Serious question: is Powell just bad at his job or what? Doesn't everyone and their mom's knew high inflation was coming when they shut down the economy, send people checks to flip crypto and GME by running the money printer nonstop?
And of course, those are just a few factors, there are countless more factors that make the whole situation far more complicated than anyone could possibly account for.
What's more likely: - Prices went up because there was a short supply of tangible things that actually (somewhat) respect the supply-demand curve
OR - Prices went up because there was an "excess supply" of money from "printing" that arguably does not respect the supply-demand curve
Probably not. Instead, we’d be in a depression amidst mass unemployment and bankruptcies.
Supply chain would have crunched but the demand fueling inflation would have been destroyed. Instead, we maintained both demand and production while the supply chains falter. (For the most part. Egregious stand-outs in destroyed production capacity are the automotive and rental-car industries.)
The government doesn't create money.
Ordinary banks also create money when they make loans, which gets destroyed again when the loans are repaid. More money is created this way when interest rates are lower because people take out more loans then.
So not the government.
> When the Fed "sets interest rates" on bonds
It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level. Still a private entity doing private things. Not the government
> Sometimes literally by physically printing it, but more often by crediting someone's account in their computers
Definitely not!
> More money is created this way when interest rates are lower because people take out more loans then.
This is the only way money is created. The previous paragraph is far from how anything works.
The Federal Reserve is the central bank of the United States. Its board is nominated by the President and confirmed by the Senate. It's the government.
Politicians sometimes like to pretend it's not so they don't get blamed for unpopular choices.
> It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level
That's what setting interest rates means.
> Definitely not!
Where do you think coins and federal reserve notes come from?
If that's your logic, it's very hard to argue with it. It's literally a separate entity even from what you described.
> Where do you think coins and federal reserve notes come from?
the federal reserve which is not the government.
If you think government can print money out of thin air why do they even have to collect taxes. Can they not print their yearly expenditures?
You should think more on this question before you reply with some circular theory
From the fed's own website (notably a .gov domain):
"Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."
The Fed doesn't set interest rates on bonds, it sets target interest rates on interbank loans.
Bond rates will naturally tend to be impacted, but they aren't what Fed rate setting applies to.
Not only that: the government cannot and does not create money.
Of course gov printing had an effect, but supply chain is prob the biggest. Do you not agree?
Like Americans couldn’t afford their $25 plastic widgets before, and now because of gubmint stimulus they’re able to finally buy those widgets. Lol.
Cars is a perfect proof of my case. They thought covid would hurt demand for awhile, didn’t book enough chips. And then boom demand spike back and they don’t have a needed input in time. Thus people go to secondary market — used prices up a ton.
Printing money also causes prices to go up, as does war.
Anyone thinking that the problem was that we didn't give people enough money, hasn't taken a look at the explosion in homeless population throughout the country. People are still hurting and it is obscene ti complain that your savings account is worth slightly less when people don't have have a roof over their heads due to the worst pandemic in a century.
https://www.economist.com/graphic-detail/coronavirus-excess-...
This is the government - https://fred.stlouisfed.org/series/GFDEGDQ188S - and for anyone wondering, your party is as bad as the other party
It's not a coincidence, both have been caused by the same pandemic that you might have forgotten about.
To provide a natural experiment that should refute the point you imply: inflation went up massively in nearly every country on earth as they were all hit by the same supply side issues. Only a small minority of these countries "printed a lot of money" let alone as much as the US of A.
b) Deflation is bad but really easy to counteract. Print money and give it to people. Counteracting inflation is more expensive.
If the the extra money can be absorbed (economy can produce enough to meet demand), that’s fine and the economy just grows. But there were supply chain hiccups holding back the production capacity of the economy. So here we are.
Demand was induced with money printing. Supply was restricted with lockdowns. When demand outstrips supply, prices rise.
This cancels out if everybody does it, but not everybody can do it.
The increase in demand from people having more money may also make it economical to increase supply faster and alleviate the shortfall sooner.
Congress and public policy is where the ball was dropped. Most of the Europe did a better job maintaining work stability by distributing subsidies through employers rather than cash to individuals. It meant that when lockdowns eased, workers were ready.
This is “broken clock” logic. The only argument behind giving the Fed credit for the 7% rise in prices is “they’ve been trying really hard to do so”.
If you give $1000 to 1 M people then you start having inflation because those money go into shops.
This is the lesson from the last 15 years.
They have been praying for inflation - it is the intended outcome of the policy and it has taken 23 years for it to happen.
What they wanted was inflation in wages, assets, goods, services, productivity and growth. Inflate away the notional value of debt. What they got was gamestonk, crypto, stagnant wages, gig economy and antiwork.
But there was simultaneous easy money policy for years, in contradiction to the Taylor Rule. This deviation from that rule was going on for years before Powell, but he continued it for years, all throughout a prolonged economic boom.
Instead of counter-cyclical policy, this is pro-cyclical policy. And resulted in the misallocation you noted, for which Congress is even more to blame.
Your claim also doesn't explain how inflation didn't balloon in countries that provided actual financial support to people - the US had two payments of next to nothing, most other countries provided continuous support, even those with far less per-capita income.
You have this backwards. Inflation (via CPI) is based on price changes, it doesn't cause them.
>would be much more believable if the businesses selling the "inflation impacted goods" we're making the highest profits ever, far in excess of the highest estimates of inflation.
This is exactly what you'd expect when there is low supply and high demand.
If, for argument's sake, a dollar halved in value, the price of a widget of constant value would double to maintain equality in the exchange. What makes things complicated is that the value of the widget isn't constant and can also change over time, so we can't just look at that widget to see how the value of the currency is changing. Instead, we try to look for price trends across a wide range of products (CPI) to try and infer what is related to currency devaluation rather than changing values of other goods and services.
Housing is the biggest component in CPI: something like 40% IIRC
[0] https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
I've experienced the opposite several times because I don't consume a few things that are part of the basket.
Some back of the envelope estimates:
The last mile is usually going to be the largest expenditure of fuel per dollar of product transported. A semi truck gets 5 mpg on the low end and with diesel fuel currently at $5/gallon, that means it would cost just $2,700 in fuel to ship an entire truck load from New York to Los Angeles (much farther than most products would ever be trucked). Assume the truck is loaded with a low price, low margin product like toilet paper and you might ship around 4,000 small packs of toilet paper for a total fuel cost of $0.67 per roll. So if fuel prices doubled to $10 gallon, you would be looking at an increased cost of $0.67 per pack of toilet paper that is normally, maybe $10. So you are looking at a 7-10% increase in the cost of that toilet paper due to a doubling of fuel prices.
Of course, fuel is needed for the equipment that cuts the trees and the energy to manufacture that toilet paper, the plastic it is wrapped in, etc. But, we have to remember that we are talking about an inexpensive yet bulky product that we are shipping across the entire US and the weight is low so you could probably drag two trailers of it with only a marginal decrease in fuel efficiency.
The reality is that most products are trucked much shorter distances from ports that use enormous container ships where the fuel cost per dollar shipped is vanishingly small.