Comment by cryptica | Hacker News Reader

Comment by cryptica | Hacker News Reader

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Total currency supply is the only metric that really matters in terms of true inflation. Velocity of money is a mostly useless metric in our current highly unequal society. High currency supply and low velocity means high fragility... That money is just waiting in people's pockets to be released back into the market. The more money there is sitting around in everyone's pockets, the more prices are going to fall when that money finally comes out of their pockets (and panic means it tends to be all at once)... We have a tiny number of massive pockets. The entire financial order ends up depending on the reliability of a handful of high net worth individuals to play along with the current scheme. It's no surprise then that governments ends up wanting to control and limit how these high net worth individuals spend or invest their money.

If you get an unlimited amount of something without having to work for it, of course it becomes worthless to you.

What's happening in the economy today is like what would happen if we played a game of monopoly and one player ended up with all the money and the bank started loaning people new money to keep everyone playing... So the richest player would just keep getting more money because the dynamics of the game cannot change... In the meantime, fairness is thrown out the window - Money loses all correlation with value creation. Then there is a point when one of the players grabs the board and flips it over.

No. Citation needed.

Seriously this is why the money supply is actively managed. When people aren't spending, more is created. When people spend a lot, it gets removed from circulation.

> We have a tiny number of massive pockets. The entire financial order ends up depending on the reliability of a handful of high net worth individuals to play along with the current scheme.

High net worth individuals by the way? They're absolutely not sitting on dollars, they own assets. Real estate, stocks, bonds, and some nutters, crypto. That means inflation is irrelevant to them, and all that matters is the performance of their investments relative to the benchmark rates.

> It's no surprise then that governments ends up wanting to control and limit how these high net worth individuals spend or invest their money.

Not really, no. Fiscal and social policy control the distribution of wealth. Progressive taxation and redistribution reduces inequality. This applies equally no matter what we're using as currency. If we switched to BTC, to sea shells, to zombie killing ammunition, fiscal and social policy would apply just as it does now.

Monetary policy operates on a lower level, it controls only the supply.

>> When people aren't spending, more is created.

There is a point when people have gotten wealthy to the point that they have bought everything that they could possibly want but the money keeps coming anyway.

Wealthy people will question whether or not they're actually 'earning' their passive income. The most objective ones will realize that passive income can never be risk-free; it it appears that way, then it means that the risk is systemic. For these people, it actually makes a lot of sense to hedge against systemic risk.

You're not supposed to hold dollars. Dollars are not an investment, they're a short term, intentionally lossy store of value designed to incentivize their movement within an economy.

That's right, you're not supposed to, but some very wealthy people do it anwyay to prevent inflation from skyrocketing whenever the banks increase the money supply. The people who are at the front of the line for the money printers the ones who decide the money velocity and it's based on how much of the new money they decide to keep in their own pockets. They're doing it at a loss to themselves. Just to help maintain the current financial order.

Are you really saying that some wealthy people specifically choose to hold extra cash at a loss to themselves to prevent inflation from occuring? It seems like this would easily fall into a tragedy of the commons situation - do you have any citations to back up the enormous claim?

I have an alternative explanation for you which is much simpler and in their interests.

Cash is more liquid than assets and since in the short term inflation is a mild penalty and there is negligible return for risk free assets any more (nor are they as risk free as before), they keep large proportions in cash for the short term while waiting for assets that present a good return.

It is entirely rational to hold some proportion of wealth cash for the short term.

> Monetary policy operates on a lower level, it controls only the supply.

I believe what people are implying when they talk against money supply increase is redistribution of wealth using money supply increase.

> If we switched to BTC, to sea shells, to zombie killing ammunition, fiscal and social policy would apply just as it does now.

It would not be equivalent since with BTC you can't just take away value of your share without making you explicitly pay, it removes invisible tax.

> I believe what people are implying when they talk against money supply increase is redistribution of wealth using money supply increase.

How exactly does this work? To whom is money being redistributed? It's punishment for holding dollars instead of investing them.

> It would not be equivalent since with BTC you can't just take away value of your share without making you explicitly pay, it removes invisible tax.

You're not supposed to save currency, you're supposed to use currency to buy assets, even if those assets are magic beans that live in your computer. That's why we have inflation, because money only has value when it moves.

> How exactly does this work? To whom is money being redistributed? It's punishment for holding dollars instead of investing them.

If you want to print money you have to inject it somewhere, and that place where you inject new money benefits from it - they decide how to spend this new money and this stream of wealth skews economy.

This is high level understanding ofc, I am sure there are a lot of technicalities on how this can be done.

Also, I don't think you should not keep currency but instead you should "invest" at least you could do this when you had gold.

> Also, I don't think you should not keep currency but instead you should "invest" at least you could do this when you had gold.

This doesn't make sense. Just buy gold, today. What's stopping you? Backing a currency with anything forces everyone into that asset class. Backing it with nothing and keeping it tightly controlled allows you to back your net worth with whatever you want. Fire up RobinHood and buy you some GLD.

> When people spend a lot, it gets removed from circulation.

Taking a look at M2 going back to the early 80s, I see no indication of money being removed from circulation. In fact, it appears to be ever skyrocketing higher.

Source: https://fred.stlouisfed.org/series/M2

What difference does that make? If the inflation rate is a well controlled 2% that means reducing the supply has not yet become necessary. It's not been necessary, and that's fine, that doesn't mean it won't be necessary in the future, or that the action cannot be taken. I'm explaining the theory.

I suspect what is happening is that a handful of high net worth people and companies are accumulating massive hoards of cash at a loss to themselves (relative to gold, real estate...); they do it for the sole purpose of 'doing their bit' to maintain the current economic order; they're avoiding big sudden short term losses by taking on smaller but more long term continuous losses via inflation.

Do you have a citation for your claim?

Generally when large funds like Berkshire hold cash it's because they're expecting a downturn and want to snap up assets on the cheap.

This is not entirely surprising though as the policy is inflation (just enough of course, but never deflation). Inflation is seen as required and desirable, so we should expect the money supply to gradually expand with such a policy, except in cases of economic shock (as in 2020) when it expands more. The problem with such stimulus though is that it becomes very hard to withdraw and asset prices get farther and farther away from any rational valuation based on future returns.

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