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Inflation is differential and restructuring (2021)

economicsfromthetopdown.com

131–140 of 215 posts

Re: Inflation is differential and restructuring (2021)

#131

Why can't it be both monetary and non-monetary? Say it's a vector, one element per CPI category. Throw housing in for good measure. The direction of this vector can change due to non-monetary stuff like Russia and oil. But if all of the categories, especially those without clear non-monetary drivers, rise, then it's also monetary. So maybe X = p_monetary + Q_nonmonetaty where p is a scalar and Q is a vector. I think…

I like to think of money like water. You've got most people who spend every cent they get, that's rivers. You've got upper class people that save some, but if they have a lot they will spend slightly more, that's lakes. Then you've got the very top, whom no matter how much you give them, they won't spend another cent. Their the reservoirs.

So when you introduce money through debt, what you get is mostly the third group who takes out debt. If they have the money and don't actually spend it, you just get a lower velocity, you don't get any inflation. When assets are increasing faster than consumption items, of course they invest in assets, and you get stocks and homes and monkey jpeg reciepts going up.

That is, until a recession is coming around. When a recession is incoming, money managers look at history and find the best recession-proof investments. And it turns out some of those items are in the consumption basket. And it turns out widely inflated asset prices are exactly what you need to get out of.

What happens when you buy oils futures contracts 2 years out? Some bank will work out a arbitrage opportunity, hedge that contract, some other bank will hedge them, and within a few days the value of oil TODAY goes up. That's inflation.

And so you can say that expectations of interest rising causes recession fears, and those recession fears cause inflation. If the money supply drops, or is expected to drop, or we think that the likelyhood of debts getting margin-called is going to increase, you will see inflation.

But you can only see that inflation, as Friedman rightly pointed out, if the reservoirs are full. Wealthy people store possible inflation in their reservoirs. If as the Fed you completely ignore the possibility that the dam can release all of that water out into the rivers, you're always going to be surprised when it happens.

Re: Inflation is differential and restructuring (2021)

#132

Wow, this was the article I was looking for, it summarizes a number of thoughts about economics that I'd been having since the undergraduate days: - There's an authority about the field that really isn't deserved. The models are not made properly, and there's a lot of hand-waiving. I studied economics with a class of engineers and everyone pointed this out. - The pop-sci version of economics is a bunch of easy quips.…

The thing that has nagged at you as it has me, is the simple fact that not only was “economics” conjured and molded by and for the interests of the upper echelon of society, to control the language and thoughts about its terms; but that at the core of it, it’s nothing more than fraud, deception, con artistry. That’s all inflation is too, fraud that if you would commit it, e.g., you added filler to some product you de…

My current thesis, from a position of absolute agnostic ignorance, is economics is what filled the void in society vacated by religion after the enlightenment.

They’re functionally indistinguishable, with mythology replaced by mathematics, and God replaced with GDP. Similarly, they’re both arbitrary rules; conjured, imposed, and protected from scrutiny by the ruling class.

That’s not to say it’s not useful, but I find it baffling that an imaginary concept is unquestionably granted veto over tangible and visceral phenomena.

Re: Inflation is differential and restructuring (2021)

#134
post #120

Earlier quoted context omitted.

Creditors definitely do lose money when they price debt at 2% but inflation runs at 7%. Talking about mortgages misses the larger fixed rate bond market (government and company long term debt).

Yes but what I’m saying is all fixed rate debt prices in interest rate risk. Any one creditor could be in a bad spot, but a creditor holding lots of fixed rate debt can / should be hedging against that risk. When we’re talking about institutions with billions of dollars (and not joe lending Bobby $20), I wouldn’t call them a loser unless they specifically failed to properly hedge their positions.

How would you hedge interest rate risk on trillions of dollars in US treasuries? Who takes the other side of that trade, and why? I don’t think that sort of hedge exists.

Re: Inflation is differential and restructuring (2021)

#135

Earlier quoted context omitted.

> You are given currency coupons in exchange for your work, and then more of those coupons are just forged than correspond to actual work having been done, thereby defrauding you out of the value of your work, also commonly called theft of service. All currency is made up. Even gold, or bitcoin, or giant rocks: * https://en.wikipedia.org/wiki/Rai_stones The only thing that has "inherent" value to humans is air/oxygen…

> All currency is made up. Even gold, or bitcoin, or giant rocks Yes, but gold, bitcoin, and giant rocks can't be inflated at will, which is what the OP was complaining about. Simulated pieces of green paper can. Even with the formerly-used real pieces of green paper, there's a physical limit to how fast printing presses can run. With simulated pieces of green paper, you can just type some numbers into a computer and…

Okay, but creating money at will is not a bug, its a feature.

I know there is this myth of the "no crisis ever during the gold standard era", but this is false. We had a crisis every ten years or so, sometime way bigger than the 2008 crisis despite the economies being less interconnected. And those crisis sometimes were entirely disconnected from production issues, unlike 2008 that is clearly linked with the conventional oil/gas peak. Because having liquidity that allow easy trading of ressources actually help recover faster and avoid made up crisis like the 1893 one in the US.

Re: Inflation is differential and restructuring (2021)

#136
post #135

Earlier quoted context omitted.

> All currency is made up. Even gold, or bitcoin, or giant rocks Yes, but gold, bitcoin, and giant rocks can't be inflated at will, which is what the OP was complaining about. Simulated pieces of green paper can. Even with the formerly-used real pieces of green paper, there's a physical limit to how fast printing presses can run. With simulated pieces of green paper, you can just type some numbers into a computer and…

Okay, but creating money at will is not a bug, its a feature. I know there is this myth of the "no crisis ever during the gold standard era", but this is false. We had a crisis every ten years or so, sometime way bigger than the 2008 crisis despite the economies being less interconnected. And those crisis sometimes were entirely disconnected from production issues, unlike 2008 that is clearly linked with the conventi…

From my limited knowledge, I don’t believe hard money advocates would say there are never any crises, but instead that they are shorter lived and not as large.

Re: Inflation is differential and restructuring (2021)

#137

Wow, this was the article I was looking for, it summarizes a number of thoughts about economics that I'd been having since the undergraduate days: - There's an authority about the field that really isn't deserved. The models are not made properly, and there's a lot of hand-waiving. I studied economics with a class of engineers and everyone pointed this out. - The pop-sci version of economics is a bunch of easy quips.…

> The models are not made properly... Yes and: This OC refers to the empirical data. Friedman (et al) rejected empiricism. I was gobsmacked when I finally figured out what that meant. Like, wtf are they even arguing about if they reject reality?! (Ya, I am a slow learner.) So agree or not with Nitzan's thesis, at least critics can have constructive debates about it.

I think it's better to think of it not as a complete rejection of reality, but recognizing the limitations of empirical methods. Mainstream economics today is arguably too focused on indicators, just collecting a bunch of data and finding correlations, then jumping to causation from that.

Re: Inflation is differential and restructuring (2021)

#138

Earlier quoted context omitted.

> You are given currency coupons in exchange for your work, and then more of those coupons are just forged than correspond to actual work having been done, thereby defrauding you out of the value of your work, also commonly called theft of service. All currency is made up. Even gold, or bitcoin, or giant rocks: * https://en.wikipedia.org/wiki/Rai_stones The only thing that has "inherent" value to humans is air/oxygen…

> All currency is made up. Even gold, or bitcoin, or giant rocks Yes, but gold, bitcoin, and giant rocks can't be inflated at will, which is what the OP was complaining about. Simulated pieces of green paper can. Even with the formerly-used real pieces of green paper, there's a physical limit to how fast printing presses can run. With simulated pieces of green paper, you can just type some numbers into a computer and…

> Yes, but gold, bitcoin, and giant rocks can't be inflated at will, which is what the OP was complaining about.

Governments have been fiddling with metal-based currencies going back to Ancient Rome and Han China:

* https://en.wikipedia.org/wiki/Seigniorage

Never mind what the general public has done as well:

* https://en.wikipedia.org/wiki/Methods_of_coin_debasement#Coi...

See Bernstein.

> With simulated pieces of green paper, you can just type some numbers into a computer and suddenly there are twice as many of them as there were before. Or a hundred times as many. Or a trillion times as many...

Yup, and that's how private banks create loans and mortgages:

* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

Central banks do not create the money that the public uses in the economy, and the only money that the government creates is coins and bills via the their mints.

Also, have you ever asked what happens when there isn't enough money?

* https://en.wikipedia.org/wiki/Great_Slump_(15th_century)

* https://en.wikipedia.org/wiki/Great_Bullion_Famine

* http://www.nber.org/chapters/c11482

And it's not like 'hard money' brings any more stability:

* https://www.theatlantic.com/business/archive/2012/08/why-the...

* https://archive.ph/FWKcL

Re: Inflation is differential and restructuring (2021)

#139
post #135

Earlier quoted context omitted.

Okay, but creating money at will is not a bug, its a feature. I know there is this myth of the "no crisis ever during the gold standard era", but this is false. We had a crisis every ten years or so, sometime way bigger than the 2008 crisis despite the economies being less interconnected. And those crisis sometimes were entirely disconnected from production issues, unlike 2008 that is clearly linked with the conventi…

From my limited knowledge, I don’t believe hard money advocates would say there are never any crises, but instead that they are shorter lived and not as large.

> […] but instead that they are shorter lived and not as large.

Which of course does not match the historical record:

* https://www.theatlantic.com/business/archive/2012/08/why-the...

* https://archive.ph/FWKcL

Re: Inflation is differential and restructuring (2021)

#140

Earlier quoted context omitted.

The article talked a lot about winners and losers. It's interesting that there's no mention of debtors and creditors. The biggest winners in hyperinflation are people in massive debt. It's inflated away to nothing. The biggest losers are creditors for the opposite reasons. When inflation is just abnormally high (~8%), your debt doesn't get deflated to nothing, but you're getting a ~6% discount.

The most common reason for hyperinflation is that the productive capabilities of society has gone down the crapper. That mean everyone is a loser. Some more than others, but even the debtors are losers in that situation.

I don't know if Argentina counts as hyperinflation. But that's not really the case there. Nor was it in Zimbabwe. Venezuela's hyperinflation was just due to the price of oil dropping ~50%, and the government being completely irresponsible.

Where else was this the case beside Germany?

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