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

yarn.pranshum.com

471–480 of 550 posts

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

#471
post #443

Earlier quoted context omitted.

Yes, if it were not for the inherent risk that comes with it. If you put the cash in your mattress you only face the risk of losing it due to it being stolen or when it burns. You can get insurance against that it this would need to be deducted as well. So effectively you are losing money. Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And sin…

This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument. 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar. 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a pe…

> This is dumb. That's not an insult -- I'm not calling you dumb, but just your argument.

No worries, I'm here to discuss and learn things, so happy about your reply!

> 1) Banks are FDIC-insured, so unless the federal government goes under, my money can't be lost. If the US disappears, so does the dollar.

Yes, but there is still the chance of a "haircut" or similar. At this scale, rules can be bend. But my response was a bit more independent of the country, so maybe it doesn't apply well to the US, point taken.

> 2) If people lose part of their money due to a policy like the one you propose, they won't "learn." You're asking ordinary people to be aware of things which are accessible to a fraction of a percent of the population. They'll assume banks are safe, and lose trust in "the system" if they're not.

Maybe for the first time. But if you think about it, maybe the system is how it is _because_ people trust in it (too) much.

There are a couple of options. For instance, the state can give a guarantee for only a limited amount of money (think $20k or something like that) per person and/or institute.

Second, it might very well be that banks will come up with two different kinds of accounts: 1) an account where the money is not safe and can be used by the bank for investments - but you get interest. 2) an account where the money is safe, but you don't get interest but have to pay a fee for the bank's services. The money then stays your property and the bank just keeps it for you, so even if it goes bankcrupt, no one can take the money since it's still yours.

I don't think that would be a bad idea.

> 3) Even so, I have no way of knowing what's going on at my bank. For all I know, the executives might be crooks embezzling money for the Italian mafia. We have organizations like the FBI, SEC, etc. since individuals can't investigate these things. I'd like to focus on my family and my job. That's why we've specialized.

I believe that for your health, your relationships (friends, familiy, ...) and your finances, you cannot delegate that, you must keep control yourselve. You can get people to help you, but in the end both control and responsibility are yours. That's what I think works best.

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

#472

Earlier quoted context omitted.

Not everyone gets the same amount of money, so that poorer people benefit from the scheme while richer people are more affected by the increased inflation.

Rich people are less affected by inflation because they have access to investment opportunities that aren't as affected - for example, I'm sure German billionaires have money in American hedge funds. The middle class are most negatively affected by the tax of inflation because they have enough money that having the value of it reduced by inflation is meaningful, but they don't have sophisticated investment instrument…

The levers don't do exactly the same things; devaluing currency helps exports, for example.

There's also the political cost. I'm in favour of democracy in the ideal case, but obstructionism looks like a concern in some countries, people buy into lying spin and vote against their own interests, bills have their own cadence, and lawmakers are not always intellectual powerhouses. Case in point: the BoE reacted within hours to reduce the damage done by Liz Truss

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

#473
post #426

Earlier quoted context omitted.

> The big violent demonstrations are gone. Um... didn't the biggest riots in American history just happen two years ago?

Not even close.

What were the biggest? The MLK riots?

How does one measure these things precisely anyway?

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

#475

Earlier quoted context omitted.

> 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.

Money is necessary to conduct transactions. If people are incapable of transacting because some people play a hoarding game like with Bitcoin then real people's real basic needs like food or housing won't be met. You will get wholly pointless homelessness. How do we make sure that money cannot be abused to doom the rest of the economy into an inability to transact? You make people pay for the benefits they receive by…

> Money is necessary to conduct transactions.

Not necessarily. Money is little more than a distributed IOU held from providing past benefit to someone else to be used in exchange for future benefit from someone else. Money records that I did work for you now and in return you will do work for me later, except given that the IOU is recognized in a distributed fashion the work later can also come from other people.

IOUs bring a lot of benefit, but aren't strictly necessary to conduct a transaction. I could work for you now and at the same time you could work for me to provide equal value. Since there is no delay between services rendered there is no need to record that the other party promises to provide a future benefit. The transaction is already complete in the moment.

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

#476
post #152

Earlier quoted context omitted.

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 cre…

Thousands of years of pre Adam smith history where the concept of macroeconomics did not exist. Obviously a naive implementation of monetary expansion causes price inflation, that doesn’t mean a well implemented monetary expansion does though.

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

#477

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…

> 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.

0% inflation is incredibly dangerous. Deflation is just about the worst possible thing that can happen to an economy. It instantly kills money market liquidity as real interest rates rise as they hit the lower bond for nominal rates. People stop spending as much as they can since their money will be worth more in the future. So the question is how can we guarantee no deflation. And the only answer is target 1-2% inflation.

By the way the us was in a recession for practically the entirety of the second half of the 19th century, mostly because of absolutely garbage monetary policy.

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

#478

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…

I've never heard anyone tell me they were going to quit working because the US government wasn't printing money fast enough. I have heard people tell me they weren't making enough money to cover their expenses on a month-to-month basis as a result of cost increases. These happen to correlate with inflation. There is no way an economy would stop just because there was no inflation. Would Microsoft suddenly decree that…

The people who couldn’t afford their expenses due to rising costs likely would have lost their job in the recession that was averted due to inflation.

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

#479

Earlier quoted context omitted.

In deflation, prices are going down. So I know it will cost me less next week to fix that broken window than doing it today. So I wait a week. But the logic doesn't change - when next week comes, I'll wait another week to get a better price. Apply this across the board, and people mostly just buy what they need. Producers of goods stop producing. R&D disappears. Etc.

Seems more like a good thing you've turned upside down. As long as some R&D has an average payoff that outperforms the rate of deflation, people will be motivated to take the risk. Deflation would disproportionately hurt risky investments, whereas inflation causes worse and worse choices to become increasingly attractive. I'd say we already got way more stupid investments than we needed in the last few decades of low…

Deflation forces real interest rates up which kills investment and immediately lowers gdp. It is unequivocally an awful thing that leads to massive unemployment.

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

#480
post #152

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…

Looks like 2008 was a deflationary recession [0], so sounds like that money printing caused enough inflation to counter it and hold ~steady.

[0] https://www.investopedia.com/ask/answers/040715/were-there-a...

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