Why inflation is not a threat | Hacker News Reader

Why inflation is not a threat

taxresearch.org.uk

172 pointsmidasuni507 comments

A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

When you create new money prices don't rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.

The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.

The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency.

If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable.

Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.

Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.

It's very funny how this is not the default and no one is complaining

Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation, where increasing m2 (giving money directly to banks) seems to not have the same effect, based on decades of similar policies in Japan. Some prices will still (real estate) increase but staples do not. Or so I read in various places...

Not sure if I personally subscribe to the above, but as long as we don’t experience collapse of currency/dollar and ensuing hyperinflation, we should be ok.

Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation

Well, sure, if you give a bunch of people some money and they all decide to spend it on re-doing their homes at the same time then the prices charged by local tradesmen will probably go up, then correct themselves again when the peak demand passes. I'd argue that's not a bad thing in the sense that real work is being done, and the money is circulating in real goods and services - because if value is actually being created then there is something backing the new money.

The only difference is that we call the former “inflation” and the latter “my stocks are doing well”. It’s all inflation in the end.

Well, the CPI is exclusively about consumer prices. It's not about savings vehicles like stocks.

But you are right. Wealth inequality is the cost of this form of monetary policy.

Inflation is dependent on money supply and money velocity. And velocity has been going down for a decade or two (in the US) and recently dropped off a cliff:

* https://fred.stlouisfed.org/series/M2V

Right. I think the op was suggesting that velocity would spike if the money made it to Main Street.

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

Ah yes the classic some’s good more’s better fallacy. Some salt is good on food, but keep adding more and it’s inedible. Just because there isn’t a discrete point where you can say it’s too much (that one grain made it too salty) doesn’t mean that there’s no such thing as too much.

There are many other such cases, for example drug titration springs to mind.

Like with salt, there is definitely such a thing as too little of it though.

How do you know that it's not like alcohol, where there all levels of consumption increase cancer risk?

There's a similar controversy about radiation hormesis[1]. Personally my suspicion is that low doses are at least harmless if not therapeutic, because of the evolutionary benefits of the stress response[2]. However I do freely admit that it's possible that there is no therapeutic or even safe level of alcohol consumption. Similarly there may be no safe level of BPA exposure or any number of other stressors.

[1] https://en.wikipedia.org/wiki/Radiation_hormesis

[2] https://en.wikipedia.org/wiki/Stress_(biology)

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

"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...

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

Because while it may be "OK to print money to pay for some things" it may not be OK for others. Making "everyone a millionaire" may be one of those times when it is not-OK.

> Ultimately, printing money doesn't make anyone more productive or produce anything.

Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more "productive" aspects of the economy:

* https://en.wikipedia.org/wiki/Money_creation

You've managed to fit quite a few straw men in one post.

Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.

It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.

But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.

That’s one side of the equation, but as always there are diminishing returns. Therefore, borrowing money should be mildly discouraged as ultra low interest rates results in a huge misallocation of resources.

That said, consistent low levels of inflation have minimal impact on borrowing as the future cash paying for the loan is discounted. In effect it simply forces a minimum annual loan repayment rate.

Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money.

A better solution in my mind would have been to directly force the original wealth back into the system.

To the degree that printing money by reducing interest rates and perhaps causing a bit of inflation, it basically punishes hoarding of cash by taxing it at the inflation rate (plus the opportunity cost of having near zero nominal return in savings accounts). So that does force the original wealth into circulation. But it’s true that the Fed’s monetary stimulus is likely to be less effective at providing liquidity to individuals than direct fiscal stimulus like the stimulus checks people are getting. (Although it’s not all stimulating because many are using the money to pay off debts.)

Alternately, those who have already built a mechanism for capturing a portion of the printed money as profit can simply purchase non-productive assets and benefit from the rising prices.

https://advisor.morganstanley.com/liberty-group/articles/ins...

This is why we need to put the money into the right hands. It reminds me of trickle down economics. Instead of flooding one plant and hoping that you are pouring enough water to reach the entire farm field it would be more effective to just water every plant a little. It would require much less water overall.

I actually think liquidity issues arise mostly from entities failing to have cash on hand for the settling of debts that are due. Not due to hoarding wealth or refusing to invest it.

Those things are systemic issues related to other aspects of the machinery, particularly the incentives or mechanism of wealth distribution outside of money markets.

Difficulty of servicing debts is still addressed by both monetary (ie lowering interest rates) and fiscal (think direct checks to Americans) stimulus. In the latter case, it’s estimated roughly half the stimulus checks will go to paying down debt, not direct spending.

I don't know that the individual is a substantial figure in the patterns of distribution. Sure Suzy took out a $40k loan and is paycheck to paycheck because of it. But that's a very small fraction of the whole. And application of stimulus, while remedying some people's serviceability, gives others the basis to leverage up. As a whole, the system is highly circular, it's where you've got exuberantly large gravity that things start to bend and twist. And estimations in this system are designed to bust. Despite the fact that the whole system is manmade, we know very little. Estimates of oil prices 3 months in the future will be wrong, and nobody can actually predict the closing price of the indexes, let alone individual stocks, so to assume those estimates are even probable is ridiculous.

What I think we need to be considering is the highly concentrated nature of monolithic corporate capital and power. Like, for example, Amazon. The immeasurable value of the exchanges that took place globally for goods through Amazon. And Amazon tends to invest that wealth, which would be a net decrease in "capital entropy", while Amazon nets increased value despite the fact that they don't hold the capital. They do briefly inject a small sum of capital over a wide range of industries, though, like building materials, construction labor, engineering, and etc... But ultimately that money loses velocity, it doesn't have the momentum it needs because everything is so expensive now, and as a product most people opt to leverage.

On that latter part, as a miser of sorts, it's actually far more effective, even in the case of depreciating assets, to leverage. I could've been "educated" by now if I wasn't exceedingly scrupulous in avoiding usury. I spent many years of my life accumulating the relatively meager wealth I did collect and it's only put me at a disadvantage due to the nature of federal grants weighing personal holdings, from which I'm only able to draw in tax refunds, and only a fraction of what the ultimate costs will be it also puts me in a morally precarious position as far as other modes of welfare. That is to say you're dually (and quite possibly triply, with inflation) punished for choosing the "responsible" path of self-funding. To ossify that point, 0% interest increased sticker prices, so now buying big ticket goods comes with interest embedded.

Pretty sure illiquidity is not caused by wealth hoarding. It’s caused by taking out more debt than one can service, and people becoming scared to lend to others, because they’re worried they won’t be paid back. When everyone gets scared at once, things grind to a halt. And there’s a natural tendency while times are good to take out more and more debt, because you can use it to enhance your productivity.

EDIT: (so things naturally trend toward the overlevered state and a crunch)

Is that not just the other side of the same coin ? Short of centralized banking printing money there is no competition for wealthy just hording and letting time pass and demand grow. Kind of like bitcoin ;)

Eh the wealthy don’t hold onto stacks of cash, they immediately turn around and invest the vast majority of it in company equity, bonds, etc. Not sure if there’d be some sort of hoarding cash crunch in the absence of central banking, I haven’t studied the history there.

Can you explain how one "hoards money"? Like are they burying it in their backyard or stuffing it in their mattress? Do they have a McScrooge money pit?

I don't think it's a revelation that lots of ultra wealthy people hide money in offshore bank accounts, as well as other means.

I'd say many of them are literally hoarding it.

If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc...

> If it's in a bank account, it's not being hoarded. It's being loaned out and the people who get the loans are spending it on houses, businesses, automobiles, etc.

This presupposes banks actually loan it out — which doesn't always happen, for example if lending officers are gun-shy or underwriting policies get too tight because senior management is gun-shy.

Banks aren't charities. It costs a good bit of money to keep deposits, on top of the interest expense. (deposit insurance, overhead, staff, etc...)

I think it's highly unlikely that these overseas banks that the rich use are doing nothing but sitting on their money and this practice accounts for all the purported "hoarding".

From the St. Louis Federal Reserve: "Lending growth slowed to zero during the 1990-91 and 2001 recessions but recovered after a few quarters. In contrast, during the Great Recession (2007-09), loan growth became strongly negative and remained so for almost four years."

https://research.stlouisfed.org/publications/economic-synops...

Yes, I understand that the growth of new loan originations experiences vicissitudes based on general economic conditions.

That's not my point.

My point is that loan growth slowing is not the rich hoarding all the money. They don't hoard. Hoarding is not only unprofitable, it costs money.

On a gold standard you can literally hoard it in a vault without losing value. Without inflation it’s actually not a terrible idea because you have high liquidity, you don’t have to sell assets to free up cash. You’d still buy assets but only the ones you actually needed or wanted rather than as a hedge against inflation.

What’s wrong with investing in productive machines (or productivity enhancements) as a hedge against inflation instead of just burying the talents and letting them go to waste?

It's true that capital begets more capital, but that's because anyone with money lends it back out seeking growth. Even if you have very little money and you put it in a bank account, you are lending that money to the bank for them to invest or lend out. Basically no one is just sitting on piles of physical cash, because if you did so you would lose value behind inflation.

Well we are talking about non inflationary systems compared to inflationary ones.

If money is just sitting around, and inflation is high, then it is losing value. The 'idle rich' are penalized.

Further, lower-income people often have debts, which is reduced (relatively) by inflation.

Ideally money wouldn't be just sitting around, and if proverbial piles of it are, perhaps we need to redistribute it more so that it's used more productively. This is why wealth (and not just income) taxes are being talked about more nowadays.

Lower-income people when they are borrowing, are borrowing at very high interest rates (credit cards or payday loans) and inflation doesn't help those situations at all.

The wealthy are systematically benefitting from low-interest loans being reduced in value by inflation -- in the form of corporate bonds and leveraged trading (shorts, forex, margin accounts).

Most rich are asset holders. No poor people are (by definition). Therefore higher inflation (to a point) is better for poorer people.

Tell that to the manual laborer working a long shift and swinging by a mcdonald's to get a double cheeseburger because there's no time to make food and who has the energy anyways. Oh also, that double cheeseburger is now $2.19 instead of $1.69

Inflation is good for you!

Assets keep up with inflation much better than working class wages.

That might be true today, but wasn't during the last high inflation period of the mid-60s to early-80s.

We're using two different definitions of "hoarding" wealth here.

The people you're disagreeing with consider buying up real-estate and company stock to be "hoarding" wealth because those assets could otherwise be put to productive use by someone else. People could otherwise live in those houses and become home-owners. Or the companies in question could get re-structured into smaller more efficient organizations during bankruptcy. It's hard for me to see the value of a real-estate investor buying his millionth acre of land when in earlier times multiple families could live on that land and call it home.

In contrast, you're assuming that any money being loaned to anyone is put to "productive use." And the flip-side of that is that the loan will come due some day. So accumulated wealth is used to accumulate more wealth from people who don't have any to begin with. In other words, the hoard of money is being used to extract rent and to hoard even more money. It's hard for me to see the value of that kind of system. It seems to lead to a continual serfdom as most people become renters of everything in their life.

"Further, lower-income people often have debts, which is reduced (relatively) by inflation."

It is, indeed, true that inflation can "melt away" existing debts by devaluing both the principal and the interest payments. There is historical precedent of large, debt fueled investments being inflated away:

"Anyone with debt benefitted as debts were inflated away to nothing under hyperinflation. For example a Pomeranian landowner took out a loan to purchase a property in February 1922 and repaid it in the autumn from the sale of less than half the crop of a potato field."[1]

However, this only occurs with fixed rate loans. Lower income people (US mortgage debt notwithstanding) do not have the opportunity to borrow at fixed terms and it would be very difficult and expensive to incur large debts, for any purpose, at fixed rates.

The floating rates that lower income people would, undoubtedly, borrow at would not protect them from inflation.

[1] https://www.stewartinvestors.com/all/insights/stap/hyperinfl...

I don't think I have ever gotten a floating rate loan in Germany. Are there specific countries or types of loans where these rates are common? Are you talking about credit cards?

Most of my experience is in the United States, where I live. In the US a "normal" mortgage typically has a fixed rate.

However, any kind of unsecured loan will have a floating rate. Certainly that includes all credit card debt and any kind of short term business financing like paypal offers.

Further, if you have a poor credit score it is likely that your car loan(s) will have a floating rate and that you will be aggressively steered into a floating rate mortgage (an "ARM"). This will be presented to you as a benefit in the form of lower monthly payments (for now).

In Romania most of the mortgage loans are floating rate, tracking the 6 month ROBOR (equivalent of EURIBOR).

Ironically the only market mechanism to force money back into the rest of the system is for interest rates to rise. If real interest rates sat at ~7% those with money would attempt to lend it and liquidate unproductive assets, those borrowing to purchase unproductive assets would be forced to sell. Productive, but high cost assets would come down in price (housing) due to lack of demand. For interest rates to rise, there will need to be a lack of liquidity at the current interest rate, many businesses are now dependent on artificially low interest rates and guaranteed liquidity.

Unfortunately we've built an economy which requires progressively lower interest rates to sustain. Rebalancing will be expensive ( see the interest rate increase in the run-up to '08 )

    the only market mechanism to force money back into the rest of the system is for interest rates to rise

Or a wealth tax.

Inflation is basically a wealth tax. Sort of.

One that hurts poor people more than wealthy - since wages are last to inflate. Additionally, wealthy people are still able to afford necessities during times of high inflation.

Only if the wealth is held as dollars or a depreciating asset. If it’s invested or converted to something of limited supply then it can be inflation proof. Too bad those options are out of reach for the poor.

We have wealth taxes. They are called property taxes and inheritance taxes.

Inheritance tax is easy to avoid and property is a very small proportion of the ultra-rich's assets.

The entire point of inflation is to force people to work harder to preserve their wealth. If there was say 5% inflation then companies would see greater than 5% interest rates on their loan and that means only the most productive companies actually get funding. By failing to create inflation the central banks are fueling the creation of zombie companies and unproductive investments. It's inherently injust yet we still see people rally against the inflation boogeyman as if it's a demon that is going to kill everyone.

I think this view of hoarding is wrong. Here is how I think about it:

You get money as compensation for goods or services you provide to other people. The money is a sort of "IOU note" from the rest of society.

If you never spend the money, you've chosen to never cash in the debt. You're essentially gifting that money to the world.

There are a lot of complex and dynamic systems at work in the economy, and it's easy to make good sounding arguments for and against anything. I find it helpful to think of the fundamentals.

Some people argue that too much liquidity can lead to greater boom-bust cycles.

Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!

that's because there's no correct answer, and has more to do with the person's political bias or leanings, than sound science.

That’s wrong. The current theories may not have the right answers but it is a real system in the physical world so there is a “correct answer” or description of how it works. It’s subject to change but that only changes the description as well.

I think it's not wrong so much as you have tipping points that are really unknown, and a lot this depends on where we are in the tipping point. How much debt is too much debt? How much money printing is too much? How much is an asset really worth?

You can have a "correct" answer that's unknowable. Assuming you know everything, you can calculate everything. However, there is an amount of randomness in the system (and everything can't be known), so the 'right' answer is hard to know, will not always be correct, and is impacted by personal risk tolerances.

Demonstrably false. Ten years ago a bunch of folks predicted a bunch of bad things would happen because of money printing and QE:

> We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset purchases risk currency debasement and inflation, and we do not think they will achieve the Fed's objective of promoting employment.

* https://economics21.org/html/open-letter-ben-bernanke-287.ht...

A bunch of other folks (generally Keynesians, like Paul Krugman), said the above was non-sense.

The results of the 'experiment' came in: the Keynesians were right. See also "expansionary austerity".

In fact Krugman recently wrote an entire book on "zombie ideas": certain things that come up over and over again, often over several decades, but will not die; Arguing with Zombies:

* https://wwnorton.com/books/9781324005018

* https://www.theguardian.com/books/2020/may/03/arguing-with-z...

* https://www.theatlantic.com/magazine/archive/2020/01/review-...

There are correct answers. It's just that certain political classes find them 'inconvenient' (i.e., contradictory) to their ideologies.

There are of course complicated matters where things are open for debate. But some things have been settled.

That’s not proof at all. There is nothing that says the printing of money in 2008 had to lead to immediate inflation and in fact we’ve seen the prices of some things (real estate?) go up astronomically the past 13 years.

In economics you’re right until suddenly you’re not. Same thing with people like Peter Schaffer who was constantly wrong until he wasn’t.

But all of this doesn’t make economics a science with undeniable rules as to how the system works.

> There is nothing that says the printing of money in 2008 had to lead to immediate inflation

Few thing HAVE to happen. That being said, much of human behavior is linear optimization, which is predictable if you know the rules (and they don't change).

> There is nothing that says the printing of money in 2008 had to lead to immediate inflation

Which is exactly what Keynesians were saying. The Monetarists said otherwise. Guess who was right?

> and in fact we’ve seen the prices of some things (real estate?) go up astronomically the past 13 years.

Those "things" which have risen in price does not count as inflation. It has never counted as inflation. There is a different word that should be used for that phenomenon:

* https://en.wikipedia.org/wiki/Economic_bubble

I do not understand why this is difficult to understand: inflation/CPI is the cost of goods and services that are used on a daily/weekly/monthly basis. Asset prices are not one of those things.

Please stop using "inflation" when it comes to asset prices, as it does not apply. It's like pointing to a Boeing 787 and saying "boat".

> In economics you’re right until suddenly you’re not.

In economics, at least "good" economics, there are models. These models describe reality: some models are better than others. We should follow the ones that make (more) accurate predictions.

Keynesian models (for example) had problems with stagflation in the early 1970s, but by 1978 most text books had explanation as to why the earlier models broke down, and why the phenomenon occurred in the first place:

* https://en.wikipedia.org/wiki/Stagflation#Neo-Keynesianism

Some folks' models said inflation would occur from money printing post-2008; others' models said it was not. One group was right, and the other was wrong.

Similarly: a bunch of folks are worried about inflation after the US Congress passed the $1.9T rescue plan, others are not. This is an(other) experiment in which some folks will be right, and others wrong.

Whose model best/better describes (economic) reality?

AFAICT, the Keynesians have been right more than any other school of though. I'm sure they may/will be wrong at some point, but hopefully something will be learned and models improved.

Housing is in the CPI and although it’s an asset it also a part of inflation. You’re being to pedantic with the term.

> “ Those "things" which have risen in price does not count as inflation. It has never counted as inflation.”

I’m sorry you’re homeless, but it technically doesn’t count as inflation!

if one is homeless, it's not really due to inflation, but due to their productivity not keeping up. Globalization has moved manual labour and low skilled labour away from the USA, and those people affected were not given help to re-skill into other work, and most have to move to providing low-skill services (like hospitality, casuals etc), which is notoriously low pay.

Blaming inflation (or how inflation is calculated) for a societal problem is a distraction.

Shelter is in the CPI.

> Economics reminds me of Software Engineering a bit, where smart people on two sides can argue opposite cases and both sound reasonable!

Pet peeve: This is pretty valid for Macro Economics. Because it's an extremely difficult field.

Micro Economics is a solid hard science that has taught us many invaluable things!

Doesn't that make it even more like Software Engineering?

Ha!

Yes, maintaining and understanding large software systems is a process that's very hard to understand and control, despite basic Computer Science being very well understood.

This is a side effect of Keynesianism, which places extreme importance on the abstract and oversimplified view of the economy represented by aggregated accounting identities.

"Making everyone a millionaire" is so easy to refute. It's a nonsense talking point masquerading as an argument. It's a waste of time to consider it, but here we go.

There is value in being able to predict the cost of things, a wild swing in costs and monetary policy probably won't damage the system, but it will make assets difficult to value and our system needs to do that.

Done

The whole reason the stock market is a thing is because the cost of things is unpredictable. But next time your advice for fortune-telling will surely be better received with less arrogance.

Printing money doesn’t help with liquidity if you don’t inject it at the lowest level of the economy (ie on the street into lay peoples pockets). This is the biggest lie we’ve been sold during all this quantitive easing malarkey. All it is is theft from the poor by the rich.

It obviously belongs there because anything else would fail to create the desired level of inflation as we can see today. What we truly need is fiscal policy and it's funny how on point this 8 year old cartoon is:

https://youtu.be/-DdfLtOrBPU

Great. Tell legislatures to (a) act faster when there's an emergency, or (b) enact better safety nets that automatically kick in when an emergency arises.

The fact that central banks can act quickly isn't a sign that what they're doing is wrong on the monetary side, but rather that the fiscal side of things needs to get its act together.

There are other ways to inject money into people's pocket directly by reducing logistic cost by investing in better infrastructure. Everyone from top to bottom uses roads and railroads, airports, seat ports for shipping. Everyone benefits from having them fast and more efficient.

Yes, longer term. A new road doesn't help you today when you have to choose between paying the mortgage and buying groceries. Giving money directly to banks to cover their liquidity while people get thrown out of their homes because they can't pay their mortgages with the same banks is monumentally stupid and I don't give the people who made this decision the benefit of the doubt. If they are that stupid they are not qualified to be in their jobs.

Creating liquidity where there is not a demand for liquidity is economically distortionary and has long term economic effects analogous to people who abuse stimulants or steroids. Yeah liquidity may make your economy feel on top of the world today but over time it will need to pay the piper. There is no such thing as a free lunch and this time is not different.

If the economy needed more liquidity you would see high or rising real interest rates and stationary or falling asset prices. Instead we see very low interest rates and sky-rocketing asset prices. Sure adding liquidity will continue to inflate assets prices for a while but as the other commenter said it does not actually produce anything real and actually leads to malinvestment or underinvestment. Thanks to excessive liquidity in the economy we have BS companies like Uber sticking around while real innovation is stagnating.

Eventually excess liquidity combined with high savings and low interest rates can even paradoxically lead deflation. See Japan for example. We may, also reach a point, where no matter how much liquidity we add we do not stimulate real economic growth.

Regardless the commenter is right, liquidity on its own produces nothing and low interest rates signal that it is not demanded.

Instead of worrying about inflation or deflation we should be worrying about what we can do to make the most people better off at time t+1. Traditionally that has been through economic growth. Liquidity does not promote economic growth if the economy is drowning in liquidity.

The fact that CPI uses OER doesn’t necessarily mean oer is a good measure. During the housing bubble prices may have increased at a 17% rate while OER increased at a 4.5% rate.

I’d argue asking the question “what rate would you rent your home at” is fundamentally flawed and prone to underestimation. The answer is and always will be “the market rate for a rental in my neighborhood”. This number is generally greater than the interest+maintenance a fresh buyer would pay.

https://blog.principal.com/2017/07/06/owner-equivalent-rent-...

> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

If one slice of cake tastes nice why wouldn't you enjoy eating a million slices of cake?

Because the size of the cake is fixed (analogy to the economy), and cutting that piece of cake into 10 slices or a million slices (analogy to increasing money supply) is not going to make a difference in the amount of cake there is for people.

The size of the cake is not constant. It grows over time. We are much richer now than we were in the past.

Yeah that is true. Maybe I'll just say that the size of the cake (economy) grows but is fairly independent of how you slice the cake. So printing money doesn't increase the size of the economy.

Yes, but with a larger cake, it makes sense to have more slices.

There are other reasons that inflation is good too, having to do with sticky wages and recessions. I'm not sure how to work that into the cake analogy though.

Yeah the reality is that the size of the cake changes, and slicing the cake in different ways can feed back to the growth of the cake.

The perceived value of each slice relies a lot in the psychology of the public.

It's the job of the central bank to make sure the slices are proportioned properly and the perceived value of each slice of cake is maintained.

The entire reasoning behind inflation is that thanks to productivity increases there is always a slice left behind. If nobody eats the slice then the cake shop will make smaller cakes with less slices. If we give someone money to buy the last slice then the cake shop is incentivized to make another left over slice until it is so busy making cake that it cannot make more.

Key observation. In recessions (liquidity crunches) the cake grows more slowly. Maybe if we increase liquidity a lot (i.e. print money) and give it to the bottom tiers who will spend it (increase velocity) then the cake will grow faster!

We don't have good models for how the economy actually works. Until 2008 most models didn't even have a financial sector. Currently economic models can't accurately predict the velocity of money or even explain changes after the fact very well. We still have no consensus among economists as to what causes recessions.

So this is an experiment but the claims that it is "obviously" going to lead to inflation are flat wrong. We are going to learn a lot from this experiment. If we need to pull back to bring down inflation, we have tools for that.

OK. So what are the limiting principles for money creation? When does it shift from being a good thing to too much of a good thing?

This seems to be completely absent from the public debate.

That's entirely dependent on the economic situation. The same question can be asked of interest rates.

And the answer is when you get bad outcomes. You have to assume the Fed knows what it is doing, but most people seem to think they know better.

> OK. So what are the limiting principles for money creation?

If you gave everyone a million dollars would they all be able to buy a million dollar home?

No? Why do you think not?

Because the price of million dollar homes would go up because everyone would now be able to bid for them.

You can literally give everyone a million dollars, but you won't be giving them a million dollars of purchasing power relative to before you gave them the money.

That's the point the parent is making, except he thinks it doesn't take as much as a million dollars for that effect to take place. His question is why is $8 trillion of money printing since last March A-OK when $100 trillion isnt?

Is the line $8 trillion? $25T? $50T?

The Fed has an inflation target of 2%. That is precisely when printing money shifts from being a good thing to a bad thing.

Yes exactly. Why is it bad to make everyone a millionaire?

It's bad because making everyone a millionaire by decree, or printing more units of currency is necessarily the same thing as devaluing the currency. Such that the population as a whole has exactly the same amount of buying power, and now each unit of currency is worth much less.

The inflation of the M0 money supply, base money, WILL lead to an increase in consumer prices for everything including essentials like food. The only reason people can try to convince themselves otherwise is because of the time lag between when the money is printed and when it shows up in consumer prices. So when the government quadruples the base money supply and the price of a loaf of bread doesn't quadruple in price, people start to think this inflation is no big deal. Well just wait. That loaf of bread will more than quadruple in price. And it will happen all of a sudden.

The majority of the printed money is going into assets like equities. These have increased massively in value, despite the fact that revenues have not increased that much, or have even decreased. This is a bubble and it will collapse. When that happens, then you will see all those printed dollars. Investors will rapidly divest themselves of their shares and will be putting those dollars into others assets that are seen as much safer investments like commodities including food.

By this point governments have no ability to reverse course, in fact they are committed to exacerbating the situation. Printing money is necessary to plug the deficit of government spending. You could turn off the money supply but it will mean devastating cuts to government spending. So they won't do it. Instead they will start implementing wide-scale, all pervasive capital controls in an effort stop people divesting themselves of the rapidly weakening dollar. This is an economic straight jacket and will shrink the economy further, massively stunting tax revenues, in turn reducing government spending, in turn shrinking the economy further.

Calls to 'tax the wealthy' will be eventually implemented, but there isn't anywhere near enough wealth there to tax to cover the effects of a money supply that has grown exponentially. Regardless new tax bills will be introduced. The very wealthy will have already moved their wealth into non taxable assets, domestic and overseas. (This is already happening). The law makers know this, yet regardless this taxation burden will fall squarely on the rapidly diminishing middle classes and ballooning lower classes. You can read the above again to see exactly how printing money is a highly effective tax in it's own right and it did not require any legislation to write.

At this point the world is caught in an economic death spiral and it won't recover until the currency has completely bottomed out and begins again with a new currency and confidence slowly returns. There is no telling how much long term economic damage will have been done by this point.

There is no magic or mystery here. This is not complicated. It is not new, unknown and to be determined. This will be a carbon copy repeat of exactly the same follies experienced by numerous economies in recent history. The only open question is, much like a coming earthquake, when? The answer unfortunately is very soon.

You are a voice of sanity there.

The run on the dollar will be an epic calamity. Epic.

You can already see American rich voting with their wallets. Some believe it is better red, than broke, and taxed to death.

https://www.afr.com/world/asia/forget-politics-foreign-inves...

To your first 3 paragraphs: Right, so the income that normal people get from their labor is like water, and the income that wealthy people get from stocks is like oil(Note: for the rest of this comment, "oil" is code for wealth assets, water is code for CPI items.). Company takes out bond, uses it to buyback its' own stock, the person that sold that stock uses it to buy some other stock, that other stock rising allows that other company to take out some bond... They don't mix. So long as they don't mix, money doesn't become neutral and the CPI doesn't rise. It's possible to balance the parameters just right so that they never mix, but every mistake drives up wealth inequality driving down long-term productivity.

Now wealth income can easily be spent on large amounts of things that are typically seen as CPI items. At any moment the top 10 billionaires can choose to spend their wealth on an extravagant amount of labor, drastically rising labor incomes, but they choose not to as it lowers their long-term utility.

The fed's mandate is to create a system where they don't mix. It must always be the case for wealth assets like fancy homes and stocks to on average rise in value more than CPI items. If at any point the reverse is true, all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process) and instantly transfer their wealth into the thing that brings the best returns. If the best returns is GPU's, gamers won't get to game. If the best returns is on beans and rice, people will starve.

One of the best ways that the fed does this is by intentionally creating recessions whenever CPI inflation kicks up. Whenever oil money starts targeting water money, the fed kicks up interest rates above the 30 year[0], triggering a yield curve inversion, which triggers a recession. The recession forces employers to let employees go, which drives down the demand on CPI items, and that reduces inflation. At the same time, they put interest rates below what it was when it started, and the wealthy move their money back to oil.

(Note: I'm not an economist, just a programmer with an interest in economics and an eye for details. I'm mostly posting here for feedback, and I know I'm not exactly correct, but every post is one more chance for clarity.)

[0]:https://fred.stlouisfed.org/graph/?g=AzYM

An economic asset is valued based on expected future cash flow. In the last decades however, real estate and some stocks are mainly valued based on expected appreciation. Real estate even generates negative cash flow for most home owners, and some investors.

Per se, it is speculation (in higher prices) rather than investing (in future cash flow).

> If the best returns is on beans and rice, people will starve.

Farmland and equipment are assets, but they are valued based on cash flow from selling produce. Produce is perishable and can only be sold as food, so it will be sold at a market prices regardless of speculation in farmland.

> all of the wealthy will liquidate their stockpiles of stocks(crashing the stock market in the process)

Not "all of the wealthy". Relatively little is required at the margin to crash the stock market, and the majority of "wealth" would follow the market down. Only a tiny proportion would be able to exit at the right moment.

Asset depreciation is an adjustment of the relative value of labour vs. assets.

A possible delineation between "water" and "oil" is whether the thing can be legally used as collateral for loans and how the value is booked. But idk.

Yes, and this is why you see hyper-inflation of most CPI items during supply shocks[0][1], not during money printing. The longer something takes to spoil, the more potential it has to be hoarded. To evaluate our risk, we need to determine what items in the CPI are susceptible to these pressures.

If Bitcoin goes to 1 million USD, will that drown out all other energy? Energy is a piece of the CPI, so that's something we need to watch.

[0]:https://en.wikipedia.org/wiki/Great_Famine_Ireland

[1]:https://en.wikipedia.org/wiki/1970s_energy_crisis

It wont shock energy, but maybe the semiconductor market. Already theres a huge shortage for gpus

I appreciate you posting your thinking on this. I suspect others share your model. I strongly reject the metaphor of oil and water, that there are different monies. In fact if there was such a thing I wouldn't be as worried. Problems could be contained to specific domains. But as you will see one crisis will beget another and another, and no sector will be spared. One will infect the other. There are no barriers. Investors are not constrained in anyway exchange bonds for stocks in a closed system. They can, and do exchange any items of value (cash, commodities, shares, bonds, ETFs, derivatives) and they can do so in multiple markets. Governments will actually try to prevent this through shuttering markets, capital controls etc but they will be too late to prevent economic harm, to say nothing of long term damage to sentiment. Any measures taken merely delay the problem which will be waiting for them when the markets do re-open.

Economies are very much complex systems, not a steady state systems. At times it behaves like a steady state, but at other times there are significant shifts that break the previous paradigm. You only have to consult any history book of the 20th century to prove this to yourself. I strongly suggest that this a Pascal type wager that you do want to take. You want to assume my argument is correct and hedge against massive inflation. Your livelihood, and possibly your life depends on it.

One way you might convince yourself is if you look at similar situations in economies that were not governed by the Fed. There are many: https://en.wikipedia.org/wiki/Hyperinflation#Notable_hyperin...

I would argue that the Fed, IMF etc actually agree with my position and that is what is driving their desire for new Central Bank Digital Currencies (which IMO are a sham to profit of the public ignorance of actual cryptos and provide a smoke screen while a new global currency is rolled out that will be used to economically control everyone) however I strongly doubt that they will be able implement such a thing before the collapse begins (and it merely delays the inevitable anyway).

Therefore governments (where they can) will default to precious metals to back their currencies. The major winner will be China, as it has the world's largest actual gold reserves (despite the official figures). The US will then be using a gold dollar and China will dictate its price. China now effectively rules the world.

Well stated. The only part you are missing is that taxes on the rich dont stay there. Income tax was sold as a tax on the wealthy as well. As government spending swells to fill the new revenue it becomes necessary to tax more to continue peddling programs that keep politicians in power.

You say "There is no magic or mystery here. This is not complicated. It is not new, unknown and to be determined."

Clearly wrong. Specifically consider the velocity of money. If it falls as the supply increases there will be no inflation. It is falling <https://fred.stlouisfed.org/graph/?g=AzYM> (from another comment). Why? Will it continue to fall or will it rise? You don't know and can't figure out.

Also, how much liquidity is required to maximize economic growth -- the "size of the cake"? In recessions (liquidity crunches) growth falls. Would it rise further if we increase liquidity beyond "the usual"? Would it rise enough to wash out the inflationary effect? You don't know and can't figure out.

Your positions and other similar ones depend on the situation being subject to simple reasoning but this is wrong. The interactions are complex and the obvious variables do not provide a clean way of decomposing the system.

"If it falls as the supply increases there will be no inflation." Agreed. This is tautological. The fall of velocity is price deflation. Increase in velocity is price inflation. It doesn't matter if the currency supply is increasing or decreasing.

However the well established hyperinflation trend is the money supply is increased as the velocity is falling until the point where confidence in the currency collapses. Then the velocity spikes and the value of the currency goes to zero.

So we know exactly where we are. We are currently in the deflationary period that precedes all hyperinflation. And we know it will be hyperinflationary because of the amount of money being printed and the lack of economic growth.

If the money supply had increased 5% in the past year then I wouldn't say we're about to have hyperinflation. But the M0 money supply increased from 3T to 5T in about a year. No system, no matter what it is can sustain that level of growth. All exponential growth is short lived.

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.

This much is patently false, and probably even still false once you account for the accepted exaggeration in most appeals to the entirety of human history.

There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver.

And for the smaller, more recent portion of human history it is again probably largely untrue. I'd point to Debt: The First 5000 Years by David Graeber [0]. I'm sure many people have many opinions on the work, particularly around these parts, but I believe it at least does a good job of refuting this particular statement.

[0]https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

https://wtfhappenedin1971.com/

I realize some of these graphs may be coincidences but it makes a compelling case for me in understanding our current wealth inequality. When you can create money backed by nothing, those closest to the printer will know best how to funnel it into their pockets.

When you have money backed by gold, those who have it benefit from its appreciation. Same is true of any deflationary currency.

Wealth tends to flow uphill. Even in Communism the politically connected realized that wealth in that system was political capital and learned to position themselves to accumulate it. There is a reason the USSR collapsed and gave way to one of the most aristocratic states in the world.

I don’t discount that site though. A lot more happened in or around the early 70s than just the collapse of Bretton Woods.

I also don’t dismiss your comment as untrue. A fair inflationary currency would almost literally drop money from helicopters, not issue it to banks and governments. Still I imagine over time people would learn how to chase the helicopters.

All systems will be gamed. No exceptions.

Indeed. There is a reason why the ancient Hebrew laws dictated that every 50 years all debts are wiped away and all assets returned to their hereditary owners.

All money is backed by nothing. The idea that the gold standard was pegged to some eternal constant of nature is a fantasy.

Actually, all money is backed by the available goods and services in an economy. It is a plate that spins itself.

No one is forced to give up their goods and services for any specific money.

Money is “backed” by the trust that someone else will be willing to accept it at a later date for goods and services.

Well, you’re forced to pay your taxes in specific money, so that’s one thing.

Isn’t the point that gold is finite?

We pull gold out of the ground all the time. It is finite only in theory.

It's infinitely easier to print money at will, which is what keeps happening. Gold has intrinsic value for practically all of human existence.

>Gold has intrinsic value for practically all of human existence.

The intrinsic value argument hardly makes any sense because it's almost always lower than the actual value. Someone interested in intrinsic value would be buying copper, not gold.

Nothing has intrinsic value

Obviously a statement like that requires some explanatory notes?

When talking about money, the term intrinsic value means the market value of the commodity the money is made from, versus the face value of the money.

This is very real and has been exploited in the past, with people effectively melting down large quantities of money and selling it as a commodity.

Coming from a gold bug: you can still create an infinite number of IOUs on gold. Thats what the dollar was before Nixon closed the gold window. The fed was running a fractional reserve on their gold. Believe it or not they still are today, despite folks and major nations no longer have the ability to trade their dollars for some amount of the US treasury gold.

Look into the market value of the gold certificates that the fed has on its books. The fed hasn't marked their gold position to the market since the 70s. Very peculiar if you ask me. Also consider why each of the federal reserve banks trade these certificates amongst one another.

On top of that you can read the treasury's website and find that the policy states that the treasury gold plays an important role as collateral on the dollar https://www.treasury.gov/resource-center/faqs/Currency/Pages... "Congress has specified that a Federal Reserve Bank must hold collateral equal in value to the Federal Reserve notes that the Bank receives. This collateral is chiefly gold certificates and United States securities. This provides backing for the note issue. The idea was that if the Congress dissolved the Federal Reserve System, the United States would take over the notes (liabilities). This would meet the requirements of Section 411, but the government would also take over the assets, which would be of equal value. Federal Reserve notes represent a first lien on all the assets of the Federal Reserve Banks, and on the collateral specifically held against them."

> you can still create an infinite number of IOUs on gold

This is why Islam, Judaism, and Christianity prohibit interest. That closes the door on exploits like this.

Yeah... sometimes I think Mises should be required reading for anyone commenting on HN threads about money. If anything, his descriptions of money and money substitutes are even more relevant in the modern financialized economy, where substitutes (i.e. derivatives) now exist for every imaginable asset class.

The intrinsic value of gold is an answer to whether gold will stay relevant 5000 years from now. It will guarantee that gold will always have some residual value, it doesn't guarantee that its current valuation is correct.

Compare this to Bitcoin which can be replaced by any competitor.

Compare this to the US dollar which is required to pay taxes. You will still see a use case for the dollar in a hundred years.

The rate is limited, though.

We pull gold out of the ground when it is economical to do so. That is to say when the exchange of gold to currency is favorable for extraction, which can also be conveyed to mean that when there isn't enough gold to the demand of currency for gold.

Even if we think gold is finite (doubtful in any meaningful sense), it does not follow that the amount of money (in the modern sense) would be finite in gold standard.

Gold standard means that the value of an unit of currency is tied to a specific amount of gold. In addition it may mean that the amount of bank notes in circulation in such system matches the amount of gold in the vaults of central bank.

Neither of those means that the amount of money people have lent to the banks (i.e. money at their bank account) has any meaningful relationship to the amount of gold - at least without extremely strict regulation of financial companies, lending and saving.

(Of course, same applies to cryptocurrencies, the claim that current cryptocurrencies would somehow set a limit for money creation is just a massive misunderstanding of money and credit.)

I don’t understand what you’re trying to say. How does “lending and saving” change the fact that money can’t be created out of thin air?

Under standard definitions, every bank loan creates money out of thin air. When you get a $10k car loan, for example, that means the amount of money floating around the economy has increased by $10k; there's nobody else in the market who has to spend $10k less because you got that loan.

His point is that most money is indeed created out of thin air through the mechanism of fractional reserve banking and the creation of debt.

This happens even if the monetary 'base' remains a fixed quantity, like bullion gold.

Yes, but minimally you can create disclosure regulations requiring entities that are lending to disclose the level of leverage they are operating at. Customers can then discriminate when they deposit based on withdrawal risk.

Sorry, your comment made me laugh a bit. You know, before the smartest guys were incentivized to figure out how to make you and me click ads, they were incentivized to figure out how to circumvent financial regulation. Turned out that it is really, really f*cking hard to write a regulation that can't be somehow gamed. And even if it was not, you need to remember that vast majority of people do not know how to handle percentages, it is quite naive to expect that those people could make any rational judgements based on any financial disclosures whatsoever. Just look around, Madoff managed to con quite a few sophisticated investors, and to anyone with any common sense Tether has been behaving exactly as if they would be doing their best to scam the whole crypto scene - and nobody cares or requires disclosures.

Fractional reserve banking doesn't actually model how banks work in the modern economy though - they don't lend out deposits, they just add a figure to the customer's account and add a matching loan to their assets, literally creating money. They could do this without any deposits at all.

That's not a fact. Money can and will be created out of thin air regardless if your monetary system is built on central bank money, gold or even bitcoin.

A naive example:

Alice has a gold coin. she walks to a bank and makes a deposit. Now she has one gold coin in her bank account and bank is holding her coin.

Now Bob walks into the bank and says that he needs a loan of one gold coin to buy things. Bank happily lends the coin received from Alice to Bob.

Bob walks to Alice and buys things from Alice and gives the coin to Alice.

Now Alice has one gold coin and another gold coin at her bank account. Total amount of money she has is now two gold coins, even if only one gold coin exists in the whole universe!

And yes, that money at her bank account is as real money as money nowadays gets. And yes, the truth is even more weird, you do not even need to circulate the money as in the naive example, banks can and will just create money out of thin air to people's accounts. After all, the money at the account is literally, literally nothing more or less than a way for bank to say that it will pay you money some later date if you so wish. To make that promise, you do not need any money to exist anywhere. Even I can do that promise on any imaginable currency (what that promise is worth is another discussion). And as said, this has absolutely nothing to do with what "base money" the monetary system is built on. And of course, this is the reason why financial system is so heavily regulated.

That promise is based in trust that when someone wants their gold back out, they can get it.

If there is little confidence in that, people wouldn't store their gold there.

There is, therefore, a natural limit to how fractional your reserve can be and keep trust over a long term.

With fiat currency backed by nothing, the reserve no longer needs to exist at all as long as you have control over the creation of new money.

I'm not saying the gold standard is the answer but it is different. That difference does not go away when we talk about lending.

> There is, therefore, a natural limit to how fractional your reserve can be and keep trust over a long term.

The point is that both fiat and gold sit in a system of debt powered by trust. If you're theorizing a natural limit to the smallness of reserves, you might as well be theorizing a natural limit to the amount of money that can be printed.

edit: it's certainly physically easier to have no reserves than to print infinite paper.

That natural limit is way, way, beyond levels that cause catatrophic disturbances in economy[1], thus the distinction is irrelevant.

[1] See your favourite mania, or even crisis of 2008 that can be argued to be because of failure of regulation to limit leverage of financial institutions.

But Bob has -1 gold coin in his bank account, so there is still only 1 gold coin. If Alice deposits her "new" gold coin into her account, the bank still has only one coin. If Alice demands to withdraw her 2 coins, the gold bank won't be able to comply, whereas the fiat bank would just print another coin.

That's not how amount of money is calculated. If you did, you would end up with a funny result that there is no money at all. As all modern money is debt from someone to someone else.

The finiteness of gold doesn’t imply any particular monetary value for it. The pre-1971 gold standard was maintained not by concrete standards of value but by global scale market manipulation; as we can see in market data since then, the actual market clearing price of gold is much more dynamic than the fixed peg imposed by gold standard laws.

It does not follow from the post- gold-standard instability of gold that the prior stability was due to market manipulation; the nature of the asset changed fundamentally. You might say the gold was "backed by" the financial system, whereas now it's a speculative asset no better than BTC.

The point is that there was no underlying law of nature attaching gold to the financial system. The only thing "backed by" meant was, the government promised to trade gold and regulate the gold market as required to maintain their declared peg. Maybe it's a bit of a "hot take" to call that manipulation, but I don't think it's untrue or unfair - in some countries (although not the UK) governments went as far as simply prohibiting private speculation in gold.

The monetary value of gold emerged organically because it turned out to be the best available option for transactions between untrusted parties. After the emergence of modern states, this use case was restricted to cross-border payments since strong legal protections and centralized banking systems made fiat currencies trustworthy enough for domestic commerce.

But anyways, if one looks at why gold emerged as the preferred money for its time and place, “finiteness” aka non-zero marginal cost of production is certainly a relevant factor.

A lot of excellent other answers, so I hesitated to chip in but I think there is a useful way to think about this.

If the unit of exchange was always physical gold coins then yes, there would be a finite amount of money. However the moment we turned to promissory notes, cheques, bank notes and financial instruments such as in fractional reserve banking the link to physical gold was a fiction. Such notes have been around a very, very long time although of course increasing in prominence over time.

It was a fiction even for precious metal coins as well because the moment a government started running low on the metal, or just wanted to inflate it's currency, it would just debase the coins.

The idea that proponents of the gold standard assert that its value is tied to some eternal constant of nature is also a fantasy.

It might be a bit of an exaggeration, but not by a lot. I think there is a heavy dose of magical thinking in it, and plenty gold bugs really, actually do seem to think there is something special about gold.

I even once got into a discussion with someone on a science fiction forum who's belief in gold was so absolute that he thought it would inevitably be the foundation of all interstellar commerce, even with alien species because gold is so unique it's one thing everyone would inevitably agree on being a universal store of value.

Fiat currency is backed by the existence of an economy that exchanges fiat currency for goods and services. If that economy disappears you get hyperinflation. See Zimbabwe and Argentina as examples of countries that destroyed their economies and suffer from hyperinflation as a result of massively reducing the ability to exchange money for food.

Think about it this way. You play a video game with micro transactions. You receive 1000 units of premium currency. Why is that currency valuable? It's valuable because you can exchange it for cash shop items. Imagine if the cash shop shuts down but the game keeps running. Your currency would be worthless because you lost the ability to exchange it.

The alternative possible explanation, which is never mentioned, is the advent of electronic automation, and out-sourcing of labour.

Labor has been constantly automated away since the start of the Industrial Revolution, ~250 years ago.

It is how we all got immeasurably richer since then, while constantly fearing that all jobs will be automated away soon.

I don't get why people keep linking this page. How can you "understand" anything from a page which provides no analysis and presents numbers with no caveats? How can I trust that these charts aren't cherry picked?

This criticism applies to anything that isn’t formal mathematical proof.

I asked for analysis and source assessment, none of which is part of a formal mathematical proof.

Analysis can be misleading too.

I can understand being critical of this particular page, but more generally:

> How can you "understand" anything from a page which provides no analysis and presents numbers with no caveats?

Presumably because one is able to do one's own analysis and think for themselves. Everything starts out as raw numbers.

> How can I trust that these charts aren't cherry picked?

Can you ever?

> Can you ever?

If we're talking "generally": Yes, we can trust that charts aren't cherry picked by reading the analysis. A proper analysis would include argumentation for why this metric is critical and why this chart is interesting.

What do you think of Capital and Ideology? Piketty posits some theories/hypothesis with caveats throughout and has a lot of data for certain countries and time periods, 75% of the book is history through the lens he is examining.

The New Deal political coalition was shattered in 1968 and we've had neoliberal politics since then which are indifferent to economic inequality. Inequality has unsurprisingly gone up.

Blaming it on magic paper vs gold money to the exclusion of everything else seems like a red herring.

> The New Deal political coalition

I have a hard time seeing the discontinuity between the New Deal people you're referencing and the 1960s Great Society ones that pretty much iterated on the same themes of the scientific management of society through monolithic institutions with expansive powers.

It's pretty much relentless hubris with little to show and much to answer for.

Given china's rise, it would seem the argument is that scientific management with expansive powers in the western world didn't actually go far enough.

So if china suddenly collapses in the next couple of years will you retract your hypothesis?

If china suddenly grew legs and walked away, I'd rethink what I knew about animal life - but why deal in this particular counterfactual?

it's not. China is looking at a demographic collapse in the next few years that upends their running economic model and makes any future projections based on past history suspect. One of the ways out of demographic collapse is immigration, but somehow I don't see China's equivalent of US's Mexico/LatAM coming out of the global geopolitical woodwork. Immigration is simply not in China's DNA. Outside of immigration, no amount of "scientific management" or "good policy" will make 18-30 year-olds appear magically over the course of 5-10 years. Unless my understanding of biology is wrong and dolphins could sprout legs and walk on land, usually it takes 18-30 years.

I'm willing to change my mind. What sort of an ace in its hole does china have to change this situation?

What does demographic collapse mean, specifically?

The one child policy is 40 years old, China has been 4-2-1 for like 20 years at least, and no collapse has happened. Now they're allowing 2 children.

What's the specific thing that will collapse and be bad? An oversized retiree generation dying just frees up pension cash.

The specific thing that will collapse is the economy.

When people retire there is a sudden shift from investment to liquidation. That's a driving factor for popping asset bubbles, and china is currently one huge asset bubble.

Like it or not (i personally dont), we are also living in a world where the central planners rely on consumption-driven economics, and there just isn't a chinese consumer market anymore due to demographics.

The multi-child family people are already retired, though, and long-retired at that. Them dying out means a shrinking population but also lower pension costs with no lost labor.

The working population has been steady-state at 1-child for 40 years followed by 2-child for the last few years.

I suppose there could be some demand loss due to fewer people demanding things, but.. there's a lot of room for additional demand in China. Plenty of people where running water is a last-20-years nice new thing.

Depends on the outcome you're looking for, I guess. From a sheer "managing the macro architecture of civilization" perspective it's hard to argue -- the speed with which China can do substantial things is staggering. They trade that off for individual liberties, presumably. Which makes one wonder if the liberties we enjoy are worth the bargain, on net.

Or perhaps the question boils down to whether "on net" is the right objective function.

Both the New Deal and the Chinese system accelerated electrification and running water in rural areas by decades.

There's a lot of "quality of life" there that gets missed when people zoom all the way out and talk about state involvement, GDP and freedom.

> There's a lot of "quality of life" there

I guess you'd have to ignore what Deidre McCloskey describes as the Great Enrichment of liberal democracies:

"[...] a rise in real wages 1800 to the present by a factor of 10 or 30 or (allowing for improved quality of goods) 100, which is to say 900 or 2,900 or 9,900 percent" [1]

Meanwhile there's a certain propensity for incredible inhumanity, eugenics (in the case of the 1920s Progressive movement) and the outright abuse and "reeducation" of minority races in China.

[1]: http://www.deirdremccloskey.org/docs/pdf/IndiaPaperMcCloskey...

"1800 to present" is very much inclusive of the New Deal.

This is a great way of putting it. I'm really not sure it's worth it.

Hypothetically, what would occur if the federal reserve simply sent money to every bank account rather than trying to steer market interest rates? If it's an equivalent action then why do we only perform the action that is more prone to regulatory capture?

Theoretically, supply side economics. Demand side economics makes even liberal economists uncomfortable, because it's so closely tied to inflation of consumer goods. They would rather fund the industries that make the goods, so there are more goods (and jobs producing them).

It's clear that it isn't working, which is why a heretical sect of MMT economics wants to do demand side. It's a big change, the kind that takes a generation dying off to accomplish. Especially since it may not work. It's a genuine unknown, with the primary advantage that we don't already know what kind of regulatory capture it would cause. Which is enough for some, given how badly the current situation is fraying.

Well, the first question is: how much money?

That question is usually answered by the people willing to take out commercial loans. Without the market supplying that function, you’d have to try and figure this out yourself centrally.

The second issue is that you really are spraying money evenly across the whole economy, effectively starving productive ventures of capital while at the same time endowing moribund ventures with it instead.

So it’s not quite an equivalent scheme, it has different benefits and costs.

That's still really bad for the unbanked in the US.

Because in a democracy, effectively granting the legislature the power to print money and hand it to citizens is fraught with some pretty obvious conflicts of interest.

(yes I know the Fed is “independent” but it is the tail on a government dog—the two are separated only in name)

Is the peril greater than giving money to large financial corporations? Extremely Large corporations often lobby or directly corrupt their surrounding regulatory authorities.

Depends on which side actually needs the money.

You cannot make an absolute statement that consumers vs businesses deserve more money, you have to look at the current market.

However, the central banks have opened the flood gates for supply side monetary stimulus. It's not unreasonable to think that the demand side has been neglected massively and that money should be put into the demand side instead.

It's not an equivalent action. If you print money and use it to buy bonds, then if you ever want to reduce inflation you can just sell the bonds again. Whereas if you print money and give it away then to get it back you have to tax people, which is (a) unpopular and (b) involves 'the government bailing out the central bank'.

Why not give away printed money and raise interest rates on the backend?

https://www.sipa.columbia.edu/file/3345/download?token=rRqLL...

> The New Deal political coalition was shattered in 1968 and we've had neoliberal politics since then which are indifferent to economic inequality.

This is also a red herring. The New Deal did little to actually fix structural wealth problems. And "neoliberal" politics actually included a lot of progressive politics like negative income tax, drug legalization, prison abolition, etc.

A better reading of history would be that the post-war boom in the US mostly amounted to a lucky windfall and the US has wasted a lot of policies trying to recreate an economic boom using cultural levers.

Eh. The New Deal was a lot of things over 35 years but there was a consistent "bottom-up" theme that's been replaced by a "supply side" theme.

Neither set of ideologies explains everything, but lots of little decisions over a few decades can add up.

(Also, I realize we're being fast and loose with labels here, but after 20 years of Reagan/Bush/Clinton drug war, taking credit for legalization feels a little bold.)

> negative income tax, drug legalization, prison abolition, etc.

Under what interpretation of the word "neoliberal" do any of these things fall under? Especially the last two; find me a single person claimed to be neoliberal who supports either.

What is the arrow supposed to represent there? Nothing interesting seems to change at the arrow point, except for inflation.

Obviously it represents the point where productivity increased but real wages remained stagnant. I think you’re purposely pretending not to understand it though.

On half those graphs the arrow points to an arbitrary "knee" on an exponential function. It's a graphical version of the Gish Gallop [1] and conspiracy-theory "it makes you think!" arguments. Explanation is definitely warranted.

[1] https://rationalwiki.org/wiki/Gish_Gallop

It's some 2 to 4 years off the end of the correlation on that first graph.

Except there are numerous flaws with the construction of that graph:

https://economicsfromthetopdown.com/2020/01/17/debunking-the...

Or... switching to a fiat system enabled the economy to expand faster than labor policy (minimum wage, maximum work week) has been able to keep up, enabling those at the top to exploit the gains.

Ignoring that half those graphs are just arrows pointing to arbitrary knees in exponential functions, I couldn't find this one which, unlike most on that page, directly graphs an ongoing policy choice, minimum wage vs. productivity: https://i0.wp.com/chicagopolicyreview.org/wp-content/uploads...

If you want a long debunking of that graph then read this:

https://economicsfromthetopdown.com/2020/01/17/debunking-the...

The current wealth inequality is caused by the productivity gains being concentrated on a smaller population. One Amazon can provide goods far more efficiently than thousands small businesses.

I’d say this explains the 90/10 wealth gap. The 99.9/0.1 wealth gap stems from financialization and central bank-supported moral hazard.

> When you can create money backed by nothing

Isn't that what money really is about?

Debt and money go together. When you take on debt your creditor can decide to sell his credit to somebody else, de facto using your promise to repay your debt as a currency.

Isn't your promise...just a promise? Yet you can buy stuff with it?

Fungible debt is a money substitute. The strictest definition of money would require that it has no counterparty.

Know what happened earlier?

Congress lost secret voting,

https://www.congressionalresearch.org/Jumbotrons.html

I'm more of the opinion that our problem is hyper targeted lobbyist money...

Rome had a money system based on silver and it was eventually debased. https://en.wikipedia.org/wiki/Denarius

Please. He obviously meant gold or gold-backed currencies. Which indeed ended in 1971 with Breton-Wood.

Let’s be kind and “assume the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize.”

The original article is itself an incredibly long-winded exercise in this kind of bad faith argument... also called a “straw man”. The final paragraphs make that clear, when they claim that the inflation fearmongering is just a front for anti-statists. So if that’s what this is all about, why not just write an article about the merits of a state-directed economy and dispense with the charade?

That itself seems like a straw man. "Anti-statists" is your term -- neither "statist" nor "anti-statist" appears anywhere in the article. And it doesn't say anything at all about a "state-directed economy"; I'm not sure precisely what you mean by that but on the face of it it sounds like a Soviet-style command economy, which scarcely anyone wants (including, I think, Richard Murphy) and certainly isn't the only alternative to the sort of small-government right-libertarianism he seems to be complaining about.

But let's suppose that what Murphy really wants is a "state-directed economy", and that he's concerned that opponents of that are making bad arguments about inflation to oppose it. In that case, why shouldn't he write an article explaining why he disagrees with the key premise of those arguments, namely that there's a real danger of problematically high inflation?

It seems like the principle you're appealing to ("why not just ... and dispense with the charade?") is that if you want X, you should always just argue for X rather than addressing bad arguments against X. I think that principle is very wrong. People are often persuaded by bad arguments, and if someone has been persuaded by a bad argument against X then they will likely not listen willingly when you present your arguments for X. (Because they already know X is bad.) But if you write something about the specific argument they've been convinced by, they might pay attention, and you might convince them.

Gold-backed currencies are, similarly, a historical aberration. They only came into being around the 1870s!

States have picked all kinds of units for accounting and tax purposes for literally millennia. Wheat, silver, wool, gold. They adjusted standard weights and measures all the time to manage their debts and the economy. Fiat is the historical norm, going back about five thousand years.

Separately, some governments have made coins out of various things for a little over two thousand years. And separately still, people have traded gold throughout history as a commodity.

But it's just not true that gold and silver were de-facto money somehow until 1971.

That was how I was interpreting it. Again, I refer to the book mentioned.

If the strongest possible interpretation is that gold and gold-backed currencies were universal throughout human history until 1971, that is also wrong.

> There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver.

In case this is an honest misunderstanding:

Pretty much every society in history used gold, silver, or some other rare natural resource. Of course there was never a global such system, but OP didn't mean to say that.

https://en.wikipedia.org/wiki/History_of_money

I'm not certain what you are referring to with that article. I don't see much that inherently and obviously supports your assertion.

In fact it references the same book I mentioned earlier, which clearly talks about the lack of such systems in early societies. And of course, such societies dominate human history.

If you want to talk about more modern well-recorded history, again I turn to the book mentioned. And there the simplest summation I can come up with is "yes, but no."

Gold and silver have been money for thousands and thousands of years, that doesn’t mean it’s a unified monetary system, it was just a natural occurrence.

Back when dimes were silver you could get a gallon of gas for about a dime. If you found a silver dime today and sold it for melt value you will get pretty close to being able to get a gallon of gas for that dime still!

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Housings costs are included as part of the CPI. I'm not sure why you think otherwise.

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

The GP is mistaken in assuming that rent is excluded from the CPI, however mortgages and other costs of home ownership are not considered consumption and are therefore excluded. This is the first item of the FAQ in the document that you linked.

As a matter of fact, home ownership has become a highly speculative play for the ordinary wage earner and this is largely due to asset price inflation as a result of low-interest rate policies (worldwide, not just the US).

It's important to understand that while mortgages are not part of CPI, imputed rent is. So the consumption costs of living in a home one owns are taken into account.

Imputed rent is meaningless since there’s no market discovery of the price.

It’s like asking what the position and momentum of particle is simultaneously. You can’t know the price of something you don’t intend to rent unless you rent it, but you’re not renting it because you have no intention of renting.

Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.

It's not meaningless. It's an estimate based on market data.

Every component of CPI is an estimate, that doesn't mean it's meaningless.

>Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.

The point of the fake ad is to gauge what the current market clearing price is, which presumably already takes into account the current supply/demand. It's not any different than using the current stock price to judge what an entire company is worth (market cap), even though only a fraction of the shares are actually on the order book.

> It's not any different than using the current stock price to judge what an entire company is worth (market cap)

It's interesting to note, the stock price is a small part of a company's valuation. There are many different structures for stock issuance.

Two problems with that:

1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year.

I don’t agree a fake add will get the clearing price in these conditions.

Even if I put up an ad to rent a room in a student house -one of tens of thousands in a typical college town- the hypothesis fails since students are extremely sensitive to distance to their main building, nearby amenities, availability of parking, etc.

2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members).

And that ‘price*shares == company worth’ is not true is evident in mergers and acquisitions which can be very acrimonious events. If the clearing price times the outstanding shares were a fair measure of the market cap, why would rational investors care about a merger except for the costs associated w/ closing?

But bringing this all back to the OP. Housing cost for the majority of the middle class is not meaningfully included in the CPI, except with a flawed metric.

>1. Clearing price assumes efficient markets. My house in my neighborhood is one of maybe three (probably much less judging by the rental units friends of similar means live in) like it that will be available throughout the year.

Yes, low liquidity in the rental market means that there's a spread in the estimates, but I don't see how it follows that "imputed rent is meaningless". The low liquidity can cause the estimate to be both above or below reality. Do you have evidence that the inflation numbers for the housing component of the CPI is totally detached from actual market prices?

>2. Even in the stock market the clearing price is dubious; the market cap of a company is a useful bit of fantasy. By multiplying the clearing price by the outstanding shares there is an implicit and incredible assumption that all the shareholders value the shares equally - which is obviously not true, some share-holders believe the stock has more promise, others are sentimental (the founder’s family members).

Again, this seems to be more of a complaint that the market cap figure isn't 100% accurate, rather than that the number is "meaningless" as claimed in your original comment. It seems like the entirety of your argument (for both imputed rent and market cap) is "well there are these factors that causes the number to be inaccurate, therefore the number is totally meaningless and should be ignored".

No, it really isn’t. From your link:

“If someone were to rent you home today, how much do you think it would rent for monthly[...]”

That’s a very poor proxy for housing cost.

First of all it’s a guess. A guess from whom? What do these oracles know about how much their home can rent for if they haven’t put it up?

Second, the homes available in the rental market are vastly inferior from (for example) my home. I cannot find a home remotely as nice as my home (bought in 2017 for 320k, currently valued for 400k - pretty average middle class home in my city) but I can’t rent mine for what I’d want to rent it for [1] - so the supply and demand price don’t overlap for my type of home in my city. Without overlap of price, the question, as it pertains to my home is meaningless.

On the other hand, there is an easy way to include housing price for owners. Add price of homes to the CPI. In fact, investments generally should be included, since they are goods whose price raise with the increase in monetary mass

[1] is the accelerated deterioration of my home, and the headache of being a landlord worth the $1400/month renting it to a family? No. Can I rent it for $1800 by splitting it into rooms, say, for students? $1800/month is not worth having destructive students live here.

It's certainly true that calculating imputed rent can be tricky and is probably subject to some error. However that does not make is meaningless.

Ok, let’s say not meaningless.

Let’s say it has (my guess of my particular case) a 30% error. What happens to CPI if the weighted average of housing is off by 30%? Assuming housing is a third of CPI, that puts CPI up to 10%.

Look, I’m actually looking to buy a home out in the country and remote work from there. I’m actually living the problem of “should I sell my home or rent it out?” It’s not a survey question, that’s for sure!

It's less of a problem than you think because the error can't compound. An error of 30% compounded over 10 years can't grow to a 1300% because if you compare the two years directly you'll see there's a huge mismatch.

“If someone were to rent you home today, how much do you think it would rent for monthly[...]'

That’s a very poor proxy for housing cost."

Agreed. Rental data is publicly available. Why bother asking only to get a worse answer?

The question is asked to owners. Renters are asked how much they actually paid in rent. The main reason why owners are asked for their estimate is because owner-occupied houses can be systematically different (probably more expensive/higher class) than renter-occpied houses, so estimating owner-occupoed rents with actual rents can be biased.

My biggest beef with housing in the CPI is the fact that housing costs are underrepresented in general, and drastically underrepresented for some segments of the economy. The weight of housing in the index is something like 24%, but the average housing costs for the top 20% of incomes is closer to 29% of income, and it gets above 40% of income by the time you get to the bottom 20% of incomes.

So by underrepresenting housing's weight by that much, combined with the fact that housing prices are growing much faster than everything else in the index, combined with the drastic disparity in housings effectively "felt" weight on inflation for people of different incomes, and you get this problem: things may seem fine to a banker on the Board of Governors of the Federal Reserve, while the bottom 20% rightly thinks our nation is going up in flames. There is a massive disconnect between what the metrics say and what people are actually experiencing, and nothing is happening about it because the metric still feels right to the wealthy people that control it.

Shelter accounts for 33% of the index, not 24%: https://www.bls.gov/news.release/archives/cpi_02102021.htm - I'm not sure where your figure originates, but it's wrong.

As others have pointed out, this is handled differently in the UK versus the US. You are correct for the US standard definition of CPI, but the author of the article is a professor in the UK, writing on a UK domain for a (primarily) UK audience. Here's a link that another poster provided that summarizes the UK definitions: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c....

Even ignoring the incredibly false claim that we used gold/silver systems for most of human history, what is mining gold or silver if not "printing money"? Why is that considered acceptable by gold/silver proponents?

The fact that gold and silver’s value is really just as arbitrarily assigned as the value of anything else is usually also overlooked.

It's more that the amount of gold and silver cannot be manipulated as easily as paper/fiat money.

Proponents of the gold standard, at heart, simply does not trust the authorities to set fiat policies. Sometimes, that's a correct assessment (ala, Venezuela). But in the US, and other developed countries, the central banks are fairly transparent, and at least tries to keep to their mandates.

I’ll grant the “as easily” part, but also counter with diamonds and China’s influence on the availability of rare earth elements.

I personally don't believe that the problem is with the currency. The problems lie deeper. If fiat mismanagement is all it took to ruin an economy the USA would be suffering from hyperinflation by now.

The truth is that these countries suffer from structural problems like food imports and petroleum exports that have dropped in value. If they were able to produce their necessities on their own they wouldn't be such problematic countries.

It isn't. Gold/Silver are tangible stores of value. The value is imaginary but humans like to see and touch things and decorate their houses with shiny, and you can't paper your walls with government IOUs.

Which is why we don't have a gold/silver economy, but we do have a property and land economy which has taken its place.

These "investments" are based on a pile of almost-free fiat government IOUs. They have been converted into equally imaginary tangible value. You happen to be able to live in this store of value if you choose to, but at the high end hardly anyone does.

It's a form of imaginative arbitrage for high end abstract markets, just like gold/silver, cowrie shells, and big round rocks are. (And BTC, in its own way.)

Which is why at the high end economics is almost entirely faith-based. Fundamental use value is swamped almost instantly by an imaginary tradable value. And that is based entirely on faith in the stability and potential of the investment of your choice.

The consumer market is different because prices - including rentals - have some relationship to scarcity and use value. But there's still a large element which is faith-driven and subject to an irrational boom/bust cycle as faith and hope waver - partly driven by central bank and government signalling about future outcomes.

>incredibly false claim that we used gold/silver systems for most of human history

Can someone elaborate on why this is false? Archeologists have found precious metal coinage going back to the dawn of civilization.

I'm sure someone else can explain this more eloquently, but I believe the basic idea is this: any time you make a transaction that isn't settled on the spot, at least one of the parties is extending credit.

like suppose one person has more grain than they need. everyone else is starving, but they have nothing to trade for grain. if the grain person agrees to let the other villagers have grain now in exchange for the promise of an ox next year, they have in a sense expanded the money supply. this type of arrangement can be implicit and difficult to track. maybe there was no explicit promise of an ox, but an unspoken understanding that a favor would be owed in the future. it still has the effect of expanding the money supply without digging rare metals out of the ground.

The existence of coins is not the same thing as "using gold/silver for its currency". We have gold coins today and that clearly isn't enough to satisfy goldbugs.

The modern central banking/inflation/'debasement' conspiracy theorist is interested in a return to a gold standard - that is, paper currency that is backed by reserves of gold, as (kind of, sometimes) existed from ~1850 to 1950, rather than a return to currency actually physically containing gold (or, more usually, a metal other than gold).

They are not the same, but speaking about them at a high level abstraction allows one to pretend that there was some continuous system in place that was abruptly overturned in recent times, for ostensibly nefarious reasons.

They trust the global supply of gold/silver as a limiter more than the gov't's self-control.

I think you’ve got some legitimate concerns there, but a lot of what you say doesn’t make much sense to me. Mortgages in their entirety aren’t part of CPI because mortgages are an investment with a return. They’re not a consumed good, you still have your house after you’ve paid it off, although some CPI calculations separate or rent or a rental component of mortgages. Of course it can be included in overall household spending, and changes in household mortgage payments are an important economic indicator but CPI is a specific thing with a specific meaning.

Printing money by itself is not ok, it matters an awful lot what is done with it. Your argument is classic “if it’s ok to do this thing in specific circumstances to solve a particular problem, why not do it all the time for everything as much as possible”. Kind of weird argument, what can I say except, er, no.

You’re quite right the cost for producing goods is falling and stable prices just mean our money is falling in value, it just doesn’t seem that way because these effects cancel out. The article is making the exact same argument.

I think where were likely to agree is that if we’re going to rescue financial markets and corporations in hard times, why not also help ordinary people? If corporate welfare is ok, how come personal welfare isn’t? In some situations like an economic collapse or like Coronavirus deficit spending is essential, I don’t buy your skepticism of that, but I do think it needs to be more equitably deployed. By and large this is what actually happened this time around with wage support here in the UK and direct payments to households in the US. There are arguments to be had about the level and Lana e of this kind of spending, but I think they’re both needed to at least some degree.

The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.

> The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.

This

Enemies of America had zero resistance in co-opting both extremes on income scale of American society to turn against it.

How many will be ready to fight when the time comes, will they fight for a broke country whose elites put them into misery to begin with?

“you still have your house after you’ve paid it off” until you retire and they tax you out of it, happening to my parents right now, sucks, tax bill is over 600/mo and rising! I’m going to have to start paying it eventually so we don’t lose the place. Seems fucked up to work your whole life to own something and then the state just takes it back by inflation and tax hikes eventually screwing you.

Inflation is a long con, eventually if you don’t keep increasing your profits you can’t sustain, that’s why I think a lot of disdain for capitalism is misguided, it’s the monetary system that has created this race to the bottom mentality where you have to keep squeezing to get more profitable just to stay in the game (or decreasing the size of the candy bar to keep the same price).

Your parents’ situation is exactly what resulted in proposition 13 in California. It seems it’s now fashionable to bash prop 13, but people forget what the alternative is.

My search for "Lana e" failed; did you mean something else? Or could you direct me to an explanation?

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

They are not excluded, why do people keep parroting this?

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable

Actually, in 1933 the US ended the use of the gold standard, following the UK (well, British Empire) which abandoned it in 1931.

What came to an end in 1970 was the Bretton-Woods system where global currencies were pegged against the dollar. There was political control over the tax rate between 1946 and 1971, but the US was always able to unilaterally end the system. It did so to print money to fund the Vietnam war (sort of).

The peg against the dollar meant america could have $100 of stuff from the UK or France by printing it, whereas we needed to pony up actual goods and services. It wasn't ideal.

The system was also put under pressure by petrodollars. Western purchases of oil were a leak of the currency outside of the Bretton Woods countries. Since Bretton Woods was ultimately about governments being able to regulate their currencies, petrodollars weakened their grasp and created markets which threatened confidence in the system.

The 1980s are where the real issues began, because most countries moved to fractional reserve banking rather than full reserve. The risks this produced in the system caused the 2008 crisis and led to the epic price inflation in housing etc we have seen in the last forty years. QE is an admission of defeat of the system introduced in the 80s, a hope that eventually we can go back to that time. No interest group has been strong enough to properly challenge this system, so it has yet to die.

TL;DR it ain't about gold, it is about banks

Edit: removed errant hyphens in "Bretton Woods".

Nit pickery: Bretton Woods is not hyphenated; it's not some guy or guys name, it's a place in New Hampshire.

Hah, reasonable. I'll edit the post.

You say that in the 1980s "most countries moved to fractional reserve banking rather than full reserve". This is at best confusing: in most developed countries fractional reserve banking, regulated by central banks, goes back to the 1600s. The bank runs that have occurred throughout US history were only possible because essentially all our banks used fractional reserve banking.

Also, the 2008 crisis was not due to or amplified by fractional reserve banking. The debt overhang was due to mortgage brokers and investment bankers (often without a retail bank license) selling securities -- effectively bonds secured by mortgages. As with any security, these had the explicit risk of becoming valueless, but this risk was hand-waved away by corrupt bond rating and other tricks.

In fact, I'm pretty sure that no bank customers lost any deposits due to the 2008 crisis. Fractional reserve regulation worked exactly as intended.

True, no bank customers lost deposits to my knowledge either. And yes, a major cause of the 2008 crisis was collateralized debt obligations (CDOs) built on residentially backed mortgage securities. Often CDOs would be built on other CDOs in a way which masked the risks involved and made investments of junk look great. The resultant loss of confidence was, in some ways, a result of investors not "getting" the almost recursive nature of those products.

What I meant by the role of fractional reserve was related to capital ratios. I was incorrect to say full reserve was in effect until the 1980s, but the rate at which banks could create money was lower before then because their capital ratios were different. The rate of creation of money (usually for mortgage lending) increased from the lower capital requirements. This in turn increased the size of the market for mortgage backed securities (created to shift mortgages off the books of banks and to let them lend more) and led to 2008.

It is a sufficiently epic size of subject to not really play nicely with brief explanation, so I aimed to make a tactical simplification. Fair enough for pointing that out!

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

This is a variant of the "slippery slope" fallacy.

Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation.

Indeed, if you're in the market for a new home, you are paying a huge premium due to asset price inflation. However, this alternative is preferable to the situation where a liquidity crisis causes massive waves of bankruptcies, leaving you without a job to finance a home in the first place.

Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.

It might also be worth noting that the current practice of quantitative easing incorporates a potential corrective mechanism for inflation that the traditional monetary expansion associated with historical episodes of hyperinflation did not.

When central banks engage in quantitative easing, they purchase financial assets (typically government bonds, corporate debt, stocks etc.) that can in principle be sold back to the market at a later date. When an initial central bank purchase is made, the amount of money in circulation increases, but that increase can be reversed if the asset is sold. If the asset is sold at purchase price, there is no net change in the money supply; if it is sold at a loss there is an increase proportional to the loss, and if it is sold at a profit there is a decrease proportional to the profit.

If money creation is instead used to, for instance, purchase consumable goods and services or pay wages (this is typically what happens when hyperinflation occurs), then the monetary expansion cannot be reversed in the same way — some other mechanism like tax rises would be needed.

The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise. If banks and large corporate investors are the recipients of the money then, all else being equal, the prices of the things those organisations buy (principally investments like bonds and stocks) may rise.

My understanding is that the experience with quantitative easing has been that it has caused a kind of price inflation, but primarily the prices affected have been those of the assets purchased by institutional investors (i.e. stock markets have risen, and bond yields and interest rates in general have been suppressed).

> The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise.

Furthermore, even when consumers are the recipients, inflation is not necessarily to be expected when that money is replacing lost income. In that case, spending (and thus demand) remains the same. Inflation would not occur unless there was a simultaneous drop in supply.

People pointing at Venezuela or Zimbabwe as cautionary tales of money printing often ignore the decades of economic mismanagement that preceded the money printing.

Are you implying that the US and the UK havent had decades of economic mismanagement? Ooh boy, that is rich.

> Ooh boy, that is rich.

Noblesse oblige.

I think its a good summary, but one should stress a key point:

All this QE, aka money printing, can only be removed in a "nice" way if the additional liquidity is to a larger extend used to create additional value rather than consumption.

De facto, most of the liquidity is consumed without added value (Zombie companies, certain government expanses,...)

This can only work for a finite amount of time.

> This can only work for a finite amount of time.

The economy of Japan is living proof that it can work for a very long time, with no clear end in sight. Nobody wants to be the one push the "reset" button.

"that can in principle be sold back to the market at a later date"

What's the material difference, in your opinion, between the threat of the central bank selling back existing government bonds, and the government just creating new bonds of precisely the same type.

There is no money in circulation. All that has happened is that the type of savings has changed - from holding government bonds to holding bank deposits.

And that just means the term and interest rate has changed on the financial instrument.

The fundamental problem is the belief in interest rates and how they work is wrong in practice. People hold savings for a myriad of reasons.

> What's the material difference, in your opinion, between the threat of the central bank selling back existing government bonds, and the government just creating new bonds of precisely the same type.

In the former case (where the central bank sells back government bonds it has previously purchased from investors as part of a quantitative easing scheme), all else being equal, money is withdrawn from circulation and the total stock of government debt remains the same.

In the latter case (where the central bank does not sell any of the government bonds acquired from investors and the government issues new bonds of equal value instead), the total stock of government debt increases, and assuming the government spends the money raised from selling the new bonds as is usually the case, the amount of money in general circulation remains the same (though investors in government bonds have less of it, to the extent that they are not net recipients of the increased government spending).

This is assuming the simplest model; in practice of course, the details will differ consequentially depending on how these processes operate in different jurisdictions. For example, to the best of my knowledge the central banks I'm most familiar with are required to remit interest payments on government debt back to their national treasuries; and in the European Union, direct central bank monetisation of government debt is supposed to be illegal — things like this complicate the picture in reality.

I can see from your other comments that you are well-informed about these details, so I would defer to you there.

What's wrong with a massive wave of bankruptcies, exactly? Proper bottom-up restructuring seems to me like a good way to stimulate a more robust economy at the expense of some temporary resettlement pains. Not to mention the erasure of a catastrophically building debt which is largely a product of mass-manipulation driving people to desire things which they do not need which leads them to dissatisfaction and leaves them vulnerable to squeezes which HR takes advantage of with the panopticon and massive insecurity. The culture needs shook't. The status quo is broken. This is just a bandaid to maintain spreadsheets while 99% of people take a spanking for a system that works against the human condition.

I'm gonna have to take "Chesterton's fence" sort of position there.

Sure, there's a chance that whatever arises from the ashes is going to be more efficient than whatever preceded it. There's also a chance that whatever is there right now is about as good as whatever the new thing will inevitably converge to.

Either way, blowing it all up at once seems unwise.

>Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation.

I think this is sort of right, sort of wrong. It's not so much as liquidity in so much as preventing deflation. Though yes we are in a liquidity trap at the moment.

https://en.wikipedia.org/wiki/Liquidity_trap#Origin_and_defi...

The central banks especially several in Europe lost control of their monetary base. They have gone to negative interest rates + legally requiring pensions funds and similar to purchase these bonds. In other words the governments are robbing the retirees.

The government's goal right now is to prevent the recession from becoming a depression. In fact everything has aligned to make this recession turn into a depression. The only reason it doesnt appear to be a depression is because of expansionary monetary policy.

>Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.

Disproven empirically? Could you provide a link for me to read on this? I do understand that Austrian school is criticized and not generally used but I dont feel like it has been disproven.

Printing money is fine since the Fed does it responsibly and uses it to achieve highly beneficial outcomes that aid the economy.

And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury.

The big question regarding hysterical claims about printing money, etc is: it's been happening for over a decade in multiple large advanced economies, why hasn't there been a disaster? This time is different, right?

> why hasn't there been a disaster?

Would the GFC count? Technically it wasn't a system shattering event (more like system shuddering), but boom and bust cycles certainly do seem to be growing.

> Would the GFC count?

how would you know that the GFC wouldn't have been worse had the Feds not printed back then?

How do you know it still would've happened at all? This isn't a very productive conversation.

Printing money (at the current scale) only started in response to the GFC.

The GFC does not count. The GFC was caused by (1) bad underwriting policies (banks, AIG) that generated a huge debt overhang and (2) bad and poorly understood dependencies between banks that led to breakdown of the normal flows of assets between the banks.

None of this was in any way dependent on or catalyzed by government money creation. The same dynamic cause the beginning of the great depression in 1929-30 due to excessive margin lending and then runs on banks. At that time the US was on the gold standard.

> And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury.

To add to this point, the amount of income the treasury gets from the Fed is tiny compared to the amount it gets from taxation.

Read “The Deficit Myth” by Stephanie Kelton, it’s a primer for MMT and covers essentially everything you’re talking about.

>> Ultimately, printing money doesn't make anyone more productive or produce anything.

That statement is easily refuted by running it backwards: say reducing the amount of money in circulation via a huge once-off tax would thus have no impact on productivity which of course is silly.

>> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

if drinking water is good, isnt drowning even better?

Creation of money either by expansion of private debt or governments running a current account deficit have always had the effect of goosing GDP figures. The 'free money' the central bank is creating is merely nominally swapping out the value of private-debts for equivalent nominal government debts. The money-creation is the net difference between the two and not equivalent to a blanket cheque.

> That statement is easily refuted by running it backwards

Operations are not correct based on if they are reversible, nor are economic truths.

Economic truths are remarkably robust to reality or logic.

> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

This is not totally true.

The ability to print money enables redistribution without taxes.

Bank loans and credit would not be nearly what is is today without all of the various methods that the government allows to borrow debt on debt.

Those loans and credit help start companies and build houses.

Cryptocurrencies won’t change how things need to work to avoid economic collapse, because those that understand how things work won’t change.

> Cryptocurrencies won’t change how things need to work to avoid economic collapse

cryptos won't be able to be loaned as easily, since it's hard to create more cryptos on demand. So if there's a surge in demand for loans, the price of loans (aka, interest rate) will surge. Under a fiat system, the state/central banking authorities can simply make more credit available to satisfy those loans, and thus keeping interest rate stable in the face of huge demand.

Bitcoin is like gold. Tether is like USD. You don't trade the gold, you trade the dollars. They never printed more gold, they printed more dollars.

Tether has printed $2B in the past week. Loans will be freely available.

It's not just money printing either. Fractional reserve banking and money lending creates just as much inflation.

People deposit real money into the bank. It keeps a fraction and loans out the rest. That loaned money eventually gets used to pay debts and it gets once again deposited into the bank. It keeps a fraction and loans out the rest...

The exact same money gets loaned many times. The situation keeps looping and looping and with every iteration new money that doesn't actually exist is created by the bank. It will only start existing once real value is created or extracted from the planet, thereby making possible to repay the loan.

Inflation is like a tax. When government and banking institutions inflate the currency, they systematically and worst of all invisibly rob people of their purchasing power.

That's a common misconception of how money creation works. If you want to learn more, this Bank of England article is a good introduction (pdf): https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Why is there so much misinformation about the CPI? Literally the biggest component of the US CPI (at 33%) is housing/shelter. See Table 1, column Relative Importance: https://www.bls.gov/news.release/archives/cpi_02102021.htm

At least get familiar with the definition before criticising anything.

CPI does NOT include housing in the UK - and this article was written from a UK perspective.

In the UK:

“The CPI takes no account of housing costs”.

“the CPIH does include [housing costs but] it uses an approach called ‘rental equivalence’ – not the mortgage payments but how much rent the householder would pay for an equivalent property”.

“the RPI takes account of mortgage interest payments”.

From: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c...

You are correct about its inclusion but how home asset inflation is measured is arguably faulty - more akin to an 'implied rent'.

https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...

In one of my tax classes in law school, the professor recommended an optional book that when more into the theory behind tax. That book brought up an interesting idea to discuss concerning printing money.

Suppose you have a society with a total economy of say 10^9 dollars, and you need to allocate 10% of the to the government for it to operate.

The conventional approach is various taxes. Income taxes, sales taxes, VAT, property taxes, the list goes on and on.

The question the book asked is why not just have the government print the money it needs?

Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy.

So why not replace taxes with printing money to fund the government?

It has a couple of clear advantages. First, no more need for everyone to file tax returns, employers to withhold tax payments, and all that jazz, and no need for the government to have a giant tax collecting apparatus or a giant tax code. Second, it makes tax evasion a lot harder.

There are some downsides too. First, it would take away a large part of the usefulness of taxation as a way to change behavior. Deductions, credits, progressive rate structure--all gone. Deductions and credits could be replaced with government subsidies, but if you aren't careful you will end up recreating much of the complexity and bureaucracy that the old tax system had.

Second, the inflation would be significant enough that it wouldn't take many years before even small things involve large numbers of dollars. This could probably be addressed by going to an almost all electronic money system so you could just periodically re-scale the whole thing.

Third, inflation from printing money doesn't affect all assets equally, so this would encourage people to try to hold more of the wealth in assets that are less affected. People lean toward that anyway to deal with normal inflation, but with the current system if there is too much off that the government can use tax incentives to nudge things in the other direction.

I remember this leading to some interesting discussion in class. Even if it is not practical, thinking about it is interesting. It can get you to really think about what money really is.

There's a name for what you described: modern monetary theory. AFAIK there really isn't a consensus on whether it works or not.

No, it isn't because he removed all taxation. MMT is also about using money to destroy taxation and eliminate inflation.

In other words, MMT is about understanding the mechanism behind inflation. If you know how inflation works then you have full control over it. You can raise and lower it at will and use this power to actually achieve policy goals.

For example, by injecting money exactly where it causes inflation you can directly cause inflation. It sounds obvious in retrospect and it explains why current central bank policies fail to create inflation.

The money never reaches the hands of people who actually spend it.

Once you reach your policy goals you can stop printing money. Meanwhile if you create money fruitlessly without achieving policy goals you end up creating more money than necessary.

The irony behind MMT is that by printing more money you end up printing less money.

> Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy.

This makes it sound like you're treating 'size of the economy' (GDP) and 'size of the economy' (amount of money) as equal. But they're not. In the US, GDP is about $22T/year and amount of money is about $7T (so the average dollar is spent about 3 times a year). So if the government wanted to spend 10% of GDP, it would have to print $2.2T which would cause about 2.2/7 = 31% inflation. In fact the government spends 35% of GDP, so inflation would be around 100%. The value of the dollar would halve every year.

Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). They become reliant on an unending stream of new efficiencies from innovation to hide its effects and globalisation, as you mentioned, is another handy way of staving off the political effects of the debasement of one's currency (although it's perhaps not as sustainable or reliable). When that fails, the redistributive mechanisms can always always be compounded with things like tax thresholds failing to rise with inflation, increases in tax rates, or new taxes (inheritance tax, for instance, is relatively recent), but taxation-by-inflation is definitely the unacknowledged elephant in the room.

Overall, today's mixed economies have a lot more central control than the average person realises, and it's no wonder that Marx was such a fan of central banking.

>Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular).

This doesn't really work because when inflation goes up, so do interest rates. Inflation was rampant in the 70s, but so were the interest rates, so there isn't any free lunch here.

To a certain (limited to moderate) extent it does work, though, and this directly influences how much governments borrow in the present day. If long-term expectations for rates of inflation were zero or negative then governments would tend to decrease their borrowing over time, all other things being equal.

Governments love inflation because they want their citizens to do productive work instead of swimming in literal gold like in a scrooge mcduck vault.

We both know that's the wrong way of thinking about it, though, because people's saving don't just sit in a vault; they are invested in opportunities that tend to be productive. This whole question ultimately comes down to people's ideological alignment concerning the moral underpinnings and practical realities of central planning and collectivisation vs. private property and free markets.

It's even worse when you consider that central banks have been deliberately keeping wages down through decades of inflation targeting, while ignoring asset prices. And fiscal policy has done nothing to compensate for this. It's actually made things worse by imposing much higher taxes on earned income than on capital gains and other wealth. The perfect recipe for greater and greater inequality.

Assuming inflation causes wages to rise with prices inflation is beneficial to home owners with a mortgage because your housing costs are largely locked in while your wages rise.

It's kind of ridiculous to think that everyone is talking about money printing now. It's become such an obvious force in society that it cannot be ignored even by the layperson.

And economists keep repeating "It's nothing, it's not a problem". They're so disconnected from reality, they won't realize there is a problem until they have a noose around their necks.

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.

Housing definitely isn't excluded from CPI calculations. In fact housing is by far the biggest single component of the basket used to calculate inflation.[1]

Moreover, there's really no evidence that long-term housing inflation is running faster than the broader economy. In 2019 the average American consumer spent 25% of their income on housing and 15% on shelter.[2] (Aside, "shelter" just includes the cost of rent, mortgage, property taxes and maitenance. Whereas "housing" includes utilities, appliances, furniture, housekeeping, laundry, etc.) In 1990, the average household spent a virtually identical 27% of income on housing and 15% on shelter.[3] If housing was inflating much faster than the rest of the economy, we'd expect to see increasing shares of income dedicated to housing.

[1]https://www.bls.gov/cpi/tables/relative-importance/2020.htm [2]https://www.bls.gov/cex/2019/standard/multiyr.pdf [3]https://www.bls.gov/cex/1990/Standard/income.pdf

> has to pay rent or make mortgage payments.

One of these things is not like the others. Inflation benefits debtors at the expense of creditors. If I owe $500,000 on a fixed-rate mortgage, I'm thrilled to see inflation because it makes my debt cheaper to pay off.

Only if your wages rise accordingly. And don't forget that your taxes are going up as well unless tax brackets are adjusted for inflation.

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things.

This is a great point.

The 3 main goals of the Fed[1] are:

1. Maximize employment

2. Stable prices

3. Moderate long-term interest rates

Maximizing employment and keeping prices stable are antithetical to the realities of automation and ephemeralization. If we want to use our automative technology correctly, we should be minimizing employmemt, and decreasing prices.

[1]https://en.m.wikipedia.org/wiki/Federal_Reserve_Act

Cantillon Effect getting into full swing.

Also deflation could be an interesting tool to cool down the economy and so literally cool down climate. Less consumption is what is needed.

>If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable.

On top of that, there is talk, political rhetoric perhaps but still talk, of moving manufacturing back in house.

The US wants to do it with chip manufacturing on nat security grounds. Trump and Bernie popularity was partially on anti NAFTA grounds. There's increasing hostility between China and US (witness the MS hack last week). Nothing stays the same, and we might be in for some surprises.

And ultimately, nobody is ever comfortable answering the question of why it’s okay to move it to China? Somehow it’s okay for people in China to have super low wages?

This is an issue I’ve always had with overseas production. It feels like this weird out-of-sight, out-of-mind ethical problem that usually comes from people opposed to bringing more manufacturing to the US (aka - “it’s not the jobs we want”).

And it doesn’t make sense.

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency.

Deflation is what happens when there is an oversupply of products. Primarily caused by increased productivity through technological progress. You have to print more money just to maintain stable prices. If you didn't do this then companies would cut down on production capacity and simply produce less goods. This would cause a downward spiral of production and since we all know that fiat currencies are backed by the existence of an economy that lets you exchange the fiat currency for goods and services the fact that the economy is shrinking is a bad thing for holders of the currency and it's bad for workers who are receiving incomes in the future. Since we cut down on production we also need less workers and thus your future income will be lower. Your best bet would be to obtain wealth as soon as possible and simply sit on it.

>Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

It could be worse. Since you print money every year that means future people will receive the money first. If you cease to print money then the ones who received it first are people in the past which could be centuries ago.

Would you be willing to work for someone who inherited their wealth 200 years ago and did nothing with it except sit on it? By "sit" I mean scrooge mcduck vaults. No investments.

>The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?

No one is advocating for unlimited money printing. The fact that money printing is being used to inflate financial assets that benefits elites is a policy and political failure not a repudiation of monitary policy.

Jerome Powell said the Fed has unlimited lending at its disposal. That is the engine that drives printing. Their intent is to print without limit until the economy is working the way they think it should.

>Their intent is to print without limit until the economy is working the way they think it should.

That's not in evidence. You are assuming their intentions without providing evidence to backup your claim.

It's a fact that the Fed has unlimited lending powers. Jerome Powell is the chair of the Federal Reserve. Explaining his powers doesn't show he intends to use them. Maybe you have the quote or you miswrote?

I look it as raising taxes on the rich is too hard, and too easy to roll back. Just give the people who need it most the money, devaluing rich people's money. It's just a more efficient form of wealth transfer, and inflation isn't an issue as long as the deficit growth doesn't exceed long term growth.

> At the moment we have new money being created by central banks and given to privileged institutions who get access to free money.

Also, did you forget about fractional reserve lending? Banks don't need the fed to create money, they do it on their own all the time.

> devaluing rich people's money

Do the very rich, the top 1% * n, keep much of their wealth in liquid currency?

I think rent and mortgage are different. We bought our first house in 1977. If you take a look at the graph that was just before inflation shot up to 15%. It was a hard time but wages did catch up and after a few years I had a mortgage which was proportionately much less than I started with. For those renting there was no plus side. I think the poorest suffer most, as usual.

I think you missed an important element.

Inflation does not hit countries evenly as well.

Right now, US is exporting inflation in droves. I've seen it firsthand abroad.

> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages. It does not relate to asset inflation on things like shares, or house prices, which can behave quite differently, as the last decade’s shown.

I like how the article waves off asset inflation. The federal reserve creates trillions of dollars in new money, shares and house prices go up considerably, and we have no inflation. It's a win-win. In a wealthy society like outs, assets are exactly where you would see the inflation. Demand for staple goods isn't going to go up.

This is just a transfer of wealth to asset holders.

I don’t disagree that house prices are too high, but...

House prices are up, but most people don’t pay the price of a house - they pay the mortgage on it. Because interest rates are rock bottom the inflation of the price of a 25 year mortgage is just about in-line with most other goods. If house prices increase by 100% while interest goes from 6% to 2%, cost of a mortgage only increases by about 25%. (One complication here is that the down payment is not affected by interest rates, as so is much larger today in real dollars.)

That is true and means current prices may not be much higher, but it makes homeownership much more risky. If interest rates ever go back up, the price would go down and you could wind up owning a house where your principal is much higher than it's current value. This is ok if you don't want to move. If you ever want to move though, even to a house with an equal price, you may end up owing the bank a lot of money.

But what are the chances of the housing demand evaporating? In most cities where the housing bubble exists, it exists for a reason. The city is growing because all jobs are relocating to cities and universities located within these cities have growing student populations.

The demand is considered very stable so the risk of that happening is quite low.

And before anyone says it, I don't think we are going to experience a remote work revolution any time soon.

It’s not that demand evaporates, it’s that if you can afford $2500 a month mortgage, and interest rates at 2%, the value of house you can afford is much higher than at 4%. The limit on house prices is capped at what a family can pay per month combined with mortgage rate. So if rates go up, and you own a 800k house that is now 600k in resale because people can’t get approved for 800k mortgage now. So you are stuck and can’t move unless you can afford the loss.

My understanding of US mortgages is they tend to be a fixed interest for the entire life of the loan -- i.e. with a 25 year mortgage at 2% paying $2k a month, if interest rates went upto 10% in 2030, you'd carry on paying $2k/month.

In the UK the longest fixed rates I've seen are 10 years

Right but how much loan you can get in the US is tied to how much monthly payment you can afford. If interest rates are 2% the total price of the house can go up with the same monthly payment. At 4% you can’t afford as much house. Housing prices generally fall when rates rise. Once you are locked into a loan, you pay the same amount. But if you need to sell and you only put 5% down on an 800k house, and now the house can only sell for 650k, you would have to make up the difference on the note.

But you won't be kicked out of the house because the monthly repayment increased by an extra $1k a month.

I was in negative equity in the UK for nearly a decade after buying in September 2007 and seeing value collapse 40% pretty much the day after exchanging contracts (Northern Rock bank run). A new built flat was always going to deprecate a little, but when the flat directly below us told a year later for 60% the price we paid it wasn't fun.

Solution when I did need to move was to rent out the flat (which covered the interest payments and maintenence) and rent somewhere else until 2016, when the price had recovered enough to sell it for the price I bought it at.

You still have to pay back the principal though?

    Price per Unit | Interest | Annuity     | Duration [years] | Interest payed
    -------------- | -------- | ----------- | ------------------ | --------------
     100,000.00    | 5.0%     | 12,000.00   | 10.8               | 29,626.35
     150,000.00    | 2.5%     | 12,000.00   | 15.0               | 30,040.09
     200,000.00    | 1.0%     | 12,000.00   | 18.2               | 18,876.33

Unfortunately the increase in asset price is not covered by the decrease in the interest rates. And yes, prices here have nearly doubled over the last 10 years. And you could easily get a mortgage for less than 5% in 2011 here.

I was using the monthly cost of a 30 year mortgage. Monthly for 30 years a 500K mortgage at 6% is roughly 3K. Monthly for 30 years a 1000K mortgage at 2% is about 3.7K.

So a 100% increase in sticker price with -4% interest change yields an actual cost increase of 25%.

This comparison of an increase in price and decrease in interest rate is not useful because if interest rates come down, mortgages can be refinanced at the lower interest rate.

The 100% more expensive house actually costs 100% more (nominally).

Monthly cost of a house tells you very little about the "true cost of ownership" (a concept that I wish were taught more widely). That includes things like taxes, opportunity cost of capital, maintenance, etc. Doubling the price of the house will not quite double the TCO (because maintenance may not increase by much depending on various factors, and taxes can take time to catch up), but it will not be a mere 25% increase either.

That's a great point. I was curious about his as well so I did some simple calculations and wrote about it. Your intuition is correct, and if you look at median mortgage payment relative to median income, owning is about as affordable as its been since we started collecting data. There's a huge difference in mortgage payment based on interest rate:

> To put that into perspective, a $100k 30 year fixed rate mortgage would cost you $1,543/mo at 18.45% and only $442/mo at 3.38%.

Points up front is also lower now than it has been historically. I think low rates definitely fueled home prices and of course there are neighborhoods that are exceptions

https://mleverything.substack.com/p/buying-a-home-in-the-us-...

You stopped reading too early, the article goes into this in depth. As with a lot of commenters here, in fact pretty much all of them I’ve read so far, you’ve got completely the wrong end of the stick about what this article is saying. For example:

“ Now, not everyone was fortunate enough to see the benefit of that. In fact, many households are deeper in debt now than a year ago. Many more just got by. But the best off just got richer. That’s what QE does.”

In something so long and meandering, that's not a surprise. I also stopped readng before it got any further; to be compelling it needs to be a lot shorter - there is not that much content in it!

It's making a very specific argument on a single subject, the contention that we are likely to see runaway consumer price inflation in the coming years. The article says this is wrong and explains why. I think it makes a very strong case for this. I don't happen to agree with the author's conclusion that therefore government should embark on a massive programme of capital infrastructure spending and such, but the rest of it is well argued. Economics is complicated so it's an extensive argument.

So I've a degree and masters in economics, before heading down the more statistical route. I can't say I found it compelling, and some of the issues waved away were too alarming for my liking.

The asset price inflation that's happening, and as a result the crazy investments (Softbank style) in search of some return are worrying. These are storing up problems for the future. I don't find the 'return to gold and it'll all be fine' any more compelling. I don't much care for the politics side, and advocating for no vs tons of spending seems to gloss over the very real problems with each approach.

Infrastructure spending would put an end to QE and the increasing wealth inequality.

Potentially; infrastructure is quite a broad term, and some sectors of the economy are pretty maxed out. Spend it on telecomms, and how much would flow overseas?

I'm in the UK and we're increasing spending on 5G, but lots just goes elsewhere. Our constrution sector has limited capacity, and has less now we have EU staff leaving (and not arriving), so any extra spending will just lead to price inflation (and wages for already well paid people). Actually getting new people (and companies) in to these sectors is hard, not as sexy, and as a result doesn't seem to happen.

The US may be different, but there are few really easy answers in economics. Almost everything has second order effects that you might not like! That said, having been to the US a lot, there is a lot of infrastructure that does need attention...

> In a wealthy society like outs, assets are exactly where you would see the inflation. Demand for staple goods isn't going to go up

Demand may not go up, but the costs for producers will and those costs are going to get passed to consumers.

Prices of many things, from meat to eggs to lumber, are already up a lot. I also see signs "sorry, our costs are rising, so we have to pass a portion of the increase to you" in supermarkets.

Printed money (in the real world, especially with a single party railroading it) will, for the most part, benefit those who do not need it. And the portion that will reach the lower incomes will be eaten away by taxes, inflation and rising costs of doing things.

The data analysis and argumentation in this article is pretty broken.

- The decade by decade plot, which is highly influenced by alignment of periods, actually shows a 50% drop in inflation from the 80s to the 90s. Then says that 90s policy mandates made no difference.

- Fitting a linear trend to 100s of years of economic data with diverse data and economic regimes is meaningless wrt shorter-term policy. I guess we should expect -5% interest rate in 2100, because it dropped that fast between 1450 to 1550?

- Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive.

I feel the need to say that I'm extremely in favor of spending on COVID relief etc, and I get the frustration that folks use FUD to complicate policy around social support spending until it fails. But the same thing happens around the spending itself. Late in the article the author discusses the way QE has been regressive, disproportionately impacting the rich. What makes anyone so confident that other forms of injecting money into the economy won't get siphoned the same way?

We're getting to a dumb moment in this debate where people are accepting flimsier and flimsier arguments that we should be able to "Just Do It" regarding spending, without consequences. If we're going to do some economically radical things, let's do so with eyes open that we will be headed to uncharted territory.

> let's do so with eyes open that we will be headed to uncharted territory.

That's how I think. In economics, society and very complex systems in general, one can rarely predict the consequences of most actions. The best we can do is brace ourselves (hedge) while those with power play their cards.

So how are you hedging?

I agree it's somewhat weak on the historical trend argument, and in explaining the relevance of the interest rate to inflation argument.

> - Similarly, the arguments that COVID or Brexit should simply be blips seems like an outright denial that economic change happens. Wars, epidemics, and trade agreements shape history by reordering which economies are competitive.

He doesn't make a general case for such a denial. Only that COVID and Brexit are going to be blips specifically with respect to inflation. From the article:

> If either Brexit of coronavirus cause an inflation blip it will not last, and we need not worry about it in that case. So neither is the ‘something else’ that must be motivating inflation fears.

I found the arguments about the net money supply to be somewhat persuasive.

And as for alternative QE money being siphoned and being similarly regressive, I'm inclined to agree with the redistribution part of daniel-s's comment, and to infer that direct cash payments to individuals resist being siphoned so easily:

Edit: I assumed this meant it redistributes to the first to contact it, but on second reading, I’m not sure the intended meaning.

> Late in the article the author discusses the way QE has been regressive, disproportionately impacting the rich. What makes anyone so confident that other forms of injecting money into the economy won't get siphoned the same way?

What the hell are you talking about? This isn't nearly as complicated as you think. It's been readily demonstrated that the consumption multiplier effect on unemployment transfers and bottom-up stimulus generally is far stronger than what can be accomplished with alternatives. This is intuitively obvious: give dollars to people who place the highest value on a marginal dollar (because they're using it for essentials) and you'll maximize consumption; give it to people at the other end and you'll maximize hoarding and wealth extraction.

Well, I'm talking about the OP, which discussed deficit spending and and growing government but didn't get into specifics. It seems like you want to fight about direct bottom up stimulus, but I'm afraid I agree with you. Direct payments to individuals in particular seem really efficient right now. The comment you quote is about program-oriented deficit spending - including e.g. the USA's PPP - which can get captured by incumbent interests.

If you say inflation of consumer staples matters, while inflation of assets does not matter, you are accepting a two tier economy between consumers and asset holders. Stock ownership has become more available recently because of technology, but the more important asset class to most people is housing. That's because housing is also shelter, and by inflating part of the market for shelter - owner-occupied dwellings - beyond the reach of many you increase demand for rentable shelter. I don't think this distinction between two kinds of inflation is helpful, especially when one is considered bad and the other benign.

CPI takes into account the cost of shelter.

https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

Shelter is a "service" whose consumption we call rent. Rent therefore qualifies as consumption expenditure and is included in the CPI. Owning a home doesn't make any difference, you still pay rent to the owner (which in this case is yourself). The distinction between inflation and asset price "inflation" is important because they are not the same thing. Inflation is an increase in the price level, whereas an increase in the price of some assets is that.

Inflation hits hardest the poorer who doesn't have diversified savings or their wealth in properties, stocks, or anything else that is likely to at least hold value.

Inflation basically steals wealth from everyone – especially the poorest that makes the mistake of saving cash – and gives the money to the richest friendly with state powers. It's unethical and a crime against humanity, even more so considering that the fiat currency people are forced to use is legal tender, and you cannot exchange your earnings in other more stable currencies legally in most jurisdiction with this doutrine (almost all).

https://wtfhappenedin1971.com/

The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero.

If you are concerned about this, would you be okay with a direct payment to populations without enough money to save in equities? That'd fix the problem.

The poor may have some cash, if only $100 in the bank. They certainly have no bonds, stocks, or real estate.

If they have no cash and only draw a salary, it will still hit them badly, as salaries are not inflation adjusted, and any pay increase requires negotiations with the employer - who may decide to increase the wage by only a fraction of the inflation.

Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.

Great. Let's make minimum wage automatically adjust to inflation, force businesses to provide CoL increases, and provide a tax credit for the poor against savings loss.

In my experience, the libertarian community that hates inflation so much uses the poor as a rhetorical cudgel rather than an actual primary concern.

> Said differently: all people who don't have wealth in inflation proof assets (stocks, real estate etc) suffer from inflation.

Except those who are in debt

inflation is typically priced into interest rates. unexpected changes in inflation can benefit either creditors or debtors, but a constant rate of inflation is a non-factor.

annual losses from inflation on $100 are pretty trivial though, somewhere around $3/yr. the stickiness of wages is the bigger issue for the poor re inflation.

also people with assets are not totally protected from inflation. suppose I bought a $10k asset in 2001 that, for whatever reason, perfectly tracked inflation. if I sold it today, I would owe 15% tax on a nominal gain of 50%, resulting in a real loss.

The fact that you never mention debt a single time shows me that you're pushing an agenda and not offering a full analysis.

if you insist on mentioning the debt to support your argument, you exclude and dismiss those who do everything to never live off debt. Those are not rich, they are hard working people who try desperately to bring economic stability into their families and to get into a lower middle class.

What about debt is relevant? Sure, if you’re in debt then a sense you “owe less”, in that the units you owe are now worth less. But practically speaking, if you’re an hourly or salaried employee that’s too poor to own significant securities or real estate assets and your wages don’t keep pace with inflation (wtfhappenedin1971.com), that’s a totally meaningless ivory tower economics point. You’re just further priced out of those assets, are paying more for the consumer goods you need to live that are now inflated, and you’re still paying the same dollar amount on your debt.

The fact that you are demanding him to mention debt shows you've a short-sighted view of the world, seeing only what happens close to home from what appears to be a privileged point-of-view.

Not everyone in the world has easy access to credit like you imply. You're the one pushing an agenda here.

Salaries are always adjusted to the inflation if there's a free market.

Depending on how hard is the inflation, you receive yearly, semi yearly, monthly, weekly or in extreme cases daily adjustments. Your salary updates also include the expected inflation.

That's of course when the economy is performing well. If the economy is slowing in an inflationary environment, you may easily end up on the wrong side since every update is actually a salary renegotiation and in a slowing economy your job might receive pay cuts in real terms.

I can't believe you were downvoted for saying the truth.

It's sad engineers making even $200,000 or more can't understand how even $100-1000 in the bank can change lives forever for many people in poor countries.

It's even sadder when some of them come from places that had hyper inflation, and can't see the big picture.

The point is that this is a terrible argument for "we should switch to gold" or "we should have 0% inflation". Losing $2-$20 to inflation annually is trivially handled with tax credits or whatever.

You definitely have no idea about what you're talking about when you say that 20% inflation should be trivially handled.

$2-$20 is 2% of $100-$1000.

He's claiming that people who go into their overdraft and credit cards every month have $100 in their bank. They don't, most people live paycheck to paycheck, their bank balance just before payday is $nothing

this is definitely not true. the median US household has several thousand dollars in their checking account. they might be living paycheck-to-paycheck in the sense that their net cashflow is close to zero, but they don't have nothing in their bank account just before payday. you would have to go deep into the 20th percentile to find households like you describe.

https://www.thebalance.com/what-is-the-average-bank-account-...

> The poor don't have savings in cash. Inflation loss on a nonexistent savings account is virtually zero.

The poor are also often in debt, and inflation helps eat away at that. Especially if they can get wage increases based on the CPI.

Which is why minimum wage should (IMHO) be linked to inflation/CPI.

The minimum wage is universally zero.

Government-mandated minimum wage is effective price control, which never works. It has the effect of taking people who are not qualified to produce enough value to justify the minimum wage out of the job market. It's a mechanism to keep poor people poor.

CPI barely reflects the actual inflation of the currency. Whatever it doesn't cover in its calculation tends to get overinflated. The government designs the CPI to be low in comparison to "real" monetary inflation so that it can get away with printing more money.

This is why the raise in minimum wage should be compensated by also offering government jobs that do pay minimum wage or slightly less. Given enough time people will actually end up getting their minimum wage or even more than minimum wage.

However the talks about a $15 minimum wage actually have one very interesting detail. There are no plans for an immediate hike. It's going to be raised over time which means companies have enough time to adapt. It also sends a clear psychological signal to everyone that the times of cheap labor are going to be over because it is something that is happening year by year.

> especially the poorest that makes the mistake of saving cash

Perhaps a bit off topic, but: do the majority of the people who are not considered part of the "poorest" ones do put their savings in stocks, properties and the like?

The majority of people I know in their 20s, 30s with a decent income per month (I admit, mostly software engineers) don't do other thing than put cash in their regular bank accounts. No stocks, no properties. If any, they have a "savings account" that offer like 0.001% interests. This is in Western Europe.

If you have a steady income and significant savings (say, anything more than six months of expenses), and you haven’t invested a significant fraction of that savings in some growth-oriented asset class like stocks, you’re making a very foolish long-term decision.

I don't disagree. I just say that, in my limited life experience, most of my acquaintances do not have other thing than cash in the bank. These acquaintances are not precisely "poor".

> most of my acquaintances do not have other thing than cash in the bank

That's madness - I can't imagine why they'd do that. Their money would be rapidly eroding away.

But also - remember almost every professional has a pension, which is always invested, so yes almost every professional owns stocks and shares.

> That's madness - I can't imagine why they'd do that.

I think your confusion is in assuming that this is something you do rather than it being the status quo that receives no attention.

Up until recently I had about $80k sitting in a HYSA while interest rates on that account dropped like a rock. I only really noticed that after crunching the numbers and figuring out that was much beyond what I would realistically need. It took a few days to figure out what I could do about that given my income and employment situation.

I'm not sure how much of this applies to someone who is natively middle-class, but I find that part of the luxury of having a good income and a minimal lifestyle is just not thinking about money. If that's where your baseline is then you need some other motivation to scrutinize your finances. It comes more easily to me because I find it interesting but I can see someone without that drive just letting cash sit and being satisfied that the number looks big enough.

Here's a motivating way to think about it - if you have $100k in a bank account and you're getting 0 or next to 0 interest, you're effectively paying about $7.5k a year for that bank account in the first year, due to a guesstimate 7.5% long-term medium risk amortised investment return you missed out on.

Due to compound interest the amount you're effectively paying is going to keep going up every year. After 20 years the effective yearly fee you're paying for having that bank account is... $30k a year.

Maybe that $30k a year fee to store $100k is worth if to some people due to the government-backend security of bank deposits... but long term I think the dealer is always winning that game.

People need to learn about interest and compound interest in school.

And this is all before we even talk about inflation further eating into your pile. Money in a bank account is dead money - it'll rot away to nothing.

Can you please give some advice as to how to convert cash savings to a better yield investment? Especially in this current market where it “feels” to me (I am ignorant) that the stock market is artificially high. Maybe start to dollar cost average in to etf/mutual funds, to avoid a bad timing of “shift cash into market at an all time high right before it crashes”? Sorry for the ignorant question but the thought of cash savings eroding quickly while I don’t really know the best plan for it keeps me up at night. Cheers.

The US markets may feel artificially high to you, but a conventional modest-return, low-risk investment account that you can arrange with any high-street investment advisor is going to be extremely broad in their portfolio. The US markets that you think are inflated may comprise 5% or something of it. It'll also be invested in Asia, Africa, South America, and in different industries.

These kind of broad and boring investments always return about 5-10% or something like that a year. Occasionally they go down one year if there's a big bust up, but if you look over a ten year window it's always going up.

So why doesn't everyone invest in them if they're so dependable? Am I selling a get-rich-quick scheme? The reason is they're too modest for most people who are trying to get more like 15%. But those people take more risk - the kind of risk you're probably worried about.

And so why does the bank pay so little interest? Well they're getting that 5-10% from similar modest-return, low-risk investments (well probably a bit less less as they're more cautious)... and pocketing it.

I would recommend you to form a habit of putting some money into investments every month, not because of DCA or whatever investment strategy is the best, no simply because starting small and growing incrementally is a tried and true strategy for everything in life. If things go wrong you can always quit.

Since you will have to pay for housing in [local currency], and I'd usually prioritise housing higher than optimally growing wealth, I'd suggest you first hold enough cash to pay for housing as far as you need it - probably a lot longer than 6 months.

Your advice is fine advice, if you already own your housing and have savings on top of that, which many or most people don't.

The equities and real estate markets don’t exactly look appealing right now; I can either watch inflation slowly eat at savings while waiting for better market conditions, or potentially watch a significant portion of net worth evaporate when a mega correction occurs - which is looking very likely.

If your cash position is a one-time thing that’s fine I guess, but if you’ve been saying that for a few years (most people in that position do, not saying it’s you) then you’ve been losing a lot.

I’ve been constantly invested in index funds for 10+ years, never sold a position, including before/after March 2020. Some positions I have are up more than 200%. A crash of 50% won’t do me too much damage, I’ll still be way, way far ahead of the many friends I have who have been in cash since 2015, repeating your same “a correction is likely, I’ll wait for the bottom to get in”.

I have a similar approach: I typically have ~60% of net worth invested across index funds and tech growth stocks. But I’ve been building my cash position in recent months mostly via sale of said index funds and growth stocks (I was able to dodge the downturn in tech stocks in recent weeks), but also by simply banking funds that would otherwise have been put directly into equities. Now I’m reluctant to reinvest as I see significant risk in the market short term. I don’t intend to remain on the sidelines.

I’m beginning to question the maxim that “you can’t time the market”... sure, you’re unlikely to time the exact top or bottom, but an approximation can result in significant risk reduction and/or upside.

You sound like a surfer who is watching big waves at the shore and is waiting for "the right moment", but at any moment it's either too shallow for the surf board, or there's a big scary wave that's about to collapse.

The best time to start is today but you should never put all your money into something you don't understand. Start small and grow from there. You'll probably change your mind along the way.

> If you have a steady income and significant savings

Only the richest have 6 months expenses in savings. Majority live paycheck-to-paycheck

It depends on the culture. I also live in western Europe and in my community even the literally illiterate shepherds that I grew up amongst, have their money in stocks and bonds or intermediary funds.

Right now it doesn’t seem like a great time to invest. Although that’s been true for 4 years. In some sense it would be good if the powers that be would allow a market correction.

I think by most estimates the poorest half of the population have negative wealth, if that is true then inflation actually reduces their debt.

Unfortunately higher inflation comes with higher interest rates. So if you have "negative wealth" you are no better off.

Not necessarily. You've to analyze where your wealth goes to and where does the money goes to.

Even if you're one of the ones who benefit from 'getting the money first' (like, if you mortgaged a house with low interest rates) there might be nefarious consequences.

For example, right now I'm looking into buying a house through a mortgage that with less than 2% yearly interest. I'm going to pay the house in about 30 years if I never change the conditions of the agreement, and I can have 10 years guaranteed low interest rates. So you might believe I should be completely happy with inflation... Except what you don't see is the effect the inflation has in the overall economy, and also more immediately on my pocket.

The house is going to be about 5 years of my current gross yearly salary. If there wasn't this artificial easy credit through inflation, I could probably pay a lot less for the house and maybe even decide to continue renting instead because perhaps renting would be cheaper if people weren't holding properties to speculate and I had more money in general. Anyway, it's still a 25 years difference where I'm going to be losing a lot of money to inflation.

I highly recommend this: http://bastiat.org/en/twisatwins.html

That's not the case at all. All this "gold standart" stuff and BTCs claim is to preserve wealth and poor people by definition don't have wealth.

Let me tell you how poor's life looks like when things are alright: You have a job that is good enough to cover your rent, your food, your bills and the instalments of your phone and computer and you might put aside a little bit that at some time in the future you might use to pay the downpayment of an apartment or a car.

When there's a steep inflation, be it anything from Turkey level to Venezuela level inflation, your salary gets adjusted to sustain your lifestyle and you put your money in Gold/USD/EUR/GBP/AnythingMoreStable or property.

That's it. Poor don't get any poorer just because of inflation. If anything, if the inflation has accelerated the disposable amount of your salary increases in real terms since your loan payments remain the same most of the time. The lender usually incorporates this into the rates but every now and then the inflation can be beyond the expected and you may end up paying much less in real terms.

When the things are not alright, the inflation is irrelevant to you. Whatever little you have, you are going to spend it before any meaningful impact due inflation. Next time you get money, you will get more to match the increase in the prices.

How do I know? I have been there. I've seen an inflation where you cannot predict the price of the bread tomorrow and I have seen a stable inflation where you simply incorporate it into your calculation and you are fine. I've lived in 2 two countries that dropped 0's from their currency, one dropped 000, the other dropped 000,000.

The inflation bites when it is unstable and unpredictable. Then businesses cannot incorporate the inflation into their cash flow and the economy slows down due to risk and difficulties of doing business. That's when the poor are impacted hard because that's when they loose jobs and switch to "things are not alright" mode.

>your salary gets adjusted to sustain your lifestyle

Wait, did I miss the application for this or something?

>and you put your money in Gold/USD/EUR/GBP/AnythingMoreStable or property.

Unless it's illegal.

> if the inflation has accelerated the disposable amount of your salary increases in real terms since your loan payments remain the same most of the time.

So you have a choice: 1. Take a leap of faith your income will get adjusted to real inflation numbers and take a loan hoping it will get eaten by inflation, at the same time increasing the debt pressure on your income and your psyche. 2. Not taking a loan so having no instrument to even partly negate the effect of inflation and having no adequate alternative instruments to loans/mortgages to save the value of your income.

>Unless it's illegal.

If it's illegal that's not inflation's problem. You probably have dictatorship/controlled market problem. In any case, if there's a problem with the legal free market you use street vendors. That's how it's been done everywhere since ever.

You take a leap of faith that you will have this income for the foreseeable feature, why wouldn't you take a leap of faith that it going to be adjusted to fair market value?

If the economy is alright, you simply get paid you fair market compensation. When there's an inflation, you get adjustment.

Don't forget that inflation is not only for the chocolates and candies in the shop but also for the resources that businesses use and one of this resource is human resource, which means salaries are going up.

You don't think that at 20% of inflation businesses will end up with practically slave labour in few years, don't you? Salaries are always adjusted to meet the inflation. That's not because the businesses feel altruistic, it's because in a free market unadjusted prices create an arbitrage. If your salary is not adjusted, you go work somewhere else. Your unadjusted salary is some businessmen's opportunity to have you at no extra real terms cost(normally they would have offered you more of what you ear currently, now they can transfer you by simply giving you a fair market salary).

> Salaries are always adjusted to meet the inflation

This does not agree with the policy reason for inflation, which is explicitly to give labor class a silent pay cut:

https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

You missed the part about the economy doing fine. Anyway, salaries don’t stay static because people are not static - they age and get seniority, change jobs, get promoted, get redundant because technology and market changes etc.

It’s probably not the inflation that is eating in the wages in many cases. A lot of wages moved from established professions to software developers or moved from deindustrializing countries to China and so on. %1-%2 inflation is a noise regarding to changes in salaries. My grandfathers income from his profession did not perish due to the inflation but because of the proliferation of sneakers and cultural change that made sporty shoes acceptable in workplaces.

It's a "pay cut" to less productive work and a pay raise to more productive work.

> When there's a steep inflation, be it anything from Turkey level to Venezuela level inflation, your salary gets adjusted to sustain your lifestyle

Only at the lowest levels, where it has no relation to economics anyway: most governments will work to ensure that poor who have nothing to lose will not be pushed into long-term hunger; if they do, they revolt. So either the costs of the food and barebones medical care (broken bones, etc.) will be subsidized for them or the money will be bumped up.

There is a second group where this adjustment is likely to happen: Army and government workers. If you starve those, you quickly feel it. Everyone else gets to fend for themselves and is usually much, much worse off. I have also lived in a country going through hyperinflation and unless one is in a select group (likely linked to organized crime) one definitely does not get salary adjusted to sustain the lifestyle. In fact, the lifestyle one had usually crumbles. My 2c.

You are right but probably in your case there's a second component: Economy crumbling due to political instability or something of that sort.

Extreme inflation is not the same as the inflation we see in the western countries, it is usually accompanied with some turmoil therefore the salaries do get adjusted but they get adjusted beneath the inflation as the economy gets smaller. Once the stability is achieved, you can end up with an order of magnitude higher inflation that the rich western countries but have noticeable increase from year to year in terns of quality of life and access to import goods.

Probably my claims don't cover any case of hyperinflation because that always comes with other problems too, therefore you probably don't have a healthy economy in hyperinflation.

The poorest have a negative net worth, so inflation reduces their debt.

The next lot have some wealth in property and pensions. Property especially benefits from inflation as the remaining mortgage reduces as a %age

Now sue, if inflation is high and wages don't increase with inflation that does effect the poorest, but the poorest are screwed anyway.

Median savings account levels based on earnings:

    Bottom 20% of earners: $600
    20th to 39.9th percentile: $1,700
    40th to 59.9th percentile: $3,800
    60th to 79.9th percentile: $8,200
    80th to 89.9th percentile: $18,700
    Top 10% of earners: $62,000

> The poorest have a negative net worth, so inflation reduces their debt

Yes, and it helps those who got into debt some time in the past, and without this debt have a positive cash flow today; for example a graduate making good salary but saddled with old student loans.

But I think (although not 100% sure) most poorer people in debt do not have a positive cash flow even when not counting debt payment. They are getting deeper into debt because they spend more than they get. And inflation will probably push those people deeper into the hole: they are on bare essentials (cannot cut those; and they are getting more expensive), and their jobs are more likely to be cut.

Richer folks by comparison have many options to hedge against inflation, from property sprinkled around the world to commodities, precious metals in cold storage, inflation-resistant stocks, etc. My 2c.

The poor can only take high premium inflation adjusted loans. Inflation doesn't reduce the burden. The poor would generally make minimum wage ($7.25 in the US for about 15-20 years now). Same people who say there is no inflation call this "a starvation wage" never making the link between printing money and the wages pushing poor people into starvation. The poor spend most of their money on housing, food, medical and energy. All of which are massively up (6% up YoY average last week). Food and energy of course are ignored in headline inflation as a rule.

Only if you consider the poorest living in a mortgaged house that costs $800,000 with $720,000 left to pay while making $120,000 a year.

This is not valid for the poor people making $15,000 a year with $600 in their bank account. These people are losing a lot of wealth.

Debt is not that easily accessed by everyone! And when it comes at the cost of inflation as it often (or even almost always!) does, it's even worse.

They aren't losing a lot of wealth, they don't have it.

What you say doesn't make any sense. For someone poor with $50 of savings, if they lose $5 it might not seem much to you, but it might be to them. It actually is a lot of money if you're considering someone really poor, especially in poorer countries.

I assume you're probably in the US and think that making money is as easy as it is for most people there everywhere. No, it is not easy for everyone, and not everyone lives in the US.

Who exactly thinks that inflation is going to happen? The nytimes had a crazy article the other day (well they have one everyday about inflation it seems), where the “inflation fears” are attributed to wall street and political commentary. Yet the article ends with Jamie Dimon (quoted throughout the article) saying, “I dont really think we should worry about it.”

Also there’s a perfunctory mention of gas prices but nothing about production. I could go on about how bad the article is.

Give tax breaks to the rich and we hear nothing. Give working class and poor people a few thousand dollars and we get to hear about all their moral failings: the money will be spent on GME! Some people just saved their stimulus (NPR)! Inflation!

The source of all this hubbub seems to be, checks notes: Larry “women cant do math” Summers.

https://www.nytimes.com/2021/03/10/business/economy/inflatio...

Jerome Powell last week:

“But I do think it’s more likely that what happens in the next year or so is going to amount to prices moving up but not staying up and certainly not staying up to the point where they would move inflation expectations materially above 2%.”

I find this incredibly hard to believe personally... I think the 2% projection is bogus, and find it unlikely that prices will magically just come down following this anticipated inflationary event?? Have we ever experienced that outside of very subsidized markets?

https://www.axios.com/federal-reserve-powell-inflation-3061f...

Bogus in which direction? The Fed has had a 2% target rate for the last 15 years, I think, and has only exceeded it for a handful of quarters. Under what theory would giving people a few thousand dollars push it over 2% for any extended period of time?

So Powell is saying there are no inflation fears!

Edit: I've never heard of "breakeven" rates, sounds like a betting market. Forgive if I don't believe that rich investors can actually predict this stuff. Again, what track record do they have?

People on the right need a boogeyman whenever (poor) people get a benefit, to scare them lest they lose the will to work.

So lately it's been inflation (not the deficit now that it's paying for tax cuts for the rich).

Meanwhile a deflationary spiral is truly scary, but it doesn't sound scary (my money is worth more!) so these people don't focus on it.

It’s not even “the right”! The narrative is uniform from NyTimes and onward.

Actually yes, all the damn time.

The deflationary forces at work in our economy greatly outweigh the inflationary forces even in the face of massive fiscal stimulus and easy money policies.

In fact I predict as a result of the workplace changes enabled by forced work from home during the pandemic these deflationary forces will accelerate and put even more pressure on wage growth (which is by far the biggest influencer of consumer inflation).

We are already seeing the first stages of this with an exodus of knowledge workers out of high cost of living areas. This is merely the first stage and these early movers will reap a temporary benefit of carrying their existing salary to a lower cost area but the long term impact is companies will now freely hire from lower cost areas and as a whole depress prices of labour.

Not to mention the emphasis this places on digitisation of processes that results in increasing efficiencies (read less employees, especially low skill ones) and economies of scale.

I think the future of inflation is headed one way, to the absolute dumps for the foreseeable future with perhaps a tiny bump to 3-4% during Covid recovery. Long term I see the Fed actually struggling to keep things hot enough to run inflation up to their target without stepping in to force wage growth and labour competition up.

A lot of people think the Fed already has problems seeing as how they barely ever hit their 2% target! Their tools don’t seem to work already!

That's an interesting idea, but I'm not sure that will counteract the natural competition for talent, and for less desirable skills locality doesn't seem like such an issue (ie you can find relatively mediocre talent in most places).

One problem with the current form of monetary policy is that it is "pricing out" people. Now that asset prices are higher you have to cut back spending to afford the increased prices. This is especially important for people who are saving for retirement and those who want to buy a house with a mortgage.

I personally see myself falling into "traps" where I cut back on spending because it is easier to make money from investments than from actual honest work. Sometimes it is even circular. I invest more so that I can afford consumer spending in the future even though buying the thing I need is is not out of reach for me.

Prices don't need to come down, just stop going up. Given the current state of the economy there's no evidence that this level of stimulus is actually inflationary.

But there are many tools that the Fed has to tame rising prices. It could suck liquidity out of the market by selling their massive collection of bonds, or just raise interest rates.

It's actually very unlikely that the Fed would have to do much of either of those because just the threat would have people acting very differently in terms of lending, investment and hiring/pay rises.

Global stock markets drop as inflation fears prompt sell-off

https://www.theguardian.com/business/2021/feb/26/global-stoc...

Inflation Fears Will Settle, But Only If Growth Continues

https://www.forbes.com/sites/randybrown/2021/03/11/inflation...

Inflation fears hit markets as Fed sticks with low-rate policy

https://www.spglobal.com/marketintelligence/en/news-insights...

Ok, so Jamie Dimon says not to worry and Jerome Powell doesn't see the US exceeding 2% target rate for an extended period of time.

Your Guardian link is about the market (!= economy) and quotes "Andy Haldane, warned that an inflationary “tiger” might be on the loose"... so one "might".

Your Forbe's link says, "Could this debt buildup and related deficit spending push inflation and rates significantly higher? Developed economy experience suggests the answer is no. Over the last two centuries, wealthy democracies have generally succeeded in preventing capital flight." And it has a sub-section entitled "Corrosive Inflation Is Fairly Rare".

Your third link has a quote, ""The market's still trying to figure [this] out, myself included," said Dominic Nolan, senior managing director at Pacific Asset Management". Ok... so a money manager admitting he's still "figuring it out".

What is the point of these links?

Does anyone have a simple back-of-the-envelope calculation which shows that $1.9 trillion is "wrong" for inflation? If so, I haven't seen it. Instead we just get to read about the id of money managers (and probably classmates of the journalists).... barf...

And I would ask you to do your own calculation. Is a few thousand dollars per family going to materially change the nature of their chronic underpayment (relative to productivity increases of last 40 years)?

The point is that 8 in 10 only read headlines, and there are many headlines saying about inflation fears, which embeds in peoples subconsciousness and is then used by politicians and commentators to manipulate

It's really no joke that these sort of memes are pushed through every form of media until they dominate the debate. I wish there were newspapers that published my fears every morning, but would be cited in "serious" company as evidence of the reality of those fears.

> Larry “women cant do math” Summers.

This is such a gross misrepresentation of his statement that it makes me doubt every other point you’re trying to make.

I know, if you overlay two Gaussians with different means and standard deviations... I get what he was trying to say (not that I agree the situation is so simple). Yes, I was being sarcastic.

But to redirect, the point of my sarcasm is: what sort of track record does he have at predicting these things? He's the one who gave us a turd stimulus last time. And now he's putting his views on stroll again, why believe him?

https://www.theguardian.com/commentisfree/cifamerica/2012/ja...

History hasn't treated him nicely and virtually no one is backing him up this time. And if he's so good at math, then what is the mechanism by which a few thousand extra dollars per family will lead to long term inflation problems? The whole thing is farcical and reeks of class warfare.

That hardly matters when you're talking about one of the all time greatest crooks who got away with it (and still does) [1].

[1] https://prospect.org/economy/falling-upward-larry-summers/

I would recommend this article for less diatribe and more facts. [1]

The summary of either though is that although the government is printing money, that printed money is not chasing goods and services. Even government checks direct to taxpayers are largely ending up in financial instruments: paying off debt or rent/mortgage.

The article I linked differs in believing that there are short-term inflationary forces as the world adjusts to COVID due to changed consumer patterns and disrupted supply chains. This is mentioned in the submitted article as well but is dismissed in a one-sided way.

Note that many on HN are confused or offended by the title of the submitted article because asset inflation is happening now. But the submitted article defines inflation as consumer inflation.

I am just as concerned about the consequences of money printing as anyone on this forum, but it does seem to have a much more minimal effect on consumer inflation then our intuition would lead us to believe (depending on how it is implemented). Japan would be a good example where a lot of money has been printed but never put into circulation: it may be causing problems, but consumer inflation is not one of them [2].

I am now more concerned about how our monetary policy appears to ensure large trade deficits and thus be the cause of the decrease in manufacturing in the US and perhaps a much bigger cause of wealth inequality than the normal money printing. This is explained in this very long article that is well worth understanding [3].

[1] https://www.epbmacroresearch.com/blog/the-money-supply-myste...

[2] https://www.lynalden.com/economic-japanification/

[3] https://www.lynalden.com/fraying-petrodollar-system/

So the NAFTA whiners of the 90s were right?

https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta...

Unfortunately it has little to do with NAFTA. The naive American view of trade is that goods are cheaper to produce in other countries so all production inevitably moves there.

What is supposed to happen in a global economy is that currencies strengthen and weaken to exert a balancing effect on trade. Because the dollar is the global reserve currency there is an artificial demand for dollars so the balancing never occurs.

We have a monetary policy that is the invisible hand shaping the entire US economy. The massive trade deficits it caused are now leading to populism and civil unrest. And yet there is no discussion of this root cause and almost no awareness of it.

I don't understand, how does this have "little to do" with NAFTA? Whose naive view is it that production will move? I mean, call me naive, but we could also make laws that say production won't be moved.

The monetary policy works hand-in-hand with NAFTA and immigration policies so that capital is free to wander the globe, sloshing around and popping off asset bubbles while workers feel the boot. Again... my naive view.

I agree that trade is required for trade deficit and freer trade (e.g. NAFTA) is an accelerator. I say "little to do" because to me the important issue is whether we have a system where the currency ensures trade means trade deficit or a system where currency helps to balance trade.

A shorter version of your last ref.

https://www.theguardian.com/commentisfree/cifamerica/2010/oc...

"[....]If the dollar is high and therefore buys lots of foreign currency, then imports are cheap. This means that we will buy lots of imports.

"If we have low exports and high imports, then we will have a large trade deficit. End of story. We can train our workers to be more productive, urge our firms to invest more and try to improve our public infrastructure, but realistically, none of these factors can come close to offsetting the impact of a currency that is 20-40% over-valued. A severely over-valued currency virtually guarantees a trade deficit."

Yes, your quotes from that article are spot on. The article itself though seems to otherwise be tilting at windmills: I would encourage everyone to review my longer reference.

Probably worth some context... the author very often writes about plan B Scottish independence, which calls for swift escalation of the independence process, including the economics. For example establishing a new currency in months, rather than the years more established economists advise might be less risky.

MMT is pretty popular with plan B movement, as it offers a speedy solution to things like deficit, austerity measures. Inflation is the main restricting factor on money printing, so those who want to rush into independence are always quick to downplay inflation risks.

> Remember that the inflation that we are talking about is that with regard to consumer prices, which is often related to wages.

Or we can use the traditional definition for inflation, the increase in monetary supply not an increase in price. Monetary inflation is very real in 2020 and 2021. A global increase in prices is a potential consequence of monetary inflation but it’s not mandatory. Monetary inflation is always bad from an economics perpective and always ends badly. We always try to forgo lessons from the past but this is very economy 101.

The traditional definition? What?

"In economics, inflation (or less frequently, price inflation) is a general rise in the price level in an economy over a period of time."

https://en.wikipedia.org/wiki/Inflation

Webster 1983 definition of inflation:

“An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand.”

Hence the use of “traditional definition” wording. Which matters for example in classic readings of economics books. One can argue that the switch in definitions is more a political view to excuse printing money and not backed by any economics reasonings.

Ref: https://inflationdata.com/articles/2010/07/21/real-definitio...

I was not impressed with the article despite his status as a professor. For one example, he either seemed to have a very basic understanding of price elasticity of supply or he dumbed the article down to the point of being not possible to understand what his argument is.

He also seems to not truly understand the scope of quantitative easing that has gone on. The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet:

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

And setting the bank reserve rate to 0% from its normal 10%. There are literally tens of trillions of dollars of stimulus that have been created. This money is finding its way into everything except ironically the items that are tracked by CPI.

When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands.

https://coinmarketcap.com/currencies/dogecoin/

> The $1.9 trillion in stimulus just passed in the US is a drop in the bucket compared to the Federal Reserve’s unprecedented $7 trillion balance sheet:

Not at all. The Fed's balance sheet expansion is widely believed to be ultimately temporary, to be wound down over time once conditions normalize. Moreover, its expansion has all taken the form of collateralized loans, which is why the linked graph is of the asset side of a balance sheet.

Fiscal policy, however, does not create any such assets owned by the Treasury. The required deficit spending is fundamentally unsecured, uncollateralized credit, even though the US federal government has an excellent credit rating.

> This money is finding its way into everything except ironically the items that are tracked by CPI.

You could also look at the GDP price deflator (https://fred.stlouisfed.org/series/A191RI1Q225SBEA), which doesn't have a basket-of-goods problem, and see similar trends.

> When a crypto currency created as a joke reaches a market cap > $7.5 billion you may have an inflationary bubble on your hands.

No, it's a speculative bubble. Very different.

Dogecoin was created as a joke, but as money Doge is a lot more sound than any fiat currencies out there.

It's not that Doge is a bubble. The bubble is the US Dollar. (insert Doge meme image here)

>This money is finding its way into everything except ironically the items that are tracked by CPI.

You do know that the sole goal of the fed's monetary expansion is to raise CPI inflation? So by that measure the Fed is an absolute failure. It never created inflation.

I doubt anyone will read this but my take is that in the current system they actually do need to print money to solve the liquidity problems but that creates other problems.

It's like everyone is thirsty, but people (and large companies) keep hoarding water. They have some giant taps that they can turn on. So they do.

But the issues start with the fact that money is debt, and only a few well-connected countries are able to print money and get away with not having to pay it back. That is a great injustice, and it leads to a type of domination and poverty.

I feel like the solution is for money to be more sophisticated. It needs to be tied to distributed resource tracking and regulated in a more sophisticated way. This was totally impossible before but with new decentralization technologies it is.

One crazy idea might be to have very good public food production data based on ubiquitous data collection protocols that can be analyzed by many people. Then have a type of money that is specifically for ensuring food security. And another for housing security.

All of these types of things are only really feasible if you have a functioning government that you can trust. That is probably the hardest part.

In effect we somewhat have this kind of system with Food Stamps and housing vouchers -- "currencies" that are restricted to certain types of expenditures. Also of course there are advocates for education vouchers. Etc.

Unfortunately these targeted systems have been studied and results seem to be better if we just give people unrestricted grants. Slicing and dicing the money ahead of time seems less effective than letting the recipients decide.

Vouchers and food stamps are similar to what I was proposing, but not the same thing. One aspect is that they are not digital currency. Another aspect is that there are particular constraints on reception and difficulty applying for them. Another one is that there is no comprehensive resource tracking such as housing availability. Additionally the amounts are very minimal. They are a very low-tech nod in that direction, but have not in any way disproven the concept.

I'm all for things like universal basic income also. But again, the old-fashioned monetary system we have now and poor resource tracking do not permit universal basic income. Because for one thing it doesn't work properly unless its truly universal and there is not sufficient government revenue to support it.

Money printing makes the rich richer and the poor poorer. The world consists of stuff. Money is used represent it. Make more stuff, prices go down. Print more money, prices go up. If you already own stuff, it's worth more money. If you don't, you may never be able to afford it.

If you're lucky enough to ever get a raise, your income tax may rise, whereas, the capital class has their gains tax deferred, only paying at sale, and at a lower rate! Join the capital class as soon as you can, because it's the best way to get rich and stay rich. By the way, the concept that inflation benefits most those that receive it first is called the Cantillon effect.

Pull yourself up by your bootstraps? The good news is, saving and investing is how the rich stay rich, and they don't have any better access to the best assets in the world than you do. Thanks to cryptocurrency. Bitcoin, Ethereum and even one I founded have all given thousands of % returns. If you're tired of people printing out of thin air, that which you have worked so hard for, we've got p2p open source solutions for that which do even more than just raw accounting.

Where are these thousands of % returns coming out of, if not out of thin air?

People switching their value storage from a crappier system to a superior system. It's all just an analog for the stuff that actually matters, which is goods and services.

Thank you for bringing up the Cantillon effect it is a concise way of describing how QE drives inequality by giving money to the wrong people first.

The problem is that now everyone is focusing on the free money to be had from the stock market. When you think about it the primary way monetary policy helps economies get out of a recession is by giving everyone employment. QE causes massive asset appreciation. In other words it is keynesian gold digging except you are not compensated by how much work you are doing, no, you are compensated based on how many financial assets you already own. That's incredibly backwards because the entire reasoning behind hacks like keynesian gold digging is to give the poorest parts of society money so that they can spend it and revitalize the economy. Poor people don't own lots of Bitcoin or Tesla stocks or whatever else is exploding in price so they never benefit in the first place. However, those who are on the margin with barely enough savings to put into assets will see 3x or even 10x gains and might even decide that this is a better way to spend their time instead of doing productive work.

I have seen people yolo their student loans into GME with this exact reasoning. They do it because they believe they won't have to finish college if they make it.

The financial system is a fraud. It doesn't make sense that you can keep borrowing money to pump up the value of a speculative asset and then use this growing collateral to borrow even more money to pump up the price of that asset even more and repeat ad infinitum.

It's extremely frustrating to have to participate in a system which is run by a mix of rich crooks and rich idiots. It's obvious that it will all end in a disaster but in the meantime, massive talent and decades of people's lives are being wasted away to cater to a bunch of manipulative crooks.

Keep in mind that inflation is most likely to have an "hedonic adjustment" in your country (I presume the US) too.

When you look at differences of prices from decades before, in my country you can see that electronics got much cheaper in general, but basic stuff and real state go more expensive, while salaries barely changed.

If you speak spanish, Pablo Gil explains it well in his videos.

New Which? research shows that in the UK we actually spend less on food than previous generations did, and many popular foods are cheaper now than they were 30 years ago.

In the 1950s we spent a third of our income on food shopping, but in 1974 this had gone down to 24%. By 2016 food shopping accounted for just 10.5% of our income.

https://www.which.co.uk/news/2019/11/heres-how-our-food-pric...

So food prices have collapsed, electronics too, what 'basic stuff' is left?

Housing, healthcare, education.

And infrastructure

I would argue that food is also much less nutritious these days, and far likelier to lead to health problems down the line.

Ready-made/highly processed foods and "empty calories" (fast food, snacks) are, at a guess, far more common these days, and also far cheaper than the healthier alternative to snacks.

Natural produce is also missing a lot of its previous taste, texture and smell. I know for a fact that there is a world of a difference, during the season, between a tomato from a random Italian supermarket and a British Tesco "Value" tomato. I will be drawn to eat the former without so much preparation as even washing it; the latter I will have to force down my throat and eat it with ketchup to mask the papery texture of the flesh and add some taste, any taste at all, so that I can sense I'm eating something.

Gluten intolerant and/or lactose intolerant parts of the population are also basically screwed. I am both, and most food that has an ingredients list longer than 5 lines is poisonous to me. I am left with either the more expensive "free from" foods that skip one or both of these ingredients (and costs Nx what the usual version does), or buying single ingredients to cook my own food from scratch.

If one wants to have an actually nutritious diet, then the cheap "food" being offered today ain't gonna cut it.

If inflation’s not a threat then moving away from inflationary assets isn’t a threat either. And that’s precisely what lots of people are trying to do right now.

From the article:

> The first of these ideas says that if demand for a product rises and the supply does not then its price is going to increase. Economists would say this is so basic that no one could really argue with it. So let me do so.

First, this assumes that there are no alternative products available. The reality is that there usually are. Few things are so essential now that this is not the case. Secondly, this assumes we will not wait for what we want. We often will, and that smooths demand.

That buyers may choose alternative products, and that purchases may be deferred, both seem to be valid observations to me, but neither amounts to an argument against the proposition that the price of a product will increase if demand for that product rises and its supply does not.

If buyers purchase alternative products, or defer their purchases, then they are not buying the product in question, and demand for that product therefore does not in fact rise.

The author appears to be trying to criticise an orthodox prediction in economics about what will happen under certain conditions not by — as he suggests he is doing — arguing with the logic of the prediction, but instead by asserting that the conditions the prediction applies to do not arise.

Regardless of whether his conclusions about price inflation make sense, he does not actually make the argument that he purports to.

The author covered the arguments for why QE is not inflationary well. However, they failed to address how government spending and fiscal stimulus (which is vastly different from QE) is not inflationary.

I agree that QE causes asset price inflation but normally does not cause much consumer price inflation. However, I believe government spending and fiscal stimulus most certainly will.

Massive amounts of government fiscal stimulus is used to combat deflation, which it seems to do well, at least initially. The threat of deflation is usually caused by a slow in monetary velocity. But when monetary velocity returns inflation is likely to increase at a rate greater than we would see without any stimulus. The whole idea of it seems to be to combat deflation with inflation. So if that is not inflationary then why are governments around the world doing it? And why are we to assume them to be infallible and that they know exactly what the proper medicine is for a broken economy?

I think it's wreckless to dismiss the possibility of inflation when we have already been seeing it in the dramatic decline in the purchasing power of consumer goods by fiat currencies for decades.

I didn't get too far into this article because the writing was so stilted. Then I realized it was just a series of tweets merged together without much of an attempt to clean it up. Not a good way to explain something as complex (and polarizing) as inflation.

>The government is forecasting that businesses already overburdened with debt because of Covid are going to borrow at near record amounts to fund investment and I can say with near certainty that they won’t be, because banks will not be lending, and that ends that suggestion then.

Banks will be lending, they will have to because they need to get the cash (printed by the central banks) off their balance sheets. They will do this by lending left right and centre.

Wages will probably lift as well because there are several structural skills shortages in the economy at the moment - due to Brexit and some other factors.

The way monetary policy is implemented dates from the 1930s when banks' main business was lending money to businesses and people to build stuff. That money went directly to the hands of people who used it to buy tangible goods and real services. Since the repeal of Glass-Steagall in in the '80s, banks and financial institutions have started using money creatively to invest in other financial products. They realized that the best return on investment is actually, investing. So now whenever the Fed loosens monetary policy, we have more money chasing the same financial instruments. As a result, we see inflating stock prices (bubbles) but no inflation in the real world. Furthermore, if this pattern existed when Jimmy Stewart played his role in 'It's a Wonderful Life', we would still be in the same depression with poverty, disease and scarcity ravaging the nation. In fact, we are headed that way as our infrastructure ages and fails and we continue to outsource jobs that could be done by the unemployed here in the US.

The solution is to make a law that requires money from financial gains(capital gain, interest income, etc)only spendable on real goods and services. In other words, we need two kinds of money. Real money that comes from profits of operations invoilving tangible goods and services, and 'another kind of money' that comes from financial gains. This other kind of money could be tax free (no capital gains, no income tax, etc) but would be restricted to the purchase of real goods and the employment of people in non-financial service sectors.

Asset inflation is the cause of income inequality. That’s why it has been a huge problem especially during Obama’s time until now. It’s 100% the fault of the Federal Reserve but they refuse to take blame.

Lower income households cannot accumulate assets. But the Feds policies have created asset inflation and not CPI inflation. So the lower income families can’t complain they can’t buy food, but they can’t buy anything else like a house.

They can’t compete against anyone unless they start investing in assets but they can’t.

Meanwhile in Silicon Valley there is so much wealth it’s reached critical mass. House prices are a joke because anyone who has stock compensation has made a ridiculous amount of money.

The difference between asset accumulators and those that don’t is stark. My wife and I have become multi millionaires in the last 5 years because our house and stock have gone through the roof. My friends without stock don’t have as much luck and are in the same position as before but no ability to buy anything. I mean for Christ’s sake my comic book collection value has quintupled for no good reason except people chasing assets.

So of course you won’t see inflation in assets because the Fed is burying their heads in the sand over it.

A simple thought experiment:

- Suppose you are spending 90% of your income on day-to-day expenses. Your margin of survival is 10%. Then there is 2% inflation. Now your margin of survival is ~8% which is a ~20% decrease.

- Suppose you are spending 20% of your income on day-to-day expenses. Your margin of survival is 80%. Then there is 2% inflation. Your margin of survival is still ~80% which is a negligible decrease.

For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement), and not catching up for the labor class is a policy feature: https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

> Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment...

> For those who will say "wages catch up". They don't catch up for people on fixed income (welfare, retirement),

In the UK the state pension is pegged to increase by at least CPI or wages, there's no economic reason not to peg welfare or retirement to CPI, just a political one.

how do you peg retirement to CPI? Where is that money coming from?

State retirement the government simply increases it (as in the UK)

For private retirement you buy an inflation linked annuity

"government simply increases it"

print more money, cause pain for everyone who isn't privileged to work for the government.

"inflation linked annuity"

socialize the risk for big businesses/municipal debt (inflation linked annuities are often bundles of investments that can produce a yield that matches inflations, you can't magically create these things)

Inflation is a tool to push wages down, you can collectively bargain against labor with inflation.

If you are in the owning class, you want wages tied to a currency and not the CPI. And you want a steady form of inflation that you can account for, while labor costs can drop at 2% plus per year.

> Inflation is a tool to push wages down, you can collectively bargain against labor with inflation.

And labour collectively bargains to ensure pay remains on track with inflation, so no problem

Working As Intended.

Inflation is a tool to increase future wages at the expense of past wages.

The statement needs to be quantified: not a threat ONLY IN THE SHORT RUN.

Yes you don't see it on your graphs right now.

But IIRC 20% more money was printed by the fed for covid.

Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low.

We won't see anything on the graphs as long as V remains low.

However, as soon as they reopen and operate closer to their normal capacity, velocity WILL rise. When that happen, inflation WILL rise.

There's no magical way to wish inflation away. We will eventually get 20% inflation. The only question is how soon.

Yes, central banks may plan to have 2% per year for 9 years (19.5% inflation) if somehow they think business will not be able to catch up immediately (a closed restaurant will not get as many clients when it reopens) which is plausible.

However, I don't buy that, because 1) we are talking about 9 years, while the closed restaurant example will take more like 1 to 2 years max to work at normal capacity again 2) it would require TREMENDOUS discipline: no QE whatsoever for 9 years - which is politically impossible if unemployment rises for whatever reason (say the aftermath of a bubble, or a crisis due to malinvestment fueled by the low rates) 3) it fully ignores the rebound effect: deprived of social contact for too long, more people than usual will want to go to bars and restaurant - at least at first

I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022)

> Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low.

This theory was put to the test between 2007 and 2019, where the Fed greatly increased the monetary base during and after the financial crisis. As it turns out, the velocity of base money was much more flexible than assumed, and the monetary base remained greatly increased (about 4x its pre-recession level) without excess inflation.

In comparison, the covid-related increase to the monetary base has been less than a doubling (see https://fred.stlouisfed.org/series/BOGMBASE).

> I personally envision 5 to 7% inflation when things return to normal in the US (so schoolyear 2021-2022)

If you really think that, then go to a broker, buy TIPS (inflation-protected securities), and go short nominal bonds of equivalent duration. The five-year breakeven inflation rate (US) predicted from these bonds is about 2.5% (https://fred.stlouisfed.org/series/T5YIE), so if your views are correct you would make a mint.

Great point about TIPS! Effectively everyone who's arguing that we're in for catastrophic inflation doesn't trust the wisdom of the market as much as their own reasoning based on Economics 101 models.

I wonder what that tells us?

>Unless you can refute modern economic theory, we still have PV=MQ, and the only thing saving us from inflation at the moment is the low velocity of money: in lockdown or with most high velocity businesses closed or operating at a fraction of what they did before (ex: bar, restaurants), the velocity will remain low.

Actually this is an argument in favor of inflation and yet it failed to materialize. Stagflation is what happens when the central bank keeps creating more money and businesses are unable to meed the demand by expanding production. If such a supply shock fails to create inflation then almost nothing will.

Conveniently the author excludes house prices from his definition of inflation.

Because that is not "inflation". There is another economic term for that phenomenon, and conflating the two only creates confusion:

* https://en.wikipedia.org/wiki/Economic_bubble

Inflation/CPI is (roughly) about the cost of living determined via a basket of goods and services that one needs on daily/weekly/monthly basis. Financial assets are not needed to live: the bottom-half of US wage earners have no/little financial assets and yet are effected by inflation when they go shopping.

And while shelter is, it is taken into account via rent or rent-equivalent (mortgage carrying costs):

* https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

I'm not sure where and when the idea of financial assets being included into the concept of inflation started, but it's a first world 'problem' of the wealthy.

Don't average people buy houses? It's a bit of an artificial distinction to exclude them.

Inflation is also defined as expansion of the money supply (monetary inflation), and mortgages are a major source of money creation - the rate of this process being closely related to house prices.

> Don't average people buy houses? It's a bit of an artificial distinction to exclude them.

When an average person buys a house and lives in it for a decade, they still have the house.

Inflation is defined by consumption expenditures. I buy food, eat it, and no longer have that food to sell. I pay the power bill, having consumed power that cannot be resold.

The consumed portion of housing is rent. And that is included in price indices; statistical agencies have to go to the trouble of modelling an owner-equivalent for owner-occupied housing.

If you're still concerned about the technical definitions of what goes into a consumer price index, then you have plenty of others to choose from. The GDP deflator (a price index based on everything produced in the economy) shows trends very similar to the consumer price index over the medium-term.

> Inflation is also defined as expansion of the money supply (monetary inflation),

And those two concepts are not in fact equivalent. Going from an observed change in the money supply to changes in prices requires more intricate assumptions about how the economy works. The same money-supply increase can cause an increase in price levels in one country (say Venezuela) rather than another (the United States) depending on beliefs about permanence and the background state of the economy.

Taken into account; see the BLS.gov link.

* https://awealthofcommonsense.com/2020/07/mortgage-rates-are-...

Some places have negative mortgage rates:

* https://www.theguardian.com/money/2019/aug/13/danish-bank-la...

Homes seem to have had consistent carrying costs over the decades, and that is what determines the CPI. Yes, prices have gone up, but (a) interest rates have dropped, and (b) people are getting a lot more housing for their money (e.g., (average) square footage up).

Uh, mere growth in asset prices is not a strong indicator of a bubble. How much would property prices have to decline for this asset class to no longer have supernormal returns for the past 20 years? Do you actually think that that's going to happen?

> onveniently the author excludes house prices from his definition of inflation.

Beause that is appreciation, not inflation. Investment vs. consumption. If you bought Tesla stock at $100, and now it is at $200, that's appreciation. If the price of a kWh of electricity goes up, that's inflation.

Asset appreciation is exactly the word I was looking for!

Asset inflation has the problem that it's not the asset that is inflating. It's dollar inflation in relation to the asset in question. Asset appreciation is the exact same concept with terminology that cuts straight to the point.

But it isn't the case (asset appreciation as hidden dollar inflation). Assets among practically all classes appreciate, but consumptive commodities don't. So it isn't devaluation of the dollar, but really just appreciation of the assets.

Expansion of M1 alone doesn't make inflation[0]. For inflation to occur one also needs rising wages across the board and thus more demand than supply.

What the US (and to a lesser degree many European countries) experience is the result of decades of stagnant wages means more than half of the population is decoupled from the gains of asset appreciation, but the assets themselves actually behave more or less normal. Have a look at the last 100 years of stock growth, for example: https://www.macrotrends.net/2324/sp-500-historical-chart-dat...

The asset prices don't really rise (much) faster than in previous decades! The current trend is pretty much identical to the growth between 1980 and 2000.

[0] Otherwise we would see it all the time, because the money supply is theoretically infinite already, without QE, because banks are actually the instutions creating new money via credits they offer. It's just that banks were frightened and stopped giving out credits post 2007/8, which created an illiquidity that QE tried to compensate.

Some of the most interesting research on inflation has been done in MMORPG's lately. Since all the currency is digital there is a strong inflation problem and the solution has been largely to have a technique called "Gold Sinks" where they create very expensive items to use the currency for thus taking a large chunk of it out of circulation. For some who believe that since we've shifted to mostly digital currencies now (since banks just shift numbers in a database to increase or decrease what's in an account most of the time) they could argue that the mechanics of paying taxes is to actually act as a gold sink instead of actually shifting money to government (since they just give themselves whatever unlimited money anyway).

I'm not sure what to believe about this, but the deeper I look the more true it's becoming I think. Especially since money isn't so much being printed as just created in a database somewhere.

If you want to see an economist repeatedly criticise Richard Murphy on a regular ongoing basis, I recommend https://www.timworstall.com/category/ragging-on-ritchie/

"I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason.

Only two reasons are being given. One is that there is going to be excess demand after coronavirus. The other is that there will be a shortage of supply of goods and services in the economy to meet that demand. My argument in this thread is that neither is likely."

I like how neither of these addresses really shit monetary policy, like over-production of currency. This entire analysis assumes the Fed doesn't end up forced to monetize several trillion in debt over a couple years.

As Bastiat once said, there's a thing that can be seen and the thing that cannot be seen.

Maybe parking ticket will be the same 1 pound as it is now.

The UK's bill out of this will be ± half trillion pounds over coming (3 ?) years. Rishi Sunak is already rising taxes, they will raise them even more.

So even if "optically" the prices will not grow, you will do the same amount of work, create the same amount of value, but after HMRC taking their cut, you will end up with less quid in your wallet. You will be able to buy less.

And paying of all this will take decades. If it is a whole career, whole life, it's equivalent of permanent inflation.

Or did anyone think they can just print money without raising taxes? Come on!

I think the biggest problem we face right now as a society is that many people think "I'm getting everything I need right now so I'm not going to complain" but they don't realize how fragile the economy is becoming and that they're basically signing away all of their freedoms. Allowing their salaries and negotiating power to silently inflate away into the hands of asset holders.

It's not just their own freedoms that they're giving up, but also that of others who are currently struggling. Don't be surprised if society is divided and becomes increasingly divided. Sooner or later, it's going to get ugly.

The author nails it in that inflation alarmists really hate the state. Inflation is really the cost of MMT and our modern state power. Central banks, whether intended to be separate or not, are the backbone that every state is built and funded on.

They also have issues with taxation. Taxes are largely used today to take money out of the economy and control the purchasing power of currency.

Most people having any awareness of the underpinnings and reason that our money is the way it is. Like the fish asking, "what is water?"

Money is still evolving. If these central bankers and tax collectors push people too hard, something else may emerge as money.

Inflation won't be a problem for a long time. There is allot of slack in the labor market. The article states there are about 10 million people in the UK who would like a new job. That is a small fraction of the hundreds of millions in the rest of world who are looking for work. Until a nearly all of them have a good job, wages will stay low. Eventually there will be more jobs than people who want them, in 50 years or so. Our current monetary system won't work in that world, but I will be too old to care.

Well, I’m only worried that interests go up because “governments have to fund themselves on the market”. This would mean sabotaging the post-COVID (and post Austerity) stimuli by preventing the middle class from accessing sane mortgage financing.

I understand the QE excess needs to be somehow removed from the market, but the proper way should be through increasing upper-percentile taxation. This way competition dynamics are maintained without making the weakest pay for all the admission price

Of course CPI is declining if the definition is this (and probably similar in every other country):

https://en.wikipedia.org/wiki/United_States_Chained_Consumer...

Totally wrong definition of inflation. Inflation of money supply is a driver of higher prices. But inflation is not higher prices themselves. Inflation is same as debasing currency and stealing purchasing power from the people. It’s a stealth tax and a trick. Can’t work forever.

The problem with deflation is that it literally can last forever.

I don't understand, if any country HAS to print money, why not via direct payments to the public?

The usual argument for supply side stimulus is that everyone spends most of their money. So if you give businesses money they will produce more things and grow the economy.

The problems start when people are too poor to afford those additional products and companies simply stop investing into growth because they can't sell their products. Once you reach this point, giving them more money does nothing.

Downplays inflation risks of governments printing money, but does point out this aspect:

“...many households are deeper in debt now than a year ago. Many more just got by. But the best off just got richer. That’s what QE does.

This bias to the already wealthy within QE was not by chance...”

Inflation is only an issue for you if you have cash (or equivalent) that will devalue or plan to take mortgage that will be expensive if subsequently the inflation falls.

The way the economy progresses these are going to be less and less problems for normal people.

I spent all my savings on magic the gathering cards that ended up going up 1000% thanks to all the money printing keep it up and I'll be able to retire before I'm 40!

In Fareed Zakaria's book The Post American World Order, he makes a great point that India (services) and China (goods) have been deflationary for certain goods/services in expensive economies. If you think of CPI as an average of deflationary and (local, expensive) inflationary products, the trend we are seeing in the US of large local assets (with local cost basis) versus a cellphone (Chinese cost basis), the stagnant measure of CPI versus the increases we see in local costs of living is better explained. All these metrics are faulted and manipulated.

The underlying desire of capitalist institutions making a markup on every possible local market ("rents") in is inflationary to local costs and when the external markets costs go up, that's when total inflation will go 'shazam'.

>Current debate about inflation isn’t really about whether it’s likely: it isn’t.

No, inflation is guaranteed, in fact, a 3% yearly inflation rate is deliberately targeted.

I'm sure the writer meant "hyperinflation", still, say what you mean, and beyond that, having read the rest of it, it is full of weasel words and uncited or unexplained premises. Further, it does not actually address any of the ideas that the title implies it is countering. I'm just going to say it: this is a shit tier article.

I'm sure the last few Fed chairs would like to know that they are guaranteed success in raising inflation! Now you just have to explain why they weren't even able to get it up to 2% even with a guarantee.

That's why people should be permitted to print their own. Legalizing counterfeiting would solve all our ills.

It's only a threat to savings, pensions and those that have no inflation adjusting assets.

The opening pretty much sums up that this isn't a research piece, it's a political opinion piece: "Current debate about inflation isn’t really about whether it’s likely: it isn’t. Instead it’s about whose vision of the future is going to win. Is it going to be the right-wing demand for small government that the inflation fetishists promote, or the one we need"

I think inflation concerns are not the realm of "right-wing inflation fetishists", it's in fact the standard theory about what will happen when large amounts of money is printed. You can make reasonable arguments about why this time is different, but this strategy will make me tune out real fast.

>I am not saying that inflation or interest rate rises are impossible in the future but I am suggesting that those who suggesting these are anything but very temporary phenomenon have to explain why the trends of many decades are going to reversed now and for what reason.

Because the neoliberal economic model that includes a stratified scarcity principle (keeping wages as low as possible so consumer demand keeps prices down) isn't built for a sustained global economic downturn.

The very fact that the Biden administration harpooned the very minimum wage increase that they advocated for in the campaign should indicate to everyone just how seriously they are taking inflation.

I think we can see a parallelism in the modern "money creation" with the ancient Roman Empire "currency debasement". Found this nice infographic https://www.visualcapitalist.com/wp-content/uploads/2016/02/...

It's all fine guys. We can print as much money as we want. Inflation is not a threat. No biggie. Don't worry!

This is the wrong mindset. If inflation is low the central bank is failing at its core competence.

The article should be renamed to: "Why measuring inflation using the CPI is misleading"

The CPI is designed by the government in order to give it plenty of slack to keep printing money.

No, it is the opposite. Low CPI is a curse, something that has to be combated by creating more money. It's not an excuse, you really don't want your economy to suffer deflation.

You are free to criticize ineffective central bank policies that drive inequality though.

With "low CPI" the government doesn't have to update government workers' salaries to compensate for real inflation.

In the US, 1/6 of the workforce is paid directly by the government, which indirectly generate something in the range of 30-50% of all economic activity in the country.

Hence why it's in the best interest of the government to state there's "low inflation": it doesn't have to spend too much with its payroll, while it can "profit" more from the money it prints.

And countries like South Africa, India, Brazil deliberately keep people poor/starving https://en.wikipedia.org/wiki/Currency_in_circulation#Total_...

I'm a bit surprised to see this piece, I haven't heard worries about inflation (and I follow free-market capitalists).

What people are worried about is that all this extra money is propping up a market bubble and a non-sensical economy. Good luck when that's going to burst.

Also, it's debatable whether lockdowns actually saved the NHS or just wrecked our small businesses, but I guess we will never know for sure.

Some would argue, of course, that inflation well above 2% has been with us for at least a decade if you don't measure by the biased CPI. I don't see how it helps the argument to bring politics into this by saying such people are "right-wing [...] inflation fetishists". Didn't read beyond that.

Anyone who argues this is a conspiracy theorist making statements not based on actual evidence.

I don't think there is any conspiracy either.

What theory would you use to explain the evidence which shows that lifestyle recovery of many consumers which had come almost within reach, by less than 1 percent, never did actually arrive and has been moving back beyond reach faster than 1 percent for a while?

Everyone knows that 1 percent is less than 2 percent so it has to be some other explanantion besides "that's not nearly as bad as 2 percent".

You can complain about wealth inequality and asset appreciation all you want but so far I haven't seen even the tiniest hint of inflation.

>"The state is what the inflation fetishists really hate. And what they know is that society wants a bigger state right now."

The author of course knows perfectly what the "society wants". To me this whole article reads like it's been written in a state of delirium.

> Current debate about inflation isn’t really about whether it’s likely: it isn’t

See the first chart. Nowhere on the chart is inflation not happening.

Obviously the author means inflation exceeding the 2% target that various central banks agree is necessary for a healthy economy:

> Since the 1990s central banks have been given the target of keeping inflation low. 2% has been the goal. But in practice as this diagram shows, the trend was already strongly downward before central banks were given this goal.

If you want to argue that 2% is too high then feel free to do that. But it’s not helpful (to you or other commenters) to take the most facile and ignorant reading of the article possible, and then wonder why the first chart “contradicts” the author.

You are asserting that he and other commenters to follow are taking "the most facile and ignorant reading of the article possible" on what grounds?

You are being overly literal. When people colloquially say "inflation is bad" or "will be a problem", they mean "high inflation", for some meaning of 'high', like >4% or some such.

US inflation was around 3% during in 1990s, and yet there was an economic boom at that time. See also 1950s.

And yet people are freaking out because there's an uptick in US 10 year bonds at the moment… to 1.6%… which is where things were in January 2020 (pre-pandemic).

If a massive US spending bill only (only!) gets us to where things were before the economic conflagration, then it shows how much in the economic hole things are, and how much things need to be filled in to get back onto stable economic footing.

I don't like when people argue someone by looking for a technicality, or anything else that's not addressing the main point of what someone said. We all understand what he meant. His main argument has a lot to criticise, stick to that.

It wasn't a technicality, it was the first sentence. And it threw me so wildly that I did not understand the rest of what he said.

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