Hacker News Reader

Comment by dennis_jeeves2 | Hacker News Reader

No.

To me the answer is very simple, the primary (not sole) driver is govt printing currency indiscriminately.

We've had a dozen instances of massive money printing since the 80s but no significant inflation until we had the COVID supply side shock. Now we're getting inflation because of tariff uncertainty, also a supply side shock.

Friedman is wrong, inflation is primarily caused by supply side shocks.

what do you mean by "supply side shock"?

https://en.wikipedia.org/wiki/Supply_shock

I see. You might read the article mentioned bu user opo in this same comment thread. And also consider the inflation that occurs in many countries that don't suffer any supply side shock.

It's more complicated than that (lending also increases the money supply) though you're right that "printing money" loosely speaking is the primary irreversible driver.

Of course the printed money has to be put into circulation ( either lending or spending by the gov)

In modern economies, banks create money by originating loans. The government controls this process with various policy levers.

Depends on the default rate, and I'm pretty sure the past year in the US, default created more money than what was printed (even taking QE into account).

Basically why everybody decided to go with money printing during COVID btw, people realised in 2008 that a 2B default is the equivalent to printing 2B, so if that's the case, why not print money instead (that's a bad calculation imho, in my opinion in a capitalist market economy you need defaults for the market to work, and I would say, you need defaults that pierce the corporate veil).

lending increases the money supply and amortizing and default decrease.

No, reimbursing decrease money supply. Default does not.

yes it does.

if i loan you 100. in my head i have 100 of assets coming to me, and you have 100, so the system now has 200.

if you default, "so sorry throwaway you ain't seeing it", i have to write down the expectation im getting that 100 back. which means that i have 0, and the 100 is out in the system, spent. the system now has 100.

it is the case that some people refer to things like bailouts and inflating away your debt as soft "defaulting" but those are special cases and not the general case.

I borrowed 100 from you to buy 100 of expensive stuff to X. I default, the 100 i spent is still in the real economy, and you don't have to reimburse anyone yet. People i paid with the 100 i borrowed still have the money, you have to write you lost 100, but if you do your accounting '''correctly''', that money is actually not really paid or taken directly from your profits (first because it's probably insured or collateralized, but let's ignore that because it add to much complexity): you can basically use my default as your tax break. In the end, maybe you pay back 100, but you'll get 50 from your tax break so ultimately a default of 100 add 50 in the money supply.

(btw: i don't know the number, but my uncle insure companies and their loans for Alliance, i'm pretty sure it's more than 50% that's deduced from taxes when he register a loss, i can't seem to remember our conversation though)

I think that loss counting as tax break is an important part of the system, but in this very case, it does create inflation. Also loan insurers have insurances themselves and the loss is counted multiple time, i'm not sure exactly how the complete system work here works but it seems very efficient at claiming a tax break at multiple level.

Reply on news.ycombinator.com