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The US government is inviting inflation

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Re: The US government is inviting inflation

#111

Post by throw0101a »

kyrieeschaton wrote: post #16

20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices. Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflat…

> Once velocity increases

Let us prayer that it does.

I'd much rather deal with an economy that is "too hot" than with one in which millions of people are unemployed.

Re: The US government is inviting inflation

#112

Post by jfengel »

kyrieeschaton wrote: post #93
thedudeabides5 wrote: post #38

Earlier quoted context omitted.

MMT is pretty simple. Run inflation higher than interest rates to push down the nominal value of debt. Usual example is the UK after WWII. https://fred.stlouisfed.org/series/CPIIUKA You don't need hyper inflation to inflate away your debts, just enough monetization to bring indebtedness in line. Now, does that mean the currency will retain value vs real assets, no it means the opposite. Hence the move in stocks, real…

MMT does not depend on or imply the relation between debt and inflation, it addresses the metaphysics of "government debt" as such. In fact it suggests you should not "inflate away the debt", as if governments were subject to an actual fiscal constraint of spending = taxes + borrowing (the premise MMT rejects).

Under MMT, you can inflate away other debts (mortages, student debts, etc.) To do so, it separates taxes from spending. It does away with borrowing to simply create money out of thin air, and return any money collected the same way. Any difference between spending and taxation increases the money supply, causing inflation.

That lets you tune the inflation rate more directly than the Fed's rather distant lever arm. The Fed has been trying to increase inflation, but doing so mostly by pumping it into the financial sector, in the hopes it would trickle down. It hasn't. So all of the inflation is confined to the financial sector, in the form of the stock market (and a few other investments, these days including crypto).

Under MMT you could give the same cash directly to people as stimulus checks or UBI, and know that it will go around at least once or twice before ending up in the financials. Then you can control inflation with taxation, removing as much money as you need to, and simply burning it.

The public debt doesn't matter. Inflation gradually eats away at private debt -- assuming it's distributed properly, which it may not be.

It's flexible and elegant. Whether it actually works is less clear, but its roots are a lot like conventional economic theory. In theory, theory and practice are the same...

Re: The US government is inviting inflation

#113

Post by dragonwriter »

jfengel wrote: post #112
kyrieeschaton wrote: post #93

Earlier quoted context omitted.

MMT does not depend on or imply the relation between debt and inflation, it addresses the metaphysics of "government debt" as such. In fact it suggests you should not "inflate away the debt", as if governments were subject to an actual fiscal constraint of spending = taxes + borrowing (the premise MMT rejects).

Under MMT, you can inflate away other debts (mortages, student debts, etc.) To do so, it separates taxes from spending. It does away with borrowing to simply create money out of thin air, and return any money collected the same way. Any difference between spending and taxation increases the money supply, causing inflation. That lets you tune the inflation rate more directly than the Fed's rather distant lever arm. Th…

> Under MMT, you can inflate away other debts (mortages, student debts, etc.) To do so, it separates taxes from spending.

Taxes are separated from spending, that's just an observable fact MMT poses a (actually, quite conventional) explanation of the constraints that actually apply to that. It also tends to be adhered to by people with particular policy preferences, but that's not really all that tightly tied to the descriptive elements of the theory. (Though most argument against “MMT” is actually against the policy preferences, not the theory itself.)@

> It does away with borrowing to simply create money out of thin air, and return any money collected the same way.

Well, it doesn't do away with it so much as point out that it is an act of artifice. You can borrow or not, MMT doesn't care: government created money when it runs a deficit and destroys it when it runs a surplus, and reallocated it all the time. All borrowing does is preprogram in an allocation of certain spending in the future, it doesn't change the monetary effects of current “fiscal” balance. (“fiscal” in quotes because the central tenet of MMT is that the metaphor of the “fisc”, the finite government purse, is inapt for modern government finances denominated in fiat controlled by the government involved.)

Re: The US government is inviting inflation

#114

Post by dragonwriter »

thedudeabides5 wrote: post #38
kyrieeschaton wrote: post #16

20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices. Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflat…

MMT is pretty simple. Run inflation higher than interest rates to push down the nominal value of debt. Usual example is the UK after WWII. https://fred.stlouisfed.org/series/CPIIUKA You don't need hyper inflation to inflate away your debts, just enough monetization to bring indebtedness in line. Now, does that mean the currency will retain value vs real assets, no it means the opposite. Hence the move in stocks, real…

> Run inflation higher than interest rates to push down the nominal value of debt.

MMT [with apologies to The Matrix]: “Do not try and inflate away the fiscal deficit. That's impossible. Instead only try to realise the Truth... There is no debt, and no ‘fisc’.”

While you can preprogram spending and call it “debt” in MMT, you can't understand MMT from within the metaphor of the fisc, the limited public purse which must be filled by revenue and/or borrowing to enable spending.

MMT isn't really about how you use blunt-instrument monetary policy like fed target rates, it's about not needing the separation between sharp-tool “fiscal” and blunt-instrument monetary policy, because “fiscal” policy actually lacks fiscal constraints and has only monetary constraints, and therefore can and should be used instead of blunt-instrument monetary policy. While conventional economists tend to criticize the US for being overreliant on monetary policy because of Congressional failure to deploy fiscal stimulus in recent downturns, MMT dial that up to 11, viewing the divide between fiscally-constrained but more targetable policy and monetary policy which has no fiscal constraints as artificial and unnecessary, as the constraints actually applicable to either are the same and purely monetary.

Re: The US government is inviting inflation

#115

Post by ac29 »

jfengel wrote: post #102
voisin wrote: post #100

Earlier quoted context omitted.

Inflation numbers don’t include healthcare?!

Yes, they do. It's 8.833% of the index. Health insurance makes up 13% of that part, or about 1% of the overall CPI. So even a large increase in health care contributes only a tiny amount to inflation. https://www.bls.gov/cpi/factsheets/medical-care.htm Of course, these are averages. If something catastrophic happens to you, it can easily consume your entire budget.

They account for health insurance in a different way than you might think just looking at those 13% / 1% numbers might suggest. The short version is that if you pay $10000 in insurance premiums, but get $8000 of health care costs covered, they call that $2000 of insurance cost (since youd be paying the $8000 out of pocket otherwise). Of course, with the state of insurance in the US, its more complicated that that in reality.

I think the overall 8.8% figure is probably reasonably accurate for total health care costs, on average.

Re: The US government is inviting inflation

#116

Post by refurb »

voisin wrote: post #97
jfengel wrote: post #67

Earlier quoted context omitted.

It's already well above 3%, if you could include the stock market in the metric. That's the problem facing Yellen: not just doing enough, but doing something that won't just end up inflating the kinds of assets owned by the wealthy. Consumer prices have been stable because despite the increase in money supply, consumers as a whole were treading water (at best) even before the pandemic. She would be happy to do someth…

On topic and timely WSJ article on inflation: https://archive.is/AsvgT It isn’t just stocks. Our inflation measures make a mockery of including households’ largest expense - housing.

Why does it make a mockery? It’s included in CPI and for a large swath of America housing isn’t growing by 10% each year, so we’d expect housing inflation to be moderate on average.

Re: The US government is inviting inflation

#117

Post by marvin »

waheoo wrote: post #46
internetslave wrote: post #26

Earlier quoted context omitted.

He also shorted Tesla

How much did he lose? And when was this? TSLA was looking pretty sus a while back.

Shorting a company that’s «looking pretty suspect» right before it appreciates by 2200% is pertty much the definition of being very, very wrong.

Burry probably didn’t do that badly, but any successful Tesla short in the last 2 years has happened at times when the company did not look particularly dangerous. Excluding the macro crash at the start of the pandemic.

Re: The US government is inviting inflation

#118

Post by jfengel »

dragonwriter wrote: post #113
jfengel wrote: post #112

Earlier quoted context omitted.

Under MMT, you can inflate away other debts (mortages, student debts, etc.) To do so, it separates taxes from spending. It does away with borrowing to simply create money out of thin air, and return any money collected the same way. Any difference between spending and taxation increases the money supply, causing inflation. That lets you tune the inflation rate more directly than the Fed's rather distant lever arm. Th…

> Under MMT, you can inflate away other debts (mortages, student debts, etc.) To do so, it separates taxes from spending. Taxes are separated from spending, that's just an observable fact MMT poses a (actually, quite conventional) explanation of the constraints that actually apply to that. It also tends to be adhered to by people with particular policy preferences, but that's not really all that tightly tied to the d…

I did not realize the etymological origin of "fiscal". Thank you!
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