Sounds like you're leaning on the arm of that chair a bit heavily. Care to elaborate?
Because you now have less money, demand for other goods and services is lowered, and because of the Law of Supply & Demand, those other prices are forced down.
Now, suppose the government prints an extra $10, and gives it to you. Now you have $80 for other expenses. Your demand for other goods and services goes up, and so because of the Law of Supply & Demand, those other prices go up.
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Another way to think about it. Money is affected by the Law of Supply & Demand just like everything else. Printing more money means there is more money (!), and more money chasing the same value of goods and services means the individual dollar are worth correspondingly less.
How did more money get into the hands of consumers aside from that one-time $1500 paycheck?
Increased demand results in price increases. The Law of Supply & Demand. Crazy, I know, but it is The Law.
> How did more money get into the hands of consumers aside from that one-time $1500 paycheck?
The deficit money got spent into the economy. It first flows into the hands of the voters being bought with it. Then, those people spend it, and it flows into the rest of the economy. It's like dumping a barrel of paint into a pond. It takes a while for it to spread out evenly.
You can see it in graphs of deficits compared with graphs of inflation. The inflation has about a 13 month lag behind the deficits.
Is running a federal deficit and an increase in the money supply the same thing? Because my contention was with what Walter right actually said.
No. The money supply will naturally increase as the value of goods and services in the economy grows. (This creation is done by the banks loaning money against collateral, it's a rather complex subject.) If the money supply increases faster than that, we have inflation.
The way it increases faster than that is via the fiat money printing press.
Here's another way to look at it. The US had a net zero inflation from 1800-1914. Everything the current government blames as a cause of inflation happened all over that time period, but no net inflation. From 1914 on, we've had endemic inflation.
Any explanation of inflation has to account for that.
The creation of the Fed accounts for it. It was given the power to arbitrarily create money, and so they did, to fund the deficits. Every other country saw the magic of this, and switched to fiat money and inflation.
Not much mention that on the production supply side, we have record corporate profits.
On earnings calls CEO's just come right out and say 'because of covid, we are able to raise prices, and man it's great'.
A lot of inflation is in the supply side just raising prices and making more profit. If there really was a supply chain issue, then the suppliers should also be squeezed, then themselves have lower profit because their source prices were higher.
But it is really just the consumer facing prices that go up. A lot of inflation is profit taking on the corporate side.
The US CPI went up 21.9% over the past 5 years[0]. The PPI went up 27.3% over the same timeframe[1]. So it's untrue that it's just the consumer-facing prices that have gone up; the producer-facing prices went up even more.
Corporate profit margins are high compared to historical averages, and total corporate profits went up by 40.7% over the past 5 years[2]; but the money supply went up by even more, by 47.1%[3]. So perhaps it's fair to say that businesses have been good at capturing the bulk of the additional money supply. Real (as in inflation-adjusted) personal incomes went up 9.4% over the same timeframe[4].
Consumer behavior was in turbocharged spending mode, fueled by rock-bottom interest rates and fiscal largesse. When supply remains constrained and demand goes through the roof, prices rise. Nothing too mysterious there.
[0]: https://fred.stlouisfed.org/series/CPIAUCSL
[1]: https://fred.stlouisfed.org/series/PPIACO
[2]: https://fred.stlouisfed.org/series/CP
Had not seen the 40.7 and 47.1 comparison before.
I guess, also Corporate Profits are larger, but the are also in Inflated Dollars.
Guess the key problem is, if they have captured more of the new dollars, and salaries have not kept up. Then Joe Blow is the one in trouble.
How do you explain the zero net inflation from 1800 to 1914? Were corporations unaware that they could just raise prices? That sounds far-fetched.