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Comment by JohnJamesRambo | Hacker News Reader

We play Monopoly. Suddenly the bank gives everyone 40% more money. What happens to the prices for owned properties and houses?

We play Monopoly. Suddenly everyone wants 40% more money for their owned properties and houses. No one has any more money to pay for these items.

Which of these two scenarios seem more likely to cause inflation?

For more info about which we are seeing, this is a great summary from Bridgewater.

https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-...

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You should consider another option not possible in Monopoly: what if 25% of the properties are removed from the playing board?

For a concrete example, consider the debate over what caused the recent spike in vehicle fuel prices. Was it the Fed's QE policy? Was it a spike in demand by consumers? Was it a deliberate reduction in supply by the crude oil producers and refinery operators?

For the third option, note that in 2015 the US government lifted the ban on the export of crude oil from the United States. In 2020, several major refineries were closed down. As a result more crude oil (produced by fracking) is being exported to global markets, and less gasoline is being refined in the US. This is a pretty good explanation for the spike in gas prices. This view is loudly condemned by the corporate media, Wall Street, and the fossil fuel corporations... for reasons that should be obvious. They'll instead try to blame restrictions on the import of dirty Canadian tar sands oil for the rise in prices, while deliberately ignoring the 2015 crude oil export law and the refinery closures.

How correlated is the rise in US gas prices with the rise in commodity oil prices? If the US gas price rose independently of international crude prices then I think you'd have a point. I don't know, I'm just curious.

I seem to remember hearing that a lot of US crude production went offline during 2020 because the falling price of oil made it uneconomical. With the rise in crude prices, maybe it's back now, but I don't know if production can scale as quickly as oil prices. In any case, I think it would be hard to argue that fed printing did not at least significantly contribute to the rise price of nearly every commodity.

It's very easy to argue that Fed QE (aka 'money printing') had nothing to do with current inflation, just look at when the QE boom began, i.e. right after the 2008-2009 subprime-mortgage-fraud-triggered collapse. Inflation wasn't an issue througout the decade after that, it wasn't even mentioned in the analysis of QE at the time (2014) [1] nor does it show up in the data until this year[2]:

[1] https://www.bbc.com/news/business-29227597

[2] https://www.usinflationcalculator.com/inflation/current-infl...

So if the Fed dumping $4 trillion into the economy from 2009-2014 didn't jack up inflation then, what's the argument now? Sounds more like a basic supply and demand issue due to frail global supply chains, plus monopolistic price manipulation by centralized power in corporate America.

Perhaps Fed QE, with artificial suppression of lending rates(if I understand it correctly), was akin to leaving kindling around, but without the spark of a global supply panic, there wasn't a sure bet for traders to leverage. Once it seemed clear that prices were heading upwards due to supply shocks, it was a no-brainer to use the cheap money and drive up the prices of assets even further.

I'd also add that the helicopter stimulus from the government probably helped goose asset prices as well.

I don't know... if you listen to some folks, QE is deflationary because it traps money in the financial system. I'll say that I personally pulled most of my money out of the market in late 2019 because I already thought we were due for a correction. It seemed like, while it took a few years, asset prices were already climbing before COVID hit. The lack of inflation could be explained by increasing globalization and overall anemic economic growth(which is one piece of evidence used by the "QE is deflationary" crowd).

One could also argue that QE is a response to deflation.

Different type of printing.

The intervention in 2008, printed asset money (not bank liability deposits as were given out recently), and crucially used it to buy a 4 trillion of bad loans from the Banking System, which were then placed in runoff (the Fed ended up making a small profit on this as it happens).

Think of it as deliberately creating a loop in the monetary system to get the loans away from the banks, where the losses would crash the banking system, and into a place where they could just be quietly allowed to drain off.

The money printing last year on the other hand, was a Weimar style directly into liability deposit accounts, and that has a much broader impact.

To be fair about the subtleties of all this - had the banking system still relied on the old reserve based regulation as used in the 1920´s, 2008 would have triggered a hyperinflation - but as Basel capital regulation now also controls the system, that intervened to prevent a monetary spiral with more lending creation more (deposit) money.

If you play monopoly with house rules that make it more similar to a real mix of sovereign economies, surely the latter. (Source: I have played with such house rules. Yes, it gets more interesting than vanilla monopoly. Yes, that's how inflation happens in those games. One bank has never, so far, suddenly decided to give people money they don't need (that sounds like financial suicide). External events, however, have caused changes in demand for one bank currency which forces that bank to lend more money.)

so… what are these house rules?

The core of it is free banking: anyone who wants to can produce their own currency and manage it however they want. The exchange rate to the standard monopoly currency is determined by the market.

Another major element (though more common in house rules) is that arbitrary agreements between players are allowed, enforced only by one's honour.

(These rules probably only work when sort of the same group of people play multiple sessions.)

Add 2 new players to the game after all but 2 properties are claimed... See how that works out :-)

Also don't we know in this case that the bank increased the supply by 40% first? Inflation followed, as you would expect when there are drastically more money units competing for goods and services (combined with fewer goods/services as a result of shut downs).

I don't get all the mental gymnastics around this.

Could it be the case that banks end up lending more not only in response to increased prices, but also in when there are expectations of future increased prices?

The only mental gymnastics I don't get are the ones where one pretends the market is simple and ultimately controlled by one entity. It's not.

The base money supply has more than doubled since February 2020, and the M1 money stock has more than quadrupled since then. Any one with half a brain knew the “transitory inflation” claim was pure propaganda.

exactly. But it has been an all round perfect storm, aided by both circumstance and policy WHILE keeping the money slauces wide open.

Money printing is the base driver of inflation.

BUT: the best anti-dote to inflation is productivity growth. Biden lifting regulations and taxes are both well known enemies of productivity growth.

On top of this you had supply chain disruptions... meaning fewer good and services chased by an avalanche of money... laws of supply and demand gaurantees price pressure.

It was not hard to predict. The fed played word games with the word transitory because they hoped to psychologically influence peoples economic behaviour to mitigate additional feedback loops I wager.

Or maybe the bond market doesn't care about current consumer inflation? I honestly stopped giving a damn about inflation because it is all pointless.

Everyone cares about an irrelevant number while getting screwed by the properties of money that they think they enjoy.

You say the bond market doesn't care about inflation ? Well, it should, especially if it isn't transitory.

If you really think one should not care about inflation, then one of us will be proven wrong. (I have put options - i.e. money where my mouth is)

Isn't that second one already literally inflation?

Except according to (neoclassical) economic theory, real economy is not like Monopoly. In real economy, you can have capital investment (or lack of it), which changes how much real production you have (in Monopoly, this is fixed by the amount of houses available).

So whether increase in money supply causes inflation depends on whether you can increase the production. If it is possible to increase production, the inflation should happen only temporarily, as the extra money from the demand will get reinvested. This should cause the supply to catch up and prices to fall back again.

However, I think the current social inequality complicates the situation a bit. If the investors know that the increase in money supply is only temporary, and the money from the demand will again very quickly end up in the hands of the few (in increase of asset prices), there is no real incentive to invest and increase production, because who will consume, if the extra demand is only temporary? This seems to me like a marxian trap of too low rate of profit (at least for the typical consumer goods).

The general problem with the broad macroeconomic indicators (such as inflation) is that they completely ignore the different classes in society. Unfortunately, the mode american economy is in now (where 50% of it is owned by only a small number of people), this becomes much more relevant.

Land is finite in both Monopoly and in real life. This is actually what Monopoly was designed to communicate to players. It pisses players off and turns them against each other because it was designed to.

Land might be finite but we're nowhere near its limits. I once read that you could easily fit every human building ever built in a 10km stretch of the Grand Canyon. So let's carefully say we can have 1e9 times the number of buildings we have now.

Desirable locations are finite, though. People want to live near jobs, infrastructure, amenities, their friends and family. There is limited supply of locations that are near to those things, so land functions as a monopoly.

You don’t need to be anywhere near a resource’s exhaustion for its finitude to affect how people value it. Look at any valuable natural resource.

That’s especially true of land where, as the other commenter says, all land is decidedly not created equal. There are very good reasons more people want to live in Manhattan than in Death Valley.

> We play Monopoly. Suddenly the bank gives everyone 40% more money. What happens to the prices for owned properties and houses?

Nothing if it just sits around, which is what is generally happening in the real world:

* https://fred.stlouisfed.org/series/M2V

Please stop with the Monetarism: there is no empirical evidence for it, no matter how 'intuitive' you think it is.

> But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy.

> Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that.

* https://www.pragcap.com/three-things-i-think-i-think-i-see-d...

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1799102

Edit: Regarding the downvotes, it doesn't change what the evidence has been saying for a few decades:

* https://www.longtermtrends.net/m2-money-supply-vs-inflation/

> So why did the monetary base increase not cause a proportionate increase in either the general price level or GDP? The answer lies in the private sector’s dramatic increase in their willingness to hoard money instead of spend it. Such an unprecedented increase in money demand has slowed down the velocity of money, as the figure below shows.

* https://www.stlouisfed.org/on-the-economy/2014/september/wha...

> Similar analysis on the eurozone reflects the same trend: Central bank money printing is largely irrelevant to money supply and inflation.

* https://blogs.cfainstitute.org/investor/2021/04/19/myth-bust...

What people should really be asking is: why is (has) velocity (been) dropping? One hypothesis I've heard is wealth inequality: if the top x% has most of the money, then it's probably just sitting around collecting interest/dust and not circulating.

There is a harvard article that the top 1% have become net lenders through stock ownership of companies that themselves are net lenders. Who is borrowing? Bottom 99% and the government.

https://scholar.harvard.edu/straub/publications/saving-glut-...

You know, companies should be net borrowers and net investors.

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