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Comment by Finnucane | Hacker News Reader

The article equates usd inflation with the increase in the supply of dogecoin, but the two charts measure completely different things.

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Because the easiest way to cause significant inflation is to increase money supply? No one really uses doge for anything else, so that seems like a very good proxy. If compared to M1 or M2 doge would actually fare much better.

despite tons of covid stimulus and fed intervention, CPI still very low

This is likely attributable to savings rates being at near all-time high in the US causing velocity to fall off. If people are saving not spending, there is no additional demand for goods, which means their prices do not rise, and inflation does not materialize.

[1] https://fred.stlouisfed.org/series/PSAVERT

CPI is a terrible metric.

Also prices are sticky and velocity is irregular. Pumping out money is not going to increase prices in the immediate months following regardless.

Japan has been trying to create inflation for decades by monetary expansion, monetizing their debt, zero interest rates, all the tricks. It has mostly failed. It is _not_ the easiest way to cause significant inflation.

>It is _not_ the easiest way to cause significant inflation.

Or maybe they're not solely interested in causing inflation, and are concerned about other effects as well? eg. preventing hyperinflation. If all you wanted to do is cause inflation, you can do so very easily with helicopter money.

Yeah, helicopter money is pretty much the easiest way.

However, Japan makes me wonder why it is a problem in the first place. I mean, why does a problem need helicopter money as the solution? Why is no other method capable?

Consider this, if you increase the money supply and inflation doesn't happen, then there must be a deflationary force that is equal to the newly created inflation caused by increasing the money supply. This could be enough explain the ineffectiveness of low interest rates (debt must be paid back and therefore no inflation happens) but it is not enough to explain why QE didn't work because the Fed can sit on financial assets forever, if necessary.

Difficult to say as they are not 'actually' printing money tho they call it that, they are just creating bank reserves and since they are not used as money they don't generate inflation, not as measured by the cpi anyways.

Inflation is a function of supply and velocity, not simply supply. Concretely, the M2 supply is 15X higher than it was in the 1970s but inflation left each one worth 1/7th. [1]

Supply is only half the puzzle. No cryptos actually take into account supply and velocity when attempting to control inflation which is something any economist would tell you is trivially flawed.

Substantially every crypto talking head conflates supply increase with inflation, but they are not the same thing, not by a long shot.

[1] https://www.stlouisfed.org/on-the-economy/2014/september/wha...

I am not 100% convinced the PQ side applies to assets. It works well for newly produced goods/value introduced into the economy, but market can keep trading 2 assets at a 10x or 1000x velocity back and forth but there is no price difference unless asset (money) supply or demand for one changes.

A fixed[1] money supply is barely a concept at all in more recent analyses of the monetary system.

[1]: fixed over the short run.

agree. USD inflation is sorta meaningless. way matters more is the CPI, which is not necessarily correlated with how much money there is

Can you elaborate? I was recently thinking similar to what the article mentions and wonder about differences?

I’m not the commenter, but I agree.

Inflation shows how much prices have risen in a given year, not how many new dollars are in circulation.

You can measure inflation in the US economy using any currency - gold, USD, BTC.

Inflation can be increases in prices, and it is used in this way by most modern economists, except hard money economists to whom inflation is by definition the increase in money supply irrespective of prices. In this sense, inflation is what causes price increases but isn't price increases. The article is talking with this second, or original definition of inflation.

Inflation is calculated from the increase in prices. It's a measure of the drop in buying power post facto. The earlier definition is incomplete as it does not take into account velocity. For instance, if you print a $1T coin and hand it to me, then I throw it into a vault, supply went up but nothing changed with respect to prices, because velocity went down commensurately.

The earlier definition does not match observable reality.

That is only because what you are interested in IS price increases.

If what you are interested in is money supply, and you call that inflation, then it doesn't matter what you do with the money, you can store it, you can burn it, you can spend it, is all the same. It doens't matter if prices go up either, that is irrelevant under this definition of inflation.

Inflation used to mean money supply. Inflation now means price increases. People thinking they are talking about the same thing when they use the word inflation is where the confusion is coming from.

The issue is that inflation as a function of supply alone is an incomplete model, not particularly meaningful and has been long-since debunked. Trying to resurrect an incomplete model isn't a great idea IMO.

I am not arguing with you about the utility of each definition, I'm just pointing out the difference in use and why you keep talking past each other.

The inflation rate is a measure of price changes of a large basket of goods. In a real economy, this can be affected by a number of different (but connected) things—the expansion and contraction of credit, the velocity of money (the rate money flows through the economy), foreign debt (esp, debt in another country’s currency), and so on. The dogecoin chart only shows base supply, which is not really a complete picture of economic function.

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