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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?

#411

Post by gitfan86 »

mrjin wrote: post #406

The only thing we learnt from history was that *we learn nothing from the history*. For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of c…

At this point the fed seems to be saying that those days are over, they will continue to increase rates until inflation hits 2%. Obviously this cannot go on forever because it becomes impossible to service the debt and you have to print money to pay it off. But it gives you more time and prevents hyper-inflation and we can hope that by then AI and other technological advances have made what we consider "economics" mostly irrelevant.

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

#412

Post by em500 »

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.

The Federal Reserves implements interest rate increases by selling the bonds that they own (bought in the past) in the market in exchange for cash ("Open Market Operations"). This takes cash out of the hand of the public (in exchange for cash that can be spent in the future). That's about as direct as it gets.

Removing cash in the public's hand via taxation has several drawbacks, as mentioned by other posters. It's a very slow legislative process, because it has much more direct distributional effects (who is going to be taxed?). Additionally, most academic economists believe more taxation reduces real, as opposed to nominal, economic activity ("distortionary effects of taxation").

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

#413

Post by ericmay »

anonu wrote: post #409

Inflation is high 'cause China. We are more interconnected and globalized than anytime in the past, thus the past is not a good model. China is still in lockdown and their output isn't as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs. Until China decides to open back up, prices will continue to increase. And unt…

That’s certainly one of many factors but the other big one is energy cost due to Russia’s invasion of Ukraine and subsequent sanctions levied by major economies on Russian energy exports.

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

#414

Post by hnick »

Calavar wrote: post #337
WalterBright wrote: post #101

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. 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?

Makes sense to me, the thing that matters is not total money but active money. Prices go up because there is the same amount of money, but sellers expect more, and buyers are used to paying more. This can continue by having their proportion of earnings/wealth spent increased which increases total liquid money supply, until they are at capacity (i.e. spending their whole income, selling off assets, etc).

Basically the inverse of people being averse to spending and instead hoarding cash, leading to deflation as prices are lowered to tempt them into spending again.

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

#415

Post by diordiderot »

gitfan86 wrote: post #411
mrjin wrote: post #406

The only thing we learnt from history was that *we learn nothing from the history*. For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of c…

At this point the fed seems to be saying that those days are over, they will continue to increase rates until inflation hits 2%. Obviously this cannot go on forever because it becomes impossible to service the debt and you have to print money to pay it off. But it gives you more time and prevents hyper-inflation and we can hope that by then AI and other technological advances have made what we consider "economics" mo…

> because it becomes impossible to service the debt

Those companies should have made more responsible financial decisions.

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

#416

Post by 5350-uiop-1130 »

i'm pretty tired of living in a world where the cost of everything is constantly going up, and everything is going further and further out of reach

this has been the norm pretty much 20 years, i hope we will get some kind of reset to level the playing field

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

#417

Post by dkrich »

The most dangerous thing that can happen to an advanced economy is credit markets grinding to a halt. It was the panic of 1907 that created the federal reserve in the first place.

Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the knowledge of the fed being able to just print and buy any debt and that they would do so caused major crises to be avoided (2008 and 2020).

The problem recently has been that this fed is simply incompetent. They do not form their own opinions and simply follow what the prevailing narrative dictates. If it’s consensus that rates should not be lifted, they just coast through those meetings towing the same line and continuing to buy bonds.

Then one day the narrative shifts and concern starts to grow over fed policy. So the fed suddenly reverses course and announces sudden rate hikes. When it turns out that cpi moves slower than the fed hoped, the pressure to intervene grows.

Now the consensus is that the fed should be making multiple 75-100 bps hikes so that’s what they do.

The question now is will the narrative shift fast enough for them to not end up going too far the other way.

I sincerely hope the next fed chair is someone who understands the relationship between credit markets and the economy and the need at times for the fed to be the lender of last resort, but also understands that the fed should be an independent entity capable of forming its own policy and having the courage to ignore what market pundits say should be done. The Fed’s mandate is not to make Wall Street happy.

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

#418

Post by diordiderot »

buscoquadnary wrote: post #243
jelliclesfarm wrote: post #109

Earlier quoted context omitted.

yes. even though technically california doesnt 'print money'. people are more important than economy. the 'redistribution' is happening to help the most vulnerable and that's exactly what surpluses should be used for..seems like a good use of money to me.

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…

"The economy" means stock prices and executive pay

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

#419

Post by DiogenesKynikos »

anonu wrote: post #409

Inflation is high 'cause China. We are more interconnected and globalized than anytime in the past, thus the past is not a good model. China is still in lockdown and their output isn't as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs. Until China decides to open back up, prices will continue to increase. And unt…

> China is still in lockdown and their output isn't as high as pre-pandemic levels.

The vast majority of China is not in lockdown, and Chinese output is above pre-pandemic levels.

China has had one of the highest growth rates of any large economy since the start of the pandemic (2.3% in 2020, when most large economies shrank, and 8.1% in 2021).

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