Inflation is at a 40 year high. What can history teach us?
yarn.pranshum.com
yarn.pranshum.com
For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of course, there was no inflation as the design of CPI, the indicator of indicator, was flawed. CPI does not consider price of assets, otherwise sky would be the limit. There were crisis simply because the money went to the people who didn't it that much. Printing much made things worse as most of the printed money went to those didn't need it much, but nonetheless had postponed them a lot.
Such pretending to be dumb game could have being played a lot longer if not the pandemic which made them had no choice but printing money and sending them to those in need. And all of a sudden, those who needed the money most had so much cash they had never imaged before? What were they going to do? For sure spending them all.
Now here is the long *expected* inflation, what are central banks planning to deal with it? Increasing interest rate to where it should be? Seems too hard, let's print more money!
Central banks have one universal lever, and they use it. (This is by design, so it can be mostly independent.) The responsibility is on the fiscal side to spend it on shit that actually matters.
Sending people money without means testing is dumb, but politics in this age is dumb.
Unfortunately harping half-truths about central banking won't help with the situation :/
Your comment completely ignores the supply side of inflation, ie. food & energy prices. Ie. there's a war between the food and fossil faucets of Europe.
See also the whole baby formula debacle (sustained government intervention reduced the market to a very fragile one, and lobbying and protectionism prevents imports to the US), see the perverse incentives in low-paying logistics sectors (the big ports are all owned by local governments, and they are shit at responding to supply-and-demand, and trucking is of course completely fucked because the liability is shifted to the drivers while the profit is nicely shifted off of their hands, due to a relative large pool of potential new drivers to fleece).
See this long, but well explained, video on the topic [0].
This is why we see talk from the Federal Reserve about how consumers will “feel pain” - the only way to reduce demand is to reduce employment or wages, to a level that the supply chain is capable of keeping up with. The Fed press conferences are really interesting to watch as they make this very clear - we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors.
Also, regarding the CPI not reflecting asset prices: the CPI does not include any measure of equity prices, for instance. Since so many rely on equities to fund their retirement, an increase in equity prices is a meaningful inflation. If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it. The increase in equity prices we see is really inflation of equities, but never branded as such. We call it “return on investment”, because the people talking about it are mostly those who already own equities, not those looking to buy them. It’s the same reason as why homeowners dislike seeing home prices increase, while homebuyers enjoy it.
I’ll also mention that the CPI has a lot of other bunk practices in it. For instance, “hedonistic adjustment”. A (slightly conspiratorial) site called ShadowStats computes a modified CPI that uses older CPI methodology (before the meaning of inflation was redefined to show lower inflation) that currently sits at 17 or so percent.
http://blog.jparsons.net/2011/03/shadow-stats-debunked-part-...
https://www.thestreet.com/economonitor/emerging-markets/deco...
https://www.bls.gov/opub/mlr/2008/08/art1full.pdf
> If the price of the S&P 500 for instance is higher due to an asset bubble, it decreases my ability to purchase shares of it.
BLS says that the CPI doesn't track savings, just day-to-day living expenses. And that's okay, people want these indices to do everything. (And the Fed is not even using the CPI, they are using the PCE ... and there's a bunch more https://www.bea.gov/resources/learning-center/quick-guide-so... And the PCE is considered too broad, because it has inputs from businesses, nonprofits, etc. But of course it's not like business costs are irrelevant to the economy...)
That said, I think the biggest problem is that these general indices are used for things like welfare calculations, but they already don't represent the average welfare recipient. So adding equity would make it even less useful for that. (Which is mostly just an argument for having more indices, each representing a large chunk of society. But of course the cynic in me says that we already have one for the important people, the SP500, and poor people only matter when they are undecided voters in swing states.)
> Now, supply is (mostly) recovered, but demand still remains elevated.
Mostly, though basic input like oil is still not at the early 2020 levels. Aaand OPEC cut production just yesterday.
https://ycharts.com/indicators/world_crude_oil_production (5Y chart)
> we are really looking at an “imbalance between supply and demand” due in part to all of economic, social, and political factors.
Yep. And every think tank from the political zoo has their own critique of the actions of the Fed, but monetary policy is simply a blunt tool, and all of the structural problems are ... surprise surprise ... structural conflicts between big powerblocks. (One common laughing stock is the Jones Act. US shipbuilding is basically non-existent, and what's left is useless for "national security" purposes anyway. But it's somehow completely entrenched. Similarly other protectionist policies that serve special interests serve exactly one purpose to enrich members of those special interest groups. It's bad for consumers, it's bad for the economy, it's bad for labor markets, etc.)
All in all there's an argument in this about how the US fucked up the transition during globalization. (The big one is using market access as a carrot in WTO, but then not enforcing reciprocity with China and others. And the lack of any real and effective management of wage deflation in the affected areas, like the rust belt, goes without saying.)
[0] https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
The inflation was very much visible in the places where the people who received the money spend their money (i.e. Wall Street). The money never made its way to Main Street, so naturally there would be no price pressure found there.
This time around the money was distributed to Main Street.
Those companies should have made more responsible financial decisions.
Is there a serious hope that AGI will invent a replicator soon after coming online? It seems likeliest to me that if a greater-than-human intelligence comes online it won't have a circumvention for the laws of thermodynamics and there still won't be such a thing as a free lunch.
That same thing will happen again once we have another huge advancement in technology. What we consider to be expensive and valuable today will be of zero or negative value to someone 100 years from now.
The 1974 and 1980 peaks from the article correspond to the steeper slope regions in those same years on my graph. (I'm plotting 1/[CPI-U price level], while the article is plotting d/dt [CPI-U price level])
On my y-axis is the purchasing power of a US dollar, relative to current level. So when the y-axis shows 9.813 on 1962-10-04, this means that sixty years ago, a one-dollar bill would buy a basket of goods that today would cost $9.813.
It certainly "feels scary" when the purchasing power is eroding quickly (i.e. a fast-declining slope on my purchasing power graph, or a peak on the article's year-over-year derivative graph).
All data from BLS: https://www.bls.gov/news.release/cpi.nr0.htm
Since 1972, Cash has a real return of 0.53% (inflation adjusted):
https://www.portfoliovisualizer.com/backtest-asset-class-all...
The rich aren't rich through this route, although things they do mean that bank interest rates are a guaranteed return for people who are less risk-tolerant. They're rich through one or more of: risk-taking, talent, hard work, luck, connections, etc, all of which feed into the one thing that makes them money: usefulness to other people.
Personally I like to think of it as, the US govt guarantees a return on overnight cash based on the Federal funds rate. Banks and other people that hold cash will give you that rate minus some fee(s) for the hassle of keeping up with your cash for you. Most banks have a very hefty fee, but not all banks.
As of this writing:
The Federal Reserve will pay 2.56% for cash deposited with them.
Bank Of America pays 0.01%, for a fee of 2.55%/yr.
Ally bank pays 2.25% for their savings account for a cost of .31%/yr
If you are willing to hold cash in an ETF, ICSH will hold cash for a 0.08%/yr fee.
For the record, I'm not against Bank Of America, I have an account with them, but I don't hold much, if any, cash with them for any length of time, because I know they charge a lot for that service.
Now for money on your bank that pays interest it's not necessarily better. The bank can be robbed or simply go bankcrupt. And since the money there was used by the bank for various things, there's no guarantee you'll get it back. This inherent risk needs to be priced into the ROI.
So IF the government always saves banks with buyout, then yes. That's also why I believe it's not a great idea and people of such a bank should lose at least a part of their assets/savings to understand the fact that the money isn's just stored by the bank.
Housing and healthcare are better examples of goods or services whose prices have increased faster than CPI-U.
First, you can't get the old vehicle new for cheap. That option is no longer available. You do get an objectively better one, but value is fundamentally subjective.
Marginal economics bridges this gap with consumer choice, but if no choice is available then I don't think you can assume consumers are better off.
In any case, I think inflation is a backwards lens through which to examine vehicle prices. The primary mover is industrial learning curves. Inflation is downstream.
In the 20s, when domestic car sales increased annually, the auto manufacturing industry was constantly growing. Factory efficiency increased every year and prices came down every year. The model T got cheaper every year, not just better.
Part of what caused the depression was this process maturing. Auto sales peaked. Manufacturing volume stopped growing. Efficiency stopped growing with it.
This breaks many financial assumptions/instruments and results in deflation, or rather, a local quanta of deflation. Growth industries can vary a lot of long term debt/equity/promises. Shifting from one state to another is deflationary/deleveraging.
Anyway, vehicles stopped getting cheaper 100 years ago. They get better/nicer gradually. Not cheaper though, ever.
How Much Does the Ford F-150 Cost?
The 2022 Ford F-150 starts at $29,990, which is the lowest base price in the full-size pickup truck segment. However, that's for the three-seat Regular Cab, so if you're looking for more room, take note of the Super Cab's $34,075 base price and the SuperCrew's $37,700 MSRP.
The nearest dealer to me had 17 of them ranging in price from USD$34k to USD$62k
"The Price of Tomorrow" by Jeff Booth really nails this concept.
But yeah housing is a better example. We really fucked that one up didn’t we?
Healthcare is hard because we have so many better technologies, but worse outcomes so the price increase is arguably not worth it. Maybe this one is like the truck. Lotta new technology, at the end of the day not better.
Are modern pickup trucks objectively safer than modern cars, or is it more about the perception of driving something that feels it's half way to being an armoured vehicle?
In Europe almost no-one drives around in a truck. Even the tradespeople (carpenters, plumbers, roofers, gardeners, heating installers, you name it) all drive light vans, not trucks.
[1] https://ritholtz.com/wp-content/uploads/2018/02/pricechanges...
This is a nice demonstration of the variability of inflation and how under-trend we have been for many years. There was a strong push from some monetary policy people to move toward a longer term, average inflation targeting that would make the Fed have symmetric reaction functions to upside and downside inflation while attempting to keep a longer term average as the goal.
One interesting explanation for high inflation during the 1970s to early 1980s was that the monetary system and supply of real assets had to adjust to a massive influx of working age adults (babyboomers). A second wave from that population event started to enter the workforce over the last ten years. It might be interesting to normalize the data here against the size of the workforce.
And you are right boomers household formation increased demand for stuff.
Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the knowledge of the fed being able to just print and buy any debt and that they would do so caused major crises to be avoided (2008 and 2020).
The problem recently has been that this fed is simply incompetent. They do not form their own opinions and simply follow what the prevailing narrative dictates. If it’s consensus that rates should not be lifted, they just coast through those meetings towing the same line and continuing to buy bonds.
Then one day the narrative shifts and concern starts to grow over fed policy. So the fed suddenly reverses course and announces sudden rate hikes. When it turns out that cpi moves slower than the fed hoped, the pressure to intervene grows.
Now the consensus is that the fed should be making multiple 75-100 bps hikes so that’s what they do.
The question now is will the narrative shift fast enough for them to not end up going too far the other way.
I sincerely hope the next fed chair is someone who understands the relationship between credit markets and the economy and the need at times for the fed to be the lender of last resort, but also understands that the fed should be an independent entity capable of forming its own policy and having the courage to ignore what market pundits say should be done. The Fed’s mandate is not to make Wall Street happy.
We want to avoid structural damage: Lost jobs, bankrupt businesses, lost mortgages, and so on. Structural damage leads to loss of real productivity, and real harm to people's lives. The only way I knew to get through COVID shutdowns was to devalue currency by about as much as we've done.
I didn't mind the short-term money printing, and I expected inflation to result. The inflation is painful, but the alternative is much more painful. My income buys less than it did two years ago, but I'm thankful I have a job. I was even more thankful when jobs were easy to come by. If my employer went under or I lost my job, I'd be profoundly unhappy.
The right approach now would be to accept a dollar is worth less than it was before, and to give an honest estimate of how much less.
Aggressively trying to control inflation by raising interest rates is a lost cause, and will do a lot of real harm. The outcome here seems to be that rather than mitigating the harm of COVID shutdowns, we've delayed them, and did a lot more harm along the way.
I disagree - I think what we need is a constant, low, background level of structural damage - which includes lost jobs and especially bankrupt businesses.
I grow increasingly fond of the forest fire / controlled burns analogy:
We have come to realize that preventing, or extinguishing, every wildland fire causes a dangerous level of fuels to slowly build up, eventually erupting in an unstoppable conflagration that destroys much more than the sum of the fuel overload.
Preventing recessions and keeping business firms afloat that would otherwise fail without easy loan rollover - that's the financial equivalent of refusing to maintain fuel loads with controlled burns.
Eventually the dead fuels (zombie business firms) will overwhelm all firefighting efforts (QE ? Negative interest rates ?) and will take down a much larger portion of the economy than otherwise would have failed along the way ...
Completely incorrect. If the jobs and businesses in question existed only due to speculative excess, they shouldn't exist. Easy money generates what David Graeber would call "Bullshit Jobs", that contribute anywhere from zero to negative real value production.
We want these businesses liquidated and the employees out on the street, to pursue work that actually contributes to society.
The trick is to somehow limit the collateral damage to businesses that do produce real value. I don't think that's a problem that's been solved.
If I recall, those fed chairs tend to be Wall St alumni unfortunately.
We have printed so much money, the only solution is to... print more?
It's almost like it is all a sneaky backdoor to letting the government redistribute wealth without real oversight...
But I think a more interesting aspect of this is the cynical way language around the same idea has changed. The Franchise Tax Board is calling them a "tax refund", though your "refund" is based on your income being low, rather than your tax bill having been high. But the press has certainly been cooperative in calling them "inflation relief" recently, though the program was planned before inflation rose to the top of so many people's list of concerns. Politically, Newsome wants as much credit as possible for handing back a windfall of taxpayer money that came in mostly because of economic conditions he did not create and taxes that he did not introduce.
https://www.ftb.ca.gov/about-ftb/newsroom/middle-class-tax-r...
1. Federal reserve makes several trillions in new money and lends it to the US Government.
2. The US Government passes “infrastructure” and “Covid relief” bills that shower billions on states and cities.
If not for this flow of printed money, most of the states would be cutting budgets since 2020.
So, yeah, a lot of it is printed.
Infrastructure for low density suburbs is a money pit that bankrupts cities.
Here is a good playlist that explains why this is the case:
https://www.youtube.com/watch?v=y_SXXTBypIg&list=PLJp5q-R0lZ...
What theory of science dictates infrastructure is the best place to spend it? If the answer is none, it’s a purely social policy and you’re spewing politically correct memory. That infra spend is not an immutable law of reality means there are options other than “poison the sky with expansive vanity projects.”
Even then, there’s plenty of money for both, and human agency available for both. We can stop pretending money is what drives human invention and discovery. It’s politically correct spoken tradition since it’s not an immutable law; how we feel about other economic choices is a range of possibilities, not just the ones we have been raised to speak of
Gavin Newsom in this case is acting like Robinhood. Taking from the rich and giving to the less well off.
Its not. Its happening in Europe too. Its a way to try to get people through the winter and avoid the energy crisis impacting ordinary people.
That's what a government should do - take care of its people during extraordinary times.
Over the past year businesses have increased their prices all over the board, you can’t then just simply say “but inflation!!” when you want to help the people with some amount of compensation for this.
Though this action is redistributive, it is explicitly not about printing money. It is about spending excess tax dollars. You may have opinions about taxes in the state, and you may have opinions about redistribution, but overall if the state temporarily has a surplus (ie it shouldn't put this money towards increasing long running programs that will become a burden in future years), shouldn't it give that money back to the citizens in some form?
Do the fairly simple geometric series from that and you'll discover that all money creation generates additional taxation that extinguishes it - to the penny. All that changes with the tax rate is the number of hops before the money impulse disappears.
What you have to do to balance the system is remove some hops elsewhere. That's what threats about interest rate rises are supposed to do. Money then isn't created by loans, or the transaction hops from those loan creation events are fewer.
That reduction is what we call 'saving' and tends to show up in aggregate as a government deficit. The bigger the deficit, the more saving there was and the fewer transaction hops in the economy.
Saving is little more than voluntary taxation. The current approach is to go down the voluntary route rather than the compulsory one - largely because the population won't sanction any further taxes.
If the money used to purchase energy causes a large rise in the government deficit (or a significant reduction in the loan growth rate) then that will 'pay' for it without causing inflation.
Yes but the energy crisis isn't evenly distributed across the world. NA, for example, is still doing relatively well. While Europe is being hit relatively hard by the shortage and will likely have to import from more expensive sources than previous years to make it through the winter.
Think again. You can't create energy by cutting taxes either. The tax cut can only be spent on energy, exacerbating the problem by making wasting energy much cheaper.
A check on the other hand discourages people to buy expensive energy because they could be spending the subsidy on something else that isn't energy constrained.
Capitalism's own solution so far was to create more available properties - more individual debt such as credit cards and mortgages, privatize public goods like health and education, more destruction of ecosystems, selling attention and disrupting work, and the latest fad, cryptocurrencies. But these are only temporary solutions, they do not address the core problem of increasing social inequality.
Likewise, printing money and giving them to the poor (while half of it goes directly to the top, because the decision-makers are only human) is a stopgap solution in the system where most money quickly end up accumulated at the top. It's a desperate attempt by governments to maintain social order.
In the middle of 20th century, the capitalism's tendency to create disparity was somewhat resolved in Keynesian approach, where state "investments" (based on taxation) were basically redistribution of the money back to the bottom, so that the process of accumulation could continue slower and indefinitely. That was eventually abandoned, for ideological reasons (people shouldn't get "free money", and the "private property" is sacrosanct).
However, it is the only known solution. The proper taxation of the rich (and property) is badly needed to long-term stabilize the capitalist system.
One could make an analogy with any other competition. When another competition starts, winners (of the old competition) are usually given the same place at the start as everybody else. This is because without this rule, the competition would quickly demotivate everybody. But this is happening under neoliberalism, and threatens to eventually halt the positives of the capitalist competition.
And no, it's not a "sneaky backdoor". It's the government doing what it should do, tighten financial inequality gaps. And preventing unnecessary suffering. We're still a society, we occasionally take care of the weaker people amongst us. (Frankly, not often enough)
And "without real oversight" is... you're aware this is going through the normal process of fund allocation, is reported widely in the press, and is part of the data that voters can take into account next round, no? It has just as much oversight as any other government spending. (Arguably more than some federal programs)
I get that fiscally conservative folks might disagree with this, and we can certainly debate merits. But "printing money" and "without oversight" are empty slogans without basis in fact.
No, that’s really, really not what the government should be doing.
Yes. Once you start printing money to fix problems, you fall into the pit of always needing to print more. See Zimbabwe’s $100 trillion dollar bill. I have one, it makes a great placemat.
The economy is the aggregate capability of a society to provide goods and services to people, if the economy collapses the goods and services that are being provided cease to be as well and people are worse off.
Short sighted statements like "people are more important than the economy" is a feel good virtue signaling that is indicative of an inability to think clearly about the consequences of actions and a substitution of emotional reasoning over rational thought.
A labourer making daily wages and supplemented by govt dollars will spend all of it. A millionaire with a few millions in the bank is not going to spend any of it. Especially during an overheated inflationary period. It’s better spent to the most vulnerable to pay for their food, gas and utilities.
This is exactly what needs to be done to keep spending going. It’s spending from a healthy and happy middle class that keeps the economy going. Can’t freeze them out. Not implementing measures like this would collapse the economy.
An economy with hopeless disenfranchised hungry poor majority is exactly the first ingredient in the recipe for revolts and revolutions.
Also..it’s heartless to not share a surplus to people who are suffering. We are a rich country. No one died because someone else got a little extra money to pay their electricity bill or gas.
The economy might be the aggregate production of society, but the distribution of the fruits of that production are not meaningless.
Nobody is proposing a return to subsistence farming, but some of us are willing to trade off a higher GDP for more equal distribution.
During Covid large checks were mailed out. Reddit was full of 'casual investors' throwing money at meme stocks that explained it was 'covid money' and thus didn't matter much to them.
Student loan debt forgiveness is the latest madness.
The end result? Those with the least money (the poor, and those on fixed incomes) are totally hosed. If you can't afford rent at $800, you surely can't afford it at $1400. More handouts only make the problem worse.
The Fed's response (raising interest rates) will make cars and houses out of reach for many.
Vote for politicians of any party who pledge fiscal responsibility. As a litmus test, judge their reactions to government handouts.
That's absurd; while a one-off is nowhere near as good as a basic income, a flat "handout" benefits the poor for obvious reasons (at the expense of the rich; there's no free lunch).
> The Fed's response (raising interest rates) will make cars and houses out of reach for many.
Buying cars and houses with money you don't have and hoping you can make up for it in the future is something we never should've normalised. Someone preaching "fiscal responsibility" should see this as a good thing.
That's certainly the expected path forward, at least in the circles I associate with.
"When the tide goes out, you find out who's swimming naked" seems a reasonable guess as to what's going to happen. Both at larger bank/investment firm scale and at the individual level.
At an individual level, just how much slack and flexibility do you have in your spending, your finances, your general way of living? If you're a high earner (there are certainly plenty here that would qualify), are you spending that on lots of monthly payments of assorted luxury and stretch items (house, cars, all the other crap you can get loans for)? You're probably going to be in a world of hurt - there's no income so high you can't outspend it, and it's really hard to adjust those payments when the value of money goes down and you need more for the living expenses. Also, those payments don't go away if your job is eliminated.
If you're comfortably pulled back, with either a high savings rate or a high "optional spending" rate, then you should be in far better shape to adapt - and I'll suggest that using some of those resources to help others around you would be useful. Even just coordinating bulk buys of food and other resources is helpful. But the key here is that this allows for flexibility. It's good to be rich, and all that - so don't be stupid about it.
I think, collectively, we're in for a world of hurt. Inflation is high, and energy costs seem to be staggering back up. Europe is going to be a frozen wasteland this winter if it's anything but a warm winter, and the energy costs are already eating businesses alive out there. That's before you get to a possibility this winter, in which money doesn't help, because there's simply no energy to deliver. If the natural gas pipeline to your place are empty, welp. Doesn't help to be able to afford the energy when there's none to buy.
That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well.
The last couple years have broken a lot of things. And we're only just beginning to learn how much is broken, how badly.
I've lived my life trying to minimize the financial downsides. I want money for security, not to live the high life. I like my job, and don't feel the need to retire early - I would love to do it until I'm 6 feet under. I make a decent enough income, although not the level of many here. I bought a modest house (700k - hey, it's California) compared to what lenders wanted to lend me (1.3mil).
We could afford our expenses on two minimum wage jobs if need be. And that's with 3 kids.
Let's assume a $15 minimum wage. The housing one can afford on two such wages is $1,560/mo. On a $700k home, assuming 20% down, to repay the principal alone is $1,556/mo. A mortgage calculator says $3,800/mo once you have interest in there — or 73% of your gross income. And that ignores insurance & taxes. And those 3 kids.
Also, California just passed a law requiring minimum wage be $22 in some industries/companies of a certain size (and the next step will likely be rolling that out to all industries and companies, as they did with the $15 minimum wage between 2016-2020)
The problem I have with debt is that you then have to be able to service it. There are plenty of folks in the FIRE forums who go back and forth on the topic - "To pay off your mortgage or not?" is a holy wars topic. The argument for not paying it off (and arguably taking more on) is that your investments in the market will outperform your cost of the loan, so it's free money. And it works well, for at least some time - but the FIRE movement is largely a post-2008 movement, when all the money sloshing around meant investments go up. Regardless of anything else, investments go up, so put money in them, and while few people suggested going strongly leveraged, the sentiment certainly lurked around the edges.
We'll see how that holds up if the market is cratering around the time one is unemployed. Meanwhile, "Don't have debt, have savings, and live well below your means" has been tested through an awful lot more years of human history than "Put it all in index funds."
I'm certain I've "left money on the table" with my approach, but I also keep my downside risks limited, and should I have reason to really clamp down monthly expenses, I can do so very well.
90% of US mortgages are fixed for the entire loan.
I hope it works for you. That's a level of debt-based risk that neither myself nor my wife have any interest in. There have been a lot of people throughout history who thought similar arrangements were "sure things," and they were, up until they weren't and it all came down around their ankles.
We live in a very modest (manufactured, gasp!) home for our income, our "new" car is a decade old, with other vehicles ranging far older (the tractor is about 80), but still maintained in perfectly good condition and they all do exactly what we ask of them. Mostly. One of the Urals got demanding lately.
It's low stress and high slack/flexibility. Those seem useful to us.
If producers decided not to produce during a period of high prices (unlikely), we have gas in storage, right now, to last through the typical winter.
https://ir.eia.gov/ngs/ngs.html
(unfortunately, export capacity is a rounding error, so we can't do a whole lot to help Europe out. https://www.eia.gov/dnav/ng/ng_move_expc_s1_a.htm )
The only thing that isn't a sure thing are wages but they have over the long term gone up [0] and when they do go down it is usually only for a few years.
The last one is a risk but I think it is well worth the risk.
I’m with you with cars… but even then the maintenance expense starts to catch up.
We tend to fix about 75% and variable the remaining.
You might want to re-read your terms if the interest rates get much higher.
The interest-rate risk is on whoever owns the bonds to that ultimately funded the mortgage. The value of those bonds is going down as interest rates rise.
Most loans in the US are fixed rate for the life of the loan.
I guess they should hope that their green technologies didn't work enough to curb global warming or something. What a messed up situation.
By backup you mean for heating? Can you safely burn kerosene indoors? I thought you would have all sort of pollutants on top of monoxide?
As such, I would be hesitant to use a kerosene heater in my home without investigating it in much more detail.
(It's a theoretical issue for me as my geographical area has more NG than it can use)
You can, and people have throughout the last century and a half, both for heat and light. In terms of winter, the fact that kerosene lanterns provide "a bit of light and a lot of heat" is useful - though the light coming off a good cold blast lantern is just wonderful, year round. A nice continuous spectrum, cooler than candles, but still a very nice yellow-orange, with more than enough to read by.
I've been experimenting with them for a while now, and as far as I can tell, a properly burning kerosene lantern doesn't put any measurable particulate in the air, at least as far as PM2.5 or PM10. Run them too high, they'll certainly smoke, but run properly, I can't measure any real difference with the meters I have. They should be burning cleanly.
The same goes for the wick type kerosene heaters - either convection or radiant. They should be burning clean, and if you get any smoke off them, you've got a problem that needs fixing (the good news is that it's almost always either just burning them dry to remove tars from the wick, or at worst replacing the wick).
You shouldn't be getting any carbon monoxide off them either. That's from incomplete combustion, which, again, shouldn't be happening. A properly designed and operating lantern or heater will be feeding a strong draft into the burner. A window slightly open should provide enough venting for a typical unit burning - though I'd have a CO meter around any combustion heat as a normal habit anymore.
If you're burning 1K, you'll get some kerosene odor on startup and shutdown, but it shouldn't be much during operation. However, if you're in the US (perhaps other places too), you can get Klean Heat, which is a kerosene substitute that's somewhat more expensive (~$15/gal vs about $10 for 1K out here), but burns significantly cleaner. It behaves the same, so can burn in the same lanterns, but just burns cleaner all around - less odor, less wick fouling (though that's not usually a big issue with 1K, just the red dyed stuff), etc.
But, yes, I very much do refer to kerosene as a backup for heating. I prefer it over propane - it smells better (propane has a bit of a metallic tang, kerosene is a far warmer smell), and I don't have a pressurized bottle of flammable gas in the house. Kerosene is combustible - not flammable. The flash point of the stuff you should be using is around 140F, which means below that temperature, it doesn't emit enough vapor to ignite in regular air. Gasoline's flash point is -40, give or take, so it will happily generate vapors in regular air looking for a thing to light them of. Especially in the winter, at 40-50F, kerosene is quite safe compared to other heating solutions.
Anyway, it's something to look into. Our energy systems are not in good shape globally, and being able to stay warm with the power grid down and the natural gas empty seems like the sort of thing one might want to consider more lately.
For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location.
Confederate inflation paused during the move.
The reason is pretty simple - the Law of Supply & Demand. The more currency there is flooding the economy, the less value that currency has.
The US govt has been on a spending spree as of late, but hasn't yet bothered to mention how they are going to pay for it.
In 2008/2009, the US govt was also on a spending spree, but did promise to pay the bill eventually. Inflation didn't spike in 2008/2009.
The bottom line is, nobody really KNOWS, we just have guesses. My guess currently fits all the facts, where yours does not, but that doesn't mean my guess is right, but perhaps it's more correct than your version.
My version has lots and lots and LOTS of history backing it up.
Did you know that the US had inflation when on the gold standard during the California and Yukon gold rushes?
Did you know that Spain experienced massive inflation during the period when they were shipping the silver in S. America across the Atlantic?
I could go on and on.
> One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed.
This sort of thing happens with private banknotes, which would trade at a discount based on the level of trust. But that is a one-time discount, not a cumulative process.
Read some John Cochrane[0] if you want a more academic defence of my version(which is where I got it from, I'm certainly not smart enough to have come up with it myself).
0: https://www.justicenewsflash.com/2022/01/03/the-grumpy-econo...
Providing liquidity is a cumulative process.
The primary difference between 2008 and now with respect to monetary policy is money velocity. Increasing money supply is a necessary but insufficient condition for inflation.
In 2008, much of that money sat uninvested, so it didn’t impact the price of goods. In 2020, most of it got used to buy and invest.
It wasn't un-invested, it just didn't much make it out to buy consumer goods(at least not as directly as in 2020).
Like all things the devil is in the details, which get stupidly complicated.
This is called cost-push inflation. Unfortunately, that theory doesn't explain where the extra dollars come from.
Nobody understands the economy. But we can be pretty sure that it isn't the economy destroying the value of the dollar, because there is no reason for consistent annual inflation to be happening. If anything, in the absence of money creation, we should be seeing deflation because of technological improvements. Short term wobbles, sure, maybe even sometimes a few straight years of inflation due to exceptional conditions. But that isn't what is happening.
The only thing that can have caused the dollar to lose value consistently is creating new money. Otherwise we'd see it regularly snapping back to normal value with deflation. Which, in my lifetime, I think may have literally never happened.
Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say raising interest rates was a pretty good start, if a bit late in the game.
Inflation lags the money printing, so it isn't a tautology.
> So what do you do to get that sweet spot of about 1-2% inflation?
I'm amazed that propaganda of a sweet spot gets so heavily embedded into the popular wisdom.
If there is a sweet spot for inflation, it's 0%.
Note that the US had net 0% inflation from 1800-1914, while growing from subsistence farming to superpower.
This is grossly ahistorical: in 1914, 2/3rds of the US lived in abject poverty[1]. Individual farming, including subsistence farming, didn't peak until the 1930s[2]. The US's ascent to superpower status can be traced, at the earliest, to lending programs begun during WWI (and repeated, to fantastic effect, during WWII).
The US's phenomenal ascent in international status and power is directly tied to its monetary policy, a policy that has more or less kept inflation around 2% since 1935[3].
[1]: https://web.archive.org/web/20150720050803/https://www.irp.w...
[2]: https://www.ers.usda.gov/data-products/ag-and-food-statistic...
[3]: https://www.thebalancemoney.com/u-s-inflation-rate-history-b...
By the way the us was in a recession for practically the entirety of the second half of the 19th century, mostly because of absolutely garbage monetary policy.
The US also had a civil war during that period. And then repeated brutal boom and bust cycles until Breton Woods.
0% inflation is generally not a safe target. In an economy you want to avoid deflation at all costs. If consumers expect future price drops, demand can dip significantly and induce further drops in price (deflationary spiral). Businesses need consistent, predictable demand, else they enact shortsighted, over-reactive responses (e.g. layoffs) which can further exacerbate an economic downturn. See the Japanese financial crisis. Even a small fluctuation into deflationary territory can have long-lasting effects on consumer perception. It's safer (read: insurance policy) to maintain a slightly positive inflation rate so that consumers are encouraged to make purchase decisions promptly when needs arise versus indefinite speculative postponement.
Of course, the "optimal" inflation rate is context-dependent. Your unique economic situation will dictate which inflation trade-offs you end up selecting.
Because that sweet spot is very similar to the benefits liquidity confers to the holder of liquidity. Come on grandpa, please don't tell me all the people "bringing their wares to the market" are doing so at no cost and that the holders of liquidity aren't benefitting from stores optimistically stocking goods.
I have heard people tell me they weren't making enough money to cover their expenses on a month-to-month basis as a result of cost increases. These happen to correlate with inflation.
There is no way an economy would stop just because there was no inflation. Would Microsoft suddenly decree that if the US government won't print US dollars, it won't sell you a Windows license key? Even in the case of extreme deflation, it only becomes an issue when you have people trying to do weird things with physical currency like cut a penny into 1/4s and use it to buy different goods.
How much net inflation was there in Europe between the Napoleonic Wars and the start of WWI? Do you think "the economy stops" is a fair description of this time period?
When technology increases increases productivity and society has a fixed supply of paper money, you'd think you'd see deflation because there are more goods and the same amount of money. However, actually during those periods of times, banks lend out money, which increases the money supply. This is a good thing because they're enabling economic activity that otherwise wouldn't have happened like a loan to start a new business. However, this system is fragile because if depositors lose faith in the bank, everyone will try to withdrawal their money, which is called a bank run. The bank doesn't have enough money because they leant some of it out, so they default and depositors that aren't quick money lose their money. One of the purposes of central banks is to ensure that this doesn't happen.
With a small inflation, there is no incentive to hoard cash, and there is enough liquidity to make sure goods get exchanged without too much delay. At the end of the day that is what an economy is, exchanging goods.
Removing cash in the public's hand via taxation has several drawbacks, as mentioned by other posters. It's a very slow legislative process, because it has much more direct distributional effects (who is going to be taxed?). Additionally, most academic economists believe more taxation reduces real, as opposed to nominal, economic activity ("distortionary effects of taxation").
But that specific question, nobody would take money out of the economy by fiscal means, even if they could. You would need huge fiscal changes to have the same effect of a small monetary restriction. And you don't do huge fiscal changes, ever.
Inflation is a wealth transfer from the poor to the wealthy. It is not, by any means, necessary.
https://mises.org/wire/inflation-its-wealth-redistribution-s...
1. Where does all the money come from to pay for increased gas prices?
2. When gas prices go down (and they often do go down by multiples), why doesn't deflation happen?
2. Because companies just take all of the difference as extra revenue, and prefer to increase salaries (if not just keep everything as profit) rather than reducing prices.
Note that I'm not claiming that increased money supply doesn't cause inflation. It obviously does. I'm claiming it's not the only cause of inflation. It's sufficient, but not necessary for inflation to happen.
But electricity, gas, consumer goods, food, housing (via construction costs) - these will all go up, and they form the vast majority of consumer spending.
You do realize that the US has had fiat money for decades, right? Including our longest period of low inflation, a run of nearly 4 decades. So it would seem history teaches us the opposite.
"For every complex problem there is an answer that is clear, simple, and wrong." -- H. L. Mencken
Yes, since 1914 when the US switched to fiat money.
> Including our longest period of low inflation, a run of nearly 4 decades
The US had zero net inflation from 1800 to 1914. How much net inflation do you think happened in those 4 decades? What would a 1914 US dollar be worth today?
I'll help you out. $29.92
Either way I don't think 'decades' should be used as evidence that any monetary policy is good. We can reconsider if we get to centuries.
As an economy expands, it needs more currency to facilitate growth.
A 'very hard currency' would strangle an economy with ugly deflationary issues.
Moreover - with a 'hard currency' the system will fail and collapse when it faces an existential shock such as an internal failure (bank collapse), war, pandemic.
The objective is to provide 'the right' amount of liquidity for the economy as needed, and, during times of crisis to be able to release enough liquidity to see the economy through the crisis.
Yes, the 'price will be paid' in later years for excess liquidity in terms of higher prices, but that's not necessary a bad thing, it's just accounting. It depends on the distortions. If the community accepts that 'yes, resources needed to be diverted to pay for xyz' then that's 'the cost' and it's going to be borne out in higher prices.
And yes, if Central Banks print wily nilly and provide too much supply this will result in hyper inflation.
But fundamentally, this idea that fiat = untenable is completely false.
Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.
The explanation I've heard is that most of the QE in the 2010's was metered out in such a way that the average person wasn't receiving funds and the money wasn't quickly and directly going into the economy. The post 2008 QE purchased troubled assets and freed up institutions to lend money. It could be said that most of that QE money wound up in stocks and assets such as real estate, which is why valuations were going so crazy over the last decade while consumer goods stayed relatively flat.
All of the Covid stimulus, loans, and bailouts were different because so much more of that money went directly into the consumer economy. Price increases were exacerbated because of supply chain disruptions, needing to recoup losses from lock-downs, and the price hikes due to raw materials shortages. There is also a self-fulfilling prophecy that inflation is both higher than reported, and that our officials are lying to us about how bad the problem is. When everyone else is raising prices, it is a lot easier for a business to follow suit.
That's the explanation I've gathered while trying to understand the question and it seems reasonable to me. It may be entirely wrong, however.
Yep, that's inflation too. But since the money was mostly circulating there, and the official measurements of inflation don't look at investment, it didn't make into the news.
The really good question is why the money was contained there. I don't have a good answer for it.
See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
See M2 over time: https://fred.stlouisfed.org/series/M2SL
Besides, if you have an argument to make, you can make it without calling somebody an 8th grader.
In 2008 we had a 'banking crisis' but that was an 'accounting crisis' otherwise the economy was normal. We had to re-allocate.
With COVID, we had a real shock to the system, and then lasting shocks due to increased prices.
So both the money printing and regular higher prices are coming back to hit the economy.
If QE led to inflation quickly and in a simple way, we could have known that long ago. We didn't even have to do it ourselves: Japan did the experiment long before we did.
If you know, please explain it to me.
The government (to be correct we should say: the Federal Reserve) has not been "printing money" for around a year now. Monetary base has actually declined by ~12% in that time:
The fun thing about HN is I hear all sorts of unique economic theories not found in any econ book.
P.S. If the wealthy (or everyone else) needs more money, and just raising prices will work, why don't they do that anyway? The answer is Supply & Demand, it's the Law, and is in every econ textbook.
In economics circles inflation is generally considered a tax on the poor who only hold cash and whose wages are slower to rise vs price inflation.
Printed money has to go somewhere. If it just sits somewhere it doesn't do anything. If it goes to investments you'll see inflation there. If it goes towards goods you'll see prices rise there. For inflation it doesn't matter whether you have a lot of money flowing at a low velocity or a smaller amount of money flowing at a higher velocity. When velocity of money drops because people are worried about the future then you can print money to compensate without producing inflation in either good/services or the stock market/real estate. During a stock mania velocity of money increases and idle money turns into investment money with asset inflation as a consequence.
Wörgl -- economy suffered from too little money in circulation. Printing money fixed it.
Japan -- economy has been stagnant for decades. Printing or borrowing at near 0% is fine for them because idle money doesn't do anything. When the Japanese economy starts growing again and velocity of money increases they'll get inflation, just like everybody else. Having no growth and a flat stock market for 30 years is not a good place to be at.
It's all monetary, but the effects aren't immediate. Prices rise only when it's known the market will support these higher prices, and this price discovery takes time.
You'll also shut down lending, strangle spending, and remove all incentive to invest, but fortunately, the dragon hoard of cash that one has hoarded will start increasing in real value year over year.
That's what you hear a lot, especially these days.
But is it really true? What exactly is the signal path, that leads from more money to a higher inflation? I guess, there is a fair amount of psychology involved.
History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, and many businesses closed. At the very least, the supply of many goods dropped, and people were at home all shopping online for the same goods - causing prices to rise - inflation.
History also teaches us that the government increases the money supply by printing more money.
It's not an accident that both of those are caused by the government. These are the masses' reasons to have lower regulation, not to give handouts to some but to stop government interference. Not to favor winners and losers but to have just enough regulation - without printing stupid amounts of money to save the economy in the short-term.
Unfortunately, history also shows us that government interference, though possibly well-intended, results in price controls that also cause the same problem - inflation.
But these seem like entirely different problems. If there's too much money, then you should reduce the money supply by increasing interest rates, stoking job fears, etc.
If there are not enough goods, and the market isn't responding by producing more, you can't solve it by making sure people have less money. Or, you can but you are really make people poorer, not just curbing runaway prices.
I'm a little worried they're fighting a money supply increase when the problem is a (hopefully relatively temporary) shortage of supply. I think the money printing resulted in some asset bubbles (crypto, real estate, stocks), and raising interest rates has popped it already. But I think inflation will just settle down as we get our energy and supply chains righted, regardless of where interest rates are.
The government rarely if ever controls markets to the point where it causes material price increase for things.
The US government has not taken measures to materially affect the cost of goods imported from China, or gas, for example.
Yes, the Central Bank sometimes creates more liquidity than is required for a given economic cycle, but in most cases, this is due to economic calamity i.e. banking collapse, pandemic, war etc. in which case the resulting inflation is the 'accounting adjustment' made to accomodate for that 'external factor' (i.e. factor external to the regular economy).
A pandemic, banking failure, getting invaded etc. can be the result of government action (I mean, especially if the nation is 'choosing to go to war', as in Vietnam) but not necessarily.
Finally, and importantly, the Central Bank is not the 'government' rather, part of 'governance' - they are very different things and act for different reasons. If the 'government' did control the money printing we would all be in trouble!
Tarrifs on imported goods are specifically designed to make the cost of goods locally higher.
If a foreign product costs $100 landed, and a locally produced one $120,then adding 20% to the foreign one makes them both the higher price.
This is good news for those in local manufacturing, less-good news for the consumer.
Ultimately a tariff is paid by the consumer[1], and received by the local govt, it is thus really just a consumption tax of sorts, although one that is self imposed by the consumer. The alternative is to "not pay the tax" but instead spend the same money supporting local industry.
The US has had a policy over the last 6 years of adding new tariffs. (if they've been revoked in the last 2, I'm not aware.) This drives up local prices, which is a factor in (not the sole cause of) inflation.
[1] politically this was spun as "China pays the tariff" but this is obviously untrue. There is no incentive for them to do so, and even if they did, it would negate the point of the tariff in the first place, which is to raise local prices to make local businesses more compeditive.
In the recent low interest rate period, that didn’t really happen. Money instead went into an asset price bubble.
What we need to do to curb inflation is to lower consumption. The best point where to do that is the rich with their excessive consumption.
In the short term, yes, but this is a precursor to inflation; eventually the inflated asset prices propagate to consumer prices. Some paths are: increased demand (the "wealth effect"), reduced productivity (eg. people retiring with their stock portfolios or quitting jobs to speculate on crypto/real estate), as well as rising rents.
Engineering trains us to analyze full cycles. There are a lot of perpetual motion machines that look promising on the expansion stroke.
Reduced borrowing costs can mask this pressure, as eg. rents remain low when mortgages are cheap, despite high housing prices. But when borrowing costs rise the floodgates are opened. Either the bubble pops and the paper asset "wealth" gets vacuumed away, or else it dumps that growth into consumer prices.
I lived in hyperinflation when I was a kid. I rememore that my parents would receive and run to the market in the same day, and buy everything in bulk, because next day, their money would be worth half.
Markets would tag products once or twice a day.
I remember buying an X-men comic that was worth something like 1000 BRC.
Monthly inflation would be beetween 50% - 80%.
Also a lot of the commerce was informal and using barter.
Hyper-inflation is bad, and ultimately makes local-money such a poor store of value as to make it useless. People will revert to non-money approaches to trade, or use a different currency for money.
So yeah hyper-inflation is really bad, and (I suspect) what most Americans think of when the word "inflation" is used.
By contrast regular inflation, say in the 3% to 6% band has significant upsides. It promotes exports, leverages borrowings, and so on.
Equally it devalues income for those on a fixed-value pension (probably an excellent lesson to current generations of the value of inflation-linked investments and income) and that sucks. The solution though is not 0% inflation for ever, the solution is better pension plans.
Yes, inflation is "high" at the moment, but it's several orders of magnitude away from hyper-inflation. And the counter to inflation, higher interest rates, is starting to happen.
As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there's a $10k annual deposit limit.
Series I bonds with issue dates prior to February 2003 became eligible for redemption six months from the issue date. Bonds with issue dates of February 2003 and later are eligible for redemption one year from the issue date.
However, if a bond is cashed within the first five years after its issue date, interest earned during the three months prior to cashing will be forfeited. Once a Series I bond is five years old, there is no interest penalty for redemption.
Another problem, you will owe federal tax on the I bond interest when you cash it in.
In general interest on treasury bonds is not taxable at the state level. I am not sure about local taxes, which have all sorts of one off rules. But the thing most miss about the I bonds is you receive no interest until maturity/cashing it in. So no compound interest.
Hope that helps!
That's incorrect. I bonds compound semi-annually.
https://www.treasurydirect.gov/savings-bonds/i-bonds/i-bonds...
Please see this for other questions.
>3). Tax Deferred - I-bonds do not throw off interest. You only owe tax on the internally compounding interest once the bonds are cashed in, which means you control when you pay tax. Always a good thing!
https://www.reddit.com/r/personalfinance/comments/qprqpy/ibo...
It’s $10K per tax identifier, so if you’re married you just doubled it. If you have kids, each of them can buy $10K as well (though be sure to understand that you’re permanently transferring the assets to them, you can’t take it back it’s effectively an early inheritance).
You can also buy $10K as a corporation, LLC, or anything else with a tax identifier.
Note that a key factor here isn't inflation, per se, but the rate of change in inflation. From an Econ 101 perspective 2% inflation is no different than 20% inflation if things are otherwise steady-state. Stocks are the better bet because in principal they should respond more quickly to changes in the inflation rate. If inflation is steady, bonds in principal are the simpler, cheaper instrument.
You would also expect bonds to perform poorly as their prices need to decline to make their yields competitive with those of new bonds issued at higher interest rates. Term loans should outperform since their interest rates are variable, making them safer in a regime of raising/fluctuating interest rates.
Conversely, sometimes US treasuries will outperform if investors are fleeing to a safe haven against potential recision risks. There's always another variable.
That said, stocks don’t tend to perform well either because of expectations over interest rates increasing to combat inflation and an ensuing recession.
Is there a historic precedent for Quantitive Tightening?
We have been at it since 2008 that means there is little historic data to draw any preemption from, we are on unchartered waters at this point.
What is unprecedented is hitting 0% interest rates nearly everywhere worldwide. When things hit this point, economies are forced to deleverage, to which economists refer to as an 'economic deleveraging'. National economies have gone through deleveragings in the past, and has so far played out in 3-4 ways:
-a period of high inflation (which sometimes lead to the collapse of the currency)
-a period of deflation (either via a bear market, or a rapid crash)
-a long period of almost 0 economic growth (stagnation - AKA 'the soft landing').
-some degree and combination of the above 3 scenarios.
In the past, reserve currencies died for many compounding reasons. QE is a novel scheme to prolong the USD's life as a reserve currency, and is only possible due to modern financial technology. It's definitely not sustainable and can only prolong the inevitable crash in demand for USTs as faith in Washington continues to wane globally. Kicking the can down the road.
https://en.m.wikipedia.org/wiki/Amsterdam_banking_crisis_of_...
I am sure America is on the job. For all it's shortcomings, noone had to starve due to bad economic policy in this country and not for decades. Having to file for bankruptcy and living less grand is not the same as starvation death level poverty. And this, btw..still exists in many countries around the world. In America(not speaking about other economies), we'll be fine. It will be weird ride for the next decade, but this isn't bad for America. If we were a corporation, we have sufficient moat.
The demand-caused inflation would seem to be self-correcting problem: When things cost more, people buy less of them. Then suppliers will have to lower their prices or at least stop increasing them, if nobody buys their product because of too high prices.
In other words if people having too much money causes inflation, people will soon NOT have too much money, because it is used up by the higher prices.
So the real problem to focus on would seem to be supply-side inflation. How can we produce more cheaper and distribute the products to people cheaper? Isn't that the problem governments should be trying to solve, to get rid of inflation?
Price increases aren't always inflation. As the Federal Reserve Bank of Cleveland published, "Strictly speaking, inflation refers only to a drop in the purchasing power of money that results when a central bank creates more money than its public wants to hold. Inflation manifests itself as a rise in all prices and wages—not just some subset of prices. ... relative-price changes—no matter how uncomfortable they are for consumers or producers—transmit vital information necessary for the efficient allocation of resources throughout any market economy. Inflation, by contrast, contributes no information useful to our consumption, production, or labor choices. If anything, inflation can temporarily distort vital relative-price signals ..."
https://www.clevelandfed.org/en/newsroom-and-events/publicat...
If the consumer-price-index goes up we call it inflation whether it's caused by " central bank creating more money than its public wants to hold." or not?
Is it possible to measure "how much money public will want to hold"?
CPI (Consumer Price Index) is often used to measure inflation, but is an imperfect measure. First, it only measures the prices of household consumption, not wages, business expenses, etc. Second, as this BLS article says: "The CPI has been criticized for having both an upward bias (overstating inflation) and a downward bias (understating inflation). Much of the criticism asserting an upward bias comes from the academic community. In 1995, Congress, aware of such criticism, commissioned a group of academic economists, led by Michael Boskin, to study and report on the CPI. The resulting study, titled "Toward A More Accurate Measure Of The Cost Of Living" (but often referred to as the Boskin Report), summarized the viewpoint that the CPI was upwardly biased. The report asserted that the CPI overstated inflation because of three main reasons: it omitted consumer substitution, did not fully account for quality change, and failed to properly reflect the addition of new goods. BLS has introduced some methodological changes since the report came out in 1996. Although these changes were intended to make the CPI more accurate, some think that they have introduced a downward bias."
https://www.bls.gov/opub/btn/volume-1/consumer-price-index-d...
> Is it possible to measure "how much money public will want to hold"?
No, not directly. We can only measure proxies, then debate how useful the proxies are.
The more holistic a metric is, the better a gauge of inflation it is. To the extent it measures relative price changes, rather than total-market price changes (including the price of labor), it may incorporate economic effects other than inflation. One flaw of the CPI for serving as a complete measure of inflation is right there in the name: Consumer Price.
Please replace cheaper with sustainable, otherwise the world will be flooded with even more plastic.
And yes, let's also mention the stimulus checks that had more of a bad psychological impact on the working middle class. The total number wasn't that big though, compared to other gov. expenses. Let's not forget, US & Western european countries still have the "luxury" that their economies is more largely composed of industries that functioned during the lockdowns(IT, Entertainment,etc). With the exception of eastern asia, the rest of the world [where most of manufacturing & shipment takes place] did not.
Probably because most of the oil is traded in dollars.
They have been printing money for a long time.
This is a question I have never seen these inflation hawks answer: If printing money triggers inflation, why is there a 14 year lag on that effect?
Now new money is being spent on consumer goods while supply of goods and services have been severely restricted during the corona panic. Of course soaring energy prices is now also contributing.
The argument I've heard, though am not well enough equipped to fully analyze, is that the created money was going into overseas accounts as various nations tried to accumulate the global reserve currency - dollars - to purchase oil and other products that were generally traded in dollars. As long as that remained the case, an awful lot of dollars could be printed, spent, and ended up squirreled away elsewhere not really having an impact (velocity of money and such).
Now, though, that arrangement is ending - in no part due to the US abusing our financial system to control what everyone else can or can't do (see Visa's opinions about what industries they'll serve for an example, also SWIFT, global sanctions, etc). So other countries are making other arrangements that don't involve dollars - I'm pretty certain dollars aren't involved in the Russian oil sales to various other countries in their sphere anymore. And any reasonable country that isn't heavily tied to the US has to be figuring out how to move off dollars.
So now those all come home to roost, and combined with the lack of things to buy, we see the nasty inflation we're getting.
I'm not certain how well it holds up if you really dig into it, but there are certainly people answering your question if you actually go looking for how it's being answered.
The money printing of the last x years has arguably resulted in asset price bubbles (housing, stocks, real estate), but didn't cause "inflation" because if e.g. people buy more nintendo switches, nintendo just makes more nintendo switches at the same price.
What happened recently was supply chains / workforces got disrupted by covid (and possibly protectionist trade policies)... and then covid "ended" and demand rebounded to 2019 levels, but supply takes longer to ramp back up. That, coupled with Russia's attack on Ukraine and the decrease in the supply of energy, caused a spike in actual goods/services prices.
Raising interest rates serves to pop the asset bubbles (and already has), but I think only time will solve the supply chain / energy restriction-caused "actual" inflation.
Since the USD is a safe haven currency it has held up extremely well relative to other currencies recently. The UK just ran into the limit of loose fiscal policy which imo is a commentary on the extent of their decline as a world economic super power and demand for/perceived safety of GBP.
2) They turned up the printing 10x.
this has been the norm pretty much 20 years, i hope we will get some kind of reset to level the playing field
Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.
In fact, for most other stores of value, "dies out in this bear market" isn't even a consideration - the statement is reflective of a (perceived?) higher volatility of the crypto market.
If this is showing anything, it's that crypto currencies are just as vulnerable to monetary policy as other assets.
Like I said, I'm not using recent past performance to try to make predictions. I'm more considering first principles et al.
Bitcoin was made because of the recession and how poorly interconnected global economies were performing. It was supposed to be currency separated from politics/regional crisis.
Am I just screwed in coming years?
I wonder whatever could have caused this unprecedented inflation?
Mostly it was the total chaos, riots, and unrest.
They were also immediately followed by Reagan, who wasn’t exactly a shining beacon of progressivism.
But there were a lot of changes during that time, many that could be considered progressive, mixed in with (or perhaps the reason behind?) the chaos. A lot of folks don’t like change, after all.
Reagan benefited from Volker, and Carter chose Volker knowing that it would probably cost him re-election.
Reagan then squandered the benefit, but is now worshipped as some sort of prelapsarian god. Let's hope the US can slough off that nonsense soon.
Total nonsense. Source: I lived through the 70s.
looks like we come full circle
https://www.newyorker.com/news/john-cassidy/pikettys-inequal...
But, if it were a wining combination I guess we can expect Biden to embrace Inflation, Advocate for it and pronounce that he will redouble efforts to accelerate inflation so that we can all look forward to a better economy and better future with High Inflation.
This is WILD. I can't believe my eyes. Despite the Zimbabwe, Brazil, Turkey, etc., experience, people are making the case FOR inflation? My word.
Most Americans are debtors.
Are you saying: “If inflation is good, Biden will support more of it”?
China is still in lockdown and their output isn't as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs.
Until China decides to open back up, prices will continue to increase. And until then rates will continue to go up to try to incentivize people to save.
I see this alleviating in 2nd half of 2022, thanks to China relaxing Covid restrictions.
The vast majority of China is not in lockdown, and Chinese output is above pre-pandemic levels.
China has had one of the highest growth rates of any large economy since the start of the pandemic (2.3% in 2020, when most large economies shrank, and 8.1% in 2021).