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Comment by boringg | Hacker News Reader

Hey everyone - we need to chill out for a second. Stop buying the knee jerk reaction of the media trying to freak everyone out and get some good advertising dollars.

This is going to take until after the new year maybe Q1-Q3 timeframe to see if it is transitory.

Reminder: we had an unprecedented global supply collapse followed by shutdowns and border closures for more than a year combined with historic levels of fast moving monetary growth during that time. We now have a situation of incredible levels of built up demand, a labor shortage and supply chain issues. Not to mention significant amount of illness and deaths as a result of a pandemic.

There were bound to be second and third order effects. The system needs some time to adjust.

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You miss the key point on why this is happening and will continue to get significantly worse.

What happens when the number of dollars approximately doubles in 2 years as it happened?

Do you think prices stay the same and everything is just 50% off?

Reality is that the current number is off by reality quite a bit, real number has to be much higher. It's just math and the worst part... it can't be just reversed.

> What happens when the number of dollars approximately doubles in 2 years as it happened?

Do you think countries that don't use the USD will remain unaffected? People keep blaming this on the fed "printing money", but that logic only holds water when just the USA is affected.

Everyone is experiencing inflation; it's a global phenomenon. Some countries have it even worse than the USA because their local production is getting redirected to the USA, where even higher prices will be paid.

In two years, things will very likely cool down globally.

The money fed prints doesn't stay in USA. It floods the entire globe trying to find the maximum return it can. That is the reason all stock markets everywhere are at record highs and commodities are continuing to push upward. As more economies are getting heated, many have started raising their own interest rates to reduce inflation.

At some point, we need to accept that The Fed is not God of the World Economy. They can have a major impact on the country's economy, and they can influence foreign markets to a degree, but they are not responsible for everything. They just don't have that kind of power.

If commodity inflation is caused by an over abundance of USD, then there would be a whole host of side effects from this. One of which, is as I said, price inflation localized to the USA. The second would be a weakening of USD relative to most other strong currencies. So let's look at that:

USD : Euro - Slightly weaker relative to 2020, but overall, right around the average strength over the past ten years.

USD : GBP - Same as the Euro.

USD : CAD|SGD|AUD - Weaker than 2019, but much stronger than the 10 year average.

USD : JPY|INR - Very strong

USD : CNY - much weaker than 2019, better than 2018, right about at the 10 year average.

It's there, but only slightly. And only after 2-3 years of crazy strengthening.

The USD vs other currencies cannot be compared to USD vs commodities which paint a more transparent picture because no one wants their own currency to be stronger than USD due to export competitiveness getting effected. So whenever USD goes down, they buy more USD with their own currency to keep the peg contained in a range. I know all are supposedly free floats central banks do buy and sell to contain volatility. So the thing that needs to be watched is not the ratio of currency but the USD denominated forex levels which as per my understanding have raised across the board as capital leaves US shoes to these countries. I don't have data to back it up but at least in non tourism dependent economies it is the case.

I'm not sure that's the worst part.

I predicted about 2x inflation as a best-case outcome a year ago. Worst-case outcome would have been serious structural damage, in terms of business bankruptcies, lost jobs, lost mortgages, etc.

Unless we get into a hyperinflationary cycle, we came out pretty well, economically.

Our public health response, on the other hand, was and continues to be a disaster.

> Reality is that the current number is off by reality quite a bit, real number has to be much higher. It's just math and the worst part... it can't be just reversed.

I am now starting to wonder if the unrealized gains tax is the 'reversal' and the interdemensional checkmate on hidden wealth.

Are you recommending the world spend a bit of it's hoarded wealth, to allow less money to be printed?

You're a monster.

Are you saying rich and powerful have grandpa checking bank accounts and just refuse to spend it? They are owning real estate, land, companies, resources - that's where their wealth it. In high inflation scenario current wealth gap will look like good old times... Slight inflation is good, but high inflation will be troubling to a lot of regular people.

I have no idea what you are saying. Also what is "just math" and why can't it be reversed? Inflation can go down, it's not a purely up percentage, you can have negative inflation.

What do you mean by "number of dollars approximately doubles in 2"?

> What do you mean by "number of dollars approximately doubles in 2"?

I think OP was talking about monetary inflation. We nearly double the money supply so it should translate to a nearly double price inflation.

That is not how inflation works.

All thing being equal. 2x monetary supply should translate to 2x price inflation. It’s literally how inflation work. The reason we don’t have that’s crazy inflation is not everything is equal. Mostly at natural the economy should deflate right now.

You can have negative inflation, but don't central banks work really hard to avoid that because (the theory goes) deflation will kill spending?

Pretty big difference between "we want to but we can't" and "we can but we don't want to"

Yes, and what's your point?

Setting aside my other issues with this analysis, this is just flat out incorrect:

> it can’t just be reversed

I don’t know where you’ve gotten this idea from. The fed can destroy money just the same as it can create it.

That's an interesting point, has that ever been done?

The fed was in the process of lowering its balance sheet pre pandemic.

You only have to look back to 2019. [1]

[1] https://www.investopedia.com/the-fed-continues-to-reduce-its...

FWIW: Narrow money - (cash, deposits, savings account) over $40 trillion of USD. $90 Trillion in broad money. $1.3 quadrillion including investments, crypto, derivatives.

We haven't doubled the money supply (not even close). The amount of misinformation in this conversation in the general public speaks to the lack of understanding of our monetary systems.

So how much has the money supply increased/decreased according to your sources?

You're the one who made the assertion - curious on your sources. If you're simply looking at fiscal stimulus spending that's a pretty naive view of economics.

https://tradingeconomics.com/united-states/money-supply-m0

Look at 5 year view.

Look at the 25 year view. 2014-2019 was an anomaly where us GDP grew 22% while the money supply contracted by 25%, we are currently back to the straight line we've been on since 2008.

Even if it's transitory, what's the reason to keep injecting cash _today_ via buying agency mbs and other securities?

Because Powell wants to get reappointed.

It really has to be that. There's no other logical/sane justification for it. Fed is monetizing govt deficit spending and artificially suppressing long term rates to support asset prices to make things look good in the short term.

On a risk adjusted basis, it's obviously awful policy.

Powell should have never been appointed.

The only reason he was is that Yellen was recommending a raising of interest rates in 2018 and the sitting president was worry about the optics of that going into reelection. In comes Powell, the man willing to kick that can down the road.

Raising interest rates was the right move in 2018. It's just that the economic benefits of doing such takes a few years to pay off.

> This is going to take until after the new year maybe Q1-Q3 timeframe to see if it is transitory.

Is there any logic behind this timeline prediction?

All you have to do is look at the Fed balance sheet to get an inkling of what's going on. They are monetizing the debt. Inflation is a very simple concept to understand. It's too many dollars facing too few goods. I understand no one wants a panic, but you also don't want to bury your head in the sand.

I think my original point is that this isn't something to panic over much like the public narrative is trying to make hay of. I am also not saying bury your head in the sand. Watch and see and don't get caught up in the hype.

6% inflation is nothing to panic over.

People equate the fed not hitting their 2% target with hyperinflation and it’s absolutely maddening to see the level of discourse drop to astounding lows when this happens.

6% is only looking at the CPI. Factor in equity prices, housing prices, tuition prices, and suddenly there is a lot more reason to panic.

Housing, tuition and equity prices have been skyrocketing for the last decade and no one panicked.

Has tuition even notably increased in the last 12 months?

I don't exactly think people were very happy about it either. I mean look, I'm 24 years old and I don't own any of these assets. At the rate things are going now, I probably never will own these assets.

The best thing that could happen for me is major deflation. But it is too politically unpopular, I bet it will be years before we get a fed chairman who has the spine to raise rates. So I'm reduced to angrily complaining online and shaking my fist at the sky while our rulers at the fed prop up boomers and leave my generation out to dry.

The fed _was_ raising rates pre pandemic, it got detailed by Covid.

I would confidently bet money that they raise rates in 2022.

At the end of the day, the fed has to take its queues from the fiscal policy that’s in place. This time around is very very different from 08.

It doesn't have to reach hyperinflation to have a seriously disabling influence. People look ahead for potential impediments to being able to get the goods they need. Hopefully, it won't amount to inflation, but historically, hyperinflation always tends to come out of nowhere. It's very hard to control once it gets going.

Hyperinflation just shouldn’t be entering into this discussion. It’s not happening, it’s not close to happening.

Now, im not trying to downplay the fact that elevated inflation can cause issues, but it so so challenging to keep that nuance when every discussion devolves into “we are on the precipice of +1,000% inflation” when the inflation rate went from 1 to 6.

As I keep saying, threats of hyper inflation are fundamentally a political argument, and not a terribly convincing one at that. Hyperinflation can and does happen, but the doomsayers of such things are well into "boy who cries wolf territory" and can be ignored.

Not even as difficult as that. As the prices rise with a regular periodicity, people stock up more goods with expectation that in future their money will buy them less. Which causes more price increases and corresponding increase in stocking.

Obviously 6% won't do that but at higher levels its the complex dynamics driving inflation than good old supply demand balance. And don't think that exports will solve hyper inflation because at that point other countries will also expect devaluation in currency which becomes a self fulfilling prophecy. Again not applicable to dollar and USA for the moment but at higher inflation levels anything is possible.

Somebody has to stock up. Just-in-time delivery didn't, and that's why we're in this supply chain situation.

In the future, not only is it possible your money will buy you less, it is also possible that no amount of money, no matter how large, can obtain what you need.

For instance, anything with a silicon chip in it. For some goods, every known upstream retailer is out of stock, with no idea when it will be replenished, and the resellers are doing business at way above MSRP.

What you’re describing around consumer expectations is that the absolute price level continues to rise at a higher as consumer expectations change. It doesn’t follow however that the rate itself increases due to this dynamic. Consumer expectations tend to anchor inflation at a particular level.

This is just a fundamental misunderstanding of what causes hyperinflation.

Lumber is cheap for anyone who can build their own home. Home Depot as packed this weekend.

It finally came back down in price for the retailers? I've been waiting for the retailers to lower their prices after they paid off the costs of the original surge in wholesale lumber. And then the wholesale price of lumber came right back to earth but the retailers still had to cover their costs of acquisition.

It would be nice if America had factories that produced things rather than having to import all of our crap from China. Maybe then there wouldn't be 100+ ships waiting to be unloaded in LA.

We still manufacture like crazy:

https://www.stlouisfed.org/on-the-economy/2017/april/us-manu...

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