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Setelinleikkaus: When Finns snipped their cash in half to curb inflation

jpkoning.blogspot.com

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Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#71

Post by jsnell »

eru wrote: post #30
jsnell wrote: post #21

Earlier quoted context omitted.

The tricky part isn't money on a digital ledger. That's easy enough to handle with e.g. a one-off deposit tax (IIRC used as recently as the Euro crisis). There's no operational problem here, it just needs to be legislated to happen. Executing the operation properly might take a while (it's not something they'd have a process for), but banks must already have in place systems for e.g. freezing assets which could be us…

> The real problem is deposits in foreign banks in foreign currencies. Well, money abroad doesn't contribute to local inflation, does it?

I took the question to be on the logistics of executing this kind of operation with digital ledgers, not on when/whether those operations make sense.

Confiscating foreign assets would do little[0] to reduce inflation. But it's the same for local assets. Obviously just chopping off a zero from every note and bank balance doesn't actually reduce inflation, unless accompanied by some other structural changes.

[0] I say "little" rather than nothing, since it could have the effect of repatriating the money -> increasing the exchange rate -> making imports cheaper. But I can't imagine the effect being strong.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#73

Post by IAmGraydon »

eru wrote: post #25

> It's not just the size of Operation Gutt that is striking to the modern eye. It's also the oddity of the tool being used. Today, we control inflation with changes in interest rates, not changes in the quantity of money. To soften the effect of the global COVID monetary overhang, for instance, central banks in the U.S., Canada, and Europe began to raise rates in 2022 from around 0% to 4-5% in 2024. It's a bit more i…

Ahh…no. The Fed sets the interest rate directly. What you are talking about is yields on treasury bonds, which are manipulated via bond buying to force money into assets by artificially dropping the yield of those bonds, thus creating a more attractive investment in the stocks, assets, etc.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#74

Post by weberer »

sofixa wrote: post #55
Cumpiler69 wrote: post #52

Earlier quoted context omitted.

Bruh, 80% of all USD in existence was issued during the pandemic alone. How the hell can you tell me with a straight face that that didn't cause the inflation? I feel like I'm taking crazy pills. https://fred.stlouisfed.org/series/M1SL

Bad faith argument again, or at least terrible tunnel vision. So what? In the EU a lot of that money went into the Recovery fund, which released the funds in multiple steps (only the first one was in 2021), and a lot of it is still remaining in the fund. How do you explain the massive inflation in the EU then? And are you seriously that centred on "money printing" that you cannot imagine gas and oil prices raising mu…

>Bad faith argument again

Stop saying this whenever somebody disagrees with you. That's not what that term means at all.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#75

Post by nabla9 »

atq2119 wrote: post #70
nabla9 wrote: post #69

>Today, we control inflation with changes in interest rates, not changes in the quantity of money. That's not full truth. In the last 20 yeas central banks do their big and sudden moves using "Open Market Operations". They buy or sell money like assets in market and effectively increase or limit the quantity of money.

Open market operations are the mechanism by which the interest rate is controlled. Basically, the central bank sets an interest rate target and then performs open market operations until the interest rate matches the target. That obviously affects the quantity, but the point is that the target is the interest rate. The quantity just ends up being whatever happens to be necessary to hit the interest rate.

The target is inflation in both.

When you reduce the volume of assets available, or the price renting the asset, you increase it's value. In this case the asset is money.

Market interest rate is a signal how effective the action is long before inflation statistics is available.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#76

Post by casenmgreen »

eru wrote: post #28
gregman1 wrote: post #15

Earlier quoted context omitted.

Extreme hike in energy prices was about four months before the war began. It’s when EU decided to abandon long term gas contracts and turned to spot prices (~11.2021). The war started in 02.2022.

Well, the full scale portion of the war started in February 2022. But you are right otherwise.

Yes. I was surprised to find out that Russia had been conducted sabotage operations against UA artillery ammunitions dumps for many years prior to full scale invasion, and the Ukrainians had already lost the majority of their artillery ammunition reserves this way by the time invasion began.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#77

Post by openrisk »

readyplayernull wrote: post #72

It all comes down to math: https://stephaniekelton.substack.com/p/how-to-cut-2-trillion...

> To ensure that interest expense falls toward zero over time, Congress could instruct the U.S. Treasury to stop issuing anything with duration beyond a 3-mo T-bill. Voilà! It wouldn’t just save $2 trillion, it would save tens of trillions of dollars over time.

umm, not sure if her recipe is meant as a joke (I mean the world is rapidly turning into a bad joke anyway so people getting facetious might be a defense mechanism) but eliminating risk-free money for anything beyond 3 months seems like very... short-termist? No idea what kind of volatility that would do to the broader financial / economic system (including e.g. mortgage finance) but somehow it doesn't sound good.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#78

Post by pjc50 »

hgomersall wrote: post #67
pjc50 wrote: post #56

Earlier quoted context omitted.

The evidence is very strong that we do actually control it, because in many countries you can see in the historical data when central bank targeting was introduced that the inflation rate drops fairly rapidly into the target band. It's not a perfect control system because the cost is "NAIRU": non accelerating rate of unemployment. That is, economic growth and wage growth are constrained to avoid a wage-price spiral.…

Please do show this very strong evidence that the effect is any more than the supply chains sorting themselves out. Even some within the CBs are doubting the causality. Japan had the lowest inflation of any major economy post COVID, and yet persisted with essentially a ZIRP. There's a good argument that in our high reserves world, interest is actually inflationary.

UK historical investigation: https://www.elibrary.imf.org/display/book/9781557758897/ch07... - written in 2000, but you can see on this graph https://www.macrotrends.net/global-metrics/countries/gbr/uni... how flat it is from 1992 to 2020. That's a very good record for any piece of policy. Inflation control works for controlling business cycle inflation. However, it's not perfect and the COVID+war shock resulted in unavoidable inflation.

It's a ""plant"" in the https://en.wikipedia.org/wiki/Control_theory sense.

(my original comment: "you can see in the historical data when central bank targeting was introduced that the inflation rate drops fairly rapidly into the target band".

The US graph is similar https://www.macrotrends.net/global-metrics/countries/usa/uni... - although the adoption of inflation targeting wasn't fully formalized, it was definitely used in setting interest rates from the 90s.

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#79

Post by 1986 »

Cumpiler69 wrote: post #37
pjc50 wrote: post #4

Mentioning the war on COVID but not the actual war between Russia and Ukraine that caused a huge spike in European energy prices is a big omission, since that caused a lot of global inflation.

False. Inflation was mainly caused by the central banks(especially the US FED but also the ECB who followed suit) devalued the currency by over-issuing it during the pandemic, not due to the post pandemic high energy prices which are not that high when you adjust for the crazy Inflation the excessive money printing generated. In short, they barrowed money in your name with you as a guarantor and now you're paying for…

Money supply increased significantly in 2020 for sure but that's NOT what you're seeing in the M1 graph. M1 was revised to include savings accounts at the same time and this is the major source of the discontinuity:

https://fredblog.stlouisfed.org/2021/05/savings-are-now-more...

M2 captures the pandemic influx better and is significantly less dramatic: https://fred.stlouisfed.org/series/WM2NS

Re: Setelinleikkaus: When Finns snipped their cash in half to curb inflation

#80

Post by Yawrehto »

casenmgreen wrote: post #76
eru wrote: post #28

Earlier quoted context omitted.

Well, the full scale portion of the war started in February 2022. But you are right otherwise.

Yes. I was surprised to find out that Russia had been conducted sabotage operations against UA artillery ammunitions dumps for many years prior to full scale invasion, and the Ukrainians had already lost the majority of their artillery ammunition reserves this way by the time invasion began.

And they conquered Crimea in 2014--partially, if I remember right, to get a port that doesn't freeze over in the winter, something they have wanted for literally hundreds of years.
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