Earlier quoted context omitted.
Thank god we have crypto & NFTs to help people use all this free cash
This is not even a joke. Crypto has absolutely helped absorb the inflation.
For every person buying crypto there is someone selling.
It’s mostly a demand shock, not a supply shock, and it’s everywhere
141–150 of 478 posts
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#142Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequalit…
Organic demand growth is what we want, not this Frankenstein economy that's been created since at least 2008 if not earlier. Demand doesn't boost GDP, producing real goods and services boosts GDP. You can't spend your way to prosperity despite what any of the insane MMT economists might say.
I agree that wage growth is good but not in the manner it's happening right now, through insanely easy money policies creating massive inflation that's easily outpacing any of those wage gains. Again, you can't print and spend your way to prosperity. Maybe some of these tools would work if they'd ever let off the gas and removed them but that's not what's happening.
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#143Demand growth is what we want. Our economy has been largely demand-limited for a while. Demand growth boosts GDP growth. Corporations are sitting on huge piles of cash, so they're not investment-limited. Any labor market tightness raises wages, which have been mostly stagnant for a long time (until very recently). Wage growth is also good. If wage growth squeezes profits, then that's also good from a wealth inequalit…
Yes I was wondering why economists would think this was a bad thing. To someone like me who knows nothing, this seems like an obvious good thing.
There is no increase in productivity.
Inflation can be very costly, especially for the most disadvantaged who do not have investments to hedge against the rise in prices. It may have a positive first order effect in the short run, but it is an elusive one.
Inflation, if out of control, has the potential to bring the interest rate to levels that would turn borrowing extremely costly --therefore making acquisition of capital more expensive, affecting productivity.
Another side effect is that the government debt could become extremely burdensome, which would force the government to essentially print money to pay its debts. That is effectively a tax (called _seignorage_) on the population. In order to pay its debts, the government prints money, which in turn makes goods and services more expensive --i.e. _seignorage_. High inflation can affect consumer behavior and depress economic activity, which would lead to unemployment, it happened many times, and it is called stagflation. A slower economic activity coupled with increase in prices could then make production more costly, which would push inflation even higher but also increase unemployment.
The key here is whether inflation would get out of control. The Fed seems to banking on the idea that this high inflation is transitory, which means that despite its current high levels, there will be some accommodation in the medium run and things would go back to a stable and acceptable target level. Some, like the article above, does not think so. If that's the case, then the Fed will need to act soon.
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#144Earlier quoted context omitted.
Claudia Sahm? Krugman? I rather listen to the hedge fund guys, at least they have skin in the game, don't they? Claudia Sahm is extremely partisan, and so is Krugman. You know it's going to be bad when we are starting to hear from the media that inflation is actually a good thing --because people have more disposable income to spend on things. First, it was just a blip, then they told us it would go away in half a ye…
Nobody thinks inflation is a good thing ceteris paribus. The main questions are whether it’s better than the alternative, and whether it will be transient or not. “Any inflation at all is bad” is not a view held by any serious economist these days, especially not after the Fed has been below target for so long. I described Sahm and Krugman as dovish and I think that’s more than fair to people who disagree about what…
What evidence do you need? It's been already spelled out. High demand coupled with lagging supply, which does not have the capacity to adjust to new behaviors in the short and medium run. Especially if you consider the regulatory barriers, such as ramping up energy production. What little evidence do you speak of?
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#145Krugman thinks it is a combination of supply chain issues, shift in demand and out of control energy prices:
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#146Earlier quoted context omitted.
The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misal…
There is actually a parallel effect of QE that no-one really wrote about: it causes a shortage of risk-free assets, and makes it harder for savers to fund liabilities. I can believe that QE had a positive portfolio effect in the early 2010s. But no-one really acknowledged the downsides (it took them most of the 2010s to work out why QE "worked"). So we have the amazing situation where you will get funding for a proje…
I don't think it's that Jerome Powell doesn't understand. Rather the central bank only has a few tools (interest rates/QE) to nudge the economy in the right direction. It takes real policy (Congress and the White House) to direct the investment to the more sustainable long-term investments
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#147Earlier quoted context omitted.
So we have benefited from decades of cheap consumer electronics and now people had to wait 10 months to get their playstation at RRP so their proposal is to build double the number of playstations for decades and landfill half of them so in the extremely rare case, they will have just enough.
I would consider consumer electronics to be discretionary purchases. So what I suggested is the opposite of that. If disruptions are an acceptable risk, then you should prioritize efficiency. Consumer complaints are meaningless if they don't have a viable competitor to shift their money to. But we must prioritize resiliency when an economic shock would result in societal instability. I'm willing to pay more for food…
Isn't that why the US government has longstanding agricultural subsidies, guarantees on prices, etc.? Do we really have a shortage of food?
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#148What this doesn’t really address is the why? Yeah there’s more money floating around, so perhaps more people want to spend it, but why? Most people aren’t getting materially more stuff or even need that much more stuff, consumption’s already god damn conspicuous. Maybe everyone can afford a jet ski all of a sudden? No, the stims didn’t really do /that/ kind of wealth expansion. To me, this still looks like the bullwh…
What everyone is going to have a real hard time wrapping their head around for the next few years: We built a highly efficient economy for a set of behaviors. A shock happened that caused a lot people to change their behaviors (probably for a long time, since they've had 2 years of 'practice'). Our economy, which was built for those old behaviors (living in cities, riding public transit, eating at restaurants, travel…
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Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#149For anyone scratching their head on what "MP3" is: monetary policy 3, i.e. "helicopter money," i.e. "the government be handin out them stimmies," i.e. the government injected COVID-19 relief funds into the economy, giving an across-the-board increase in demand for goods & services, but there aren't enough "goods & services" to keep up with this demand.
The government didn't even grant people a months worth of rent in my city. Not sure how that lead to such a huge infusion of demand that continues to persist, unless there are just that many people with very little rent who are driving this demand. Seems like such a small amount in the grand scheme of things considering most people even working a minimum wage job might see more money back on a tax return than the mea…
Not sure where you live, but a family of two adults and 3 kids got $13,900 in stimulus checks so far in the USA, not counting the expanded child tax credits (which would be another $5400 if the kids are young, dispersed in $900 monthly payments for the last 6 months of the year).
Even a single adult with no kids would have gotten $3,200 so far.
I mean, damn, how much is rent in your city?
https://www.pgpf.org/blog/2021/03/what-to-know-about-all-thr...
Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere
#150Earlier quoted context omitted.
It isn’t just direct stimulus to private citizens. It’s the near zero interest rate policy, the literally illegal purchasing of mortgage and corporate bonds by the fed and so much more that is flushing the entire economy with trillions of dollars.
So what exactly happens in between the fed purchasing mortgage bonds and allegedly consumer driven supply runs on everything from toilet paper to golf clubs?
Bond rates move inversely to price.
As the fed buys bonds, it raises the price which lowers the rate.
As rates are lowered for things like mortgages and corporate bonds, people and corporations have more money to spend. Which they do generally spend which stimulates the economy.
Lower rates also cause corporations and people to borrow more which in a fractional reserve banking system actually creates money out of thin air. The reason why corporations borrow more is because with a lower WACC (weight average cost capital) they can invest in more projects (I.e. spend money) for any initiative that has a positive NPV.