"It won't happen here!"
It's not us doing money printing.. it's uh.. COVID, uh.. the war, uh.. Climate change, uh.. corporate greed.
As a net debtor, I might see see a 50% fall in the real value of my mortgage in 5-7 years at current inflation rates, if the politicians are feckless enough about it (“Milton Friedman isn’t in charge any more,” Biden tells me.) I seriously doubt I will see it in a month (the threshold cited in TFA).
[1] https://www.fhfa.gov/mobile/Pages/public-affairs-detail.aspx...
The reason fixed mortgage rates have been below inflation recently is because the financial industry (bond buyers and mortgage underwriters, at least) have largely bought the Fed's "transitory" narrative. A 3% mortgage remains profitable if inflation runs at 8% for a year and then returns to 2%; it becomes very unprofitable if inflation stays at 8%. The reason mortgage rates have climbed so much in the last couple months is because the "transitory" narrative has basically collapsed, and the bond markets are now starting to price an extended period of high inflation into the rates they charge.
I don’t know how more clearly I can state why this is a glaring subsidy for the rich. I’m sure in a free market these would just appear by themselves /s
There is some historical validity to the point that fixed-rate mortgages existed because of taxpayer subsidies. The creation of the FHA during the New Deal, and Fannie-Mae shortly after that, basically jumpstarted the practice. But there's a difference between jumpstarting the a market and continued subsidy of it. The existence of jumbo loans is an indication that even without taxpayer subsidies, fixed-rate mortgages still exist, presumably because the expectation of price stability means that private institutions don't think that the risk of interest rate variability is that great (jumbo mortgage borrowers usually pay about 0.5% more, so that's the implied risk premium). This can change during times of high price variability - my parents mortgage was 13.5% back in 1978, because expected inflation was about that. But that also indicates that interest rate risk is primarily absorbed by the private markets, and taxpayer subsidies play a relatively small part in it.
Fixed rate mortgages are the norm in multiple EU countries (i have one in France and it's pretty much the only option).
How do taxpayers subsidize fixed-rate mortgages in the US?
Government-sponsored enterprises (GSEs) like Fannie Mae and Freddie Mac guarantee conforming mortgages that they securitize against default. They might ultimately be backed by the US Treasury and thus US taxpayers (if not in theory, then in practice).
However, when inflation is high, the burden on the borrower of paying off their fixed-rate mortgage goes down (as their income increases faster over time). Therefore, the borrowers are less likely to default during high inflation. Thus, having the GSEs guarantee these mortgages is not a subsidy that protects middle class borrowers from inflation. High inflation essentially eliminates the need for the guarantee by itself.
But these same dynamics, just more extreme, have plagued all less lucky people each and every time.
There are European families who have been through multiple hyperinflationary events in the last century, and couldn't convince their kids that it could happen again. Then, it did.
And it's always smoke and mirrors on the population (begging for more money printing) as to the cause of what's happening. There are some smart ones who plan ahead.
That's not historically correct. Wages generally track inflation well, and are often (and are right now) a leading indicator.
What gets people upset about inflation is that it hurts lenders, not workers.
Inflation slows down growth rates in some cases, becoming stagflation. The slowdown in growth is what really triggered a reaction against stagflation in the 70s.
You can always negotiate a raise. But yes: on balance most workers in the US economy were getting raises as the pandemic ended. I did, just to counter your anecdata. When everyone gets a raise and economic activity doesn't change (or drops, c.f. "chip shortage", or "Shanghai shutdown"), you have more money chasing fewer things, so those things get more expensive (more anecdata: I bought a Model Y about 15 months ago, and could sell it today at a 15% profit because everyone who got raises also wants a Tesla).
Things getting more expensive is the definition of "inflation".
Real wages are down. Specifically: prices are up 8.26%, and the raise was more like 5.5% ish. People can afford less rent. People can afford less food. People can afford less fuel. People can afford fewer goods. People can afford fewer services. People can afford less of everything. This is what “poorer” looks like.
(And remember, that isn’t 2.6% less discretionary income, that’s a total-income figure.)
If you think a pandemic (and policies to combat its effects) and a war including some of the main exporters of foodstuffs and energy don't impact the world markets and increase prices worldwide (inflation), it's just willful ignorance pursuing a (stupid) agenda at this point.
For example if the government taxed enough money out of the system, prices would not increase (but stuff would be less affordable because you have less money to buy it with).
There's no getting around the increased scarcity, but the increased prices are in some sense a choice.
Say Canada does what you say will fix everything, and adds extra taxes so that there's less money to spend, so in theory demand will go lower because there would be less money, and in theory supply will increase, and thus suppliers would have to lower prices to meet consumers. Econ 101, right? Wrong, you should have continued past that chapter.
First, we're talking about inelastic goods. Food, energy. There's very limited elasticity there - you can choose to conserve energy and eat cheaper food, but in the end, you need electricity, warmth and food or you'll die, so there's only so much you can be elastic in your demand. Less money to spend due to higher taxes means choosing between eating rice for a week or uncomfortable cold going to freezing depending on place and season. (Until magically the market fixes itself, right? Wrong.)
Second, we're talking about global markets. If Canadians have less money to spend on wheat and corn and substitutes, or vegetable oils, or oil and gas, well, someone else will buy them on the global market. Even the local producers, unless they're forced to otherwise, or they're feeling really nice. There is more demand than there is supply for those specific, rather inelastic, items that the whole world needs and consumes, and which are heavily impacted by the Russian invasion of Ukraine. Which has also had ramifications such as Indonesia, one of the biggest exporters of palm oil, stopping exports due to rising vegetable oil prices globally (due to the war), to protect the local market by having locals buy local palm oil as a replacement for the expensive imported other oils.
If you thought I was saying it would fix anything except the number on the price tag, you must have misinterpreted my comment.
> and in theory supply will increase
I don't believe an increase in taxes would cause supply to increase.
> there's only so much you can be elastic in your demand.
Demand doesn't only mean how many loaves of bread people want, or how badly they want them. It's also how many dollars they can and will pay. Picture goods being sold at an auction, as they essentially are. With fewer dollars in everyone's pockets, the winning bid will be lower, even if the bidders are just as hungry.
Sorry, i meant increase proportionally to demand (because demand would go down, so there would be more supply than demand).
> With fewer dollars in everyone's pockets, the winning bid will be lower, even if the bidders are just as hungry
Not if the winning bid comes from another country, or the supplier can afford to wait (because remember, we're talking about inelastic goods - the supplier knows people need to eat and heat themselves).
So why did a loaf of bread cost 5 cents in 1900 and 5 dollars now, even though we make more bread than ever (and with less labour too)?
Couldn't the producers have "afforded to wait" until the desperate masses paid $5 per loaf, even if that were a whole week's salary?
Or perhaps the nominal amount of money in a customer's pocket is relevant to the clearing price, even for bread and oil?
I remember when the Fed started doin QE in 2009. I thought, "my god, pushing this much money into the economy will lead to high inflation!"... except, it didn't. Then they did QE2 and again, I thought, "for sure, THIS time inflation will spike up!" Except it didn't. Then QE3 in 2012...
Call me slow, but it wasn't until that point that I started to seriously re-examine my mental model about how macroeconomics works. But at least I could admit to being wrong.
You can, if the underlying conditions would, with a neutral policy, produce a significant-enough deflation. We’ve pretty much demonstrated that.
OTOH, if you have something like the COVID emergency and associated controls, that results in a rapid snap-back of the underlying conditions rather than the more common gradual adjustment, when you are geared to offset massive deflation, you get inflation until you adjust the monetary policy dials again.
Even when the government spends more money than it collects from taxes, it's still not necessarily inflationary so long as if it's a productive use of money (e.g. public transportation increases employment opportunities). The main difference from Covid relief was that lot of money was simply created with no good purpose at all, so it fell into the category of "more dollars chasing the same goods."
Money in your bank account isn't created through printing. It is created through accounting and the entire point of this accounting is to make sure that every liability (deposit) in your bank account is backed by an asset (the debt contract).
The entire point of this is to keep a mathematical identity. The net worth of the bank does not change when it issues deposits, deposits/savings and debt add up to zero. The only thing that changes is that the bank becomes more leveraged and less solvent which is why there are capital requirements which mandate a minimum quality of the assets that are being used to create deposits and there used to be a minimum reserve ratio to put an upper bound on the amount of leverage a bank can take on.
If you want to complain about the money supply growing or deficit spending or debt growing out of control you are free to do that but if you talk about money printing you are basically ignoring all of that and just think that there is this obvious element that everyone is overlooking. If the government bans cash it stops printing money but does it get rid of debt? Does it get rid of inflation? Not really.
When people save money, the currency goes up in value, to prevent deflation, the central bank loosens reserve requirements, lowers short term interest rates or if it can't do anymore it will do open market operations aka quantitative easing which is more or less just trying to replicate what a lower interest rate would have done.
Since there is a net increase of savings in real terms, either the interest rate must go down, perhaps even go negative to discourage people from saving too much, or more debt must be created to soak up those savings. This means if the private sector keeps accumulating more and more savings, the public sector must go more and more in debt if it wants to maintain a positive interest rate. If you don't like that, then you must somehow stop people from accumulating too much money and get them to spend it. Saved money isn't being lent on, not even in the case of a certificate of deposit, where it would kind of make some sense, it is just sitting there and waiting to be spent. Any time the bank "lends your money" it actually doesn't and instead creates new money in proportion to the debt.
I know it's my own fault for thinking of Poe's Law as a target rather than a pitfall. Sadly, for me satire/sarcasm isn't good unless the target of it sometimes can't tell that it is satire. It's evidence that I've treated them fairly.
edit: note that cm2187 understood that, and formulated a direct, thoughtful reply.
edit: also note (although you can't see it) that after I explained the "/s" wasn't an attack but an affirmation of the reply that told the truth about hyperinflation, that it wasn't a goldbugging Libertarian smirk, the upvotes started disappearing. Poe achieved.
It's only on the internet where I can assume that people will show up who really think that I believe that stubbornly low <2% inflation is hyperinflation, and attempt to excoriate or support me.
https://en.wikipedia.org/wiki/Early_American_currency#Contin...
Edit: tried to clarify wording. In 1781, a banknote of a specific denomination was worth only 1/40th of what the same banknote was worth in 1776.
What changed with the covid money printing is that it was distributed directly in people's pockets. Also its scale and pace dwarfed the previous 10 years of QE.
I have no good explanation for Powell to have kept printing money like there was no tomorrow after Feb 2021, after the first >7% inflation prints. I suspect he must have made a deal with Biden to let the inflation go (helped Biden's policies) in exchange for renewing his mandate. The ECB is run by a lawyer who probably had to look up on wikipedia the definition of inflation.