up when the price of gas increases iff this gas is needed to ensure supply in a given hour of the day. So we have been overcharged both directly (gas), mostly indirectly (electricity) and completely indirectly (goods inflation) throughout all of 2022. This is seriously hollowing out the budgets of some European families.

I don't agree that blanket handouts are the solution, but some kind of compensation is needed to those most exposed, otherwise they will sink into poverty.

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[1] : https://energy.ec.europa.eu/topics/markets-and-consumers/eu-...

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

#334

Post by [deleted] » Wed, Oct 05, 2022, 7:47 AM UTC

csomar wrote: post #196

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.

There is no fixed rate loan. It's all variable. There is a trader (might be the bank) that is buying variable rate and selling you a fixed rate. If he goes bankrupt, somebody will be holding the bag. You might want to re-read your terms if the interest rates get much higher.

[deleted]

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

#335

Post by neilwilson » Wed, Oct 05, 2022, 7:47 AM UTC

ALittleLight wrote: post #257

unity1001 wrote: post #238

Earlier quoted context omitted.

> In California, people fitting certain economic criteria are now being issued $1000 checks for inflation relief. This is beyond ludicrous. Its not. Its happening in Europe too. Its a way to try to get people through the winter and avoid the energy crisis impacting ordinary people. That's what a government should do - take care of its people during extraordinary times.

That doesn't make sense though. You can't create energy by printing money. You just redistribute the value of your money. Maybe that's good - not clear to me why it's better to use inflation, which risks destabilizing the currency and punishes people who saved money, rather than straightforward taxes.

If you create money and give it to people, they spend it. That creates additional taxation. That spending is earned, which is taxed. The earnings are then spent, which is taxed, and so on. Like a stone skipping across a pond.

Do the fairly simple geometric series from that and you'll discover that all money creation generates additional taxation that extinguishes it - to the penny. All that changes with the tax rate is the number of hops before the money impulse disappears.

What you have to do to balance the system is remove some hops elsewhere. That's what threats about interest rate rises are supposed to do. Money then isn't created by loans, or the transaction hops from those loan creation events are fewer.

That reduction is what we call 'saving' and tends to show up in aggregate as a government deficit. The bigger the deficit, the more saving there was and the fewer transaction hops in the economy.

Saving is little more than voluntary taxation. The current approach is to go down the voluntary route rather than the compulsory one - largely because the population won't sanction any further taxes.

If the money used to purchase energy causes a large rise in the government deficit (or a significant reduction in the loan growth rate) then that will 'pay' for it without causing inflation.

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

#336

Post by imtringued » Wed, Oct 05, 2022, 7:48 AM UTC

nostromo wrote: post #304

wins32767 wrote: post #78

Earlier quoted context omitted.

California doesn't print money, the Federal Reserve does. California is required to balance its budget by law, like every state but Vermont. Nearly every state has more money than normal right now (some of it from high tax revenues due to nearly full employment, some due to federal stimulus), so they're finding ways of getting rid of the money. This is a second order effect from the much too large stimulus in 2020/20…

The only reason the states are afloat right now is because the federal government gave them hundreds of billions in printed money. So, yeah, it’s printed all the same. 1. Federal reserve makes several trillions in new money and lends it to the US Government. 2. The US Government passes “infrastructure” and “Covid relief” bills that shower billions on states and cities. If not for this flow of printed money, most of t…

You know, if there is a world where money isn't printed but people refer to it as printing, then maybe at some point the government will do exactly that because people don't seem to be concerned about the rate at which money is being spent nor do they care if the government does it or not, they just want to complain.

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

#337

Post by Calavar » Wed, Oct 05, 2022, 7:50 AM UTC

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 there need to be any extra dollars? If inflation is a matter of supply and demand of currency, as you say, then shouldn't we expect that a demand-side shift could lead to inflation without any change in the money supply?

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

#338

Post by [deleted] » Wed, Oct 05, 2022, 7:51 AM UTC

bcrosby95 wrote: post #215

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…

I went into college during the dotcom bust. Everyone told me I would be making peanuts. I'm pretty happy where I am. I've lived my life trying to minimize the financial downsides. I want money for security, not to live the high life. I like my job, and don't feel the need to retire early - I would love to do it until I'm 6 feet under. I make a decent enough income, although not the level of many here. I bought a mode…

[deleted]

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

#339

Post by imtringued » Wed, Oct 05, 2022, 7:51 AM UTC

groby_b wrote: post #74

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...

Given that California can't print money, why do you think those checks are "printing money"? And no, it's not a "sneaky backdoor". It's the government doing what it should do, tighten financial inequality gaps. And preventing unnecessary suffering. We're still a society, we occasionally take care of the weaker people amongst us. (Frankly, not often enough) And "without real oversight" is... you're aware this is going…

Nowadays everyone prints money, didn't you read internet comments. If I loan you five dollars I have printed five dollars because the contract we signed counts as a certificate of deposit in the minds of these people.

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

#340

Post by californical » Wed, Oct 05, 2022, 7:52 AM UTC

jelliclesfarm wrote: post #295

buscoquadnary wrote: post #243

Earlier quoted context omitted.

I hate it when people make it seem like the economy and the people are two different things. The economy is the aggregate capability of a society to provide goods and services to people, if the economy collapses the goods and services that are being provided cease to be as well and people are worse off. Short sighted statements like "people are more important than the economy" is a feel good virtue signaling that is…

I wasn’t virtue signalling. Over supply of money will make inflation worse, but constriction would bring down spending. A labourer making daily wages and supplemented by govt dollars will spend all of it. A millionaire with a few millions in the bank is not going to spend any of it. Especially during an overheated inflationary period. It’s better spent to the most vulnerable to pay for their food, gas and utilities.…

But you just explained why this causes more inflation. In your words, it was money in the banks of wealthy people, meaning not being spent. Money that isn’t spent doesn’t cause inflation because it’s not competing for goods and services.

By redistributing to poor people, that previously stationary money is now being used to compete for goods, since poor people generally spend all of their money. So more money is now chasing after the same goods, prices have to go up.

It might make people feel good in the short term, but continuing inflation also hurts the poor, and could potentially widen wealth gaps even further since the wealthy are mostly invested in assets which can keep up with inflation, but poor people’s salaries do not keep up very well.

Short term looks like a good move, but it just kicks the can and continues widening the divide of rich and poor