Hacker News Reader

Comment by Grakel | Hacker News Reader

20% of dollars in circulation were printed in 2020 and the inflation is filtering down. Also inflation statistics are intentionally blurred. Look at housing prices or other individual metrics.

View on HN

Inflation isn't directly (that is one-to-one) tied to the amount of money printed. That's a simplistic view of a complicated phenomena. What matters is demand aggregated among many individuals. You can print any sum of money and if the person you give it to decides not to spend it, it doesn't affect demand and thus doesn't cause inflation. Meanwhile you can stop printing money, and if demand increases inflation can still occur.

But what if we handed the printed dollars to a large number of individuals to spend immediately to cover their income shortfalls in unprecedented government largess?

If it's covering an income shortfall, it doesn't seem like that would cause inflation.

If I normally spend $2k a month, but then lose my job and get $2k from the government, that's not going to cause inflation.

From what I understand, much of the stimulus money was saved. https://fred.stlouisfed.org/series/PSAVERT

> If I normally spend $2k a month, but then lose my job and get $2k from the government, that's not going to cause inflation.

That $2k a month that you used to earn is still out there somewhere unaccounted for.

Except the money you would have been paid previously still exists somewhere and will go somewhere else.

Then those people largely spend it on essentials, don't lose their housing, and don't starve to death.

My point was about the money supply not ethics or morality.

>>You can print any sum of money and if the person you give it to decides not to spend it, it doesn't affect demand and thus doesn't cause inflation.

In short this is the equivalent of not printing money.

The very reason why you print money is to spend it. If you didn't want to spend money. Why print it?

M2 money supply doesn’t correspond very closely with inflation. https://www.longtermtrends.net/m2-money-supply-vs-inflation/

Your link doesn't support your conclusion. Growth in M2 clearly precedes increases in inflation by 1-3 years.

Look at the second chart:

"M2 Money Supply vs. CPI and GDP"

220x increase in the money supply vs 18x increase in CPI

Did you expect them to be the same, in order for there to be a causal effect?

I expect them to have some actual correlation over time for a causal effect look at say 1960 to 1970 and the graphs have nothing in common. Hell some peaks look years early others late but most don’t have anything to do with each other.

Bretton Woods ended in 1973. Any time before then, the money supply was strongly impacted by the government's gold reserves.

The only real anomaly in that chart is 2011, which is concealed by the fact that CPI is a terrible inflation metric when wealth inequality is changing (see the increase in equities and real estate during that period).

For reference: CPI is based on a survey to see what median Americans are buying, the prices of those things, and how much of them they are buying. Naturally, people change their spending habits when prices rise to buy cheaper items, and this cancels out the how much of them they buy to end up with an effective metric of "how much are median Americans spending" (hint: basically all of their money). So CPI measures the median American's income, which is why there can never be any changes in "real wages" [0].

[0] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...

How about 1980 to 1986 where inflation tanked 90% and M2 started at 8% peaked at over 12% then fell back to 8%. The charts for those years have nothing in common.

I get it, M2 really seems like it should correspond with inflation but at minimum you need to adjust for economic growth. As we produce and consume more we need more money handle those transactions.

Recommend you take a look at this to see more factors involved in inflation, in a more quantitative light: https://www.lynalden.com/inflation/.

The reason CPI is a terrible metric is because measuring inflation is very difficult and somewhat arbitrary (see for example: hedonic adjustments). M2 is a significant, consistent, and logical factor. Even from 1980-1986, rapid changes in M2 consistently correspond to a change in inflation. But there are other factors, like real economic growth, population growth, changes in size of the labor force and velocity of money.

Look I am aware of a host of factors that in theory influence inflation and the multiple different ways it’s measured. I am also perfectly willing to acknowledge there is a connection between M2 and inflation. But, when historical correlations are this weak you can’t suggest A predicts B when it simply hasn’t.

Not everyone has an eye for data, but this is a pretty clear correlation (time delayed, of course) as far as real world macroeconomic signals go. Contrary to your claim, significant increases in M2 have historically predicted increases in inflation with high probability for over 50 years, even without controlling for other factors. And all the people predicting decade-high inflation and asset inflation since last year have been right so far.

> as far as real world macroeconomic signals go

That’s some serious weasel wording right there. Either a model fits real world data or it doesn’t, ignoring all those times a model failed isn’t an eye for data it’s a delusion.

> And all the people predicting decade-high inflation and asset inflation since last year have been right so far.

That’s little different from walking into a room full of broken clocks picking those that are currently accurate and suggesting they must be working fine. If you select for people who accurately predicted the last year you then need to look at their predictions of every prior year.

Reply on news.ycombinator.com