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The ballooning money supply may be the key to unlocking inflation in the U.S.

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Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#121

Post by pjc50 »

pedro_hab wrote: post #106
skybrian wrote: post #86

Earlier quoted context omitted.

Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly. Inflation is about the prices people actually pay, on average. Your neighbor's house getting sold for a lot of money isn't a real cost to you like rent. Someone paid that price, but they are not necessarily typical. Inflation does include rent (or "imputed rent"…

This is the new definition, in old dictionaries inflation was defined as increase in money supply. Using products to measure inflation, is a terrible mistake in my estimation, because cost has been falling, so stable prices don't mean no inflation. It just means the governments got wise to just take what they can get without being noticed.

.. how old a dictionary are we talking here? It's not a recent change.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#122

Post by remorses »

apsec112 wrote: post #12

People keep predicting inflation, but it remains stubbornly below the Fed's target rate of 2%, which is itself low compared to 20th century averages. https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...

All this money is going in the financial market, you need to search for inflation there

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#123

Post by _gx90 »

Bjartr wrote: post #103
speeder wrote: post #73

Earlier quoted context omitted.

FED changed the weightings in 1980, notably if I remember correctly they greatly reduced the importance of housing prices (not what they call "housing" category, but the price of the shelter itself) There was some article coming out some days ago about how when using old CPI calculations inflation is actually 10%, and wages are lagging extremely behind inflation when using old CPI.

Are there "unofficial" weightings available so that inflation could be analyzed under a different set of assumptions?

Yes: http://www.shadowstats.com/alternate_data/inflation-charts

This site calculates CPI using the old way of calculating it, and according to that method the inflation rate is closer to 10%.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#124

Post by nostrademons »

smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

Bank reserve ratios [1] operate as a percentage, so by creating more bank reserves, you create more money that can be lent out. Say that the reserve ratios requirement is 10%, which it currently is. Then for every dollar it has in reserves, the bank may create $10 in loans. The bank reserves don't themselves circulate as money, but they let the bank create more credit, which does circulate as money.

[1] https://www.investopedia.com/terms/r/reserveratio.asp

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#125

Post by grey-area »

foota wrote: post #87
toomuchtodo wrote: post #35

Earlier quoted context omitted.

Inflated asset prices means most folks are never going to be able to purchase a home, and equities (which generates wealth with no further effort besides the capital invested, for the most part) will continue to be owned by the wealthiest. Inequality worsens when asset prices increase faster than wages.

This doesn't check out to me (well, the home part does, but I'm not sure we've seen significantly above normal growth there compared to historical norms, outside of hot coastal markets), but for other assets the price doesn't matter, as you can just get a fraction of them or they're split.

The wealthy own a lot more assets than the poor, therefore asset inflation increases inequality.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#126

Post by beaunative »

I'm not sure why some of the comments seems to be arguing over a point that's complete irrelevant to the key information revealed in this thread. No one in their right mind would think the fed physically printed those money overnight. It may not be money actually printed, but it's definitely money can be printed. The only difference is that with all the financial technologies and tools available, it doesn't have to be printed. Just like how we use credit card, it doesn't have to be physical money, but the money is there, dub, so HN please discuss on what's actually important here, will those money have an effect on everyday life? Eventually yes. And wealth disparity will certainly grow larger. You will need more money to buy assets, it will be harder to get rich. inflation on common good will only happen when everyone gets portion of the money; if it doesn't, it means everyone collectively have about the same to spend on day to day life. Yet, eventually, it will bites back, it means only some people have get the money printed, and those will be the wallstreet

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#127

Post by RobertoG »

pedro_hab wrote: post #106
skybrian wrote: post #86

Earlier quoted context omitted.

Consumer inflation actually is inflation, by definition. This isn't being confused, this is understanding how inflation is defined and using terms correctly. Inflation is about the prices people actually pay, on average. Your neighbor's house getting sold for a lot of money isn't a real cost to you like rent. Someone paid that price, but they are not necessarily typical. Inflation does include rent (or "imputed rent"…

This is the new definition, in old dictionaries inflation was defined as increase in money supply. Using products to measure inflation, is a terrible mistake in my estimation, because cost has been falling, so stable prices don't mean no inflation. It just means the governments got wise to just take what they can get without being noticed.

You can't define inflation as you want. Inflation is an government official indicator with a very clear meaning.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#128

Post by dternyak »

jgalt212 wrote: post #104
smallnamespace wrote: post #77

Earlier quoted context omitted.

Bank reserves are counted in M2, but US Treasuries and other highly liquid assets aren't. The fact that these are functionally the same to a bank is ignored (or deliberately obscured). I mean, this is just common sense: if M1 or M2 expansion were printing money, then a rapid doubling of M2 should cause CPI inflation. But it doesn't.

I think you're sort of trying to have it both ways here. The Fed has been printing money for 12 years in hopes of increasing CPI. But real people, who buy the stuff in the CPI basket, don't have M2, so no CPI bump. It took a long time for central banks to realize this. And even astute minds like John Paulson got tripped up on this one. Starting in 2009, he bought as much gold as he could because he feared rampant CPI…

Yup, this gets it right.

As a thought experiment, imagine someone builds a real, functional money printer in their basement and dialed it to print 10% of current M1.

Would prices at the grocery suddenly skyrocket? Obviously not. Even though the money printer is running, and the money supply has grown, no one really knows about it. Even if a press release was put out about the increase in M1, there would likely not be CPI inflation (putting aside any concern about the money printer itself).

Now, to take the example further, let's say the owner of the money printer started buying up real estate with the cash. Would you see CPI? Still, no. You'd probably see some inflation in the local areas where the real estate was being purchased, if it was done in sufficient volume.

Now, to bring the argument to a close, what if you started buying junk bonds and securitized mortgages? Would you see CPI inflation? No. Would you see asset price increases? Yes, probably. It would be hard to correlate the asset price increases to the money printing, which might be the point. Mortgage originators can start climbing the risk ladder now that the money printer is buying up all these securitized mortgages, and companies can also behave in more risky ways and know that they'll get the financing from the money printer. Increased risk can drive an increase in earnings, which will be rewarded with stock appreciation.

With the money printer stepping in and providing loose financing, the cost of money goes down. Now, previous money lenders have a harder time getting yield, and may climb the risk ladder as well to find the yield they need. This will also be seen in asset appreciation, across bonds, stocks, real estate, & more.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#129

Post by jganetsk »

JSavageOne wrote: post #95
smallnamespace wrote: post #49

The Fed is only creating bank reserves, which does not create more money. Therefore, the Fed has not been printing money. When the Fed buys assets (government bonds, Fannies, etc.) from a bank, the bank gets back 'bank reserves', which are just a number in the bank's Federal Reserve account somewhere. Those reserves can't be lent out. The bank can make no change to its lending, because it's a one-to-one swap (highly…

Functionally there's little to no difference between what you've described and what is colloquially known as "money printing". You've essentially just redefined "money" to include U.S. treasuries and mortgage-backed securities, and then stated that it's just an asset swap and not money printing. You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air…

No. I think what the poster is saying is that running a government deficit is printing money. Fiscal policy is money printing, not monetary policy. This is very much not what is colloquially known as money printing, rather it's the basis of modern money theory.

Monetary policy is just swapping one kind of USD denominated assets for another. It doesn't really change the size of private bank balance sheets, hence it is not the printing of money. But increasing the size of the deficit does indeed increase the sizes of private bank balance sheets.

Re: The ballooning money supply may be the key to unlocking inflation in the U.S.

#130

Post by _gx90 »

RobertoG wrote: post #117
darawk wrote: post #109

Earlier quoted context omitted.

Creating bank reserves absolutely creates money. Bank reserves are the fulcrum around which bank leverage ratios operate. Yes, they can margin treasuries to borrow reserves from other banks, and in that sense, they are fungible. But the total amount of bank reserves in the system at any one time is still what bounds the total amount of money creation that can happen via leverage. Increasing the absolute amount of ban…

New money, enters the economy by two ways: banks lean to households/business or government direct spending. New reserves in the system doesn't create money. The quantity of reserves in the system limit the quantity of money that the private banks can lend to the real economy (actually, not really, but that's another discussion), but the existence of reserves doesn't make the bank to lean. For the banks to lean, it's…

>The central bank have not power to stimulate the economy in this situation, that's the reason central bankers are pushing the governments to spend directly.

Sounds very political for a supposedly independent central banking system!

This system is a disgrace and is governed by unelected technocrats who are able to yield a crazy amount of power over the economy without ever being subject to inquiries from the public, all in the interest of experimenting on the population with highly questionable economic models.

In my opinion we would never have been in this situation in the first place were it not for the artificial credit growth and consequent boom caused by central bankers.

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