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Comment by 542458 | Hacker News Reader

There seems to be a group of people who predict hyperinflation at the drop of a hat. I’m not sure if it’s paranoia or motivated reasoning though. Maybe a mix of both?

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It may have started as one or the other, but at this point they've been predicting hyperinflation for so long that they now have motivated reason to be "right, just called it too soon"

I think people predicted hyperinflation since QE has been introduced. What people don't get is that QE increases base money. When banks run out of reserves the central bank gives them more. The reverse relationship doesn't have to hold. Giving banks more reserves does not force them to lend the money out. The relationship between bank lending and base money has been fully decoupled. Whenever QE increases the supply of bank reserves it introduces more noise into the statistics.

Just because QE doesn't create inflation doesn't mean it is a free lunch though. QE purchases treasury bonds and effectively takes them out of the market. The government is paying interest to itself. There are institutions that need those treasury bonds which results in a collateral shortage. These institutions will continue buying treasury bonds driving interest rates slightly negative leading to a "technical" form of deflation however it is quite insignificant.

QE stands for "Quantitative Easing" (I think) in case anybody else doesn't know.

The other "half" to the inflation calculation aside from money supply is money velocity. If people and institutions aren't turning over the dollars, there obviously won't be inflation. As expected given the low inflation we've seen, V has rapidly decreased as M increased.

https://fred.stlouisfed.org/graph/?g=GOR4

(Both indexed to 100 as of the beginning of the 2007 recession)

Or doubling the money supply in a year. Not exactly an unrelated event like a hat drop

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