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Comment by 1cvmask | Hacker News Reader

The age of pervasive global inflation has started. The global supply shock has led to rising prices everywhere. In addition, the lack of incentive to work as a truck driver etc. in some countries due to free checks has led to wage-push inflation and cost-push inflation.

We might soon get a $25 minimum wage which can end up buying just one fast food burger.

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

https://en.wikipedia.org/wiki/Cost-push_inflation

https://www.investopedia.com/terms/w/wage-push-inflation.asp....

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There are those who disagree:

https://www.ai-cio.com/news/cathie-wood-the-big-risk-is-defl...

For what it's worth, I personally think she's dead wrong, chiefly because she's forgetting that inflation is primarily a monetary phenomenon. In an environment where governments and central banks are strongly biased in favor of printing money, I see the possibility of deflation as extremely small.

In an environment where governments and central banks are strongly biased in favor of printing money, I see the possibility of deflation as extremely small.

I'm not saying you're necessarily wrong, but keep in mind that the amount of wealth in our economy is much greater than the amount of money; printing cash doesn't necessarily have as big an impact on inflation as one might think, because most value these days is in assets other than cash. You can see this in graphs of e.g. the M2 growth rate vs the inflation rate over time. If the existence of more cash directly caused inflation then those rates would be highly correlated, but instead they are only very loosely correlated and the M2 growth rate has far outstripped inflation in recent decades.

QE is just the central bank buying treasury bonds with central bank reserves. The private bank that sold its treasury bonds must still find a borrower to create money. It's the availability of solvent borrowers that is the primary driver of money creation.

The central bank's mandate nowadays is to keep inflation low. If there is a risk of permanently high inflation they are going to raise interest rates even if that means choking the economy. The reason why they aren't doing it right now is that inflation expectations aren't high enough in the bond market. It's entirely possible that tapering now wouldn't choke but kill the economy.

Central banks definitely have demonstrated their willingness to print. However, the Fed's mandate also includes managing inflation, meaning they're unlikely to continue the printing if that contributes higher inflation.

> In an environment where governments and central banks are strongly biased in favor of printing money,

This is literally an argument against people arguing that that bias should be reversed out of fear of inflation, so pointing out that deflation is unlikely to be allowed to happen if the people this is arguing against fail to succeed in realigning policy to fit their preferences is...missing the point.

>inflation is primarily a monetary phenomenon.

Inflation has not been a monetary phenomenon at all ever since most currencies dropped the gold standard. If that was the case we would have had hyper inflation during QE from 2009. Japan also prints money in excess (for the last 20+ years) and they havent had inflation.

The current inflation (as is with most developed countries) is always due to supply/labor.

> I see the possibility of deflation as extremely small.

Which is good, deflationary pressure is devastating.

The low prices that occurred during a deflationary phase look appealing after-the-fact. But the cause of those low prices were the fact that nobody could afford anything close to market price for assets. Inflation slowly erodes purchasing power, but deflation completely erases it.

People who've lived through the GFC remember why houses, cars, and stocks where cheap: because your income could go to zero at any time. Even if you had the money now to buy something, that wasn't prudent. The phrase of the era was, "cash is king."

In particular, QE was the Fed printing money to prevent deflation. (After $4 trillion evaporated in 2008, the Fed created $4 trillion through QE.)

> We might soon get a $25 minimum wage which can end up buying just one fast food burger.

But correlation does not equal causation, and that is not at all the case in countries that have higher minimum wages right now. All the theoretical bloviating by uncompromising capitalists doesn't change that. We don't need quasi-slavery to function as a society in 2021. We just have it because we are addicted to it.

https://www.statista.com/statistics/274326/big-mac-index-glo...

Pandemic recoveries are the new norm? HN told me lumber prices proved inflation just a few months back.

2x4 cost me $3.38 last weekend.

Lumber might not be nearly as bad as it was in May but it's still double where it was in October 2019.

Wages haven't gone up, and prices still went up.

In California they have in 2 ways. They have increased signing bonuses, starting salaries and some places have expanded their pool of applicants by "reducing" minimum requirements:

https://www.pe.com/2021/07/23/more-southern-california-emplo...

That makes sense if these price rises reflect real shortages of goods and not just more money in the economy.

Essentially, we are seeing cost-push inflation and it's not clear when it will go away given the supply chain problems.

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