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Comment by mikeweiss | Hacker News Reader

Ummm, have you been reading the news this past year? Maybe any other time in the last 20 years the US could print money without worry, but the federal reserve is currently trying their best to reduce the money supply to fight run away inflation.

America's option to print it's way out of economic crisis will not be available again until inflation is under control

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The Fed is trying that for now, but even they know it's not going to work. Inflation today is mostly caused by goods supply issues (supply chain, Europe's energy crisis because of tensions with Russia, lingering impact from Covid on manufacturing), not monetary policy.

Inflation is a monetary phenomenon. -- Friedman

Then we're not experiencing inflation, just an increase in the price of the vast majority of consumer goods based on non-monetary reasons.

The way you can tell it's not inflation is if there is corresponding deflation when those non-monetary reasons disappear.

The way you can tell it IS inflation is to chart the M1 money supply.

https://fred.stlouisfed.org/series/M1SL

Citation needed. It’s the covid era monetary and fiscal policy that screwed us.

Is it just a coincidence then that the rest of the world is experiencing the same (or worse) inflation? And do you think the shortages of things like computer chips, and the increase in price of natural gas because of Europe's new imports have no effect on prices in the US?

But the rest of the (developed) world largely reacted in the same way to covid. You'd expect the impacts to be largely similar too.

> It’s the covid era monetary and fiscal policy that screwed us.

Citation needed ;)

But maybe it’s both. And maybe it’s complex. Maybe we’ll never know.

Housing prices and liquid asset prices seem very correlated to covid lockdowns amount wealthy people who couldn’t spend and 0% interest. Much of that asset pricing has reverted now. But stimulus checks and other often cited welfare benefits went mostly to grocery stores and supplanting income that was lost.

The rise in consumer goods prices is due to supplies chain issues like a war and sanctions on an oil producing nation and (my hypothesis) a desire for businesses to raise prices to raise profits to account for declining stock price and changing post pandemic spending patterns.

Of course it's going to work, regardless of the reason for inflation. Lower demand and prices will come down. Neutral stance monetary policy is meant to grow the supply of money at the same rate as the economy grows in the long run (+2%), so if there is inflation beyond that it means the money supply is growing too fast for the capacity of the economy to produce, even if that's due to other reasons. Neutral stance monetary policy does not live in a vacuum and the target never stays the same, so I don't know what you mean by inflation is not caused by monetary policy. It's monetary policy being run incorrectly for the circumstances.

That was exactly my point though. The way you “fight inflation” is you raise the rates and that means all currencies pegged to yours must raise their rates at the same pace no matter what their economic conditions are like or they get destroyed in FX market. Look at right now EUR, GBP or YEN. The way Fed fights inflation is nothing but rest of the world (mostly developing world) pegged to your dollar monopoly bailing you out. And that inevitably requires hard commodity asset repricing.

Europe is having massive inflation to (also did quantitative easing), so of course if the US tightens rates the EU would have to tighten as well to maintain exchange rate parity?

It has nothing to do with US dollar dominance, this interrelationship also happens with non-dominant currencies as well.

Agree Europe is a different story altogether- their currency free fall against Dollar is more to do with the mixed signal ECB is sending by still having to buy Italian and Greek bonds that find no other buyers AND at the same time trying to do a rate hike. And that is at the backdrop of a cold nuclear (potentially) winter.

> It has nothing to do with US Dollar dominance

Say that to Sri Lanka, Bangladesh, Pakistan, Iran, Argentina or literally any other developing currencies out there.

It's very simple, the US did the most easing due to the "exorbitant privilege" and so has the strongest economy coming out of the pandemic and so it can afford to raise rates the most and so it exports its inflation to other countries via the FX market.

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