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Comment by H8crilA | Hacker News Reader

The usual knee-jerk reaction to money printing is "omg inflation is coming". But it is not that simple - inflation is just the trend in average prices of things/services/whatevers (and there's a great deal of disagreement about what should those things be; the US has 6 measures of inflation none of which agree with any other).

All of those things are ultimately subject to the supply/demand pricing mechanism, so if you want to proclaim inflation you should be able to answer this question: why will demand outstrip supply? I'm not saying this cannot happen, it can, but most people just forget to even consider this basic supply/mechanism framework.

Instead of trying to judge the reality of production and consumption people often rely on some "magic" properties of accounting numbers of large institutions (central banks or governments). It is so much simpler to just eyeball some trillions and say "it's too much, the currency is dead!" rather than deal with the complexities of reality.

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I disagree but I'm going to make my counterpoint a little indirectly:

I can name a couple of states in my lifetime where the government has collapsed in an inflationary manner and the people have suffered and starved. They are generally places people flee in large numbers.

There are no counters that I'm aware of that have suffered a deflationary collapse. If I look up the Wikipedia page for deflation I'm given hellholes like Hong Kong and Japa... no, wait, those are some of the places I'd actually prefer to live than where I am now. Pity I don't speak any Asian languages. Pretty civilised places, really. Advanced is the word I'd actually use to describe them.

There is literally one example of a deflationary collapse in the 1930s US Great Recession. Even then, that was the precursor to the modern US rather than, say, the Zimbabwe collapse through hyperinflation.

I can fathom why governments call deflation the big enemy. I can't fathom why people believe that. Even in the worst case suffering and deflation seem like a pretty good foundation for long term success. People really should stop flirting with inflation and try encouraging deflation as a response for once. Who knows, it might work. Governments keep encouraging inflation and we keep having mysterious debt-fueled collapses.

The usual ones that people name are Venezuela and Zimbabwe, and in those the hyperinflation isn't just a monetary phenomenon that the states decided to self-destruct with; it's a symptom of a whole cascade of failures, including economic sanctions on the country!

Hyperinflation in those cases is effectively a forex phenomenon. The country stops producing any useful export goods (or is banned from exporting, or in the case of Weimar Germany forced to export gold at gunpoint), so the value of its currency collapses. Because the country still requires imports, especially oil, the value of those goods shoots up - but you can't save the economy from this by printing local currency.

(Can someone name a 20th century country with hyperinflation that wasn't under sanctions or involved in a war?)

> (Can someone name a 20th century country with hyperinflation that wasn't under sanctions or involved in a war?)

But in contrast, can anyone name a 20th century country with deflationary policy who broke under sanctions or came off badly when involved in a war?

Flirting with deflation is much safer policy than flirting with inflation. Although a fair point that hyperinflation is associated with cascades of failures that still suggests that flirting with high inflation is more destabilising than flirting with very low credit levels. If anyone responded to cascades of failures by highly deflationary policy they don't seem to have made it into the well-known-failed-states pile.

Japan is a pretty classic tried-deflation example and they ended up a really stable, well organised society that honestly looks like a pretty nice place to live. Well educated. Modern. One of the leading countries on the Asian continent in fact. People complain that the rich aren't getting rich fast enough in Japan which I don't think is a great complaint.

> Japan is a pretty classic tried-deflation example

Er, https://en.wikipedia.org/wiki/Lost_Decade_(Japan) ? It wasn't so much "tried" as "was unable to avoid" deflation.

(The relation of particular economic conditions on paper to how nice a country is to actually live in is a different and much more complicated subject!)

I don't think there have been countries which have tried deflation in response to dysfunctionality, because part of dysfunctionality is being unable to pick good policy options and make them stick; but there have been quite a few who've responded to currency trouble by giving up their own currency and either dollarising or joining the Euro. The consequence of that in Greece was deflation: https://www.reuters.com/article/us-greece-economy-inflation/... ... and the "austerity" that went along with it.

> Japan is a pretty classic tried-deflation example and they ended up a really stable, well organised society that honestly looks like a pretty nice place to live. Well educated. Modern. One of the leading countries on the Asian continent in fact.

All the exact reasons I don’t think anyone in the USA is keen to try deflation!

Yeah, look at many countries in latin america with the prime example being Argentina.

Just the same way you see drug dealers "cutting" down their product to skim some off the top and pass it on to the unknowing consumer, the newly created money becomes a way to skim money without the citizenry knowing exactly whats going on.

Monetary inflation isn't a natural law. If you don't do it, it doesn't happen.

> (Can someone name a 20th century country with hyperinflation that wasn't under sanctions or involved in a war?)

Maybe not hyperinflation, but Turkish inflation was rarely below 60% from the late 70s until 2002, and in the last few years has been in the 15-25% range.

Which one of those years wasn’t Turkey involved in a war?

Given the US has been involved in a war for decades that's a rather broad brush

>I can fathom why governments call deflation the big enemy.

The answer lies in who the governments are that are saying that. They're the advanced economies which are well developed and have good regulatory systems, the ones that have little to no risk of hyperinflation. And, for them, deflation is worse than some (non-hyper) inflation. It's also much harder to get out of, Japan is still sort of stuck 20-30yrs later despite taking more and more extreme measures.

To circle back to the parent comment topic, ie. people think printing money always causes inflation: You mention Japan. They have printed so much that their central bank owns about 45% of the national debt. And they still have no inflation.

>we keep having mysterious debt-fueled collapses.

I don't think they're that mysterious. Most seem to be caused by human irrationality / group-think (bubbles), in combination with complex financial instruments that magnify the effects of a burst (ie. unwinding of massive leverage).

Armchair economist here, but isn’t Japan a surplus country with a very strong (safe-heaven) currency? Does that not impede inflation to take off?

https://tradingeconomics.com/japan/current-account

On a more global note, each economy is different and one can’t expect the same results from similar measures. The MMT advocates saying that ‘The economy is not a household’ and ‘Deficit does not matter’ advocate for a very dangerous path to walk for many countries that can’t print a strong currency.

>There are no counters that I'm aware of that have suffered a deflationary collapse.

Isn't that because long term deflationary currencies are quite rare? I'm genuinely asking, I was under the impression that deflationary collapse was rare because systemic deflation was rare, not because it was common and working just fine.

The arguments as to why deflation is bad always seemed fairly simple and common-sense (if you earn money just by having money without taking any risks nobody invests anymore and economy grinds to a halt, basically).

>If I look up the Wikipedia page for deflation I'm given hellholes like Hong Kong and Japa... no, wait, those are some of the places I'd actually prefer to live than where I am now.

You make it sound like these places became what they are because of deflation. That's a very peculiar read of that wikipedia entry IMO:

>Following the Asian financial crisis in late 1997, Hong Kong experienced a long period of deflation which did not end until the 4th quarter of 2004. Many East Asian currencies devalued following the crisis. The Hong Kong dollar however, was pegged to the US dollar, leading to an adjustment instead by a deflation of consumer prices. The situation was worsened by the increasingly cheap exports from Mainland China, and "weak Consumer confidence" in Hong Kong. This deflation was accompanied by an economic slump that was more severe and prolonged than those of the surrounding countries that devalued their currencies in the wake of the Asian financial crisis.

As for Japan, while it's definitely still a extremely important economy they lost a massive amount of ground since the 90's. I don't know if deflation made things better or worse, but it's not like it's been a massive success story.

I consulted https://en.wikipedia.org/wiki/List_of_countries_by_Human_Dev...

On practical measures, Japan looks like a massive success story. It looks like the best >100mil population country outside the Anglosphere, with whom it is perfectly competitive.

My family jokes sometimes that we wish we could still afford Japanese goods. I heard that the reason we don't see many Japanese students in Australian universities is because the Japanese system is too good.

I mean, why are we avoiding this sort of failure? It looks a lot like our success. The Japan of today isn't the Japan of ten years ago, but is this the worst case scenario of deflationary policy? Where are the failures?

Your question for examples of severe deflation is a bit like questioning the social distancing measures against COVID-19: If the policies work, it looks like they are useless - after all, deflation never really happens, right?

The US had many deflational episodes: https://en.wikipedia.org/wiki/Inflation#/media/File:US_Histo...

But none since Bretton Woods.

The current deflational examples like Hong Kong and Japan are no hell holes because deflation was 0.1% (HK) or 2% (Japan) - because of monetary and fiscal interventions.

> Who knows, it might work.

Frightening!

Whereas, we know the debt-fuelled-collapse-cycle works, insofar as it inspires economic-confidence in those that need that sort of thing.

My guess is that’s why we keep doing what we’re doing: there doesn’t appear to be any reason not to, and the alternatives might cause a whole lot a whole lot of discomfort.

It's because the true, severe deflation is accompanied by mass unemployment and contraction of the economic output.

1930s is a great example, you know well what came next after the economies got almost killed and people got angry.

I, too, would personally prefer deflation - I could buy cheap assets.

>It's because the true, severe deflation is accompanied by mass unemployment and contraction of the economic output.

That's not the case with deflation in general; there were deflationary episodes before the 1930s where this didn't happen (e.g. https://en.wikipedia.org/wiki/The_Great_Deflation). The difference in the 30s is that a wage floor was imposed, so wages couldn't fall to adjust to the increased purchasing power of the dollar, so there was massive unemployment. Labour economists nowadays refer to this as "sticky wages".

Imagine if there was 90% deflation now. A dollar would buy ten times more, but a minimum wage worker would be ten times more expensive. If the minimum wage wasn't adjusted downwards to match the deflation, then suddenly nobody could afford to pay minimum wage, so a huge amount of people would be out of a job.

True. You're right that the topic of deflation is handled rather "bluntly". Also, I can see some benefits of inflation - for example to slowly dilute govt debt after some government gets over-indebted. My point is that it cannot be judged by a simple always good / always bad attitude.

I think it's particularly important to consider the velocity of money. When you consider that inflation is due to the change in (velocity of money * money supply / economic production), it's important to remember that even as economic production goes down, the velocity of money arguably goes down even faster as e.g. rent and mortgage payments are deferred, bill payments are deferred, etc.

So, the government has to expand the money supply to keep money flowing due to the decrease in velocity. One of the issues though is that asset prices are not dependent on the velocity of money - asset prices are roughly proportional to (money supply / aggregate assets), so while printing money won't necessarily drive inflation, it does drive asset prices up.

>asset prices are roughly proportional to (money supply / aggregate assets), so while printing money won't necessarily drive inflation, it does drive asset prices up.

Asset price inflation doesn't count as inflation?

A lot of people think of inflation as the consumer price index. ( Gas, bread, cars, toasters, etc) if those go up it puts pressure on wages because people cannot afford to live on existing wages at a certain level.

The price of collectibles like rare art or comic books could go up or down a lot but the general economy doesn't care about those assets.

The point isn’t about what you think the economy “cares about”. You mention commodity products which are a part of the picture, but they are all depreciating assets.

In the end, there is an increased amount of money in the system. That money is looking for returns. Investors flood into the asset classes where they think they can find returns. This means collectibles increase in prices, but other (more common) assets like education, housing, and stocks have also increase considerably.

The velocity of money (a terrible name IMHO) can be described as follows: how correct is the "more money = more inflation" statement in our current environment? In particular if it's low then more money != more inflation.

And yes, we've had terrible inflation in financial markets.

I read somewhere that because of the USD's status as an international reserve currency, a safe currency in times of crisis, and one in which a huge amount of debt is denominated, there's close to $20 trillion worth of demand for USD, so the Fed can afford to print up to that much without any expected inflation. Other countries, on the other hand, have much less room to print money without causing inflation.

> the USD's status as an international reserve currency

There are several reasons for that.

There are very few industrial powers, mainly the US, Germany, China and Japan.

The Economist calls the rest of the European countries "sick men" with a population dependent on welfare. Most had to lie their way (with help from Goldman Sachs) into the EU since they didn't meet the financial milestones for admittance.

Of the large economies, China is known for both currency manipulation and political issues.

The US is the only superpower left. It's easy to see - the US has the only operational heavy aircraft carriers. That gives the USD legitimacy that the Euro doesn't have - there is no army behind the Euro.

The advantage of being the international reserve currency is that the US gets around 1% more economic growth than others, but we pay for the military might to defend the dollar.

So do you want greenbacks or lira? :)

Much of the US is dependent on welfare paid for by a few industrial/financial centers. As a whole, we are also known of late for currency manipulation and political issues. Ask anyone about the effectiveness of our military should there be a funding crunch, with how much is spent maintaining overpriced, underperforming equipment.

On the primacy of the dollar: we walk by faith, not by sight.

I normally don't reply to trolls, but ...

> Much of the US is dependent on welfare paid for by a few industrial/financial centers.

That's internal.

> As a whole, we are also known of late for currency manipulation and political issues.

Yet we're the de facto global currency.

> Ask anyone about the effectiveness of our military

Works great. If you want to learn more, just enter your map coordinates.

> how much is spent maintaining overpriced, underperforming equipment.

US doctrine is that money is no object. Ask UK about the alternative.

> On the primacy of the dollar: we walk by faith, not by sight.

Plus a real military, funded by a real economy.

Contradiction != trolling. If you deign to respond please do it respectfully.

>That's internal. The circumstances of EU members with respect to the EU is substantially similar to the circumstances of states to the US federal government.

>Yet we're the de facto global currency.

This is begging the question.

>Works great.

Hm.

>US doctrine is that money is no object. Ask UK about the alternative.

I'd rather ask the Axis powers about the topic in question.

>Plus a real military, funded by a real economy.

Again, hm.

I think you're proving my point. Real things can weather a period of stoppage. Castles built on data and debt disappear when the lights go out. Again, ask someone in-the-know what happens if funding or supply lines dry up, even temporarily.

Again, don't do magical thinking. Inflation is about things like tomatoes. The only way to make their prices go up is to reduce the amount of tomatoes produced per year, or increase people's willingness to eat them.

You’re only looking at one side of the equation. Assuming demand stays constant, if you reduce the number of tomatoes, their price will go up. Likewise if you increase the number of dollars, the price of tomatoes will also go up, because each individual dollar isn’t worth as much.

That only matters if people are prepared to pay more for tomatoes, which I don’t think they are as evidence by inner-city real estate prices going up way more than the price of tomatoes in inner-city groceries.

On the whole people are drastically more interested in paying more for real estate / assets / buying or starting a business than they are in giving dollars to tomatoes producers.

Tomato producers will take whatever they can get at market, because the produce is perishable, whereas real estate vendors can (usually) afford wait to for a greater-fool with deeper-pockets.

You're missing the point of the example. Substitute tomatoes with something with a long shelf life, like Spam. It doesn't matter. The point is that the people utilize leverage (loans) in order to fund investments that will yield a return greater than the interest rate paid on the loan. People don't use leverage to buy milk, cigarettes, and gasoline, which are the types of goods tracked in the Consumer Price Index (CPI). They use leverage to buy assets. So when people say that inflation has been low despite the unprecedented amount of money printed over the last 10 years, they're only looking consumer goods and not assets.

Oh, sorry, I think I read for previous comment in the wrong context.

Isn't the price affected also by increasing wages, transportation costs, etc too?

That assumes that everyone who wants to buy tomatoes is able to buy them at current prices, and that everyone who is buying tomatoes now would no longer buy them if the price went up.

If there are more dollars floating around in the economy, more people may be able to afford to buy tomatoes and more people become price insenstive (e.g. software engineers in SV do not care if tomaatoes are $2/kilo or $4/kilo, they'll still buy). As a seller you'll raise prices and see no drop in demand, ergo prices go up.

"The only way to make their prices go up is to reduce the amount of tomatoes produced per year, or increase people's willingness to eat them"

Or influence other people into thinking that either of those are going to happen?

> inflation is just the trend in average prices

Price inflation is not some force of nature - it’s deliberately induced by the central bank out of a belief that falling prices are bad. The trend in market economies is for everything to get cheaper every year. Look at TVs for example.

There’s no “magic” in inflation. If you have more dollars chasing the same number of goods, those dollars will have less purchasing power. Because the Fed creates new money if the form of bank reserves, the things that to tend to be inflated the most are assets purchased with loans (real estate, equities, businesses, etc). Nobody takes out a loan to buy tomatoes but they will take out a loan to fund a new business.

How do you give consumers money and say "Do not spend this on toilet paper. The paper products industry is a max capacity and cannot produce any more TP. It will only cause inflation"

In a free market people are going to spend money on whatever they want. Maybe you offer refunds for industries which need to be restarted?

> How do you give consumers money and say "Do not spend this on toilet paper. The paper products industry is a max capacity and cannot produce any more TP. It will only cause inflation"

1. Where will people actually store this very bulky commodity?

2. Staring at the wall of TP that has been collected, people will realize 'I will have to poop a lot to use up all of this'.

3. Once they realize they have a nine month supply of TP, and the space it is taking up, they will not buy TP for nine months so TP manufacturers may experience a reduction in demand in the not-too-distant future.

It is certainly possible for a spike in prices (inflation) for TP (or whatever) to occur as people 'panic buy' supplies, but that spike will subside as people realize they've stock piled enough to last them the length of the shutdown.

It seems like the clearest example of something where demand is currently far outstripping supply is housing in America's most desirable cities.

Goodhart's law says that "When a measure becomes a target, it ceases to be a good measure." - This is what happened with inflation. The government's dual goal of attempting to measure inflation while at the same time keeping it low cannot possibly work.

In our fiat monetary system, there are plenty of incentives for people to hide the real inflation numbers. The kind of inflation we have right now mostly affects the stock market - That's why speculative investments like Bitcoin, Snapchat and Uber are so valuable; not being backed by any net intrinsic value makes them a good benchmark against which to measure real inflation. You could even argue that Bitcoin is backed by negative value (since it costs Bitcoin owners money to keep miners and the network running). So the problem is worse than you think.

Stocks are also a good measure of inflation. Many public companies are backed by real economic value but the value of this activity is often greatly exaggerated... Also, some stocks produce net negative value for society.

Being able to earn revenue or even profits doesn't necessarily mean that a company delivers net positive value to the economy. If the money is obtained through trickery or coercion, then the company adds net negative value. For example, companies like Oracle which derive most of their earnings from socially counterproductive litigation and ill-gotten government contracts add significant negative value to society and yet they are highly profitable. I would argue that companies like Facebook add close to 0 net value; they add a lot of positive value and also a lot of negative value.

There is no doubt that the fiat monetary system is to blame. big companies are essentially getting free money from the rest of us; when the Fed injects new money into the economy, big corporations are the first to get their hands into the pot. Big companies know where the newly printed Fed credit is flowing and they have the political and business connections to extract it. If we don't do something it will get worse. Big companies have shown over and over again that they cannot be trusted.

It's deeply frustrating that, as an honest working citizen, I constantly have to bear witness to the elites receiving free credit over and over while I am enslaved to them under some pretext that they somehow deserve their share. The fact that the information is out there in the public domain and yet nobody seems to be doing anything about it is disturbing.

My conclusion is that people are either evil, stupid or both. I guess people have not changed much since the time of slavery or the holocaust. Exactly the same kind of people running the show it seems. Even if you disagree with what I'm saying, you should at least support the intent.

Unfortunately, I don't have any research to back my claims... Can you think of a single corporation who would sponsor such research? Exactly. This perspective that I'm sharing is doomed to remain in the domain of 'fake news'. The idea of 'fake news' is a weapon invented by the elites to discredit any information that is not aligned with hypercapitalist incentives.

> The kind of inflation we have right now mostly affects the stock market

Annualized S&P 500 Return with Dividends Reinvested from april 2010 to april 2020 are 9.694% [0] which is entirely in line with historical returns [1]. I wouldn't call that inflation.

[0]: https://dqydj.com/sp-500-return-calculator/

[1]: https://en.wikipedia.org/wiki/S%26P_500_Index#Performance

How is a guaranteed risk-free average return of 10% per year normal in any way? How is it not an indication of inflation at the top? Why is it so hard to believe that corporations may in fact be extremely inefficient and subsist and thrive almost entirely because of free credit from the Fed?

It's no coincidence that the stock market started to rally and corporate monopolies started to form at around the same time as the gold standard was abolished. We have never had so many massive companies in the history of mankind.

Most employees who work there don't feel that they're adding value (e.g. https://www.newyorker.com/books/under-review/the-bullshit-jo...), most of their customers don't feel that they're getting value (how long do they have to put you on hold on the phone? How many times do we only choose a company because there are no other alternatives?)... Who is getting value out of their existence?

> Guaranteed risk free

If you invested 2 months ago, you are down 20%. It is definitely not risk free.

> It's no coincidence that the stock market started to really pick up, and monopolies started to form at around the same time as the gold standard was abolished.

Annualized DJIA Returns with Dividends Reinvested from 1897 to 1970 was 9.536% [0].

[0]: https://dqydj.com/dow-jones-return-calculator/

I said 10% average per year is risk free. If it collapses and never recovers for 50 years, then I'll agree with you but we both know that's not going to happen.

It's not going to happen precisely because the system is a scam and in reality there is no risk. The only real long term risk to stock prices is total societal collapse.

If the government keeps bailing out inefficient corporations, eventually they will get exactly that. Now there are many less painful options available, but by constantly brushing them under the carpet, the government and the fed are making total socio-economic collapse an increasingly appealing option to solve our systemic problems.

They could just try to solve the problems now, but instead they prefer to let the tension build... Just like it did before WW2.

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