The ballooning money supply may be the key to unlocking inflation in the U.S.
cnbc.com
cnbc.com
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 liquid government treasury -> bank reserve). A bank's constraint against lending more is its equity reserve ratio, which is unchanged by Fed asset purchases.
Again, this is not printing money; functionally speaking, US Treasuries are already 'money' to a bank (they are extremely liquid, widely traded internationally, safe, and in many contexts actually preferable to cash), so swapping a US Treasury with cash is just turning one type of money into another; no net creation.
There's a simple reason the Fed doesn't clear up this confusion: the central bank prefers people to think they are printing money, because credibility is important to their effectiveness. And the Fed doesn't actually print money, because they don't have the legal authority to do so. This is why Powell is regularly getting in front of Congress to urge more stimulus spending: he knows it's the only way to get dollars directly into the hands of ordinary Americans.
https://fred.stlouisfed.org/series/M2
The is (give or take money market funds) the total sum of money in US bank accounts. Compare and contrast with 2008 for example, where the asset money creation was restricted to the asset side because it was used to take dodgy loans out of the banking system and put them into runoff.
As to why there isn't much inflation yet, well there is. The stock market is considerably inflated due to this, and inflation will creep into the rest of the financial system over time, as this works its way into regulatory capital.
but tldr: it is absolutely printing money - arguably it was the only thing they could do at the time, and the European Central Bank has done similar although less dramatic things, but the longer term consequences will definitely be interesting.
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.
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.
As for inflation -- it's a really slow system that we're looking at here, the inflation depends on where the money ends up, hence the stock market behaviour, but over time it will cause inflation elsewhere.
We look back at historical periods like Weimar, like 1929 as if they happened instantly. But to the people trapped within those moments, they happened day by day, slowly playing out. Irving Fisher is notorious not because he called an end to the crash in 1929, but because he repeatedly called an end to the stock market crash for the next two years.
It would take 3 years for the immediate effects triggered by the US crash in September 29 to play out, and arguably another 20 or more years for the longer term ones. The US money supply actually started shrinking 6 months before the crash as it happened. This is all just the beginning.
You can use whatever terminology you want, but at the end of the day, the Federal Reserve is creating money out of thin air and using it to buy real assets. You can argue that the effect of this is not as dramatic as printing money to buy a bunch of luxury condos or sports cars, but at that point we're just debating the degree of influence. The whole point of Fed money printing is to influence the economy, so if it didn't anticipate any difference, it wouldn't be doing it.
My only question is why banks agree to this deal: exchanging U.S. treasuries for bank reserves (which they only can use as a collateral for lending) ?
It's a disgraceful system that is extremely morally questionable.
The CPI, meanwhile, has been stable, or even under the Fed's target. Presumably because those are basics, and you don't really need to buy much more of the basics just because you have more money. (The people with newfound stock wealth, that is; the people without it don't have any more money to spend in the first place.)
It's still a little unclear to me why the S&P 500 has remained in the "inflated but not insane" through most of the past decade -- though for the past week or so it's trending back to "insane" (a P/E ratio well above 20). That means that earnings were coming from somewhere, and if not from core consumer products, then presumably from other things that the stock-market-wealthy were buying from each other, at presumably inflating prices, or at least quantities.
On an inflation adjusted dollars-per-square-foot basis, housing is exactly the same price as it was in the 1970s [1] -- right around $115/sqft in constant dollars. 2008 didn't actually make a big dent on average.
The reason houses are more expensive today than they were in the past is that they're on average twice as big. This is due to city zoning ordinances, not inflation.
Similarly house prices exploded in major metros like SF because of artificial supply constraints. The city won't allow new building -> refuses to allow smaller units -> prices go up. Again, not inflation.
[1] https://fee.org/articles/new-homes-today-have-twice-the-squa...
I think that is the reason CPI hasn't increased. CPI only accounts for rent and not the cost of actually buying the house. There are definitely highly inflated price to rent ratios particularly in land constrained urban areas.
I think a better way to put it is that there is low/no Consumer Price Inflation but there is tremendous Asset Inflation (in stuff that wealthy people buy).
And perhaps if there did need to be inflation, then perhaps this is better than the reverse (i.e. high CPI inflation which would impact people's ability to buy the basics)?
The point I was making was that the price of housing on average ($/sqft) is the same as it has always been. Since we know major metros have gone up it likely means that tier-2 and below cities have actually gone down.
Further, it might be nuanced, but major urban areas aren't land-constrained. They are constrained by their city councils staunch refusal to permit new, tall construction to the benefit of existing landowners and at the detriment of renters. This is not an inflation-linked issue however but a city policy issue. It's strictly supply and demand.
It isn’t a given that you need to increase earnings to increase your P/E ratio. The “E” is your Earning Per Share. Buying back shares lowers your denominator and magically increases EPS, which drives the price higher.
It also lowers your P, so the net effect should be 0, no?
I believe the big question of "Where is the inflation" has to do with lending excess reserves. The amount banks have to keep in reserve is set, but it changes. They can lend the balance after that, although there's a rate set by the fed that also works as a lending/holding incentive too.
"Excess reserves are capital reserves held by a bank or financial institution in excess of what is required by regulators, creditors or internal controls. For commercial banks, excess reserves are measured against standard reserve requirement amounts set by central banking authorities"
So, this money actually hasn't really hit circulation. It doesn't really explain what's up with the SP (perhaps: credit based on reserve holdings, to hand wave a ton of complexity...), but it explains why there's no direct pipeline from Fed money prints -> my wallet -> CPI.
By Standard and Poor's
https://www.kreditordnung.info/docs/S_and_P__Repeat_After_Me...
The possibly essential caveat being that the ETF's being purchased are (as far as publicly known) all bond ETF's.
[0]: https://www.federalreserve.gov/releases/h41/current/h41.htm
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.
The government borrows the money from bond buyers, so that's also not printing money. (The Fed does buy these bonds, but not directly from the government because the government can't do anything with bank reserves. The Fed can only "print" bank reserves therefore it can only buy assets from banks.)
It's fairly straightforward to prove that increasing the size of the government deficit = printing money.
1. The first step is that the government prints debt (a Treasury instrument, for example). I think we would agree on this.
2. The government then needs to monetize the debt... essentially swapping the new debt with reserves held by some bond buyer. There is no shortage of reserves (this is certainly true today. But even when there were reserve requirements, or in the time before 2008, there was still practically no shortage of reserves. I can provide a separate explanation for this). You may stop and say "but what if there is no bond buyer?" or "but what if there are bond vigilantes?" US banks will always swap excess USD reserves (where excess means beyond what is necessary for settlement) for USD treasury instruments because the latter pays higher interest.
3. The government now spends its reserves, transferring from the US Treasury to a private bank upon making purchases. This becomes new bank credit, aka freshly printed money. In other words, a private bank receives reserves via the Fed's payment system and must credit the recipient's private checking account with new money.
4. The reserves that were considered "excess reserves" in step 2 are now back in the banking system, ready to be swapped again for new debt instruments.
In other words, the net impact on private bank balance sheets is, just from fiscal spending (no activity from the Fed other than as a payment/settlement system):
- The assets side gains a treasury instrument
- The liabilities side is credited with new money caused by purchases by the US Treasury. This is spendable US dollars.
- No change is seen in the quantity of bank reserves
Merely having a different purchase value from maturity value is not enough to qualify a bond purchase as borrowing either, because Bond issuing is not restricted by any economic opportunity cost. The amount of Bonds issued is an simply edict by Congress, when it passes a Budget resolution.
But, and I feel there is being something lost to semantics in this thread, we have an article reporting "the U.S. money supply has grown 20%". Given that the US economy has been partially shut down for most of that time it is hard to see what that can be described as except money printing. The alternatives are polite euphemisms for money printing or appeals to it all somehow being so complicated a measured >20% change doesn't count.
I still don't understand why people are so keen to let the government go unchecked (we don't send our best & brightest to be politicians) and to keep kicking salary earners to the benefit of asset earners (pretty sure we all earn a salary).
"The federal government ran a budget deficit of $3.1 trillion in fiscal year 2020, CBO estimates, more than triple the shortfall recorded in 2019"
By my definition, we did print $3.1 trillion of money this year.
I don't go by the size of the Fed balance sheet as money supply. There are many reasons for this, and plenty of people on this thread are trying to explain this view point.
If the FED weren't buying, banks would have to bid the market to sell, lowering the price.
Kinda makes the banks whole and also makes the Treasury market higher, lowering rates for the ever increasing US deficit.
Also bank reserves can be used as collateral for further loans, just because you don't lend out the actual reserves doesn't mean more money isn't being created, it's just done in a roundabout fashion.
What do you mean by that? I don't think that it how it works.
In the current economy, a reactivation of the economy have to come from government spending (fiscal policy). Central Banks (monetary policy) are powerless when the interest rate have gone all the way down.
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 necessary that there is demand for credit first.
Because there is not demand for credit, never mind the number of reserves in the system. 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.
> Sounds very political for a supposedly independent central banking system!
The phraseology makes it sound political, but it is not political.
Basically when a central bank cuts its rate down to 0.25%, 0%, or even negative (e.g., Switzerland), it's a signal that the central bank has done all it can do to get the economy going. (There are some other mechanism employed in recent years as well ("quantitative easing"), but the message is the same: we are at the limits of monetary policy.)
After that it is up to governments, if they so choose, to also do fiscal policy initiatives, e.g., Keynesian economics: create economic demand through public spending (since private business spending/demand is in the toilet).
Of course government are free not to do anything at all, which would generally entail lower economic growth and higher employment.
But central banks have a mandate to make sure the economy is in a certain middle-ground: not too hot to induce a lot of inflation, and not too cold to have a lot of people out of work.† Everyone agrees to these goals ahead of time:
> The Federal Reserve works to promote a strong U.S. economy. Specifically, the Congress has assigned the Fed to conduct the nation’s monetary policy to support the goals of maximum employment, stable prices, and moderate long-term interest rates.
* https://www.federalreserve.gov/faqs/what-economic-goals-does...
The "unelected technocrats" are doing what they were hired to do. They each have a fixed term (though renewable), and if they don't do what they're supposed to they are replaced.
They did not sneak into these positions: they were told to work towards certain goals, and they are using the tools at their disposal. They are no different than the Board of a corporation hired by the shareholders of the company: it's just that the "shareholders" are elected representatives (Congress, parliaments, etc).
If the Board is not doing a satisfactory job it can be sacked with cause if necessary.
† Sometimes you actually have both: see "stagflation".
I suppose you mean "unemployment".
Generally correct, but it should be noted that if a bank has a lot of reserves, and the over-night lending market is cheap, that means the bank has access to 'cheap money' on the 'wholesale' end of things.
So if a retail bank can get 'cash' cheaply, it can lower its interest rates to its 'retail' customers (mortgages, business loans, etc).
If a bank wants (say) at least a 2% spread between its wholesale source of money/reserves and what it gives out to the real economy, then the Fed raising liquidity such that the over-night rates go from (e.g.) 2% to 0.5%, that means banks can drop their public facing rates as well.
Someone who was not considering borrowing money at 4% may change their mind at 2.5%.
We agree: when the interest rate arrive down to zero there is nothing more than the central bank can do to stimulate the economy. They could add infinite reserves to the economy and nothing would happen, because, obviously, the private sector is not interested in investment. Monetary policy is a blunt instrument.
Also, a bank is not limited by reserves to lend. In fact, in practice, banks first lend and then search for the reserves in the inter-bank market. Those demand-offer dynamics between banks determine the interest rate. If the Central Bank doesn't want to loss control of the interest rate, it has to increase reserves in the system when there is demand.
Central Banks have to choose, or they control the quantity or reserves or they control the interest rate. They target the later. The quantity is kind of irrelevant.
Not necessarily, no. But in practice they create inflationary pressure.
> Also, a bank is not limited by reserves to lend. In fact, in practice, banks first lend and then search for the reserves in the inter-bank market. Those demand-offer dynamics between banks determine the interest rate. If the Central Bank doesn't want to loss control of the interest rate, it has to increase reserves in the system when there is demand.
This is exactly what my original post said. Of course they search for reserves in the inter-bank lending market. But the more reserves there are in that market, the cheaper they are to borrow, which reduces the rate that banks have to charge to earn their spread, which increases demand for credit, which increases the money supply.
Theoretically, yes. If loans are 2% instead of 4% then that may induce people to take one up to do some kind of economic activity (start business, renovate house, buy a new car, etc).
But it is not guarantee: people may feel too financial vulnerable to take risks with borrowed money. This is where the limits of monetary policy are run it.
There are points where the government starts spending on various projects: if a contractor is hired to build a bridge, and it will take "x" years, then all of its employees may feel more confident and do more spending because for the next "x" years they're set. Their money then goes into other people's pockets, into other people's pockets, etc.
Public/government spending to kickstart demand is what Keynesian economics basically is.
Only if there is a net margin between what the central bank pays on reserves and what the bank has to pay out on the matching deposits.
Once central bank renumeration gets low, the cost of unsecured deposits matches or exceeds the central bank remuneration because of the draw to cash.
On this chart [0] you can see how lending increase when crisis started, kind of matching inflation of the dollar. But lending is slowing down, and no amount of QE can speed it up, indicating probable deflation of the dollar.
https://www.forbes.com/sites/bobhaber/2020/03/16/the-fed-fir...
https://www.cnbc.com/2020/03/15/federal-reserve-cuts-rates-t...
OP gave the correct textbook description - but that description has been superceded by changes in bank regulation since the 1980's.
The credit department of a bank, doesn't check if the bank have enough reserves before lending. They only check if the new lending make senses from a business perspective. If it does, it concede the credit to the customer.
The bank is legally obliged to have the reserves, so, a posteriori (and not before) the bank will try to get the reserves in the inter-bank market (from other banks). If there are not enough reserves in the system the price of the reserves will go up. That's the interest rate.
Central banks don't target the quantity of reserves, they only care about the interest rate. So, if they want to keep the interest rate in their target, they have to create new reserves. So, it's the lending what create reserves, not the other way around.
https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...
For the record, reserve requirements are not universal. Canada, for one, eliminate theirs in 1992:
* https://en.wikipedia.org/wiki/Reserve_requirement#Canada
The main thing limiting how much Canadian banks can lend out would be to remain profitable: too many loans, to too many bad investment ideas, means losses.
Yes! This!
In fact, not only does the Canadian system have zero reserve requirements... it has near zero reserves.
https://en.wikipedia.org/wiki/Large_Value_Transfer_System
How it works is this:
- Banks send payments in real time. The system does not involve any transfer of assets, but it does require pledging collateral (often government debt). Asset transfers occur outside of the system. For example, if bank A sells a government debt instrument to bank B, then bank B sends a payment to bank A in the system, and then A transfers the instrument to B outside of this system.
- At the end of each day, settlement is done. Each private bank has a net balance at the end of the day. The net balances sum up to zero across the system, and post-settlement, each individual bank must have a net zero balance. In order to do so, they can either send/receive payments from/to another private bank for overnight loans. Or they can deal with the central bank, by having their reserve balance credited/debited, or by getting an overnight loan from the central bank at a rate determined by the central bank. With overnight loans, no assets are transferred... there's just a promise to pay back the next day via sending a payment.
A few notable things about reserves in the system:
- Use of reserves is totally optional. In practice, banks hold very little reserves.
- The quantity of reserves is entirely determined by demand from private banks.
- Reserves are never transferred from one private bank to another. They are only transferred between central bank and private bank.
There is no confusion, the term is called "monetizing debt" where they create 'money' out of thin air to buy government debt from banks who then use this money to create even more money via fractional reserve lending.
> 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.
The money in my saving (or chequing) account is just a number in the bank's account somewhere, but it is still "money" that I have with them. Similarly the Federal Reserve is a bank account for the banks: so your bank (BoA, Chase, Wells Fargo, etc) has money at the Fed just like I have have money at (e.g.) Citibank.
Otherwise, your statement "the Feds buys assets" makes no sense: with what exactly does the Fed buy the assets if not money? "Money" in the modern economy is (1) a means of exchange, (2) a unit of account, and (3) a store of value. In this case we are using (1). Just because the "money" is in digital form does not change its essence.
> […] so swapping a US Treasury with cash is just turning one type of money into another; no net creation.
Can US Treasury bills be used for reserve calculation purposes? Because if they cannot, then the higher reserve accounts mean that banks would be able to create more loans (assuming they can find borrowers).
While reserve holdings and T-bills may have similar net values, each may be have restrictions on how they can be used in various circumstances, which could have knock-on effects.
> bank's constraint against lending more is its equity reserve ratio
Wait, isn't this the same reserve? IE. By putting more capital in the reserve, the banks are able to lend proportionally more?
What percentage of dollars issued in bank loans, whose issuance depended on this increase in Fed reserves, are expected to be issued to individual citizens who make $72,900 or less (the AMT threshold for 2020, iirc)?
What percentage of dollars are expected to be issued to businesses with gross revenue of $1mil/year or less?
One of them is about whether the Fed is printing money.
The other one is about what inflation is, or how it ought to be measured.
I find it fascinating that there's so much confusion about all these economic terms. I don't have a simple answer to either, but it's thought provoking that there isn't an established theory that everyone can point to from which people can comfortably say what different things mean. If you had a physics debate about black holes or whatever, it would normally be quite clear if someone had misunderstood something. At least when the threads got deeper, it would become clearer and some authoritative comment would appear.
I have an economics degree from a well known university, and I'm still not entirely sure what to think of those threads. They are so meandering, each new commentator rectifying an old definition or seeking to add yet another concept.
That should say something about how confidently we can make economic decisions.
And then we get some completely ridiculous things like people arguing that the Keynes return of investments apply to each investment inside an economy.
What happens instead is that people have feelings about what these concepts are supposed to mean, and then use that to make a political statement. The reason armchair- and pseudo-economists are so eager to say things like "Money is really about X" or "Money is really about the opposite of X" is they want to hijack the word 'money' and the meaning it has in the brain and turn that into politics.
These confident takes are more directly engaging, whereas economic pronouncements are wonky and weird in a way that's more relatively neutral or at least not obviously political, so the gravitation is towards the bad and confusing takes.
Observant, but you are most likely seeing the result of 'dang' changing the URL from the article about printing money to the one about how to measure inflation! https://news.ycombinator.com/item?id=24770185
Was: "22% of all US Dollars were created in 2020" https://old.reddit.com/r/Bitcoin/comments/j6ud5u/22_of_all_u...
Now: "The ballooning money supply may be the key to unlocking inflation in the U.S." https://www.cnbc.com/2020/08/05/the-ballooning-money-supply-...
OP's post isn't about that fact that two different topics are being discussed. OPs point is that for neither of this two topics that are critical to economic theory, people don't even seem to know or agreed on the definition of either. How in the world can people discuss (let alone judge or shape) policy if we can't even agree on what basic concepts even mean.
If people fuck up on the understanding of black holes, it doesn’t matter for the economy. If people fuck up economics, it can mean the next Great Depression.
At the local scale, one can take for granted that definitions are stable and many laws are immutable: if I go into debt, I must pay it back; I can't create money out of thin air; money is defined as dollars; I must pay my taxes, etc.
But the macroeconomy is the entire system, and in complex systems, everything affects everything. Causal feedback loops run in both directions (A causes B causes A again). Money, debt, taxation, etc. are all creations of human society, and can be modified.
But even though humans made these definitions, they're not quite fully in our control.
Like on the one hand, we just made it all up, just like how US dollars went from gold-backed to fiat overnight.
But then, if you really attempt too much magic, it doesn't work. If you print money and spend more than you have, then you can turn into Venezuela, where there is truly hyperinflation and the dollar again becomes de facto currency (despite the government's halting attempts to outlaw this).
So economic laws have this dual aspect where on the one hand, it's simply a human invention, but on the other hand it appears to reflect some deep laws of nature regarding how energy and information flows through our societies, and you can't push the definitions too far from reality on the ground.
* The Fed has doubled (!) the number of assets on its balance sheet by creating new monetary instruments and using a big swath of them to purchase financial assets like treasuries and mortgage backed bonds, helping maintain price stability in those and other financial assets. In fact, the Fed has created more new monetary assets during the past five-plus months than in the entirety of 2008-2009, during the worst of the global financial crisis. Source: https://fred.stlouisfed.org/series/WALCL
* The US Treasury, which must borrow funds or collect taxes in order to spend any money, has increased its spending massively during the pandemic, after the passing of significant tax cuts, so it has been incurring federal deficits as a percent of GDP at the fastest rate since WWII. Source: https://fred.stlouisfed.org/series/GFDEGDQ188S
* Tax collections have started to drop, as many sectors of the economy (restaurants, retail stores, malls, office buildings, hotels, travel companies, etc.) are now no longer profitable and have fired or furloughed millions of people. Source: https://fred.stlouisfed.org/series/W006RC1Q027SBEA (data available only as of Q2)
This is printing money and it is not inaccurate to say that they have created U.S. Dollars out of thin air to finance their asset-purchases and "lending" (a debt that will never be paid off) to the U.S. government.
* The Fed buys treasury notes and bonds from third parties, because it cannot buy them directly from the US Treasury at issuance.
* The Fed can earn and book profits from treasury securities only to the extent the US Treasury continues to make interest payments and repay principal.
* The US Treasury can pay continue to pay interest and repay principal only with money that is (a) borrowed from third parties by issuing new treasury securities, or (b) collected via taxation.
Things are this way by design, for many reasons, including the explicit goal of limiting short-term political influence over monetary policy.
* An investor acting as middleman between the Treasury selling a bond and the Fed buying it hardly matters. The Fed is supporting the price and ends up with the bond.
* Whether or not an interest payment is made to the Fed, this is money that the government has in the end. The point is that nobody outside the government gets any payments, so the debt is effectively neutralized.
I’m not sure the third point is true. Revenue from the Fed’s operations aren’t restricted funds, are they? It may add a lag, though.
It’s true that this maintains the independence of the Fed, but currently the Fed is openly advocating that Congress should spend more. They can cooperate to create and spend money when they agree that it’s a good thing.
They might not say explicitly say that this is what they’re doing, though.
https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...
Yes, for all those categories there are other (even more important) factors than inflation, but overall, we see a growth much larger than CPI
When you give people stimulus checks, they spend it. That money enters circulation. It winds up in the pockets of businesses. And from there to the owners of said businesses. Which, since they have money and this is a horrible business environment to invest in, means that money goes into assets. Which drives up the price of the assets.
As far as I can tell entertainment has only gone up sharply in price where it's supply-limited (e.g. Hamilton, the Super Bowl), because more people are rich than in the past. I'm most curious about that one, since there are so many interesting substitutes and prices are all over.
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.
This site calculates CPI using the old way of calculating it, and according to that method the inflation rate is closer to 10%.
Personally I just see him more as small time business man making a nice living from satisfying some market demand for figures that proof government is lying to you. For those who want to find out for themselves, here's the raw BLS data[3] and methodology[4].
[1] https://azizonomics.com/2013/06/01/the-trouble-with-shadowst...
[2] https://www.thestreet.com/economonitor/emerging-markets/deco...
Not sure how much that distinction really affects the median person though, if housing (rent) inflation is under control. I suppose people with kids may prefer to buy for long-term consistency, so CPI misses them in a way.
Here's the Bureau of Labor Services Q&A on the topic:
"How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)"
https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
You feel certain regions of the country are far outpacing others in economic growth and high paying jobs, you feel healthcare costs can and will cause issues for you in the future, you feel automation could come after you. So you bid up housing in areas you feel have higher probabilities of economic growth so you have access to more jobs, in case you get laid off, and you save more since if you get laid off, you have to spend a lot more for healthcare.
You delay having kids because maybe before it felt like things would fall into place, but now you have access to data and decide it's wiser to wait to gather more resources before trying for relationships/kids, so it feels more "expensive" to start a family than in decades past.
But it's probably impossible to reflect all of that in a number.
People in the past were also at great risk of job automation, regional economic decline, etc. etc., but didn't seem to stress them and try to hedge for them as much. I could be wrong though.
But 2 parameters that are different than the past:
1) The rate of change of job destruction from automation and outsourcing to up and coming countries may not be the same over all time periods. If it happens slowly enough, then it may not be perceived by people and it may only have a negligible economic effect if the obviated people are able to be put to use elsewhere.
But with computers and mobile high speed internet and GPS, you can roll out products that obviate entire fields within years if not months. Email/Calendars/Online Shopping/Travel Search/Reviews/Search Engines/Online Auctions/Craigslist/Real Estate/low cost index funds have all laid waste to enormous numbers of people's professions or lowered the barrier to entry heavily. The younger generation has no or much lower demand for travel agents, secretaries, stock brokers, real estate agents, journalists, etc.
2) The birthrate in the past pretty much guaranteed growth. If many people have 3 and 4 children, then growing demand and hence growing growth is basically built into the system. But what happens if people start having 0, 1, and 2 children? And they're all utilizing databases and internet connections to cut out numerous middlemen that their numerous parents and grandparents needed to use?
The government could have printed a bunch of money to build a giant nuclear is solar plant, and then have a revenue generating, publicly owned asset at the end of it. Instead the government printed the money to prop up existing asset prices.
Just like increasing a company's cap table, there's nothing wrong so long as the new money is converted into a new asset of value that remains in the company's balance sheet.
In fact, a well managed money printing event should dilute private wealth and replace it with public wealth, which is the sort of green new deal I support.
All you have to look at is stocks and home real estate to see that assets are ballooning no matter how cheap a dozen of eggs stays.
Hey, this checks out with the very thing that the younger generation complains about, correlates with social injustice in the grandest scale (homelessness), that is one influencing factor in major social unrest in the country (racial disparity in access to real estate). But let's ignore that.
Have you considered that the deflection in the economy caused by the inflation happened to manifest itself unevenly across various market segments, and the primary direction that the deflection moved into is the very one you're ignoring?
There are a couple other indexes out there that track total cost of living that are pushing ~10% per year inflation right now.
This is wrong. Food, shelter, and transportation are all included in the basket used to compute CPI. [0]
> The CPI represents all goods and services purchased for consumption by the reference population (U or W). BLS has classified all expenditure items into more than 200 categories, arranged into eight major groups (food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other goods and services).
CPI weights changed in 1980, and seemly when using old weights the CPI is 10% instead.
I've read (I didn't checked with all details, I don't live in US so it is not that relevant to me) that a major change is that the cost of having a shelter had its weights greatly reduced. (I don't mean the "housing" category in general)
> 9. Is the CPI a cost-of-living index? ... > Both the CPI and a cost-of-living index would reflect changes in the prices of goods and services, such as food and clothing that are directly purchased in the marketplace; but a complete cost-of-living index would go beyond this role to also take into account changes in other governmental or environmental factors that affect consumers' well-being. It is very difficult to determine the proper treatment of public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime, that would constitute a complete cost-of-living framework. Since the CPI does not attempt to quantify all the factors that affect the cost-of-living, it is sometimes termed a conditional cost-of-living index.
Public services are being gutted in the US. I think this explains why cost of living indexes can be north of 10% while the CPI is < 2%.
It doesn’t explain how groceries, rent, medical care and education costs have all skyrocketed without raising the CPI. My guess is that people are spending less than they used to on things like recreation and apparel, due to lack of money.
Over time, the index has changed in a manner that grossly underestimates the inflation the average person experiences.
The problem is that you think you need to solve a grand problem instead of inventing something simple like a post-it note or a makeup tutorial. You seem to somehow believe that incumbents ALWAYS win. That is not true. Ingenuity with a superior product is what upends the market, shifts and creates new wealth.
So many babies on these forums whine about their inadequacies instead of bettering themselves. Making my imaginary number go down does change the fact that YOU AND ONLY YOU have the most power to change your life not some "system". If you can't afford to buy a house, get a better job. Sorry that's harsh. Who said life was easy?
I'm coming from the perspective of someone whose extended-extended family ranges from dirt poor laborers to set-for-life landlords.
I'm also drawing on my own experiences. I'm a software engineer, currently on hiatus to work on a YouTube series. I lost a good chunk of change from non-housing assets in 2008 from the meager 401k my internship paid into. I lost the rest when I had to cash in the 401k and sell furniture to have enough cash to wrap up my startup when the market I was in dried up (more like soaked up and polluted by the giant 800lb sponges, plus numerous other factors nobody cares about) and Apple took Primesense out.
So here's what I am saying and relates to what I think everyone else is saying: at every point in my life where I've felt like "now is the time to buy a house," I've just been a few percent short on the down payment. So I keep working and getting promotions and raises and saving, and wouldn't you know, now I'm several more percent short on the down payment despite having more saved, because the treadmill keeps getting longer and spinning faster. And as for other assets, yeah, my stocks are up, but houses are still up more than my risk-tolerable gains.
Meanwhile the people who would have been able to buy reasonable houses in reasonable neighborhoods with reasonable jobs don't have stocks to begin with, and are priced out by migrants with portfolios from even higher cost areas and the massive investors I'm currently having to rent from.
> You seem to somehow believe that incumbents ALWAYS win
Did you mean to respond to someone else? Where did I say that?
The question is, will it correct to levels below its current ones? If you have an answer to that, you can make a lot of money.
If you stayed in through 2008 till now, you'd be doing perfectly fine. If you had to take out money right after the collapse, ouch.
Ultimately your portfolio risk should reflect the cash needs of your age/health/lifestyle in the context of the economics of the time. However, we are in uncharted waters.
I'll take a punt. At some point inflation will take root, and when it does the fed will be in a bind.
Hell, the fed has already been digging away at pensions with their 40 year long put. Pensions funds struggle now to find a positive yield that meets their liabilities.
And homes will at some point come under attack. Perhaps only when everything else is gone, perhaps not. They're a sitting target.
https://www.nasdaq.com/market-activity/stocks/aapl/dividend-...
Regarding dividends, in theory when company spends $1 per share on a dividend, its stock price should go down by $1 to compensate for this. So receiving a dividend is kind of like forced selling a small portion of your stock (except that you don't pay the transaction fee).
That is: I've got some money to invest. As far as rate of return goes, a stock at a P/E of 10 is about the same as a bond paying 10% interest. (Yes, the stock can go up in price. It can also go down. And so can the bond - when interest rates change, bond prices change. But stock prices factor in expectations of future earnings changes, which bond prices usually don't.)
Now bonds are only paying 4%. That stock P/E of 10 looks really good - so good that people keep buying it, and the price keeps going up, until the P/E is more like 25, which puts it back at approximately the same yield as bonds.
The only reason food hasn't become too expensive is wealthy people don't have a reason to go out and buy up all the food. They do, on the other hand, have reason to go out and invest.
This is, however, starting to fall apart for goods that don't normally have reason to be bought up. In other words, folks with capital now realize they can hoard those resources as well in order to price gouge. This is most evident in consumer electronics as of late.
Usually, these aren't super wealthy individuals, but instead folks who have been priced out of traditional wealth building like stocks / housing. They may not be able to afford a down payment on a house, but they can sure as heck spend a few thousand buying up consumer goods hoping to gouge others.
However, I can’t imagine the trouble that Nintendo would get into if they sold the same device at different prices based on zip code.
Not to say that doesn’t happen, because that’s half the point behind custom phone contracts, where the price you pay for the device over time varies widely from person to person. Though, because it’s individualized, it’s very hard for consumers to compare one another’s prices and identify minor monopolies or price discrimination when it does occur.
Hoarders/scalpers are not aiding price discovery, they are manipulating the price by artificially changing supply or demand. They don't have to do so sustainably either.
And all of that is leaving aside that the goal of a society is to maintain the society over time and in aggregate, not to maximize value extracted from every individual transaction.
one could reasonably argue otherwise. let's take the example of toilet paper in the early weeks of quarantine. with or without the action of scalpers, such a massive shift in demand was going to cause toilet paper to go out of stock regardless. without scalpers, you are shit out of luck when this happens (perhaps literally). with scalpers, you at least have the ability to buy it at an eye-watering price. even before you run out, knowing that you have to pay $20/roll is a strong signal that you ought to use one or two squares per wipe instead of 3+.
On a hunch I'd say a scalper would purchase more off the shelf than a panic buyer, because with the goal they have in mind they a) want a large quantity to resell to a large number of people and b) want to drain shelf stock to increase their odds of success.
on the other hand, one could argue that this did happen in the aftermath of the crypto craze. in that time, gpus sold for well over MSRP (even second-hand) for a year or two. I don't think it's a coincidence that gpu pricing tiers jumped by a couple hundred dollars in the next generation (and again with the RTX 3090, although you could instead argue that's a price cut to the outgoing titan sku).
sometimes i get the idle premonition that if they started trying to do this tomorrow they could do a shockingly good job, to the point that you could almost claim that the only thing holding together social order at this point is that they are not. not saying i believe this-- i don't even really lean this way ideologically-- but it is kind of a sobering thought because it seems plausible (well, to me at least). maybe this has been true at other points in history as well and things have gone fine...
and i don't mean in the "hire people with guns" sense, but literally just people following the letter of the law
All kinds of chaos manifests when that happens. Look at nations that experienced hyperinflation for examples of how it might go.
What's not so clear is what might prompt it to happen.
I lived through collapse and dissolution of one state, civil war, disintegration, and (belated) birth of a new state, with its own currency. The monetary aspect (hyperinflation in the old, change of currency in the new) is only a small part of that. You are correct - in that scenario, there are other things to tend to, more urgent.
I also witnessed that gold did not replace the collapsing currency. Other, non-collapsing currencies took on that role.
USD is safe and sound for as long US is safe and sound. The fiat currency is creation of the state. In collapse, I'd say causality goes 99% state->fiat. Only a small (2nd or 3rd order) effect in the opposite direction.
For the parent - "Hyperinflation – It’s More Than Just a Monetary Phenomenon" by pragcap.com
https://www.pragcap.com/hyperinflation-its-more-than-just-a-...
reads right for me. Even general inflation (= increase in P/y) does not necessarily follow from the exchange equation (M V = P y) and money growth (M). There are other possibilities too, examples discussed in https://www.forbes.com/sites/johntharvey/2011/05/14/money-gr....
To end on a more upbeat note: I also witnessed the hyperinflation tamed, the economy booming, without seemingly much effort and in short period of time. Looking back, I think the most important part is the right diagnosis: where is it coming from. Otherwise the cures end up worsening the disease.
Other commenters have gone into it, but this is about forced scarcity vs need. Incidentally, it's also similar to why workers have trouble negotiating individually vs as a group.
The gist of it is that those in power / wealth have the ability to outlast any single poor individual. You don't want to buy a house, toilet paper, or a nintendo switch right now? That's fine, I'll keep buying them till you or some other chump gives up. I have so much money that it doesn't really matter how long you decide to be frugal and wait. You want to strike? That's fine, you'll be back soon enough when you need to pay for something or keep your family alive. I have enough to outlast you.
Had we pumped this money into the actual working class economy I wouldn't be worried. But instead we siphoned off more working class dollars under the guise that inflation isn't real. It is, and future generations are going to pay dearly for our naivety.
Imagine you are a billionaire and suddenly the minimum wage shoots up to $100k per year. Suddenly that billionaire's wealth has a lower purchasing power.
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") to the extent that people actually pay those prices on average. Some people really do pay higher rents, but many others have lower housing costs locked in via home ownership or rent control, and they count too, so this is going to drag down the average. That's just the nature of averages.
BTW, stock market indexes are an average too, and it's heavily weighted towards tech firms due to market capitalization. Only about half of the stocks in the S&P 500 are up for the year.
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.
Suppose the government defined "eastern time zone" to be a geographical area. And you live in western indiana, and commute to work in chicago.
Suppose the government defined "torture" to not include "waterboarding".
My point doesn't depend on this tho, measuring inflation by rising prices isn't ideal, because you will be measuring multiple things at once, and only the people lose in that case.
Prices can rise and fall for multiple reasons, and knowing why helps to fix it.
If the price goes up because of a shortage, the increase in price helps stimulate more production.
Governments get the advantage of being able to inflate the money supply to the point were it prevents prices from falling, ensuring easier reelection at the price of the people paying more for things and effectively taxing savers.
Governments have the fiscal capacity to keep the economy going. Is your theory that, for instance, the USA economy would be better without the government stimulus?
When the economy goes bananas, if it's not sustained by the government, not only will be suffering of a big part of the population but the destruction of physical capacity and knowledge in the economy.
This is not the 19th century, that idea that the economy on its own works perfectly should be debunked by now.
Monetary inflation is one thing denoted by the word "inflation", and perhaps it used to be the more common use in general conversation. Its not anymore, price inflation, particularly consumer price inflation is the most common general use.
> measuring inflation by rising prices isn't ideal
It certainly is if you are doing for a purpose to which price levels are most directly relevant, which is quite commonly the case. There's nothing mystical about the word "inflation" that creates an all-purpose best measure (and, in fact, "inflation" is a name for lots of different things, which have complex interrelationships.)
You can; whether that's useful or not depends on the definition and context of use.
> Inflation is an government official indicator with a very clear meaning.
No, its not. Inflation is a broad concept (well, actually, a set of different and interrelated broad concepts) with a number of different official government measures. The most common US government measure of price inflation, the most common kind people talk about, is the all items CPI-U (Consumer Price Index for All Urban Consumers.) But there are lots of other inflation measures, including official government ones used for important purposes, like the CPI-W (Consumer Price Index for Urban Wage Earners and Clerical Workers) which is used as the basis for Social Security COLAs. And also frequently cited is the CPI-U for all items excluding food and energy. There are also CPIs for other populations, CPIs for other categories of goods and services, PPIs (Producer Price Indexes), ECI (Employment Cost Index), and others. All of these are official government price inflation measures.
There are also official government measures of money supply, which equivalently are measures of monetary inflation. And there are a whole bunch of those, not just one.
In any case, the "money supply" is an abstract macroeconomic variable with multiple possible definitions. Why do we care about it? Because it might have a real-world effect on us via price changes.
Gathering data about prices directly is a better way of understanding price levels (and inflation) than mucking around with less measurable quantities.
To the extent that the money supply matters, it's because it might result in higher prices in the future. But this doesn't seem to happen in any mechanical way. Just because people have money doesn't mean they want to spend it. In the classic equation, V (the velocity of money) can slow down.
This is particularly true when we are talking about institutions and rich people who already have savings. Higher numbers in their bank accounts doesn't automatically result in more spending, either by them, by the banks, or by companies whose stock prices get bid up.
It would matter more if the money went to people who actually need to spend it.
Money supply inflation might not directly influence price inflation, though we see price inflation in asset prices, such as stocks and properties.
My point is more on the government saying it needs inflation, when even without price increases inflation might be happening.
We have increasing productivity, cost has been falling, so if prices stay fixed, therefore no price inflation, the people are still paying more than they should.
The value of things have been falling, but prices haven't.
It’s not that price increases are good in themselves, but that it would be good if people spent more, and if it results in prices being a little higher, this is okay.
1 - What an incredible new definition of monetary inflation we have now, that can be split over real markets without any loss of meaning.
They fail to make a distinction between monetary inflation and price inflation which is the reason for the (intended) confusion around the term 'inflation'.
Hiding the inflation numbers is lucrative because it gives banks a free pass to print more money.
The elite love tech stocks, cryptocurrencies and other assets which are in limited supply because they provide a mechanism to absorb and delay CPI inflation. Those limited supply assets just soak up most of the newly printed currency so that it doesn't leak into the economy and cause CPI increase... That's why P/E ratios of tech stocks are ridiculously low. But it's just delaying the inevitable CPI inflation.
Eventually the value of stocks become completely detached from earnings to the point that it's no longer possible to justify the valuations based on earnings (or even the most optimistic future earnings).
This is why Bitcoin and other pure scarcity assets like Gold and Silver are great because investors have absolutely no expectation of deriving earnings from these and they can never go bankrupt... There is no price point beyond which the value of these scarce assets cannot be justified.
Bitcoin, other cryptocurrencies and other scarce non-productive assets can always be justified at any price point because their entire premise is that the monetary system is a pyramid scheme. The higher the price of Bitcoin, the more justified it becomes in its assertion that the system is a pyramid scheme and the higher its valuation.
You are talking about a bubble.
I'd take the big mac index over CPI.
https://www.youtube.com/watch?v=B4xcCO9v-Os&t=13s
Jeff Snider is the most knowledgeable person I have ever heard speak on international monetary issues.
Anyway, based on the discussions and videos, it seems like QE by itself is relatively neutral with regards to inflation. what's really important is whether the process leads to more lending, but that is largely controlled by other factors.
It definitely didn't seem like QE was actually printing money though, because the govt still has to pay back the initial bond.
At least that was my novice interpretation.
And right, the classic equation from macro 101 that sums this up is: P = ( M x V ) / Y
Where price level = money supply x velocity of money / gdp
Velocity is the amount of times a given dollar changes hands on average.
So they are saying that if QE fed reserves never make it out into the real economy via lending or monetized fiscal policy, velocity essentially equals 0 and never affects the price level.
Also on a side not, the other guy George mentions in that video Steve Van Metre is also excellent.
I like this one too - more general, but I think explains visually well where the reserve accounts (with the Fed or other Central Banks) sit relative to the other components of the system.
"The Landscape of Money (Part 1): State money, bank money & plug-in institutions"
https://www.youtube.com/watch?v=mmWOO7r_NMw&t=6m30s
Written texts - "Understanding the Modern Monetary System"
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625
from pragcap.com I found to be a good explainer.
This is about real people in the real world, it’s just not necessarily current prices, and it’s an average. The average experience isn’t going to be all that relevant to you if you do need to pay current prices.
Inflation metrics as reported by the Fed are entirely disconnected from what the average consumer is actually facing.
Higher education, housing, and healthcare costs are the biggest expenses one faces in their life and the Fed ignores these to justify money creation.
Fortunately for the 1%, that money is used to buy assets mostly owned by them.
I don't see how the dollar won't crash eventually. Why would foreign countries still buy US bonds?
Printing money and lending it out, and then burning the money when it's repaid, is very different than printing money and using it to buy goods and services.
(It also wouldn't necessarily matter if the interest per year were greater than the total amount of money in existence. If the money supply were $20, that wouldn't make it impossible for me to pay you $21/year; I could pay it in 21 $1 payments.)
Zero yield is golden for the next x number of years. A ship in the harbor isn't making you money but it's also not getting destroyed in the storm.
The further we go down that line, the more attractive dedollarization becomes.
There is no law of physics that there has to be one underlying global reserve fiat currency. That is basically a historical oddity that was a result of our huge creditor position vs Britain at the end of WW2.
Going forward look for a basket of currencies, which could include gold, and potentially even crypto. Of course this is speculation.
You can loose 2% in the US, but 10% in Italy.
So what do you want to do?
If this crisis were specific to the US, things would be different.
Also, with seigneurage of the US dollar, it gives a lot of elasticity to the process. Put another way 'The USD is also a big international currency that everyone else depends on somewhat'.
The current Federal Reserve balance sheet is 7 Trillion dollars, or 35% of the US GDP[1].
The current Eurosystem Bank balance sheet is 7.9 Trillion dollars, or 43% of the EU GDP[2].
If you're worried about pumping money into the economy, then USD is a much safer investment than EUR for you.
[1]https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
[2] https://www.ecb.europa.eu/press/pr/wfs/2020/html/ecb.fst2010...
EDIT: clarification for those unaware, the EUR/USD currency pair is the most traded currency pair by far (which is why I chose Europe as a comparison). The distant second place most traded currency is USD/JPY, but Japan famously has a national bank balance sheet even greater than its own GDP.
But logic alone should tell us that already. When foreign countries buy US bonds can only buy them with dollars. You can't buy US bonds with another currency. Where are those dollars coming from?
Is the 10 year from an inflation target?
2004 - 2014 was an 80% growth.
2001 - 2011 was 60% growth
2011 it was 9600, today it is around 18k, seems like we're on track to 2021 and playing catchup.
What am I not understanding?
That period was the beginning of a paradigm shift in terms of how the US enacted monetary policy, which was on top of another paradigm shift that had occurred with the Greenspan Era.
Which is to say we are in extremely uncharted territory. If you took average measurements of a star in the initial periods of a supernova, you would get a very strange understanding of what is average for that star although technically the figures would be valid averages.
Edit:
Oh god. Here comes the "CCP" nonsense. All countries have tight capital controls. And the tight capital control was part of the bargain for trade between china and the US. It's not like they did it secretly. They did it openly for decades as it was their stated goal and provided benchmarks and press releases. It's like the Fed openly advocating for inflation of 3% for decades and you claiming that they are "tampering". It isn't "tampering". It is the goal/agreement/system/etc. Now whether that capital control regime should continue is another debate. Just like whether 3% inflation is a worthy target. But to claim otherwise is just peter navarro style nonsense. It's just parroting.
Edit1:
> The Euro is the 'least tampered' big currency arguably because they have 25 nations each of whom would scream if the other tampered, meaning almost by definition it has to have integrity.
Hard to imagine such nonsense on HN. One of the problems in the EU is that some countries, like greece/italy/etc, feel that the value of the euro is being too greatly manipulated by germany. It's why britain was part of the EU but kept their currency. It's why every few years you hear about greece or italy leaving the EU/euro. The idea that the euro isn't manipulated is nonsense. All currencies are manipulated to achieve the goals of the nation/region/business community/banks/etc. And all currencies are political instruments as well as financial ones.
Just because there's no such thing as a 'free market' doesn't mean that some are not more open than others.
The Euro is the 'least tampered' big currency arguably because they have 25 nations each of whom would scream if the other tampered, meaning almost by definition it has to have integrity. The USD somewhat less so, but in times of war or crisis it will be. China has a fully politicized currency.
The OPs point is actually valid - any weakening of the USD might more accurately reflect what currencies might look like within similar Fed regimes. So long as it's not a crash it might help the US to soften a little.
The paradox is, in a 'global' time of crisis ... people actually seek USDs! So when the US eventually tries to push that weird dynamic to a tipping point, which we are arguably already doing ...
Welcome to the New World Monetary Order - value can hardly be measured in currency because it's made up, so get your hands on something else ... like real-estate! Which would explain a few bubbles.
I suspect what the article is talking about is Core Personal Consumption Expenditures:
> The Labor Department’s latest report on core consumer prices showed the index down for a third consecutive month in June for the first time since 1957. The core personal consumption expenditures price index, the Fed’s preferred inflation gauge, increase 0.9% on a year-over-year basis in June, the smallest advance since December 2010.
BEA reports that the index is up 1.4% YOY in August, which follows 1.1% in July and 0.9% in June:
https://www.bea.gov/data/personal-consumption-expenditures-p...
The use of the word "unlocking" suggests a benefit to surging headline inflation, which is very strange because inflation by itself implies nothing about what the economy itself is doing.
I suspect all the talk from central banks is just jawboning. It wants to raise the specter of a big bond market decline to get certain kinds of investors out of treasuries and into risk-on assets. Recent history has shown that doing that is highly stimulative.
In my view, inflation IS the debasement of the currency.
One would typically expect consumer prices to change when the currency is debased but when you literally define it as such you give yourself all sorts of additional levers to pull that distort the true situation.
For instance technology fundamentally drives down the price of goods. Have I reduced inflation by improving technology?
Offshoring manufacturing to get cheaper labor reduces the price of consumer goods. Have I increased the soundness of the money by doing so?
1. https://www.statista.com/statistics/244983/projected-inflati...
2. https://www.usinflationcalculator.com/inflation/current-infl...
Official:
It should be noted there are actually different calculation, but generally "Core" is what people are referring to:
* https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...
There is a measure of the balance of supply vs demand where 100 is an equal number of buyers and sellers. More sellers < 100, more buyers > 100. My realtor just told me it typically bounces between 80 and 120, but right now it’s 350. She’s never seen it remotely as high.
https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
https://www.federalreserve.gov/releases/h6/current/default.h...
The price of all of the three above is rising very fast. Yes, there are other (different) factors for all 3, but too much monetary supply is one of them.
Zoom ! More money ! Print it R2
Beep beep beep ... be boop boop beep ... this is machine comprehensible don’t hate human
More money !
You are all trolls and sheep
Im not a financial advisor, just a software engineer, but my father is and I've convinced him into buying a second home with me when the right one becomes available (waiting for the supply to open up a bit, we lost our first offer to a cash offer). Key points for purchasing were diversification of assets, pulling out some money from the high riding market before a blue sweep and subsequent taxes, and rates so low that combined with inflation(including assets) the gov is paying you to take out a loan.
[1] https://www.statista.com/statistics/244983/projected-inflati...
Found the short-sighted sheep.
Cryptocurrencies are gambling. I would not go for that.
Mcdonald's removed their dollar menu.
That and stock prices has me pointing to inflation.