What the Great Inflation (1965-1982) taught us • Hacker News Board

Re: What the Great Inflation (1965-1982) taught us

#81

Post by Aunche » Sat, Oct 29, 2022, 1:51 PM UTC

1vuio0pswjnm7 wrote: post #46

galaxyLogic wrote: post #4

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…

"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

Re: What the Great Inflation (1965-1982) taught us

#82

Post by imtringued » Sat, Oct 29, 2022, 1:57 PM UTC

littlestymaar wrote: post #64

jnwatson wrote: post #11

Earlier quoted context omitted.

Inflation isn’t caused by too much money. It is caused by too much money velocity. That’s why the last huge injection of money in 2008 didn’t cause inflation. Folks sat on their money and didn’t spend it. Raising interest rates isn’t about causing unemployment (directly at least). It is about causing capital investment to be less lucrative than tying the money up in treasuries, reducing money velocity.

“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 times it changes hands to estimate the money velocity.

If you could neatly split up the money supply into "medium of exchange" and "store of value". You could actually estimate inflation based on that equation.

Re: What the Great Inflation (1965-1982) taught us

#83

Post by imtringued » Sat, Oct 29, 2022, 2:00 PM UTC

nverno wrote: post #36

rogersnm wrote: post #32

Earlier quoted context omitted.

> 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. The problem is a situation of run-away inflation can arise. This happens because the vast majority of the money supply is created by commercial banks lending activities (not central bank reserves as many se…

Why isn't the Fed raising the reserve rate (apparently it was set to 0 in 2020[1]) to reduce commercial banks creating new money? [1] https://www.investopedia.com/terms/b/bank-reserve.asp#citati...

That's a better idea than raising interest rates but it has the downside that banks are so fragile nowadays that any raise in the reserve requirement could cause a chain of bankruptcies.

Re: What the Great Inflation (1965-1982) taught us

#84

Post by imtringued » Sat, Oct 29, 2022, 2:04 PM UTC

rogersnm wrote: post #52

CraigJPerry wrote: post #50

Earlier quoted context omitted.

>> If the flow is constant and the stock increases, you get inflation That seems like it’s missing a variable to describe when increased supply is spent vs when it is saved. If stock increases but is not channeled through flow, i.e. i take a loan at 2% to save in my bank’s savings offer of 5.25% then flow stays the same (i still spend on the same things each month) but money supply went up and inflation remained unin…

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.

Re: What the Great Inflation (1965-1982) taught us

#85

Post by luckylion » Sat, Oct 29, 2022, 2:11 PM UTC

terminalcommand wrote: post #76

luckylion wrote: post #54

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…

That sounds bad. Granted, I don't keep up with the news that much, but what I do see (in Germany) is mostly stories on the "I won't buy that car I've been wanting to"-level, absolute poverty is rarely shown (unless with an upbeat story about e.g. enterprising metal collectors). While Erdogan certainly isn't praised, the chilling effects and the expanding authoritarianism are barely mentioned.

Fingers crossed that the next elections will bring some change.

Re: What the Great Inflation (1965-1982) taught us

#86

Post by roenxi » Sat, Oct 29, 2022, 2:13 PM UTC

galaxyLogic wrote: post #4

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…

> So what is the real problem with inflation? Is it the economic inequality it brings to those who have to live on fixed income?

1) Humans aren't perfectly rational. A lot of people who don't understand exponential curves will end up going broke - like people who earned money and "saved" it by storing it in a bank account. To put it bluntly, a bunch of old people will be left destitute despite working hard and saving.

This also affects wage earners who aren't keen negotiators. They'll quickly end up with a below-market wage and might not realise what is going on.

2) Price signals take time to propagate because the economic hive mind doesn't move at the speed of light, it moves at the speed of takes-a-few-months. There will be wild mis-allocations as people work out how to measure goods in something reliable that isn't dollars.

3) The new money has to start somewhere, that group will get a massive advantage in allocating resources. They probably aren't good at it, because if they were they wouldn't need free money, so they'll cause massive waste.

4) Triggering high inflation is bad strategy for making things better, so if it is being used the people running the show are probably not the most competent of chaps. They'll be making a lot of mistakes. Eg, usually a high-inflation strategy will get coupled with other tricks to destroy savings - think gold confiscation or wealth taxes - as people try to respond sanely to money printing. If you run the numbers on how capital gains tax interacts with inflation you have a "hey! wait a minute..." moment if you like saving money.

Re: What the Great Inflation (1965-1982) taught us

#87

Post by jmclnx » Sat, Oct 29, 2022, 2:17 PM UTC

Since they tag 1965 as the start, the miss the largest change in US monitory policy. Surprised no one mentions it.

Before 1965, 10, 25 and 50 cent coins made in the US was 90% silver. In 1965 all coins changed to a base metal. So that alone caused prices to rise in the 1960s to early 70s, and all silver coins disappeared from circulation.

As others mention, 1973 and the again 1978(?) the oil shock happened, which put inflation on steroids.

Re: What the Great Inflation (1965-1982) taught us

#88

Post by bombcar » Sat, Oct 29, 2022, 2:25 PM UTC

reducesuffering wrote: post #20

terminalcommand wrote: post #15

Earlier quoted context omitted.

Another perspective, we have 83.45 %/year CPI inflation in Turkey. This is the official number an independent research group of academics claim it is nearing 200%. The official interest rate is 10.5%/year. You get maximum 20-25%/year interest on savings accounts. Real estate market and rents go up 220%/year (by the official numbers). Before doing FIRE purchase your own home or sign a really long term lease with upfro…

Yes, it is underappreciated in urban circles how much owning physical assets (land, reliable fuel-efficient vehicles, fruit trees, tools, wood for construction & heat) help weather rough times. They're very frequent in history, but a scant memory for many in the west. Digital IOU assets will not completely cut it.

It’s a scenario that has happened many times in many countries, which means it can be studied and investigated.

John T Reed wrote a book on it which has decent amount of research and ideas - https://johntreed.com/collections/john-t-reed-s-book-on-hype...

Re: What the Great Inflation (1965-1982) taught us

#89

Post by steve76 » Sat, Oct 29, 2022, 3:10 PM UTC

No post body was provided.

Re: What the Great Inflation (1965-1982) taught us

#90

Post by RockyMcNuts » Sat, Oct 29, 2022, 3:11 PM UTC

- Nixon felt that tight Fed policy caused him to lose the 1960 election, he appointed Arthur Burns with instructions for loose policy, and whenever Burns was tighter than desired, he planted stories to pressure the Fed.

- I wouldn't characterize Volcker as a 'lone hero', Carter appointed Volcker and Reagan reappointed him. there was political support for tight policies and fighting inflation. Volcker did a fantastic job maintaining that support and credibility with money supply targeting, and relaxing money supply targeting when it was leading to excessive tightness and overshooting.

- The Phillips curve may not be wrong in that strong demand leads to acceleration in inflation, however it is hard to measure, and there is a distinction between the short-run tradeoff and a much steeper or vertical long-run tradeoff. You can temporarily get higher GDP by tolerating higher inflation, but then expectations adjust and you need more and more inflation for the same GDP boost.

- there was a lot of weird stuff going on in the 70s with oil, farm prices, petrodollar recycling and emerging markets, loss of confidence in US leadership after Vietnam, extended dollar weakness. sometimes when it rains it pours, inflation expectations become self-fulfilling.

- high and variable inflation is really bad for asset prices. it makes investing more risky. growth stocks like tech are bets about a farther away future, as opposed to present earnings, so it's worst of all for them. beta for stocks is kind of like duration for bonds, anything with a high multiple is a long-term bet on continued growth.

- the Fed really wants to see slightly positive real rates, reasonable wage growth adjusted for productivity. otherwise they think they are behind the curve. with inflation this high, real wages are declining so that's bad for consumers and demand. and yet a Taylor rule means rates still need to go a lot higher, so that's why people think there's a risk Fed will overshoot and tip US into a recession.