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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?

#361

Post by badpun »

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.

This way, you'd only be vacuuming dollars held by US entities (citizens, companies), while USD is a global currency held by everyone in the world. This policy would greatly benefit non-US entities, at the cost of US entities.

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

#362

Post by gizmo »

imtringued wrote: post #351
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…

That can't explain the era of extremely low inflation and it can't explain what is happening in Japan. It also cannot explain the Wörgl emergency money.

The "extremely low inflation era" was also a time of very high inflation in long duration assets. It was an era where we saw one company after the another being valued at over a trillion dollars. It was an era where startups without revenue could get 30bn valuations based on hot air and fanciful renderings.

Printed money has to go somewhere. If it just sits somewhere it doesn't do anything. If it goes to investments you'll see inflation there. If it goes towards goods you'll see prices rise there. For inflation it doesn't matter whether you have a lot of money flowing at a low velocity or a smaller amount of money flowing at a higher velocity. When velocity of money drops because people are worried about the future then you can print money to compensate without producing inflation in either good/services or the stock market/real estate. During a stock mania velocity of money increases and idle money turns into investment money with asset inflation as a consequence.

Wörgl -- economy suffered from too little money in circulation. Printing money fixed it.

Japan -- economy has been stagnant for decades. Printing or borrowing at near 0% is fine for them because idle money doesn't do anything. When the Japanese economy starts growing again and velocity of money increases they'll get inflation, just like everybody else. Having no growth and a flat stock market for 30 years is not a good place to be at.

It's all monetary, but the effects aren't immediate. Prices rise only when it's known the market will support these higher prices, and this price discovery takes time.

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

#363

Post by grecy »

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...

We have printed so much money, the only solution is to... print more?

Yes. Once you start printing money to fix problems, you fall into the pit of always needing to print more. See Zimbabwe’s $100 trillion dollar bill. I have one, it makes a great placemat.

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

#364

Post by rightbyte »

stopping wrote: post #348
WalterBright wrote: post #113

Earlier quoted context omitted.

> 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.

Dismissing a contrary position as "propaganda" only stifles debate, and you haven't presented an argument against "sweet spots". It's a good mental model for many situations. What makes you think there doesn't exist an optimal inflation rate? 0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and ind…

> If consumers expect future price drops, demand can dip significantly and induce further drops in price

Sounds awesome? Saves resources. People save money for a rainy day. Lending goes down.

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

#365

Post by stopping »

WalterBright wrote: post #179
jollybean wrote: post #150

Earlier quoted context omitted.

I think you are misunderstanding fractional lending and collateral. Fractional lending seems a bit odd, but it's not like there is 'no collateral' - rather, there ends up being 'partial collateral'. As it turns out, that 'partial collateral' is enough - it's actually reasonable thing to do, because the vast majority of loans are repaid, it's not necessary to fully collateralize everything on the whole. Banks have to…

Rather bluntly, a central bank is central economic planning. Central economic planning always falls short of what free markets do. The idea that a central bank is able to control the financial markets better than free market forces is shown to be false (with actual data) by Friedman in "Monetary History of the United States". > The 'government' does not print money, the Central Bank does. I said "print money" as a eu…

So why is it that essentially every developed country in the world today has a central bank? How can they all be wrong? If a 100% "free market" solution was more effective than central banking, I would expect at least one of them to have given it a shot and succeeded in doing so.

Also, "A Monetary History of the United States" argues that the Federal Reserve should have done more to combat the Great Depression, not less. How can you think that the book advocates against central economic policy?

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

#366

Post by roenxi »

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…

There is no reason to believe the situation is complex. The value of money is changing because the authority that controls money is changing it.

Nobody understands the economy. But we can be pretty sure that it isn't the economy destroying the value of the dollar, because there is no reason for consistent annual inflation to be happening. If anything, in the absence of money creation, we should be seeing deflation because of technological improvements. Short term wobbles, sure, maybe even sometimes a few straight years of inflation due to exceptional conditions. But that isn't what is happening.

The only thing that can have caused the dollar to lose value consistently is creating new money. Otherwise we'd see it regularly snapping back to normal value with deflation. Which, in my lifetime, I think may have literally never happened.

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

#367

Post by JamesianP »

magicalhippo wrote: post #356
JamesianP wrote: post #331

Earlier quoted context omitted.

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.

> So demand goes down elsewhere driving down other prices. Right, but given that those other things were non-essentials, it surely don't matter as much? I mean, you need food. You don't need a lap dance. So you stop spending money on lap dances, using it on food instead. Prices on lap dances go down. But you still need food, not lap dances, so the reduction in price for a lap dance doesn't make you suddenly start buy…

Strippers need to eat too though. Maybe I missing your argument. Isn't the point of lowering one's lap dance prices to get more customers to buy them?

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

#368

Post by p0nce »

consp wrote: post #354
zie wrote: post #156

Earlier quoted context omitted.

I haven't dug into everything you are doing, but the biggest flaw I see seems to be that you assume Cash returns 0% nominal, i.e. that there is no return for holding cash. That is only true if you hide it under your mattress(and no deflation happens). Most people do not hide money under their mattress anymore, especially if they have large amounts of it. They put it in a bank account or in a MMF or some other interes…

Doesn't that practically mean the rich get richer and the poor stay poor? If it would be net 0 everything would stay the same?

Yes, see also Piketty

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

#369

Post by imtringued »

WalterBright wrote: post #133
dasil003 wrote: post #118

Earlier quoted context omitted.

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.

Fiat money (or anything that increases the supply of money, like gold rushes) is the common factor with all instances of inflation. There are thousands of years of examples of this. You're right on one point, the Law of Supply & Demand. It is an emergent property of many individual actions, though each might be completely ignorant of the big picture.

Egyptians used grain money which spoils over time and the grain banks charged the depositors a fee for the liquidity they provide. If you want a stable banking system you are going to have to make depositors pay for the costs they impose onto other people.

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

#370

Post by dalbasal »

mrb wrote: post #230
rdtwo wrote: post #134

Earlier quoted context omitted.

Yeah but that’s not the whole picture… in 1962 the ford truck was $2000 now is around 40,000 so while a new one is better you still have to earn 2x as much to get the most basic one available

When I go to ford.com and look at their basic truck, the 2023 Maverick, I see "starting at $22,195". So if a 1962 truck truly sold for $2000, the inflation seems to account for entirely the price increase. And I'm pretty sure everyone will agree a 2023 Maverick is superior to a 1962 F-100 in every conceivable aspect. Housing and healthcare are better examples of goods or services whose prices have increased faster th…

Idk..

First, you can't get the old vehicle new for cheap. That option is no longer available. You do get an objectively better one, but value is fundamentally subjective.

Marginal economics bridges this gap with consumer choice, but if no choice is available then I don't think you can assume consumers are better off.

In any case, I think inflation is a backwards lens through which to examine vehicle prices. The primary mover is industrial learning curves. Inflation is downstream.

In the 20s, when domestic car sales increased annually, the auto manufacturing industry was constantly growing. Factory efficiency increased every year and prices came down every year. The model T got cheaper every year, not just better.

Part of what caused the depression was this process maturing. Auto sales peaked. Manufacturing volume stopped growing. Efficiency stopped growing with it.

This breaks many financial assumptions/instruments and results in deflation, or rather, a local quanta of deflation. Growth industries can vary a lot of long term debt/equity/promises. Shifting from one state to another is deflationary/deleveraging.

Anyway, vehicles stopped getting cheaper 100 years ago. They get better/nicer gradually. Not cheaper though, ever.

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