111–120 of 125 posts
Keeping inflation low keeps long rates low which keeps money cheap which blows up asset bubbles.
We probably need closer to a 5% inflation target than a 2% inflation target.
But very likely what will happen next is a massive recession and the Fed will once again cut rates to zero.
If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…
(Much has been said in the other comments, but I find them mostly incomplete) > If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. (...) So what is the real problem with inflation? Great question. The "real problem" with inflation depends on what type of inflation it is - either demand side, which is what the Fe…
Most peeps looking at this situation ignore (or are unaware) of the first level issue. It's it demand side or is it supply side. Demand side can rebalance eventually and is less harmful. Supply side means everyone is now poorer and it's more painful on top of also including a unequal distribution of that pain.
The 1970s was supply side - driven most significantly by the fallout of the oil shocks.
> The inflation is a consequence of a mistake that has already been made by the Fed - overly expansionary monetary policy since 2021
However you miss the next important level of distinction in inflation. Inflation in what? Basic goods and services or investments/ assets?
People have been claiming that the Fed's policy (and QE) would kick off horrible inflation in goods and services now every year since 2009 and it never happened. When did goods and services inflation start? During the supply side shutdowns of Covid when hundreds of economies worldwide began producing less due to people remaining home, getting sick, retiring early, dying and factories and shops closing.
Then goods and services inflation kicked into high gear with yet again the oil spike. Oil price doubled in roughly 18 months, peaking earlier this year. And yet again we see goods and services inflation.
The inflation that's hitting common families is (as usual) supply driven.
Now is you're a crypto investor, or a real estate investor, or looking to buy a house, or own stocks, then yes you have legit complaint about the demand driven asset bubble and subsequent popping due to the Fed's policy of cheap money. But the reason trips to the grocery store, filing up a tank, and every day costs are more expensive now is due to supply side.
Earlier quoted context omitted.
I've watched the numbers in Turkey over the past year, and it's mind-boggling. What I don't understand is: how do people get by? Lots of Germans have little savings, don't own their home, and have relatively small margins with their income. The ~10% (or maybe 15, if you exclude some of the wonky things that keep them down) are being felt. I cannot imagine how lots of people would get by with 80% or 100% inflation in…
We lower our standards, lots of middle class families don't eat red meat anymore for example. We don't eat out. We sell assets, take on debt. Young people don't move out in the first place. Lots of people move back in. We got immensely poorer, it is tough out here. You see beggars everywhere, especially low income families were hit the worst. We live under Erdogan, if we try to rise up, we get shut down. All public p…
"Young people don't move out in the first place. Lots of people move back in."
Sounds like Canada
Earlier quoted context omitted.
"I've been following the discussion on US TV and they say we need more unemployment." The Federal Reserve Chairman actually said this in a speech several months ago. Maybe if we sacrifice a lamb, things will get better. For this unemployment "solution" to work, more people have to be out of work. Sacrificial lambs in 2022. As things improve, "the rising tide will lift all boats". Except for the sacrificial lambs who…
Please share a source. I googled this with several different variations of quoting and only saw your HN comment
source with video: https://twitter.com/CNBC/status/1563172126945067009
Earlier quoted context omitted.
“Money velocity” doesn't really exist though except as a catch-all variable in monetarists' equation MV=PQ.
The actual circulating money supply is also unknowable because you don't know if people are holding onto cash or checking account deposits for buying things in the short term or as savings for the long term. Both look identical but one of them circulates more than once per year while the latter circulates less than once per year. It is not like we are sending a dollar bill through the economy and counting how many ti…
Earlier quoted context omitted.
(Much has been said in the other comments, but I find them mostly incomplete) > If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. (...) So what is the real problem with inflation? Great question. The "real problem" with inflation depends on what type of inflation it is - either demand side, which is what the Fe…
You were right, up until you were wrong. Most peeps looking at this situation ignore (or are unaware) of the first level issue. It's it demand side or is it supply side. Demand side can rebalance eventually and is less harmful. Supply side means everyone is now poorer and it's more painful on top of also including a unequal distribution of that pain. The 1970s was supply side - driven most significantly by the fallou…
Earlier quoted context omitted.
Inflation is mostly caused by two things. The first and most obvious are external commodity supply price shocks which crash demand because essential inputs and their dependent outputs become unaffordable. (The demand is still there of course, but it becomes too expensive to satisfy it.) The second is misdirected money supply which steers money towards sweatable assets like property and stock ownership, and away from…
> The second is misdirected money supply which steers money towards sweatable assets like property and stock ownership, and away from productive investment, original invention and research, and small business creation. You appear to be arguing that an increase in the money supply for "sweatable assets" comes at the cost of a reduction in the money supply for everything else. If this were true, you'd expect inflation…
But, inflation is also caused by lack of supply. How do we get more supply? By people starting businesses. But in order for them to do that they must get a cheap loan. But Feds have raised the rates so they can not get a cheap loan and thus do not start a new business and thus supply does not go up.
So Fed increasing rates would seem to help with demand-side inflation, while increasing supply-side problems. But demand-side inflation will fix itself, when things cost more people will spend less. So why is fed raising interest rates?
It's starting to look to me like inflation is a political problem. When things cost more people get angry and are less likely to vote for those currently in power.
Earlier quoted context omitted.
> In some sense, the only relevant partition is the quantity of money that is actually in circulation Yeah thats the bit i’m trying to get my ahead around. Specifically: >> It's arguably both a stock problem and a flow problem I’m thinking the key variable here is flow >>> it's a flow problem You cant have inflation without increased flow, but i’m still wondering about stock because it’s not as simple as just excess…
Given that money is just a promise there are endless money things as well. We can't define money, we can't define velocity, prices are all relative and what is included as a transaction depends on the definition. The naive QTM is overly abstract. All we can really do is address the root cause - insufficient supply and competition.
Sounds like a great suggestion.
On the other hand it is also clear that if FED printed out much more money, that would cause prices to go up. BUT that would not really be a bad thing would it, people would have more money.
If inflation is caused by people having too much money then it is a self-correcting problem because as prices go up people will no longer have as much money. Soon enough they will not have too much money at all. So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income? I've been following the discussion on US TV and it seems they are saying we need…
It's not really self-correcting. When a consumer spends their money at inflated prices, it doesn't disappear. It goes to the business owner, who just received inflated prices for their goods. They, in turn, usually need to pay their suppliers, who can charge them inflated prices and make all their windfall profits disappear. In my view, the main problems with inflation are: 1. It introduces a transaction cost tax. Ev…
The first business receiving inflated prices does not really affect what their suppliers are charging them does it? When a business makes more money and if there is competition they can afford to sell at a lower price and still make profit. And they can invest in making production cheaper which will eventually decrease prices, one could think.
Good points about why inflation is bad. I was just wondering if it is self-correcting problem then it can not be very bad. It seems like a complicated problem. Except supply-side inflation is easy to understand.
Earlier quoted context omitted.
I think you can decompose stock into 'money that is in circulation', and 'money that is not'. In some sense, the only relevant partition is the quantity of money that is actually in circulation. If I take $100bn of cash and bury it and hide the map, I haven't actually decreased the quantity of money (the total amount that exists), but I have effectively decreased the quantity of money (the amount that is in circulati…
The entire concept behind a demurrage currency is to turn paper currency(and demand deposits) into money that always circulates and certificates of deposit into money that never circulates. When you do that, then you can control inflation simply by controlling the supply of paper currency. Like the monetarists suggested.
Why? Because you can discount a CoD into a derivative that also then circulates.
Which is essentially what a bank does - but with a much wider selection of assets.
Eventually you realise that the solution is to embrace Full Liquidity and use a powerful buffer stock offset mechanism to create price stability.