Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while.
Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.
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.
Covid boom put money into the hands of regular people, and that -- combined with a supply shock -- made all the difference.
Rich people buy services, and service providers are regular people. Some of the money always has to disperse, so the impact can only be neutral if there is something with similar intensity concentrating it back.
See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
See M2 over time: https://fred.stlouisfed.org/series/M2SL
If we take home prices, comparing 2000 to 2019 (before the pandemic-related craziness in the real estate market took place), they went up by 85% in that time period[0], compared to 48.5% in the CPI[1].
[0]: https://fred.stlouisfed.org/series/ASPUS
[1]: https://www.minneapolisfed.org/about-us/monetary-policy/infl...
The whole point of fiat money is to print excessive amounts of it. It's attractive for governments because they can then spend money buying votes without having to raise taxes (though inflation is a tax). Meanwhile, they blame "speculators" and "profiteers" as scapegoats for the inflation.
> yet inflation was low throughout that period
The cumulative was a lot, and note that there was never any deflation.
Jan 2000 - 4,666.2 Jan 2020 - 15,401.8
An increase of 10,735.6 over 120 months, average monthly increase of 89.46.
Aug 2022 - 21,711.4
An increase of 6,310 over 20 months, average monthly increase of 315.52
M2 grew 3.5x faster on average since 2020 than previously.
I'm not directly stating this is the main or only reason for inflation, but I imagine the rate of increasing the money supply 3.5x faster than before could have some kind of effect.
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.
> Increasing unemployment decreases demand and therefore prices.
maybe i am crazy, but this seems like a really bad way to run an economy?
The notion of an "overheating" economy always sounded like nonsense to me.
> full employment
Those figures are misleading because a great many people permanently left the work force during the pandemic and are not counted as unemployment.