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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

#121

Post by sofixa »

theultdev wrote: post #118
sofixa wrote: post #115

Earlier quoted context omitted.

I'm not saying this because they're disagreeing with me. Inflation is probably one of the most talked about topics of the past few years, I find it impossible that people haven't heard about the multi-layered complexity of it, and thus anyone blaming it purely on "money printing" has to be acting in bad faith.

It's not really complex, GP is correct. High energy prices cause high transportation and manufacturing costs which causes everything else to rise. But the main cause of inflation is printing of money, especially when you introduce such a large amount in such a short time. People used to know that, they either pretend it's not true now or they're ignorant. And yes the "bad faith" parrot line is really annoying and doe…

> It's what people say when they don't have a rebuttal

Only I have a rebuttal, and came with receipts from Eurostat. So what exactly are you trying to argue?

> But the main cause of inflation is printing of money, especially when you introduce such a large amount in such a short time.

The original premise (which is still in bad faith, however much you dislike that part) was that money printing was the main cause. And this is fundamentally and provably wrong (check my comment upthread, Eurostat inflation per sector with the timeline). Inflation was kickstarted by energy inflation which coincides with the Russian invasion.

Did money printing contribute? Of course. Did Russia's invasion of Ukraine and all the issues it brought in energy prices and food prices? Of course. Did the Houthis contribute with their attacks disturbing supply chains? Probably. Did Covid contribute with all the supply chain issues it caused? Of course.

Trying to pin it solely or mostly on one single reason, especially when it is a global phenomenon that many countries suffered from regardless of their exact specifics (e.g. Sweden's monetary policy was not the same as the EUs nor Canada's, yet they all suffered from serious inflation) is arguing in bad faith. It's so trivially provably wrong, it's not even funny entertaining people who are wrong.

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

#122

Post by xadhominemx »

insane_dreamer wrote: post #98
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…

That's just one mechanism, but not the primary way in which the Fed controls interest rates. The Fed is a large provider of short-term loans ("fed funds") to cover interbank exchanges. It also is the lender of last resort and lends to banks directly ("discount rate"). By changing these rates, the FED can influence the rates the banks charge each other for loans, and down the line to consumers.

You are correct. Striking how many HN commentors are so often confident and yet wrong...

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

#123

Post by carlosjobim »

semprity wrote: post #105
krupan wrote: post #100

If this second thing last paragraph doesn't make your skin crawl then I don't know what will: "Cash, which is awkward to immobilize for policy reasons, will be gone in a decade or two, leaving the public entirely dependent on bank deposits and fintech balances which, thanks to digitization and automation, can be easily controlled by the authorities. To rein in a jump in inflation, central bankers will require commerc…

Indeed makes my skin crawl. How can one reasonably protect himself from such draconian freezing? Asking for reasonably, not bunker full of gold bars.

Bunker full of gold bars. Or foreign currency. Or silver.

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

#124

Post by TeaBrain »

IAmGraydon wrote: post #73
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.

They were entirely wrong about mechanism of setting the interest rate through the discount and fed funds rate, but this description also isn't comprehensive. The feds buying of treasury bonds isn't just to push them down, but is also a mechanism for increasing the monetary supply through the expansion of the fed's balance sheet. This mechanism for increasing the monetary supply is also why the linked article doesn't appear to be accurate either, as they don't seem to understand that the fed does have the ability to manipulate the monetary supply through its balance sheet.

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

#125

Post by dllthomas »

eru wrote: post #91
dennis_jeeves2 wrote: post #86

Earlier quoted context omitted.

Correct, it's mostly theater , and people nerding out on the numbers. The true measure of inflation is this: For a single day one works (calculated over a lifetime), how many days can one survive without working which will pay off all of one's bills. The lower this figure, higher is the inflation.

Huh? What does this have to do with inflation at all?

Unless I miss something, it's very much not a standard measure of inflation. That said, leaning on that "at all": If wages are stickier than expenses, then the gap between wages and expenses will represent recent inflation to some degree.

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

#126

Post by FuriouslyAdrift »

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.

This is the result of demographic crash and stagnation more than anything else...

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

#127

Post by jmyeet »

Carrentt wrote: post #23

Fascinating piece of financial history I hadn't heard about. Imagine your government telling you to literally take scissors to your money, it's like a weird mix between arts & crafts hour and monetary policy. Though I suppose we're already halfway there with our modern central banks, just without the satisfying snip-snip sounds. The Finnish experiment failing because people just deposited their cash in banks first is…

So it's not quite the same thing but the US government has historically performed a sovereign devaluation of its currency.

I am of course talking about FDR (Executive Order 6102). This made it illegal to own gold. You had to hand it in and get paid at ~$20/oz. After doing this, the US dollar (nominally on the gold standard at the time) was revised to ~$35/oz.

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

#128

Post by wbl »

neilwilson wrote: post #42
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…

Interest on reserves is very much still in place[0]. Open Market Operations haven't been a thing since shortly after the 2008 Financial Crisis. https://www.federalreserve.gov/monetarypolicy/reserve-balanc...

The OMC desk is still there trading. How is that not "a thing?"

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

#129

Post by wbl »

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.

How is that working for Argentina or Turkey?

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

#130

Post by jmyeet »

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…

> Simplified: the central bank decide on an interest rate that they want to see.

This is incorrect.

Using the US central bank example, the Fed has a target for inflation. It uses interest rates to try and hit that target. If inflation is higher than 3% the Fed will raise rates to cool the economy.

The Fed sets interest rates directly because lending money to the Fed is viewed as "risk-free" (as the US government has never defaulted on a debt). So if the Fed offers a risk-free 4%, banks will need to offer more because they are not risk-free. So banks no longer really lend savings out for loans. They borrow money and lend it out at a higher rate (eg mortgage-backed securities).

So when you could get a mortgage at 2.5%, it was because the Fed was offering 0%. When the Fed offers 5%, mortgage rates will go up to 7-8%.

There is another mechanism that the government could use to control inflation: fiscal policy, specifically taxation. A criticism of monetary policy to control inflation is that it's indiscriminate. People will go out of business and lose their houses. Taxes only target profits.

So in 2021-2022, we should've just passed a windfall profits tax of 80%. That would've cooled off inflation real quick and given the governments funds to distribute to those most adversely affected. But that will never happen because the corporations and wealthy who own both parties will never stand for wealth redistribution to the poor.

They will however demand wealth be transferred from the government to the rich.

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