[HN Gopher] Why inflation is not a threat
___________________________________________________________________
Why inflation is not a threat
Author : midasuni
Score : 140 points
Date : 2021-03-14 11:35 UTC (11 hours ago)
(HTM) web link (www.taxresearch.org.uk)
(TXT) w3m dump (www.taxresearch.org.uk)
| daniel-s wrote:
| A normal household has to pay rent or make mortgage payments. To
| arbitrarily exclude the biggest expense to consumers from CPI is
| pretty misleading.
|
| When you create new money prices don't rise evenly. At the moment
| we have new money being created by central banks and given to
| privileged institutions who get access to free money. They use
| that to buy investments: real estate, stocks, etc. These are
| precisely the things getting really expensive. The last things to
| get more expensive during big cycles of inflation are employee
| wages.
|
| The world used gold/silver for its currency for most of human
| history until 1970 when we entered this period of worldwide fiat
| currencies. Our current situation is pretty remarkable.
|
| The whole argument for printing money being OK is dumb. If it's
| OK to print money to pay for some things why are you not doing it
| more? Why not make everyone a millionaire?
|
| I think that another deception is that we should ordinarily be
| experiencing price deflation. Every day our society is getting
| more efficient at making things. If prices for goods are staying
| the same then it may not be that their value has not changed,
| they may be less valuable goods, but they cost the same because
| you're also buying them with less valuable currency.
|
| If you have gone through years of moving everything to China to
| make it cheaper to manufacture, improved technology to make
| processes more efficient, etc. and I'm still paying the same
| amount for all of the stuff in my life, then again, maybe all
| these things are cheaper, but I'm also buying them with currency
| that's less valuable.
|
| Ultimately, printing money doesn't make anyone more productive or
| produce anything. All it does is redistribute wealth from those
| that were first to get the new free money away from those that
| were last to contact it.
| ForHackernews wrote:
| > has to pay rent or make mortgage payments.
|
| One of these things is not like the others. Inflation
| _benefits_ debtors at the expense of creditors. If I owe
| $500,000 on a fixed-rate mortgage, I 'm thrilled to see
| inflation because it makes my debt cheaper to pay off.
| ric2b wrote:
| Only if your wages rise accordingly. And don't forget that
| your taxes are going up as well unless tax brackets are
| adjusted for inflation.
| loveistheanswer wrote:
| >I think that another deception is that we should ordinarily be
| experiencing price deflation. Every day our society is getting
| more efficient at making things.
|
| This is a great point.
|
| The 3 main goals of the Fed[1] are:
|
| 1. Maximize employment
|
| 2. Stable prices
|
| 3. Moderate long-term interest rates
|
| Maximizing employment and keeping prices stable are
| antithetical to the realities of automation and
| ephemeralization. If we want to use our automative technology
| correctly, we should be _minimizing_ employmemt, and
| _decreasing_ prices.
|
| [1]https://en.m.wikipedia.org/wiki/Federal_Reserve_Act
| 99_00 wrote:
| >The whole argument for printing money being OK is dumb. If
| it's OK to print money to pay for some things why are you not
| doing it more? Why not make everyone a millionaire?
|
| No one is advocating for unlimited money printing. The fact
| that money printing is being used to inflate financial assets
| that benefits elites is a policy and political failure not a
| repudiation of monitary policy.
| UncleMeat wrote:
| Even ignoring the incredibly false claim that we used
| gold/silver systems for most of human history, what is mining
| gold or silver if not "printing money"? Why is that considered
| acceptable by gold/silver proponents?
| JoBrad wrote:
| The fact that gold and silver's value is really just as
| arbitrarily assigned as the value of anything else is usually
| also overlooked.
| chii wrote:
| It's more that the amount of gold and silver cannot be
| manipulated as easily as paper/fiat money.
|
| Proponents of the gold standard, at heart, simply does not
| trust the authorities to set fiat policies. Sometimes,
| that's a correct assessment (ala, Venezuela). But in the
| US, and other developed countries, the central banks are
| fairly transparent, and at least tries to keep to their
| mandates.
| JoBrad wrote:
| I'll grant the "as easily" part, but also counter with
| diamonds and China's influence on the availability of
| rare earth elements.
| imtringued wrote:
| I personally don't believe that the problem is with the
| currency. The problems lie deeper. If fiat mismanagement
| is all it took to ruin an economy the USA would be
| suffering from hyperinflation by now.
|
| The truth is that these countries suffer from structural
| problems like food imports and petroleum exports that
| have dropped in value. If they were able to produce their
| necessities on their own they wouldn't be such
| problematic countries.
| TheOtherHobbes wrote:
| It isn't. Gold/Silver are _tangible_ stores of value. The
| value is imaginary but humans like to see and touch things
| and decorate their houses with shiny, and you can 't paper
| your walls with government IOUs.
|
| Which is why we don't have a gold/silver economy, but we do
| have a property and land economy which has taken its place.
|
| These "investments" are based on a pile of almost-free fiat
| government IOUs. They have been converted into equally
| imaginary tangible value. You happen to be able to live in
| this store of value if you choose to, but at the high end
| hardly anyone does.
|
| It's a form of imaginative arbitrage for high end abstract
| markets, just like gold/silver, cowrie shells, and big round
| rocks are. (And BTC, in its own way.)
|
| Which is why at the high end economics is almost entirely
| faith-based. Fundamental use value is swamped almost
| instantly by an imaginary tradable value. And that is based
| entirely on _faith_ in the stability and potential of the
| investment of your choice.
|
| The consumer market is different because prices - including
| rentals - have some relationship to scarcity and use value.
| But there's still a large element which is faith-driven and
| subject to an irrational boom/bust cycle as faith and hope
| waver - partly driven by central bank and government
| signalling about future outcomes.
| barbacoa wrote:
| >incredibly false claim that we used gold/silver systems for
| most of human history
|
| Can someone elaborate on why this is false? Archeologists
| have found precious metal coinage going back to the dawn of
| civilization.
| UncleMeat wrote:
| The existence of coins is not the same thing as "using
| gold/silver for its currency". We have gold coins today and
| that clearly isn't enough to satisfy goldbugs.
| leetcrew wrote:
| I'm sure someone else can explain this more eloquently, but
| I believe the basic idea is this: any time you make a
| transaction that isn't settled on the spot, at least one of
| the parties is extending credit.
|
| like suppose one person has more grain than they need.
| everyone else is starving, but they have nothing to trade
| for grain. if the grain person agrees to let the other
| villagers have grain now in exchange for the promise of an
| ox next year, they have in a sense expanded the money
| supply. this type of arrangement can be implicit and
| difficult to track. maybe there was no explicit promise of
| an ox, but an unspoken understanding that a favor would be
| owed in the future. it still has the effect of expanding
| the money supply without digging rare metals out of the
| ground.
| fullshark wrote:
| They trust the global supply of gold/silver as a limiter more
| than the gov't's self-control.
| hkt wrote:
| > The world used gold/silver for its currency for most of human
| history until 1970 when we entered this period of worldwide
| fiat currencies. Our current situation is pretty remarkable
|
| Actually, in 1933 the US ended the use of the gold standard,
| following the UK (well, British Empire) which abandoned it in
| 1931.
|
| What came to an end in 1970 was the Bretton-Woods system where
| global currencies were pegged against the dollar. There was
| political control over the tax rate between 1946 and 1971, but
| the US was always able to unilaterally end the system. It did
| so to print money to fund the Vietnam war (sort of).
|
| The peg against the dollar meant america could have $100 of
| stuff from the UK or France by printing it, whereas we needed
| to pony up actual goods and services. It wasn't ideal.
|
| The system was also put under pressure by petrodollars. Western
| purchases of oil were a leak of the currency outside of the
| Bretton Woods countries. Since Bretton Woods was ultimately
| about governments being able to regulate their currencies,
| petrodollars weakened their grasp and created markets which
| threatened confidence in the system.
|
| The 1980s are where the real issues began, because most
| countries moved to fractional reserve banking rather than full
| reserve. The risks this produced in the system caused the 2008
| crisis and led to the epic price inflation in housing etc we
| have seen in the last forty years. QE is an admission of defeat
| of the system introduced in the 80s, a hope that eventually we
| can go back to that time. No interest group has been strong
| enough to properly challenge this system, so it has yet to die.
|
| TL;DR it ain't about gold, it is about banks
|
| Edit: removed errant hyphens in "Bretton Woods".
| zabzonk wrote:
| Nit pickery: Bretton Woods is not hyphenated; it's not some
| guy or guys name, it's a place in New Hampshire.
| hkt wrote:
| Hah, reasonable. I'll edit the post.
| goatinaboat wrote:
| _At the moment we have new money being created by central banks
| and given to privileged institutions who get access to free
| money. They use that to buy investments: real estate, stocks,
| etc. These are precisely the things getting really expensive.
| The last things to get more expensive during big cycles of
| inflation are employee wages._
|
| Indeed. If a government is dead set on printing money then it
| should give that money directly to people - many of whom will
| use it to pay down mortgages so the banks will get it anyway,
| but it will also do some good on the way.
| kungito wrote:
| It's very funny how this is not the default and no one is
| complaining
| sheeshkebab wrote:
| Economically speaking, increasing base money supply (giving
| money directly to people) does in fact increase inflation,
| where increasing m2 (giving money directly to banks) seems to
| not have the same effect, based on decades of similar
| policies in Japan. Some prices will still (real estate)
| increase but staples do not. Or so I read in various
| places...
|
| Not sure if I personally subscribe to the above, but as long
| as we don't experience collapse of currency/dollar and
| ensuing hyperinflation, we should be ok.
| throw0101a wrote:
| Inflation is dependent on money supply _and money
| velocity_. And velocity has been going down for a decade or
| two (in the US) and recently dropped off a cliff:
|
| * https://fred.stlouisfed.org/series/M2V
|
| See also:
|
| * https://en.wikipedia.org/wiki/Money_supply#Link_with_infl
| ati...
| christophilus wrote:
| Right. I think the op was suggesting that velocity would
| spike if the money made it to Main Street.
| goatinaboat wrote:
| _Economically speaking, increasing base money supply
| (giving money directly to people) does in fact increase
| inflation_
|
| Well, sure, if you give a bunch of people some money and
| they all decide to spend it on re-doing their homes at the
| same time then the prices charged by local tradesmen will
| probably go up, then correct themselves again when the peak
| demand passes. I'd argue that's not a bad thing in the
| sense that real work is being done, and the money is
| circulating in real goods and services - because if value
| is actually being created then there is something backing
| the new money.
| nojs wrote:
| The only difference is that we call the former "inflation"
| and the latter "my stocks are doing well". It's all
| inflation in the end.
| imtringued wrote:
| Well, the CPI is exclusively about consumer prices. It's
| not about savings vehicles like stocks.
|
| But you are right. Wealth inequality is the cost of this
| form of monetary policy.
| simonh wrote:
| I think you've got some legitimate concerns there, but a lot of
| what you say doesn't make much sense to me. Mortgages in their
| entirety aren't part of CPI because mortgages are an investment
| with a return. They're not a consumed good, you still have your
| house after you've paid it off, although some CPI calculations
| separate or rent or a rental component of mortgages. Of course
| it can be included in overall household spending, and changes
| in household mortgage payments are an important economic
| indicator but CPI is a specific thing with a specific meaning.
|
| Printing money by itself is not ok, it matters an awful lot
| what is done with it. Your argument is classic "if it's ok to
| do this thing in specific circumstances to solve a particular
| problem, why not do it all the time for everything as much as
| possible". Kind of weird argument, what can I say except, er,
| no.
|
| You're quite right the cost for producing goods is falling and
| stable prices just mean our money is falling in value, it just
| doesn't seem that way because these effects cancel out. The
| article is making the exact same argument.
|
| I think where were likely to agree is that if we're going to
| rescue financial markets and corporations in hard times, why
| not also help ordinary people? If corporate welfare is ok, how
| come personal welfare isn't? In some situations like an
| economic collapse or like Coronavirus deficit spending is
| essential, I don't buy your skepticism of that, but I do think
| it needs to be more equitably deployed. By and large this is
| what actually happened this time around with wage support here
| in the UK and direct payments to households in the US. There
| are arguments to be had about the level and Lana e of this kind
| of spending, but I think they're both needed to at least some
| degree.
|
| The article is about the UK though and I'm a Brit and we do
| have a fairly well developed social welfare system compared to
| the US and many aspects of it such as the NHS are much less
| controversial than in the US. This comes from our experiences
| in the world wars when the entire country was expected to come
| together for a common cause. It became untenable after that to
| throw people out on the street with no support and just say
| "Thanks for the help, see you in 20 years for the next world
| war. Until then you're on your own." It was also about national
| security. Far too many people were unfit for national service
| due to malnutrition and disease. Ensuring a fit healthy
| population became essential to our military preparedness.
| luxuryballs wrote:
| "you still have your house after you've paid it off" until
| you retire and they tax you out of it, happening to my
| parents right now, sucks, tax bill is over 600/mo and rising!
| I'm going to have to start paying it eventually so we don't
| lose the place. Seems fucked up to work your whole life to
| own something and then the state just takes it back by
| inflation and tax hikes eventually screwing you.
|
| Inflation is a long con, eventually if you don't keep
| increasing your profits you can't sustain, that's why I think
| a lot of disdain for capitalism is misguided, it's the
| monetary system that has created this race to the bottom
| mentality where you have to keep squeezing to get more
| profitable just to stay in the game (or decreasing the size
| of the candy bar to keep the same price).
| No1 wrote:
| Your parents' situation is exactly what resulted in
| proposition 13 in California. It seems it's now fashionable
| to bash prop 13, but people forget what the alternative is.
| baybal2 wrote:
| > The article is about the UK though and I'm a Brit and we do
| have a fairly well developed social welfare system compared
| to the US and many aspects of it such as the NHS are much
| less controversial than in the US. This comes from our
| experiences in the world wars when the entire country was
| expected to come together for a common cause. It became
| untenable after that to throw people out on the street with
| no support and just say "Thanks for the help, see you in 20
| years for the next world war. Until then you're on your own."
| It was also about national security. Far too many people were
| unfit for national service due to malnutrition and disease.
| Ensuring a fit healthy population became essential to our
| military preparedness.
|
| This
|
| Enemies of America had zero resistance in co-opting both
| extremes on income scale of American society to turn against
| it.
|
| How many will be ready to fight when the time comes, will
| they fight for a broke country whose elites put them into
| misery to begin with?
| thyrsus wrote:
| My search for "Lana e" failed; did you mean something else?
| Or could you direct me to an explanation?
| brightball wrote:
| And ultimately, nobody is ever comfortable answering the
| question of why it's okay to move it to China? Somehow it's
| okay for people in China to have super low wages?
|
| This is an issue I've always had with overseas production. It
| feels like this weird out-of-sight, out-of-mind ethical problem
| that usually comes from people opposed to bringing more
| manufacturing to the US (aka - "it's not the jobs we want").
|
| And it doesn't make sense.
| trthomps wrote:
| > Ultimately, printing money doesn't make anyone more
| productive or produce anything. All it does is redistribute
| wealth from those that were first to get the new free money
| away from those that were last to contact it.
|
| I look it as raising taxes on the rich is too hard, and too
| easy to roll back. Just give the people who need it most the
| money, devaluing rich people's money. It's just a more
| efficient form of wealth transfer, and inflation isn't an issue
| as long as the deficit growth doesn't exceed long term growth.
|
| > At the moment we have new money being created by central
| banks and given to privileged institutions who get access to
| free money.
|
| Also, did you forget about fractional reserve lending? Banks
| don't need the fed to create money, they do it on their own all
| the time.
| goatcode wrote:
| > devaluing rich people's money
|
| Do the very rich, the top 1% * n, keep much of their wealth
| in liquid currency?
| imtringued wrote:
| >I think that another deception is that we should ordinarily be
| experiencing price deflation. Every day our society is getting
| more efficient at making things. If prices for goods are
| staying the same then it may not be that their value has not
| changed, they may be less valuable goods, but they cost the
| same because you're also buying them with less valuable
| currency.
|
| Deflation is what happens when there is an oversupply of
| products. Primarily caused by increased productivity through
| technological progress. You have to print more money just to
| maintain stable prices. If you didn't do this then companies
| would cut down on production capacity and simply produce less
| goods. This would cause a downward spiral of production and
| since we all know that fiat currencies are backed by the
| existence of an economy that lets you exchange the fiat
| currency for goods and services the fact that the economy is
| shrinking is a bad thing for holders of the currency and it's
| bad for workers who are receiving incomes in the future. Since
| we cut down on production we also need less workers and thus
| your future income will be lower. Your best bet would be to
| obtain wealth as soon as possible and simply sit on it.
|
| >Ultimately, printing money doesn't make anyone more productive
| or produce anything. All it does is redistribute wealth from
| those that were first to get the new free money away from those
| that were last to contact it.
|
| It could be worse. Since you print money every year that means
| future people will receive the money first. If you cease to
| print money then the ones who received it first are people in
| the past which could be centuries ago.
|
| Would you be willing to work for someone who inherited their
| wealth 200 years ago and did nothing with it except sit on it?
| By "sit" I mean scrooge mcduck vaults. No investments.
| incrudible wrote:
| > The whole argument for printing money being OK is dumb. If
| it's OK to print money to pay for some things why are you not
| doing it more? Why not make everyone a millionaire?
|
| This is a variant of the "slippery slope" fallacy.
|
| Money is being printed to maintain liquidity, at the cost of
| inflation, because a liquidity crisis is considered worse than
| inflation.
|
| Indeed, if you're in the market for a new home, you are paying
| a huge premium due to asset price inflation. However, this
| alternative is preferable to the situation where a liquidity
| crisis causes massive waves of bankruptcies, leaving you
| without a job to finance a home in the first place.
|
| Your (proto-Austrian?) view of economics has long been
| disproven empirically, as well as theoretically (monetarism and
| subsquent). Its only purpose now is to sell gold/silver to
| people who need an oversimplified economic theory that fits
| their world view.
| BurnAphterRead wrote:
| What's wrong with a massive wave of bankruptcies, exactly?
| Proper bottom-up restructuring seems to me like a good way to
| stimulate a more robust economy at the expense of some
| temporary resettlement pains. Not to mention the erasure of a
| catastrophically building debt which is largely a product of
| mass-manipulation driving people to desire things which they
| do not need which leads them to dissatisfaction and leaves
| them vulnerable to squeezes which HR takes advantage of with
| the panopticon and massive insecurity. The culture needs
| shook't. The status quo is broken. This is just a bandaid to
| maintain spreadsheets while 99% of people take a spanking for
| a system that works against the human condition.
| JProthero wrote:
| It might also be worth noting that the current practice of
| quantitative easing incorporates a potential corrective
| mechanism for inflation that the traditional monetary
| expansion associated with historical episodes of
| hyperinflation did not.
|
| When central banks engage in quantitative easing, they
| purchase financial assets (typically government bonds,
| corporate debt, stocks etc.) that can in principle be sold
| back to the market at a later date. When an initial central
| bank purchase is made, the amount of money in circulation
| increases, but that increase can be reversed if the asset is
| sold. If the asset is sold at purchase price, there is no net
| change in the money supply; if it is sold at a loss there is
| an increase proportional to the loss, and if it is sold at a
| profit there is a decrease proportional to the profit.
|
| If money creation is instead used to, for instance, purchase
| consumable goods and services or pay wages (this is typically
| what happens when hyperinflation occurs), then the monetary
| expansion cannot be reversed in the same way -- some other
| mechanism like tax rises would be needed.
|
| The economic behaviour of the recipients of the newly created
| money is also significant. If consumers are the recipients
| then, all else being equal, the prices of the goods and
| services that consumers buy may be expected to rise. If banks
| and large corporate investors are the recipients of the money
| then, all else being equal, the prices of the things those
| organisations buy (principally investments like bonds and
| stocks) may rise.
|
| My understanding is that the experience with quantitative
| easing has been that it has caused a kind of price inflation,
| but primarily the prices affected have been those of the
| assets purchased by institutional investors (i.e. stock
| markets have risen, and bond yields and interest rates in
| general have been suppressed).
| incrudible wrote:
| > The economic behaviour of the recipients of the newly
| created money is also significant. If consumers are the
| recipients then, all else being equal, the prices of the
| goods and services that consumers buy may be expected to
| rise.
|
| Furthermore, even when consumers are the recipients,
| inflation is not necessarily to be expected when that money
| is replacing lost income. In that case, spending (and thus
| demand) remains the same. Inflation would not occur unless
| there was a simultaneous drop in supply.
|
| People pointing at Venezuela or Zimbabwe as cautionary
| tales of money printing often ignore the decades of
| economic mismanagement that preceded the money printing.
| tastyfreeze wrote:
| Are you implying that the US and the UK havent had
| decades of economic mismanagement? Ooh boy, that is rich.
| incrudible wrote:
| > Ooh boy, that is rich.
|
| Noblesse oblige.
| zmachinaz wrote:
| I think its a good summary, but one should stress a key
| point:
|
| All this QE, aka money printing, can only be removed in a
| "nice" way if the additional liquidity is to a larger
| extend used to create additional value rather than
| consumption.
|
| De facto, most of the liquidity is consumed without added
| value (Zombie companies, certain government expanses,...)
|
| This can only work for a finite amount of time.
| incrudible wrote:
| > This can only work for a finite amount of time.
|
| The economy of Japan is living proof that it can work for
| a very long time, with no clear end in sight. Nobody
| wants to be the one push the "reset" button.
| brippalcharrid wrote:
| Governments love inflation, because it enables them to inflate
| away the value of debt which would otherwise be unsustainable
| (or electorally unpopular). They become reliant on an unending
| stream of new efficiencies from innovation to hide its effects
| and globalisation, as you mentioned, is another handy way of
| staving off the political effects of the debasement of one's
| currency (although it's perhaps not as sustainable or
| reliable). When that fails, the redistributive mechanisms can
| always always be compounded with things like tax thresholds
| failing to rise with inflation, increases in tax rates, or new
| taxes (inheritance tax, for instance, is relatively recent),
| but taxation-by-inflation is definitely the unacknowledged
| elephant in the room.
|
| Overall, today's mixed economies have a lot more central
| control than the average person realises, and it's no wonder
| that Marx was such a fan of central banking.
| imtringued wrote:
| Governments love inflation because they want their citizens
| to do productive work instead of swimming in literal gold
| like in a scrooge mcduck vault.
| gruez wrote:
| >Governments love inflation, because it enables them to
| inflate away the value of debt which would otherwise be
| unsustainable (or electorally unpopular).
|
| This doesn't really work because when inflation goes up, so
| do interest rates. Inflation was rampant in the 70s, but so
| were the interest rates, so there isn't any free lunch here.
| matheusmoreira wrote:
| It's not just money printing either. Fractional reserve banking
| and money lending creates just as much inflation.
|
| People deposit real money into the bank. It keeps a fraction
| and loans out the rest. That loaned money eventually gets used
| to pay debts and it gets once again deposited into the bank. It
| keeps a fraction and loans out the rest...
|
| The exact same money gets loaned many times. The situation
| keeps looping and looping and with every iteration new money
| that doesn't actually exist is created by the bank. It will
| only start existing once real value is created or extracted
| from the planet, thereby making possible to repay the loan.
|
| Inflation is like a tax. When government and banking
| institutions inflate the currency, they systematically and
| worst of all _invisibly_ rob people of their purchasing power.
| lorenzhs wrote:
| That's a common misconception of how money creation works. If
| you want to learn more, this Bank of England article is a
| good introduction (pdf): https://www.bankofengland.co.uk/-/me
| dia/boe/files/quarterly-...
| pmorici wrote:
| Assuming inflation causes wages to rise with prices inflation
| is beneficial to home owners with a mortgage because your
| housing costs are largely locked in while your wages rise.
| User23 wrote:
| > The whole argument for printing money being OK is dumb. If
| it's OK to print money to pay for some things why are you not
| doing it more? Why not make everyone a millionaire?
|
| Ah yes the classic some's good more's better fallacy. Some salt
| is good on food, but keep adding more and it's inedible. Just
| because there isn't a discrete point where you can say it's too
| much (that one grain made it too salty) doesn't mean that
| there's no such thing as too much.
|
| There are many other such cases, for example drug titration
| springs to mind.
| yxhuvud wrote:
| Like with salt, there is definitely such a thing as too
| little of it though.
| dnautics wrote:
| How do you know that it's not like alcohol, where there all
| levels of consumption increase cancer risk?
| dkjaudyeqooe wrote:
| Printing money is fine since the Fed does it responsibly and
| uses it to achieve highly beneficial outcomes that aid the
| economy.
|
| And I don't know who you think is getting "free money". The Fed
| creates it and then uses it to buy bonds. It then gives most of
| the excess earnings from those bonds to the US Treasury.
|
| The big question regarding hysterical claims about printing
| money, etc is: it's been happening for over a decade in
| multiple large advanced economies, why hasn't there been a
| disaster? This time is different, right?
| OscarCunningham wrote:
| > And I don't know who you think is getting "free money". The
| Fed creates it and then uses it to buy bonds. It then gives
| most of the excess earnings from those bonds to the US
| Treasury.
|
| To add to this point, the amount of income the treasury gets
| from the Fed is tiny compared to the amount it gets from
| taxation.
| TheColorYellow wrote:
| > why hasn't there been a disaster?
|
| Would the GFC count? Technically it wasn't a system
| shattering event (more like system shuddering), but boom and
| bust cycles certainly do seem to be growing.
| chii wrote:
| > Would the GFC count?
|
| how would you know that the GFC wouldn't have been worse
| had the Feds not printed back then?
| ric2b wrote:
| How do you know it still would've happened at all? This
| isn't a very productive conversation.
| dkjaudyeqooe wrote:
| Printing money (at the current scale) only started in
| response to the GFC.
| throw0101a wrote:
| > _A normal household has to pay rent or make mortgage
| payments. To arbitrarily exclude the biggest expense to
| consumers from CPI is pretty misleading._
|
| "How the CPI measures price change of _Owners' equivalent rent
| of primary residence (OER)_ and _Rent of primary residence
| (Rent)_ ":
|
| * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-
| an...
|
| > _The whole argument for printing money being OK is dumb. If
| it 's OK to print money to pay for some things why are you not
| doing it more? Why not make everyone a millionaire?_
|
| Because while it may be "OK to print money to pay for some
| things" it may _not be OK for others_. Making "everyone a
| millionaire" may be one of those times when it is not-OK.
|
| > _Ultimately, printing money doesn 't make anyone more
| productive or produce anything._
|
| Money printing helps with liquidity, which helps the economy to
| keep running, which can (but is not guaranteed to) help with
| more "productive" aspects of the economy:
|
| * https://en.wikipedia.org/wiki/Money_creation
|
| You've managed to fit quite a few straw men in one post.
| rorykoehler wrote:
| Printing money doesn't help with liquidity if you don't
| inject it at the lowest level of the economy (ie on the
| street into lay peoples pockets). This is the biggest lie
| we've been sold during all this quantitive easing malarkey.
| All it is is theft from the poor by the rich.
| imtringued wrote:
| It obviously belongs there because anything else would fail
| to create the desired level of inflation as we can see
| today. What we truly need is fiscal policy and it's funny
| how on point this 8 year old cartoon is:
|
| https://youtu.be/-DdfLtOrBPU
| throw0101a wrote:
| Great. Tell legislatures to (a) act faster when there's an
| emergency, or (b) enact better safety nets that
| automatically kick in when an emergency arises.
|
| The fact that central banks can act quickly isn't a sign
| that what they're doing is wrong on the monetary side, but
| rather that the fiscal side of things needs to get its act
| together.
| pnutjam wrote:
| "Making everyone a millionaire" is so easy to refute. It's a
| nonsense talking point masquerading as an argument. It's a
| waste of time to consider it, but here we go.
|
| There is value in being able to predict the cost of things, a
| wild swing in costs and monetary policy probably won't damage
| the system, but it will make assets difficult to value and
| our system needs to do that.
|
| Done
| water8 wrote:
| The whole reason the stock market is a thing is because the
| cost of things is unpredictable. But next time your advice
| for fortune-telling will surely be better received with
| less arrogance.
| lumost wrote:
| The fact that CPI uses OER doesn't necessarily mean oer is a
| good measure. During the housing bubble prices may have
| increased at a 17% rate while OER increased at a 4.5% rate.
|
| I'd argue asking the question "what rate would you rent your
| home at" is fundamentally flawed and prone to
| underestimation. The answer is and always will be "the market
| rate for a rental in my neighborhood". This number is
| generally greater than the interest+maintenance a fresh buyer
| would pay.
|
| https://blog.principal.com/2017/07/06/owner-equivalent-
| rent-...
| Robotbeat wrote:
| Yeah, liquidity is really important. When liquidity runs out,
| you have people who are CAPABLE and WILLING to work being
| unable to find productive work. The way around it is to do
| odd jobs, DIY stuff they're not good at because they have no
| choice, and barter (you see this increase during
| depressions), but this is way less efficient. So "printing
| money" (providing liquidity) actually increases productivity
| in the same way division of labor increases productivity. You
| can pay a plumber instead of taking 10 times longer and doing
| a poorer job, for instance.
| throwaway316943 wrote:
| Does it actually address the source of the problem though?
| Illiquidity is caused by people hoarding wealth and not
| circulating it in the economy. Printing money gets more
| cash in the system but does not free up the hoarded wealth
| which is still locked up in assets that can remain
| unproductive. This seems like a temporary patch. If you
| take your example where there is not enough cash to pay a
| plumber, the cash is amassed in the accounts of a small
| number of people that are unable to generate enough work to
| keep all of the plumbers employed. You print more money to
| fix the supply problem but this immediately generates
| another; who gets the new cash first? We give it to
| institutions that will lend it so that we can reuse the
| existing system to vet people worthy of loans. So the
| credit worthy get access to new money and maybe they use it
| to do new construction or renovations that require
| plumbers. The plumbers, and others, now have income again.
| Problem solved? Well no, what about the original wealth
| that was hoarded? If it was kept as dollars it's now
| depreciating but it's likely that as soon as that started
| happening it would have been converted into another form
| that would retain its value. There are a limited set of
| assets that retain their value in face of inflation so we
| would see circulation in that part of the economy up until
| all of the original wealth had been converted into a stable
| form. It would still be driven by a small number of people
| though so the impact would be limited. What happens if you
| don't continue to print money? I would think it would
| eventually find its way into one of these asset traps where
| it would then remain and we'd wind up right back at the
| start. So keep pumping new money in? But now it no longer
| affects the original wealth since that has been converted
| into other forms so the original problem will remain
| unsolved and you'll need to keep the tap on forever so you
| don't run out of money.
|
| A better solution in my mind would have been to directly
| force the original wealth back into the system.
| ericd wrote:
| Pretty sure illiquidity is not caused by wealth hoarding.
| It's caused by taking out more debt than one can service,
| and people becoming scared to lend to others, because
| they're worried they won't be paid back. When everyone
| gets scared at once, things grind to a halt. And there's
| a natural tendency while times are good to take out more
| and more debt, because you can use it to enhance your
| productivity.
|
| EDIT: (so things naturally trend toward the overlevered
| state and a crunch)
| mdale wrote:
| Is that not just the other side of the same coin ? Short
| of centralized banking printing money there is no
| competition for wealthy just hording and letting time
| pass and demand grow. Kind of like bitcoin ;)
| missedthecue wrote:
| Can you explain how one "hoards money"? Like are they
| burying it in their backyard or stuffing it in their
| mattress? Do they have a McScrooge money pit?
| throwaway316943 wrote:
| On a gold standard you can literally hoard it in a vault
| without losing value. Without inflation it's actually not
| a terrible idea because you have high liquidity, you
| don't have to sell assets to free up cash. You'd still
| buy assets but only the ones you actually needed or
| wanted rather than as a hedge against inflation.
| Robotbeat wrote:
| What's wrong with investing in productive machines (or
| productivity enhancements) as a hedge against inflation
| instead of just burying the talents and letting them go
| to waste?
| Judgmentality wrote:
| I don't think it's a revelation that lots of ultra
| wealthy people hide money in offshore bank accounts, as
| well as other means.
|
| I'd say many of them are literally hoarding it.
| missedthecue wrote:
| If it's in a bank account, it's not being hoarded. It's
| being loaned out and the people who get the loans are
| spending it on houses, businesses, automobiles, etc...
| dctoedt wrote:
| > _If it 's in a bank account, it's not being hoarded.
| It's being loaned out and the people who get the loans
| are spending it on houses, businesses, automobiles, etc._
|
| This presupposes banks actually loan it out -- which
| doesn't always happen, for example if lending officers
| are gun-shy or underwriting policies get too tight
| because senior management is gun-shy.
| missedthecue wrote:
| Banks aren't charities. It costs a good bit of money to
| keep deposits, on top of the interest expense. (deposit
| insurance, overhead, staff, etc...)
|
| I think it's highly unlikely that these overseas banks
| that the rich use are doing nothing but sitting on their
| money and this practice accounts for all the purported
| "hoarding".
| dctoedt wrote:
| From the St. Louis Federal Reserve: "Lending growth
| slowed to zero during the 1990-91 and 2001 recessions but
| recovered after a few quarters. In contrast, during the
| Great Recession (2007-09), loan growth became strongly
| negative and remained so for almost four years."
|
| https://research.stlouisfed.org/publications/economic-
| synops...
| ericd wrote:
| Eh the wealthy don't hold onto stacks of cash, they
| immediately turn around and invest the vast majority of
| it in company equity, bonds, etc. Not sure if there'd be
| some sort of hoarding cash crunch in the absence of
| central banking, I haven't studied the history there.
| OminousWeapons wrote:
| It's true that capital begets more capital, but that's
| because anyone with money lends it back out seeking
| growth. Even if you have very little money and you put it
| in a bank account, you are lending that money to the bank
| for them to invest or lend out. Basically no one is just
| sitting on piles of physical cash, because if you did so
| you would lose value behind inflation.
| throwaway316943 wrote:
| Well we are talking about non inflationary systems
| compared to inflationary ones.
| throw0101a wrote:
| If money is just sitting around, and inflation is high,
| then it is losing value. The 'idle rich' are penalized.
|
| Further, lower-income people often have debts, which is
| reduced (relatively) by inflation.
|
| Ideally money wouldn't be just sitting around, and if
| proverbial piles of it are, perhaps we need to
| redistribute it more so that it's used more productively.
| This is why wealth (and not just income) taxes are being
| talked about more nowadays.
| dnautics wrote:
| Lower-income people when they are borrowing, are
| borrowing at very high interest rates (credit cards or
| payday loans) and inflation doesn't help those situations
| at all.
|
| The wealthy are systematically benefitting from low-
| interest loans being reduced in value by inflation -- in
| the form of corporate bonds and leveraged trading
| (shorts, forex, margin accounts).
| xxpor wrote:
| Most rich are asset holders. No poor people are (by
| definition). Therefore higher inflation (to a point) is
| better for poorer people.
| dnautics wrote:
| Tell that to the manual laborer working a long shift and
| swinging by a mcdonald's to get a double cheeseburger
| because there's no time to make food and who has the
| energy anyways. Oh also, that double cheeseburger is now
| $2.19 instead of $1.69
|
| Inflation is good for you!
| throwaway316943 wrote:
| Assets keep up with inflation much better than working
| class wages.
| jschwartzi wrote:
| We're using two different definitions of "hoarding"
| wealth here.
|
| The people you're disagreeing with consider buying up
| real-estate and company stock to be "hoarding" wealth
| because those assets could otherwise be put to productive
| use by someone else. People could otherwise live in those
| houses and become home-owners. Or the companies in
| question could get re-structured into smaller more
| efficient organizations during bankruptcy. It's hard for
| me to see the value of a real-estate investor buying his
| millionth acre of land when in earlier times multiple
| families could live on that land and call it home.
|
| In contrast, you're assuming that any money being loaned
| to anyone is put to "productive use." And the flip-side
| of that is that the loan will come due some day. So
| accumulated wealth is used to accumulate more wealth from
| people who don't have any to begin with. In other words,
| the hoard of money is being used to extract rent and to
| hoard even more money. It's hard for me to see the value
| of that kind of system. It seems to lead to a continual
| serfdom as most people become renters of everything in
| their life.
| rsync wrote:
| "Further, lower-income people often have debts, which is
| reduced (relatively) by inflation."
|
| It is, indeed, true that inflation can "melt away"
| existing debts by devaluing both the principal and the
| interest payments. There is historical precedent of
| large, debt fueled investments being inflated away:
|
| "Anyone with debt benefitted as debts were inflated away
| to nothing under hyperinflation. For example a Pomeranian
| landowner took out a loan to purchase a property in
| February 1922 and repaid it in the autumn from the sale
| of less than half the crop of a potato field."[1]
|
| _However_ , this only occurs with _fixed rate loans_.
| Lower income people (US mortgage debt notwithstanding) do
| not have the opportunity to borrow at fixed terms and it
| would be very difficult and expensive to incur large
| debts, for any purpose, at fixed rates.
|
| The floating rates that lower income people would,
| undoubtedly, borrow at would not protect them from
| inflation.
|
| [1] https://www.stewartinvestors.com/all/insights/stap/hy
| perinfl...
| [deleted]
| imtringued wrote:
| I don't think I have ever gotten a floating rate loan in
| Germany. Are there specific countries or types of loans
| where these rates are common? Are you talking about
| credit cards?
| samsonradu wrote:
| In Romania most of the mortgage loans are floating rate,
| tracking the 6 month ROBOR (equivalent of EURIBOR).
| rsync wrote:
| Most of my experience is in the United States, where I
| live. In the US a "normal" mortgage typically has a fixed
| rate.
|
| However, any kind of unsecured loan will have a floating
| rate. Certainly that includes all credit card debt and
| any kind of short term business financing like paypal
| offers.
|
| Further, if you have a poor credit score it is likely
| that your car loan(s) will have a floating rate and that
| you will be aggressively steered into a floating rate
| mortgage (an "ARM"). This will be presented to you as a
| benefit in the form of lower monthly payments (for now).
| BurningFrog wrote:
| I think this view of hoarding is wrong. Here is how I
| think about it:
|
| You get money as compensation for goods or services you
| provide to other people. The money is a sort of "IOU
| note" from the rest of society.
|
| If you never spend the money, you've chosen to never cash
| in the debt. You're essentially gifting that money to the
| world.
|
| There are a lot of complex and dynamic systems at work in
| the economy, and it's easy to make good sounding
| arguments for and against anything. I find it helpful to
| think of the fundamentals.
| imtringued wrote:
| The entire point of inflation is to force people to work
| harder to preserve their wealth. If there was say 5%
| inflation then companies would see greater than 5%
| interest rates on their loan and that means only the most
| productive companies actually get funding. By failing to
| create inflation the central banks are fueling the
| creation of zombie companies and unproductive
| investments. It's inherently injust yet we still see
| people rally against the inflation boogeyman as if it's a
| demon that is going to kill everyone.
| Robotbeat wrote:
| To the degree that printing money by reducing interest
| rates and perhaps causing a bit of inflation, it
| basically punishes hoarding of cash by taxing it at the
| inflation rate (plus the opportunity cost of having near
| zero nominal return in savings accounts). So that does
| force the original wealth into circulation. But it's true
| that the Fed's monetary stimulus is likely to be less
| effective at providing liquidity to individuals than
| direct fiscal stimulus like the stimulus checks people
| are getting. (Although it's not all stimulating because
| many are using the money to pay off debts.)
| lumost wrote:
| Alternately, those who have already built a mechanism for
| capturing a portion of the printed money as profit can
| simply purchase non-productive assets and benefit from
| the rising prices.
|
| https://advisor.morganstanley.com/liberty-
| group/articles/ins...
| imtringued wrote:
| This is why we need to put the money into the right
| hands. It reminds me of trickle down economics. Instead
| of flooding one plant and hoping that you are pouring
| enough water to reach the entire farm field it would be
| more effective to just water every plant a little. It
| would require much less water overall.
| TheColorYellow wrote:
| I actually think liquidity issues arise mostly from
| entities failing to have cash on hand for the settling of
| debts that are due. Not due to hoarding wealth or
| refusing to invest it.
|
| Those things are systemic issues related to other aspects
| of the machinery, particularly the incentives or
| mechanism of wealth distribution outside of money
| markets.
| Robotbeat wrote:
| Difficulty of servicing debts is still addressed by both
| monetary (ie lowering interest rates) and fiscal (think
| direct checks to Americans) stimulus. In the latter case,
| it's estimated roughly half the stimulus checks will go
| to paying down debt, not direct spending.
| BurnAphterRead wrote:
| I don't know that the individual is a substantial figure
| in the patterns of distribution. Sure Suzy took out a
| $40k loan and is paycheck to paycheck because of it. But
| that's a very small fraction of the whole. And
| application of stimulus, while remedying some people's
| serviceability, gives others the basis to leverage up. As
| a whole, the system is highly circular, it's where you've
| got exuberantly large gravity that things start to bend
| and twist. And estimations in this system are designed to
| bust. Despite the fact that the whole system is manmade,
| we know very little. Estimates of oil prices 3 months in
| the future will be wrong, and nobody can actually predict
| the closing price of the indexes, let alone individual
| stocks, so to assume those estimates are even probable is
| ridiculous.
|
| What I think we need to be considering is the highly
| concentrated nature of monolithic corporate capital and
| power. Like, for example, Amazon. The immeasurable value
| of the exchanges that took place globally for goods
| through Amazon. And Amazon tends to invest that wealth,
| which would be a net decrease in "capital entropy", while
| Amazon nets increased value despite the fact that they
| don't hold the capital. They do briefly inject a small
| sum of capital over a wide range of industries, though,
| like building materials, construction labor, engineering,
| and etc... But ultimately that money loses velocity, it
| doesn't have the momentum it needs because everything is
| so expensive now, and as a product most people opt to
| leverage.
|
| On that latter part, as a miser of sorts, it's actually
| far more effective, even in the case of depreciating
| assets, to leverage. I could've been "educated" by now if
| I wasn't exceedingly scrupulous in avoiding usury. I
| spent many years of my life accumulating the relatively
| meager wealth I did collect and it's only put me at a
| disadvantage due to the nature of federal grants weighing
| personal holdings, from which I'm only able to draw in
| tax refunds, and only a fraction of what the ultimate
| costs will be it also puts me in a morally precarious
| position as far as other modes of welfare. That is to say
| you're dually (and quite possibly triply, with inflation)
| punished for choosing the "responsible" path of self-
| funding. To ossify that point, 0% interest increased
| sticker prices, so now buying big ticket goods comes with
| interest embedded.
| lumost wrote:
| Ironically the only market mechanism to force money back
| into the rest of the system is for interest rates to
| rise. If real interest rates sat at ~7% those with money
| would attempt to lend it and liquidate unproductive
| assets, those borrowing to purchase unproductive assets
| would be forced to sell. Productive, but high cost assets
| would come down in price (housing) due to lack of demand.
| For interest rates to rise, there will need to be a lack
| of liquidity at the current interest rate, many
| businesses are now dependent on artificially low interest
| rates and guaranteed liquidity.
|
| Unfortunately we've built an economy which requires
| progressively lower interest rates to sustain.
| Rebalancing will be expensive ( see the interest rate
| increase in the run-up to '08 )
| coryrc wrote:
| the only market mechanism to force money back into the
| rest of the system is for interest rates to rise
|
| Or a wealth tax.
| imtringued wrote:
| Inflation is basically a wealth tax. Sort of.
| jzoch wrote:
| One that hurts poor people _more_ than wealthy - since
| wages are last to inflate. Additionally, wealthy people
| are still able to afford necessities during times of high
| inflation.
| throwaway316943 wrote:
| Only if the wealth is held as dollars or a depreciating
| asset. If it's invested or converted to something of
| limited supply then it can be inflation proof. Too bad
| those options are out of reach for the poor.
| Retric wrote:
| It seems like lack of money is unlikely to cause liquidity
| issues rather than some other issue preventing money from
| circulating through the economy. Inflation actually solves
| the second problem rather than the first as it punishes
| those who hoard cash.
| eecc wrote:
| But it does so at the expense of those looking to borrow
| it productively. Wealth tax punishes hoarders without the
| collateral damage of preventing most from having sane
| mortgages.
| Retric wrote:
| That's one side of the equation, but as always there are
| diminishing returns. Therefore, borrowing money should be
| _mildly_ discouraged as ultra low interest rates results
| in a huge misallocation of resources.
|
| That said, consistent low levels of inflation have
| minimal impact on borrowing as the future cash paying for
| the loan is discounted. In effect it simply forces a
| minimum annual loan repayment rate.
| dfgdghdf wrote:
| Some people argue that too much liquidity can lead to greater
| boom-bust cycles.
|
| Economics reminds me of Software Engineering a bit, where
| smart people on two sides can argue opposite cases and both
| sound reasonable!
| chii wrote:
| that's because there's no correct answer, and has more to
| do with the person's political bias or leanings, than sound
| science.
| throw0101a wrote:
| Demonstrably false. Ten years ago a bunch of folks
| predicted a bunch of bad things would happen because of
| money printing and QE:
|
| > _We believe the Federal Reserve 's large-scale asset
| purchase plan (so-called "quantitative easing") should be
| reconsidered and discontinued. We do not believe such a
| plan is necessary or advisable under current
| circumstances. The planned asset purchases risk currency
| debasement and inflation, and we do not think they will
| achieve the Fed's objective of promoting employment._
|
| * https://economics21.org/html/open-letter-ben-
| bernanke-287.ht...
|
| A bunch of other folks (generally Keynesians, like Paul
| Krugman), said the above was non-sense.
|
| The results of the 'experiment' came in: the Keynesians
| were right. See also "expansionary austerity".
|
| In fact Krugman recently wrote _an entire book_ on
| "zombie ideas": certain things that come up over and over
| again, often over several decades, but will not die;
| _Arguing with Zombies_ :
|
| * https://wwnorton.com/books/9781324005018
|
| * https://www.theguardian.com/books/2020/may/03/arguing-
| with-z...
|
| * https://www.theatlantic.com/magazine/archive/2020/01/re
| view-...
|
| There _are_ correct answers. It 's just that certain
| political classes find them 'inconvenient' (i.e.,
| contradictory) to their ideologies.
|
| There are of course complicated matters where things are
| open for debate. But some things have been settled.
| refurb wrote:
| That's not proof at all. There is nothing that says the
| printing of money in 2008 had to lead to immediate
| inflation and in fact we've seen the prices of some
| things (real estate?) go up astronomically the past 13
| years.
|
| In economics you're right until suddenly you're not. Same
| thing with people like Peter Schaffer who was constantly
| wrong until he wasn't.
|
| But all of this doesn't make economics a science with
| undeniable rules as to how the system works.
| Supermancho wrote:
| > There is nothing that says the printing of money in
| 2008 had to lead to immediate inflation
|
| Few thing HAVE to happen. That being said, much of human
| behavior is linear optimization, which is predictable if
| you know the rules (and they don't change).
| throw0101a wrote:
| > _There is nothing that says the printing of money in
| 2008 had to lead to immediate inflation_
|
| Which is exactly what Keynesians were saying. The
| Monetarists said otherwise. Guess who was right?
|
| > _and in fact we've seen the prices of some things (real
| estate?) go up astronomically the past 13 years._
|
| Those "things" which have risen in price does not count
| as inflation. It has never counted as inflation. There is
| a different word that should be used for that phenomenon:
|
| * https://en.wikipedia.org/wiki/Economic_bubble
|
| I do not understand why this is difficult to understand:
| inflation/CPI is the cost of goods and services that are
| used on a daily/weekly/monthly basis. Asset prices are
| not one of those things.
|
| Please stop using "inflation" when it comes to asset
| prices, as it does not apply. It's like pointing to a
| Boeing 787 and saying "boat".
|
| > _In economics you're right until suddenly you're not._
|
| In economics, at least "good" economics, there are
| models. These models describe reality: some models are
| better than others. We should follow the ones that make
| (more) accurate predictions.
|
| Keynesian models (for example) had problems with
| stagflation in the early 1970s, but by 1978 most text
| books had explanation as to why the earlier models broke
| down, and why the phenomenon occurred in the first place:
|
| * https://en.wikipedia.org/wiki/Stagflation#Neo-
| Keynesianism
|
| Some folks' models said inflation would occur from money
| printing post-2008; others' models said it was not. One
| group was right, and the other was wrong.
|
| Similarly: a bunch of folks are worried about inflation
| after the US Congress passed the $1.9T rescue plan,
| others are not. This is an(other) _experiment_ in which
| some folks will be right, and others wrong.
|
| Whose model best/better describes (economic) reality?
|
| AFAICT, the Keynesians have been right more than any
| other school of though. I'm sure they may/will be wrong
| at some point, but hopefully something will be learned
| and models improved.
| throwaway316943 wrote:
| That's wrong. The current theories may not have the right
| answers but it is a real system in the physical world so
| there is a "correct answer" or description of how it
| works. It's subject to change but that only changes the
| description as well.
| Raidion wrote:
| I think it's not wrong so much as you have tipping points
| that are really unknown, and a lot this depends on where
| we are in the tipping point. How much debt is too much
| debt? How much money printing is too much? How much is an
| asset really worth?
|
| You can have a "correct" answer that's unknowable.
| Assuming you know everything, you can calculate
| everything. However, there is an amount of randomness in
| the system (and everything can't be known), so the
| 'right' answer is hard to know, will not always be
| correct, and is impacted by personal risk tolerances.
| jkhdigital wrote:
| This is a side effect of Keynesianism, which places extreme
| importance on the abstract and oversimplified view of the
| economy represented by aggregated accounting identities.
| BurningFrog wrote:
| > _Economics reminds me of Software Engineering a bit,
| where smart people on two sides can argue opposite cases
| and both sound reasonable!_
|
| Pet peeve: This is pretty valid for _Macro_ Economics.
| Because it 's an extremely difficult field.
|
| _Micro_ Economics is a solid hard science that has taught
| us many invaluable things!
| dfgdghdf wrote:
| Doesn't that make it _even more_ like Software
| Engineering?
| BurningFrog wrote:
| Ha!
|
| Yes, maintaining and understanding large software systems
| is a process that's very hard to understand and control,
| despite basic Computer Science being very well
| understood.
| morpheos137 wrote:
| Creating liquidity where there is not a demand for liquidity
| is economically distortionary and has long term economic
| effects analogous to people who abuse stimulants or steroids.
| Yeah liquidity may make your economy feel on top of the world
| today but over time it will need to pay the piper. There is
| no such thing as a free lunch and this time is not different.
|
| If the economy needed more liquidity you would see high or
| rising real interest rates and stationary or falling asset
| prices. Instead we see very low interest rates and sky-
| rocketing asset prices. Sure adding liquidity will continue
| to inflate assets prices for a while but as the other
| commenter said it does not actually produce anything real and
| actually leads to malinvestment or underinvestment. Thanks to
| excessive liquidity in the economy we have BS companies like
| Uber sticking around while real innovation is stagnating.
|
| Eventually excess liquidity combined with high savings and
| low interest rates can even paradoxically lead deflation. See
| Japan for example. We may, also reach a point, where no
| matter how much liquidity we add we do not stimulate real
| economic growth.
|
| Regardless the commenter is right, liquidity on its own
| produces nothing and low interest rates signal that it is not
| demanded.
|
| Instead of worrying about inflation or deflation we should be
| worrying about what we can do to make the most people better
| off at time t+1. Traditionally that has been through economic
| growth. Liquidity does not promote economic growth if the
| economy is drowning in liquidity.
| H8crilA wrote:
| > _To arbitrarily exclude the biggest expense to consumers from
| CPI is pretty misleading._
|
| Why is there so much misinformation about the CPI? Literally
| the biggest component of the US CPI (at 33%) is
| housing/shelter. See Table 1, column Relative Importance:
| https://www.bls.gov/news.release/archives/cpi_02102021.htm
|
| At least get familiar with the definition before criticising
| anything.
| throwawaycuriou wrote:
| You are correct about its inclusion but how home asset
| inflation is measured is arguably faulty - more akin to an
| 'implied rent'.
|
| https://wolfstreet.com/2021/03/11/house-price-inflation-
| in-c...
| BurnAphterRead wrote:
| https://wolfstreet.com/2021/03/11/house-price-inflation-
| in-c...
| robocat wrote:
| CPI does NOT include housing in the UK - and this article was
| written from a UK perspective.
|
| In the UK:
|
| "The CPI takes no account of housing costs".
|
| "the CPIH does include [housing costs but] it uses an
| approach called 'rental equivalence' - not the mortgage
| payments but how much rent the householder would pay for an
| equivalent property".
|
| "the RPI takes account of mortgage interest payments".
|
| From: https://www.thetimes.co.uk/money-mentor/article/rpi-
| versus-c...
| 0x4d464d48 wrote:
| Cantillon Effect getting into full swing.
| [deleted]
| goseeastarwar wrote:
| Read "The Deficit Myth" by Stephanie Kelton, it's a primer for
| MMT and covers essentially everything you're talking about.
| dcolkitt wrote:
| > A normal household has to pay rent or make mortgage payments.
| To arbitrarily exclude the biggest expense to consumers from
| CPI is pretty misleading.
|
| Housing definitely isn't excluded from CPI calculations. In
| fact housing is by far the biggest single component of the
| basket used to calculate inflation.[1]
|
| Moreover, there's really no evidence that long-term housing
| inflation is running faster than the broader economy. In 2019
| the average American consumer spent 25% of their income on
| housing and 15% on shelter.[2] (Aside, "shelter" just includes
| the cost of rent, mortgage, property taxes and maitenance.
| Whereas "housing" includes utilities, appliances, furniture,
| housekeeping, laundry, etc.) In 1990, the average household
| spent a virtually identical 27% of income on housing and 15% on
| shelter.[3] If housing was inflating much faster than the rest
| of the economy, we'd expect to see increasing shares of income
| dedicated to housing.
|
| [1]https://www.bls.gov/cpi/tables/relative-importance/2020.htm
| [2]https://www.bls.gov/cex/2019/standard/multiyr.pdf
| [3]https://www.bls.gov/cex/1990/Standard/income.pdf
| [deleted]
| chrisseaton wrote:
| > If it's OK to print money to pay for some things why are you
| not doing it more? Why not make everyone a millionaire?
|
| If one slice of cake tastes nice why wouldn't you enjoy eating
| a million slices of cake?
| rdm70 wrote:
| OK. So what are the limiting principles for money creation?
| When does it shift from being a good thing to too much of a
| good thing?
|
| This seems to be completely absent from the public debate.
| OscarCunningham wrote:
| The Fed has an inflation target of 2%. That is precisely
| when printing money shifts from being a good thing to a bad
| thing.
| chrisseaton wrote:
| > OK. So what are the limiting principles for money
| creation?
|
| If you gave everyone a million dollars would they all be
| able to buy a million dollar home?
|
| No? Why do you think not?
|
| Because the price of million dollar homes would go up
| because everyone would now be able to bid for them.
|
| You can literally give everyone a million dollars, but you
| won't be giving them a million dollars of purchasing power
| relative to before you gave them the money.
| missedthecue wrote:
| That's the point the parent is making, except he thinks
| it doesn't take as much as a million dollars for that
| effect to take place. His question is why is $8 trillion
| of money printing since last March A-OK when $100
| trillion isnt?
|
| Is the line $8 trillion? $25T? $50T?
| dkjaudyeqooe wrote:
| That's entirely dependent on the economic situation. The
| same question can be asked of interest rates.
|
| And the answer is when you get bad outcomes. You have to
| assume the Fed knows what it is doing, but most people seem
| to think they know better.
| jsmcgd wrote:
| Yes exactly. Why is it bad to make everyone a millionaire?
|
| It's bad because making everyone a millionaire by decree, or
| printing more units of currency is necessarily the same thing
| as devaluing the currency. Such that the population as a
| whole has exactly the same amount of buying power, and now
| each unit of currency is worth much less.
|
| The inflation of the M0 money supply, base money, _WILL_ lead
| to an increase in consumer prices for everything including
| essentials like food. The only reason people can try to
| convince themselves otherwise is because of the time lag
| between when the money is printed and when it shows up in
| consumer prices. So when the government quadruples the base
| money supply and the price of a loaf of bread doesn 't
| quadruple in price, people start to think this inflation is
| no big deal. Well just wait. That loaf of bread will more
| than quadruple in price. And it will happen all of a sudden.
|
| The majority of the printed money is going into assets like
| equities. These have increased massively in value, despite
| the fact that revenues have not increased that much, or have
| even decreased. This is a bubble and it will collapse. When
| that happens, _then_ you will see all those printed dollars.
| Investors will rapidly divest themselves of their shares and
| will be putting those dollars into others assets that are
| seen as much safer investments like commodities including
| food.
|
| By this point governments have no ability to reverse course,
| in fact they are committed to exacerbating the situation.
| Printing money is necessary to plug the deficit of government
| spending. You could turn off the money supply but it will
| mean devastating cuts to government spending. So they won't
| do it. Instead they will start implementing wide-scale, all
| pervasive capital controls in an effort stop people divesting
| themselves of the rapidly weakening dollar. This is an
| economic straight jacket and will shrink the economy further,
| massively stunting tax revenues, in turn reducing government
| spending, in turn shrinking the economy further.
|
| Calls to 'tax the wealthy' will be eventually implemented,
| but there isn't anywhere near enough wealth there to tax to
| cover the effects of a money supply that has grown
| exponentially. Regardless new tax bills will be introduced.
| The very wealthy will have already moved their wealth into
| non taxable assets, domestic and overseas. (This is already
| happening). The law makers know this, yet regardless this
| taxation burden will fall squarely on the rapidly diminishing
| middle classes and ballooning lower classes. You can read the
| above again to see exactly how printing money is a highly
| effective tax in it's own right and it did not require any
| legislation to write.
|
| At this point the world is caught in an economic death spiral
| and it won't recover until the currency has completely
| bottomed out and begins again with a new currency and
| confidence slowly returns. There is no telling how much long
| term economic damage will have been done by this point.
|
| There is no magic or mystery here. This is not complicated.
| It is not new, unknown and to be determined. This will be a
| carbon copy repeat of exactly the same follies experienced by
| numerous economies in recent history. The only open question
| is, much like a coming earthquake, when? The answer
| unfortunately is very soon.
| baybal2 wrote:
| You are a voice of sanity there.
|
| The run on the dollar will be an epic calamity. _Epic._
|
| You can already see American rich voting with their
| wallets. Some believe it is better red, than broke, and
| taxed to death.
|
| https://www.afr.com/world/asia/forget-politics-foreign-
| inves...
| [deleted]
| ItsMonkk wrote:
| To your first 3 paragraphs: Right, so the income that
| normal people get from their labor is like water, and the
| income that wealthy people get from stocks is like
| oil(Note: for the rest of this comment, "oil" is code for
| wealth assets, water is code for CPI items.). Company takes
| out bond, uses it to buyback its' own stock, the person
| that sold that stock uses it to buy some other stock, that
| other stock rising allows that other company to take out
| some bond... They don't mix. So long as they don't mix,
| money doesn't become neutral and the CPI doesn't rise. It's
| possible to balance the parameters just right so that they
| never mix, but every mistake drives up wealth inequality
| driving down long-term productivity.
|
| Now wealth income can easily be spent on large amounts of
| things that are typically seen as CPI items. At any moment
| the top 10 billionaires can choose to spend their wealth on
| an extravagant amount of labor, drastically rising labor
| incomes, but they choose not to as it lowers their long-
| term utility.
|
| The fed's mandate is to create a system where they don't
| mix. It must always be the case for wealth assets like
| fancy homes and stocks to on average rise in value more
| than CPI items. If at any point the reverse is true, all of
| the wealthy will liquidate their stockpiles of
| stocks(crashing the stock market in the process) and
| instantly transfer their wealth into the thing that brings
| the best returns. If the best returns is GPU's, gamers
| won't get to game. If the best returns is on beans and
| rice, people will starve.
|
| One of the best ways that the fed does this is by
| intentionally creating recessions whenever CPI inflation
| kicks up. Whenever oil money starts targeting water money,
| the fed kicks up interest rates above the 30 year[0],
| triggering a yield curve inversion, which triggers a
| recession. The recession forces employers to let employees
| go, which drives down the demand on CPI items, and that
| reduces inflation. At the same time, they put interest
| rates below what it was when it started, and the wealthy
| move their money back to oil.
|
| (Note: I'm not an economist, just a programmer with an
| interest in economics and an eye for details. I'm mostly
| posting here for feedback, and I know I'm not exactly
| correct, but every post is one more chance for clarity.)
|
| [0]:https://fred.stlouisfed.org/graph/?g=AzYM
| johbjo wrote:
| An economic asset is valued based on expected future cash
| flow. In the last decades however, real estate and some
| stocks are mainly valued based on expected appreciation.
| Real estate even generates negative cash flow for most
| home owners, and some investors.
|
| Per se, it is speculation (in higher prices) rather than
| investing (in future cash flow).
|
| > If the best returns is on beans and rice, people will
| starve.
|
| Farmland and equipment are assets, but they are valued
| based on cash flow from selling produce. Produce is
| perishable and can only be sold as food, so it will be
| sold at a market prices regardless of speculation in
| farmland.
|
| > all of the wealthy will liquidate their stockpiles of
| stocks(crashing the stock market in the process)
|
| Not "all of the wealthy". Relatively little is required
| at the margin to crash the stock market, and the majority
| of "wealth" would follow the market down. Only a tiny
| proportion would be able to exit at the right moment.
|
| Asset depreciation is an adjustment of the relative value
| of labour vs. assets.
|
| A possible delineation between "water" and "oil" is
| whether the thing can be legally used as collateral for
| loans and how the value is booked. But idk.
| ItsMonkk wrote:
| Yes, and this is why you see hyper-inflation of most CPI
| items during supply shocks[0][1], not during money
| printing. The longer something takes to spoil, the more
| potential it has to be hoarded. To evaluate our risk, we
| need to determine what items in the CPI are susceptible
| to these pressures.
|
| If Bitcoin goes to 1 million USD, will that drown out all
| other energy? Energy is a piece of the CPI, so that's
| something we need to watch.
|
| [0]:https://en.wikipedia.org/wiki/Great_Famine_Ireland
|
| [1]:https://en.wikipedia.org/wiki/1970s_energy_crisis
| jsmcgd wrote:
| I appreciate you posting your thinking on this. I suspect
| others share your model. I strongly reject the metaphor
| of oil and water, that there are different monies. In
| fact if there was such a thing I wouldn't be as worried.
| Problems could be contained to specific domains. But as
| you will see one crisis will beget another and another,
| and no sector will be spared. One will infect the other.
| There are no barriers. Investors are not constrained in
| anyway exchange bonds for stocks in a closed system. They
| can, and do exchange any items of value (cash,
| commodities, shares, bonds, ETFs, derivatives) and they
| can do so in multiple markets. Governments will actually
| try to prevent this through shuttering markets, capital
| controls etc but they will be too late to prevent
| economic harm, to say nothing of long term damage to
| sentiment. Any measures taken merely delay the problem
| which will be waiting for them when the markets do re-
| open.
|
| Economies are very much complex systems, not a steady
| state systems. At times it behaves like a steady state,
| but at other times there are significant shifts that
| break the previous paradigm. You only have to consult any
| history book of the 20th century to prove this to
| yourself. I strongly suggest that this a Pascal type
| wager that you do want to take. You want to assume my
| argument is correct and hedge against massive inflation.
| Your livelihood, and possibly your life depends on it.
|
| One way you might convince yourself is if you look at
| similar situations in economies that were not governed by
| the Fed. There are many: https://en.wikipedia.org/wiki/Hy
| perinflation#Notable_hyperin...
|
| I would argue that the Fed, IMF etc actually agree with
| my position and that is what is driving their desire for
| new Central Bank Digital Currencies (which IMO are a sham
| to profit of the public ignorance of actual cryptos and
| provide a smoke screen while a new global currency is
| rolled out that will be used to economically control
| everyone) however I strongly doubt that they will be able
| implement such a thing before the collapse begins (and it
| merely delays the inevitable anyway).
|
| Therefore governments (where they can) will default to
| precious metals to back their currencies. The major
| winner will be China, as it has the world's largest
| actual gold reserves (despite the official figures). The
| US will then be using a gold dollar and China will
| dictate its price. China now effectively rules the world.
| tastyfreeze wrote:
| Well stated. The only part you are missing is that taxes on
| the rich dont stay there. Income tax was sold as a tax on
| the wealthy as well. As government spending swells to fill
| the new revenue it becomes necessary to tax more to
| continue peddling programs that keep politicians in power.
| j7ake wrote:
| Because the size of the cake is fixed (analogy to the
| economy), and cutting that piece of cake into 10 slices or a
| million slices (analogy to increasing money supply) is not
| going to make a difference in the amount of cake there is for
| people.
| harryh wrote:
| The size of the cake is not constant. It grows over time.
| We are much richer now than we were in the past.
| j7ake wrote:
| Yeah that is true. Maybe I'll just say that the size of
| the cake (economy) grows but is fairly independent of how
| you slice the cake. So printing money doesn't increase
| the size of the economy.
| harryh wrote:
| Yes, but with a larger cake, it makes sense to have more
| slices.
|
| There are other reasons that inflation is good too,
| having to do with sticky wages and recessions. I'm not
| sure how to work that into the cake analogy though.
| j7ake wrote:
| Yeah the reality is that the size of the cake changes,
| and slicing the cake in different ways can feed back to
| the growth of the cake.
|
| The perceived value of each slice relies a lot in the
| psychology of the public.
|
| It's the job of the central bank to make sure the slices
| are proportioned properly and the perceived value of each
| slice of cake is maintained.
| imtringued wrote:
| The entire reasoning behind inflation is that thanks to
| productivity increases there is always a slice left
| behind. If nobody eats the slice then the cake shop will
| make smaller cakes with less slices. If we give someone
| money to buy the last slice then the cake shop is
| incentivized to make another left over slice until it is
| so busy making cake that it cannot make more.
| cryptica wrote:
| It's kind of ridiculous to think that everyone is talking about
| money printing now. It's become such an obvious force in
| society that it cannot be ignored even by the layperson.
|
| And economists keep repeating "It's nothing, it's not a
| problem". They're so disconnected from reality, they won't
| realize there is a problem until they have a noose around their
| necks.
| tarsinge wrote:
| Also deflation could be an interesting tool to cool down the
| economy and so literally cool down climate. Less consumption is
| what is needed.
| foerbert wrote:
| > The world used gold/silver for its currency for most of human
| history until 1970 when we entered this period of worldwide
| fiat currencies. Our current situation is pretty remarkable.
|
| This much is patently false, and probably even still false once
| you account for the accepted exaggeration in most appeals to
| the entirety of human history.
|
| There was no unified monetary system for the vast majority of
| human history, never mind one based on gold and silver.
|
| And for the smaller, more recent portion of human history it is
| again probably largely untrue. I'd point to Debt: The First
| 5000 Years by David Graeber [0]. I'm sure many people have many
| opinions on the work, particularly around these parts, but I
| believe it at least does a good job of refuting this particular
| statement.
|
| [0]https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
| al3xandre wrote:
| Please. He obviously meant gold _or gold-backed currencies_.
| Which indeed ended in 1971 with Breton-Wood.
|
| Let's be kind and "assume the strongest plausible
| interpretation of what someone says, not a weaker one that's
| easier to criticize."
| jkhdigital wrote:
| The original article is itself an incredibly long-winded
| exercise in this kind of bad faith argument... also called
| a "straw man". The final paragraphs make that clear, when
| they claim that the inflation fearmongering is just a front
| for anti-statists. So if that's what this is all about, why
| not just write an article about the merits of a state-
| directed economy and dispense with the charade?
| gjm11 wrote:
| That itself seems like a straw man. "Anti-statists" is
| your term -- neither "statist" nor "anti-statist" appears
| anywhere in the article. And it doesn't say anything at
| all about a "state-directed economy"; I'm not sure
| precisely what you mean by that but on the face of it it
| sounds like a Soviet-style command economy, which
| scarcely anyone wants (including, I _think_ , Richard
| Murphy) and certainly isn't the only alternative to the
| sort of small-government right-libertarianism he seems to
| be complaining about.
|
| But let's suppose that what Murphy really wants is a
| "state-directed economy", and that he's concerned that
| opponents of that are making bad arguments about
| inflation to oppose it. In that case, why shouldn't he
| write an article explaining why he disagrees with the key
| premise of those arguments, namely that there's a real
| danger of problematically high inflation?
|
| It seems like the principle you're appealing to ("why not
| just ... and dispense with the charade?") is that if you
| want X, you should always just argue for X rather than
| addressing bad arguments against X. I think that
| principle is very wrong. People are often persuaded by
| bad arguments, and if someone has been persuaded by a bad
| argument against X then they will likely not listen
| willingly when you present your arguments for X. (Because
| they already know X is bad.) But if you write something
| about the specific argument they've been convinced by,
| they might pay attention, and you might convince them.
| pessimizer wrote:
| If the strongest possible interpretation is that gold and
| gold-backed currencies were universal throughout human
| history _until 1971_ , that is also wrong.
| mshron wrote:
| Gold-backed currencies are, similarly, a historical
| aberration. They only came into being around the 1870s!
|
| States have picked all kinds of units for accounting and
| tax purposes for literally millennia. Wheat, silver, wool,
| gold. They adjusted standard weights and measures all the
| time to manage their debts and the economy. Fiat is the
| historical norm, going back about five thousand years.
|
| Separately, some governments have made coins out of various
| things for a little over two thousand years. And separately
| still, people have traded gold throughout history as a
| commodity.
|
| But it's just not true that gold and silver were de-facto
| money somehow until 1971.
| foerbert wrote:
| That was how I was interpreting it. Again, I refer to the
| book mentioned.
| JohnJamesRambo wrote:
| https://wtfhappenedin1971.com/
|
| I realize some of these graphs may be coincidences but it
| makes a compelling case for me in understanding our current
| wealth inequality. When you can create money backed by
| nothing, those closest to the printer will know best how to
| funnel it into their pockets.
| api wrote:
| When you have money backed by gold, those who have it
| benefit from its appreciation. Same is true of any
| deflationary currency.
|
| Wealth tends to flow uphill. Even in Communism the
| politically connected realized that wealth in that system
| was political capital and learned to position themselves to
| accumulate it. There is a reason the USSR collapsed and
| gave way to one of the most aristocratic states in the
| world.
|
| I don't discount that site though. A lot more happened in
| or around the early 70s than just the collapse of Bretton
| Woods.
|
| I also don't dismiss your comment as untrue. A fair
| inflationary currency would almost literally drop money
| from helicopters, not issue it to banks and governments.
| Still I imagine over time people would learn how to chase
| the helicopters.
|
| All systems will be gamed. No exceptions.
| jkhdigital wrote:
| Indeed. There is a reason why the ancient Hebrew laws
| dictated that every 50 years all debts are wiped away and
| all assets returned to their hereditary owners.
| simonh wrote:
| All money is backed by nothing. The idea that the gold
| standard was pegged to some eternal constant of nature is a
| fantasy.
| jkhdigital wrote:
| The idea that proponents of the gold standard assert that
| its value is tied to some eternal constant of nature is
| also a fantasy.
| symlinkk wrote:
| Isn't the point that gold is finite?
| UncleMeat wrote:
| We pull gold out of the ground all the time. It is finite
| only in theory.
| BurnAphterRead wrote:
| We pull gold out of the ground when it is economical to
| do so. That is to say when the exchange of gold to
| currency is favorable for extraction, which can also be
| conveyed to mean that when there isn't enough gold to the
| demand of currency for gold.
| gher-shyu3i wrote:
| It's infinitely easier to print money at will, which is
| what keeps happening. Gold has intrinsic value for
| practically all of human existence.
| tudorconstantin wrote:
| Nothing has intrinsic value
| hyko wrote:
| Obviously a statement like that requires some explanatory
| notes?
|
| When talking about money, the term _intrinsic value_
| means the market value of the commodity the money is made
| from, versus the face value of the money.
|
| This is very real and has been exploited in the past,
| with people effectively melting down large quantities of
| money and selling it as a commodity.
| rpz wrote:
| Coming from a gold bug: you can still create an infinite
| number of IOUs on gold. Thats what the dollar was before
| Nixon closed the gold window. The fed was running a
| fractional reserve on their gold. Believe it or not they
| still are today, despite folks and major nations no
| longer have the ability to trade their dollars for some
| amount of the US treasury gold.
|
| Look into the market value of the gold certificates that
| the fed has on its books. The fed hasn't marked their
| gold position to the market since the 70s. Very peculiar
| if you ask me. Also consider why each of the federal
| reserve banks trade these certificates amongst one
| another.
|
| On top of that you can read the treasury's website and
| find that the policy states that the treasury gold plays
| an important role as collateral on the dollar
| https://www.treasury.gov/resource-
| center/faqs/Currency/Pages... "Congress has specified
| that a Federal Reserve Bank must hold collateral equal in
| value to the Federal Reserve notes that the Bank
| receives. This collateral is chiefly gold certificates
| and United States securities. This provides backing for
| the note issue. The idea was that if the Congress
| dissolved the Federal Reserve System, the United States
| would take over the notes (liabilities). This would meet
| the requirements of Section 411, but the government would
| also take over the assets, which would be of equal value.
| Federal Reserve notes represent a first lien on all the
| assets of the Federal Reserve Banks, and on the
| collateral specifically held against them."
| jkhdigital wrote:
| Yeah... sometimes I think Mises should be required
| reading for anyone commenting on HN threads about money.
| If anything, his descriptions of money and money
| substitutes are _even more_ relevant in the modern
| financialized economy, where substitutes (i.e.
| derivatives) now exist for every imaginable asset class.
| gher-shyu3i wrote:
| > you can still create an infinite number of IOUs on gold
|
| This is why Islam, Judaism, and Christianity prohibit
| interest. That closes the door on exploits like this.
| imtringued wrote:
| The intrinsic value of gold is an answer to whether gold
| will stay relevant 5000 years from now. It will guarantee
| that gold will always have some residual value, it
| doesn't guarantee that its current valuation is correct.
|
| Compare this to Bitcoin which can be replaced by any
| competitor.
|
| Compare this to the US dollar which is required to pay
| taxes. You will still see a use case for the dollar in a
| hundred years.
| gruez wrote:
| >Gold has intrinsic value for practically all of human
| existence.
|
| The intrinsic value argument hardly makes any sense
| because it's almost always lower than the actual value.
| Someone interested in intrinsic value would be buying
| copper, not gold.
| bartvk wrote:
| The rate is limited, though.
| [deleted]
| beefield wrote:
| Even if we think gold is finite (doubtful in any
| meaningful sense), it does not follow that the amount of
| money (in the modern sense) would be finite in gold
| standard.
|
| Gold standard means that the value of an unit of currency
| is tied to a specific amount of gold. In addition it may
| mean that the amount of bank notes in circulation in such
| system matches the amount of gold in the vaults of
| central bank.
|
| Neither of those means that the amount of money people
| have lent to the banks ( _i.e. money at their bank
| account_ ) has any meaningful relationship to the amount
| of gold - at least without _extremely_ strict regulation
| of financial companies, lending and saving.
|
| (Of course, same applies to cryptocurrencies, the claim
| that current cryptocurrencies would somehow set a limit
| for money creation is just a _massive_ misunderstanding
| of money and credit.)
| symlinkk wrote:
| I don't understand what you're trying to say. How does
| "lending and saving" change the fact that money can't be
| created out of thin air?
| SpicyLemonZest wrote:
| Under standard definitions, every bank loan creates money
| out of thin air. When you get a $10k car loan, for
| example, that means the amount of money floating around
| the economy has increased by $10k; there's nobody else in
| the market who has to spend $10k _less_ because you got
| that loan.
| smallnamespace wrote:
| His point is that most money is indeed created out of
| thin air through the mechanism of fractional reserve
| banking and the creation of debt.
|
| This happens even if the monetary 'base' remains a fixed
| quantity, like bullion gold.
| dnautics wrote:
| Yes, but minimally you can create disclosure regulations
| requiring entities that are lending to disclose the level
| of leverage they are operating at. Customers can then
| discriminate when they deposit based on withdrawal risk.
| beefield wrote:
| Sorry, your comment made me laugh a bit. You know, before
| the smartest guys were incentivized to figure out how to
| make you and me click ads, they were incentivized to
| figure out how to circumvent financial regulation. Turned
| out that it is _really, really_ f*cking hard to write a
| regulation that can 't be somehow gamed. And even if it
| was not, you need to remember that vast majority of
| people do not know how to handle percentages, it is quite
| naive to expect that those people could make any rational
| judgements based on any financial disclosures whatsoever.
| Just look around, Madoff managed to con quite a few
| sophisticated investors, and to anyone with any common
| sense Tether has been behaving exactly as if they would
| be doing their best to scam the whole crypto scene - and
| nobody cares or requires disclosures.
| beefield wrote:
| That's not a fact. Money _can and will_ be created out of
| thin air regardless if your monetary system is built on
| central bank money, gold or even bitcoin.
|
| A naive example:
|
| Alice has a gold coin. she walks to a bank and makes a
| deposit. Now she has one gold coin in her bank account
| and bank is holding her coin.
|
| Now Bob walks into the bank and says that he needs a loan
| of one gold coin to buy things. Bank happily lends the
| coin received from Alice to Bob.
|
| Bob walks to Alice and buys things from Alice and gives
| the coin to Alice.
|
| Now Alice has one gold coin and another gold coin at her
| bank account. Total amount of money she has is now two
| gold coins, even if only one gold coin exists in the
| whole universe!
|
| And yes, that money at her bank account is as real money
| as money nowadays gets. And yes, the truth is even more
| weird, you do not even need to circulate the money as in
| the naive example, banks can and will just create money
| out of thin air to people's accounts. After all, the
| money at the account is literally, literally _nothing_
| more or less than a way for bank to say that it will pay
| you money some later date if you so wish. To make that
| promise, you do not need any money to exist anywhere.
| Even I can do that promise on any imaginable currency
| (what that promise is worth is another discussion). And
| as said, this has absolutely nothing to do with what
| "base money" the monetary system is built on. And of
| course, this is the reason why financial system is so
| heavily regulated.
| throwaway13337 wrote:
| That promise is based in trust that when someone wants
| their gold back out, they can get it.
|
| If there is little confidence in that, people wouldn't
| store their gold there.
|
| There is, therefore, a natural limit to how fractional
| your reserve can be and keep trust over a long term.
|
| With fiat currency backed by nothing, the reserve no
| longer needs to exist at all as long as you have control
| over the creation of new money.
|
| I'm not saying the gold standard is the answer but it is
| different. That difference does not go away when we talk
| about lending.
| beefield wrote:
| That natural limit is way, way, beyond levels that cause
| catatrophic disturbances in economy[1], thus the
| distinction is irrelevant.
|
| [1] See your favourite mania, or even crisis of 2008 that
| can be argued to be because of failure of regulation to
| limit leverage of financial institutions.
| pessimizer wrote:
| > There is, therefore, a natural limit to how fractional
| your reserve can be and keep trust over a long term.
|
| The point is that both fiat and gold sit in a system of
| debt powered by trust. If you're theorizing a natural
| limit to the smallness of reserves, you might as well be
| theorizing a natural limit to the amount of money that
| can be printed.
|
| edit: it's certainly physically easier to have no
| reserves than to print infinite paper.
| throwawayboise wrote:
| But Bob has -1 gold coin in his bank account, so there is
| still only 1 gold coin. If Alice deposits her "new" gold
| coin into her account, the bank still has only one coin.
| If Alice demands to withdraw her 2 coins, the gold bank
| won't be able to comply, whereas the fiat bank would just
| print another coin.
| beefield wrote:
| That's not how amount of money is calculated. If you did,
| you would end up with a funny result that there is no
| money at all. As all modern money is debt from someone to
| someone else.
| SpicyLemonZest wrote:
| The finiteness of gold doesn't imply any particular
| monetary value for it. The pre-1971 gold standard was
| maintained not by concrete standards of value but by
| global scale market manipulation; as we can see in market
| data since then, the actual market clearing price of gold
| is much more dynamic than the fixed peg imposed by gold
| standard laws.
| dTal wrote:
| It does not follow from the post- gold-standard
| instability of gold that the prior stability was due to
| market manipulation; the nature of the asset changed
| fundamentally. You might say the gold was "backed by" the
| financial system, whereas now it's a speculative asset no
| better than BTC.
| SpicyLemonZest wrote:
| The point is that there was no underlying law of nature
| attaching gold to the financial system. The only thing
| "backed by" meant was, the government promised to trade
| gold and regulate the gold market as required to maintain
| their declared peg. Maybe it's a bit of a "hot take" to
| call that manipulation, but I don't think it's untrue or
| unfair - in some countries (although not the UK)
| governments went as far as simply prohibiting private
| speculation in gold.
| jkhdigital wrote:
| The monetary value of gold emerged organically because it
| turned out to be the best available option for
| transactions between untrusted parties. After the
| emergence of modern states, this use case was restricted
| to cross-border payments since strong legal protections
| and centralized banking systems made fiat currencies
| trustworthy enough for domestic commerce.
|
| But anyways, if one looks at why gold emerged as the
| preferred money for its time and place, "finiteness" aka
| non-zero marginal cost of production is certainly a
| relevant factor.
| simonh wrote:
| A lot of excellent other answers, so I hesitated to chip
| in but I think there is a useful way to think about this.
|
| If the unit of exchange was always physical gold coins
| then yes, there would be a finite amount of money.
| However the moment we turned to promissory notes,
| cheques, bank notes and financial instruments such as in
| fractional reserve banking the link to physical gold was
| a fiction. Such notes have been around a very, very long
| time although of course increasing in prominence over
| time.
|
| It was a fiction even for precious metal coins as well
| because the moment a government started running low on
| the metal, or just wanted to inflate it's currency, it
| would just debase the coins.
| hkt wrote:
| Actually, all money is backed by the available goods and
| services in an economy. It is a plate that spins itself.
| lotsofpulp wrote:
| No one is forced to give up their goods and services for
| any specific money.
|
| Money is "backed" by the trust that someone else will be
| willing to accept it at a later date for goods and
| services.
| hyko wrote:
| Well, you're forced to pay your taxes in specific money,
| so that's one thing.
| imtringued wrote:
| Fiat currency is backed by the existence of an economy
| that exchanges fiat currency for goods and services. If
| that economy disappears you get hyperinflation. See
| Zimbabwe and Argentina as examples of countries that
| destroyed their economies and suffer from hyperinflation
| as a result of massively reducing the ability to exchange
| money for food.
|
| Think about it this way. You play a video game with micro
| transactions. You receive 1000 units of premium currency.
| Why is that currency valuable? It's valuable because you
| can exchange it for cash shop items. Imagine if the cash
| shop shuts down but the game keeps running. Your currency
| would be worthless because you lost the ability to
| exchange it.
| Aunche wrote:
| The current wealth inequality is caused by the productivity
| gains being concentrated on a smaller population. One
| Amazon can provide goods far more efficiently than
| thousands small businesses.
| jkhdigital wrote:
| I'd say this explains the 90/10 wealth gap. The 99.9/0.1
| wealth gap stems from financialization and central bank-
| supported moral hazard.
| chii wrote:
| The alternative possible explanation, which is never
| mentioned, is the advent of electronic automation, and out-
| sourcing of labour.
| BurningFrog wrote:
| Labor has been constantly automated away since the start
| of the Industrial Revolution, ~250 years ago.
|
| It is how we all got immeasurably richer since then,
| while constantly fearing that all jobs will be automated
| away soon.
| [deleted]
| simo7 wrote:
| > When you can create money backed by nothing
|
| Isn't that what money really is about?
|
| Debt and money go together. When you take on debt your
| creditor can decide to sell his credit to somebody else, de
| facto using your promise to repay your debt as a currency.
|
| Isn't your promise...just a promise? Yet you can buy stuff
| with it?
| jkhdigital wrote:
| Fungible debt is a money substitute. The strictest
| definition of money would require that it has no
| counterparty.
| colanderman wrote:
| Or... switching to a fiat system enabled the economy to
| expand faster than labor policy (minimum wage, maximum work
| week) has been able to keep up, enabling those at the top
| to exploit the gains.
|
| Ignoring that half those graphs are just arrows pointing to
| arbitrary knees in exponential functions, I couldn't find
| this one which, unlike most on that page, directly graphs
| an _ongoing policy choice_ , minimum wage vs. productivity:
| https://i0.wp.com/chicagopolicyreview.org/wp-
| content/uploads...
| judofyr wrote:
| I don't get why people keep linking this page. How can you
| "understand" anything from a page which provides no
| analysis and presents numbers with no caveats? How can I
| trust that these charts aren't cherry picked?
| chmod775 wrote:
| I can understand being critical of this particular page,
| but more generally:
|
| > How can you "understand" anything from a page which
| provides no analysis and presents numbers with no
| caveats?
|
| Presumably because one is able to do one's own analysis
| and think for themselves. Everything starts out as raw
| numbers.
|
| > How can I trust that these charts aren't cherry picked?
|
| Can you ever?
| judofyr wrote:
| > Can you ever?
|
| If we're talking "generally": Yes, we can trust that
| charts aren't cherry picked by reading the analysis. A
| proper analysis would include argumentation for why
| _this_ metric is critical and why _this_ chart is
| interesting.
| stevenwoo wrote:
| What do you think of Capital and Ideology? Piketty posits
| some theories/hypothesis with caveats throughout and has
| a lot of data for certain countries and time periods, 75%
| of the book is history through the lens he is examining.
| read_if_gay_ wrote:
| This criticism applies to anything that isn't formal
| mathematical proof.
| judofyr wrote:
| I asked for analysis and source assessment, none of which
| is part of a formal mathematical proof.
| read_if_gay_ wrote:
| Analysis can be misleading too.
| refenestrator wrote:
| The New Deal political coalition was shattered in 1968 and
| we've had neoliberal politics since then which are
| indifferent to economic inequality. Inequality has
| unsurprisingly gone up.
|
| Blaming it on magic paper vs gold money to the exclusion of
| everything else seems like a red herring.
| donovanian wrote:
| > The New Deal political coalition
|
| I have a hard time seeing the discontinuity between the
| New Deal people you're referencing and the 1960s Great
| Society ones that pretty much iterated on the same themes
| of the scientific management of society through
| monolithic institutions with expansive powers.
|
| It's pretty much relentless hubris with little to show
| and much to answer for.
| xxpor wrote:
| Given china's rise, it would seem the argument is that
| scientific management with expansive powers in the
| western world didn't actually go far enough.
| dnautics wrote:
| So if china suddenly collapses in the next couple of
| years will you retract your hypothesis?
| pessimizer wrote:
| If china suddenly grew legs and walked away, I'd rethink
| what I knew about animal life - but why deal in this
| particular counterfactual?
| dnautics wrote:
| it's not. China is looking at a demographic collapse in
| the next few years that upends their running economic
| model and makes any future projections based on past
| history suspect. One of the ways out of demographic
| collapse is immigration, but somehow I don't see China's
| equivalent of US's Mexico/LatAM coming out of the global
| geopolitical woodwork. Immigration is simply not in
| China's DNA. Outside of immigration, no amount of
| "scientific management" or "good policy" will make 18-30
| year-olds appear magically over the course of 5-10 years.
| Unless my understanding of biology is wrong and dolphins
| could sprout legs and walk on land, usually it takes
| 18-30 years.
|
| I'm willing to change my mind. What sort of an ace up its
| hole does china have to change this situation?
| shanusmagnus wrote:
| Depends on the outcome you're looking for, I guess. From
| a sheer "managing the macro architecture of civilization"
| perspective it's hard to argue -- the speed with which
| China can do substantial things is staggering. They trade
| that off for individual liberties, presumably. Which
| makes one wonder if the liberties we enjoy are worth the
| bargain, on net.
|
| Or perhaps the question boils down to whether "on net" is
| the right objective function.
| [deleted]
| refenestrator wrote:
| Both the New Deal and the Chinese system accelerated
| electrification and running water in rural areas by
| decades.
|
| There's a lot of "quality of life" there that gets missed
| when people zoom all the way out and talk about state
| involvement, GDP and freedom.
| lumost wrote:
| Hypothetically, what would occur if the federal reserve
| simply sent money to every bank account rather than
| trying to steer market interest rates? If it's an
| equivalent action then why do we only perform the action
| that is more prone to regulatory capture?
| OscarCunningham wrote:
| It's not an equivalent action. If you print money and use
| it to buy bonds, then if you ever want to reduce
| inflation you can just sell the bonds again. Whereas if
| you print money and give it away then to get it back you
| have to tax people, which is (a) unpopular and (b)
| involves 'the government bailing out the central bank'.
| jfengel wrote:
| Theoretically, supply side economics. Demand side
| economics makes even liberal economists uncomfortable,
| because it's so closely tied to inflation of consumer
| goods. They would rather fund the industries that make
| the goods, so there are more goods (and jobs producing
| them).
|
| It's clear that it isn't working, which is why a
| heretical sect of MMT economics wants to do demand side.
| It's a big change, the kind that takes a generation dying
| off to accomplish. Especially since it may not work. It's
| a genuine unknown, with the primary advantage that we
| don't already know what kind of regulatory capture it
| would cause. Which is enough for some, given how badly
| the current situation is fraying.
| dnautics wrote:
| That's still really bad for the unbanked in the US.
| hyko wrote:
| Well, the first question is: how much money?
|
| That question is usually answered by the people willing
| to take out commercial loans. Without the market
| supplying that function, you'd have to try and figure
| this out yourself centrally.
|
| The second issue is that you really are spraying money
| evenly across the whole economy, effectively starving
| productive ventures of capital while at the same time
| endowing moribund ventures with it instead.
|
| So it's not quite an equivalent scheme, it has different
| benefits and costs.
| jkhdigital wrote:
| Because in a democracy, effectively granting the
| legislature the power to print money and hand it to
| citizens is fraught with some pretty obvious conflicts of
| interest.
|
| (yes I know the Fed is "independent" but it is the tail
| on a government dog--the two are separated only in name)
| imtringued wrote:
| Depends on which side actually needs the money.
|
| You cannot make an absolute statement that consumers vs
| businesses deserve more money, you have to look at the
| current market.
|
| However, the central banks have opened the flood gates
| for supply side monetary stimulus. It's not unreasonable
| to think that the demand side has been neglected
| massively and that money should be put into the demand
| side instead.
| scythe wrote:
| https://www.sipa.columbia.edu/file/3345/download?token=rR
| qLL...
| legitster wrote:
| > The New Deal political coalition was shattered in 1968
| and we've had neoliberal politics since then which are
| indifferent to economic inequality.
|
| This is also a red herring. The New Deal did little to
| actually fix structural wealth problems. And "neoliberal"
| politics actually included a lot of progressive politics
| like negative income tax, drug legalization, prison
| abolition, etc.
|
| A better reading of history would be that the post-war
| boom in the US mostly amounted to a lucky windfall and
| the US has wasted a lot of policies trying to recreate an
| economic boom using cultural levers.
| refenestrator wrote:
| Eh. The New Deal was a lot of things over 35 years but
| there was a consistent "bottom-up" theme that's been
| replaced by a "supply side" theme.
|
| Neither set of ideologies explains everything, but lots
| of little decisions over a few decades can add up.
|
| (Also, I realize we're being fast and loose with labels
| here, but after 20 years of Reagan/Bush/Clinton drug war,
| taking credit for legalization feels a little bold.)
| pessimizer wrote:
| > negative income tax, drug legalization, prison
| abolition, etc.
|
| Under what interpretation of the word "neoliberal" do any
| of these things fall under? Especially the last two; find
| me a single person claimed to be neoliberal who supports
| either.
| marcosdumay wrote:
| What is the arrow supposed to represent there? Nothing
| interesting seems to change at the arrow point, except for
| inflation.
| symlinkk wrote:
| Obviously it represents the point where productivity
| increased but real wages remained stagnant. I think
| you're purposely pretending not to understand it though.
| colanderman wrote:
| On half those graphs the arrow points to an arbitrary
| "knee" on an exponential function. It's a graphical
| version of the Gish Gallop [1] and conspiracy-theory "it
| makes you think!" arguments. Explanation is definitely
| warranted.
|
| [1] https://rationalwiki.org/wiki/Gish_Gallop
| BEEdwards wrote:
| Know what happened earlier?
|
| Congress lost secret voting,
|
| https://www.congressionalresearch.org/Jumbotrons.html
|
| I'm more of the opinion that our problem is hyper targeted
| lobbyist money...
| 127 wrote:
| Rome had a money system based on silver and it was eventually
| debased. https://en.wikipedia.org/wiki/Denarius
| luxuryballs wrote:
| Gold and silver have been money for thousands and thousands
| of years, that doesn't mean it's a unified monetary system,
| it was just a natural occurrence.
|
| Back when dimes were silver you could get a gallon of gas for
| about a dime. If you found a silver dime today and sold it
| for melt value you will get pretty close to being able to get
| a gallon of gas for that dime still!
| BurningFrog wrote:
| > _There was no unified monetary system for the vast majority
| of human history, never mind one based on gold and silver._
|
| In case this is an honest misunderstanding:
|
| Pretty much every society in history used gold, silver, or
| some other rare natural resource. Of course there was never a
| _global_ such system, but OP didn 't mean to say that.
|
| https://en.wikipedia.org/wiki/History_of_money
| foerbert wrote:
| I'm not certain what you are referring to with that
| article. I don't see much that inherently and obviously
| supports your assertion.
|
| In fact it references the same book I mentioned earlier,
| which clearly talks about the lack of such systems in early
| societies. And of course, such societies dominate human
| history.
|
| If you want to talk about more modern well-recorded
| history, again I turn to the book mentioned. And there the
| simplest summation I can come up with is "yes, but no."
| aseerdbnarng wrote:
| >> Ultimately, printing money doesn't make anyone more
| productive or produce anything.
|
| That statement is easily refuted by running it backwards: say
| reducing the amount of money in circulation via a huge once-off
| tax would thus have no impact on productivity which of course
| is silly.
|
| >> If it's OK to print money to pay for some things why are you
| not doing it more? Why not make everyone a millionaire?
|
| if drinking water is good, isnt drowning even better?
|
| Creation of money either by expansion of private debt or
| governments running a current account deficit have always had
| the effect of goosing GDP figures. The 'free money' the central
| bank is creating is merely nominally swapping out the value of
| private-debts for equivalent nominal government debts. The
| money-creation is the net difference between the two and not
| equivalent to a blanket cheque.
| Supermancho wrote:
| > That statement is easily refuted by running it backwards
|
| Operations are not correct based on if they are reversible,
| nor are economic truths.
| aseerdbnarng wrote:
| Economic truths are remarkably robust to reality or logic.
| mancerayder wrote:
| >If you have gone through years of moving everything to China
| to make it cheaper to manufacture, improved technology to make
| processes more efficient, etc. and I'm still paying the same
| amount for all of the stuff in my life, then again, maybe all
| these things are cheaper, but I'm also buying them with
| currency that's less valuable.
|
| On top of that, there is talk, political rhetoric perhaps but
| still talk, of moving manufacturing back in house.
|
| The US wants to do it with chip manufacturing on nat security
| grounds. Trump and Bernie popularity was partially on anti
| NAFTA grounds. There's increasing hostility between China and
| US (witness the MS hack last week). Nothing stays the same, and
| we might be in for some surprises.
| harryh wrote:
| > A normal household has to pay rent or make mortgage payments.
| To arbitrarily exclude the biggest expense to consumers from
| CPI is pretty misleading.
|
| Housings costs _are_ included as part of the CPI. I 'm not sure
| why you think otherwise.
|
| https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
| nkurz wrote:
| As others have pointed out, this is handled differently in
| the UK versus the US. You are correct for the US standard
| definition of CPI, but the author of the article is a
| professor in the UK, writing on a UK domain for a (primarily)
| UK audience. Here's a link that another poster provided that
| summarizes the UK definitions:
| https://www.thetimes.co.uk/money-mentor/article/rpi-
| versus-c....
| zbzbBn wrote:
| No, it really isn't. From your link:
|
| "If someone were to rent you home today, how much do you
| think it would rent for monthly[...]"
|
| That's a very poor proxy for housing cost.
|
| First of all it's a guess. A guess from whom? What do these
| oracles know about how much their home can rent for if they
| haven't put it up?
|
| Second, the homes available in the rental market are vastly
| inferior from (for example) my home. I cannot find a home
| remotely as nice as my home (bought in 2017 for 320k,
| currently valued for 400k - pretty average middle class home
| in my city) but I can't rent mine for what I'd want to rent
| it for [1] - so the supply and demand price don't overlap for
| my type of home in my city. Without overlap of price, the
| question, as it pertains to my home is meaningless.
|
| On the other hand, there is an easy way to include housing
| price for owners. Add price of homes to the CPI. In fact,
| investments generally should be included, since they are
| goods whose price raise with the increase in monetary mass
|
| [1] is the accelerated deterioration of my home, and the
| headache of being a landlord worth the $1400/month renting it
| to a family? No. Can I rent it for $1800 by splitting it into
| rooms, say, for students? $1800/month is not worth having
| destructive students live here.
| harryh wrote:
| It's certainly true that calculating imputed rent can be
| tricky and is probably subject to some error. However that
| does not make is _meaningless_.
| zbzbBn wrote:
| Ok, let's say not meaningless.
|
| Let's say it has (my guess of my particular case) a 30%
| error. What happens to CPI if the weighted average of
| housing is off by 30%? Assuming housing is a third of
| CPI, that puts CPI up to 10%.
|
| Look, I'm actually looking to buy a home out in the
| country and remote work from there. I'm actually living
| the problem of "should I sell my home or rent it out?"
| It's not a survey question, that's for sure!
| gruez wrote:
| It's less of a problem than you think because the error
| can't compound. An error of 30% compounded over 10 years
| can't grow to a 1300% because if you compare the two
| years directly you'll see there's a huge mismatch.
| DoubleDerper wrote:
| "If someone were to rent you home today, how much do you
| think it would rent for monthly[...]'
|
| That's a very poor proxy for housing cost."
|
| Agreed. Rental data is publicly available. Why bother
| asking only to get a worse answer?
| em500 wrote:
| The question is asked to _owners_. Renters are asked how
| much they actually paid in rent. The main reason why
| owners are asked for their estimate is because owner-
| occupied houses can be systematically different (probably
| more expensive /higher class) than renter-occpied houses,
| so estimating owner-occupoed rents with actual rents can
| be biased.
| zbzbBn wrote:
| I was quoting the question asked in the government
| document posted by the OP
| [deleted]
| darksaints wrote:
| My biggest beef with housing in the CPI is the fact that
| housing costs are underrepresented in general, and
| drastically underrepresented for some segments of the
| economy. The weight of housing in the index is something like
| 24%, but the average housing costs for the top 20% of incomes
| is closer to 29% of income, and it gets above 40% of income
| by the time you get to the bottom 20% of incomes.
|
| So by underrepresenting housing's weight by that much,
| combined with the fact that housing prices are growing much
| faster than everything else in the index, combined with the
| drastic disparity in housings effectively "felt" weight on
| inflation for people of different incomes, and you get this
| problem: things may seem fine to a banker on the Board of
| Governors of the Federal Reserve, while the bottom 20%
| rightly thinks our nation is going up in flames. There is a
| massive disconnect between what the metrics say and what
| people are actually experiencing, and nothing is happening
| about it because the metric still feels right to the wealthy
| people that control it.
| lorenzhs wrote:
| Shelter accounts for 33% of the index, not 24%:
| https://www.bls.gov/news.release/archives/cpi_02102021.htm
| - I'm not sure where your figure originates, but it's
| wrong.
| incrudible wrote:
| The GP is mistaken in assuming that rent is excluded from the
| CPI, however mortgages and other costs of home ownership are
| not considered consumption and are therefore excluded. This
| is the first item of the FAQ in the document that you linked.
|
| As a matter of fact, home _ownership_ has become a highly
| speculative play for the ordinary wage earner and this is
| largely due to asset price inflation as a result of low-
| interest rate policies (worldwide, not just the US).
| harryh wrote:
| It's important to understand that while mortgages are not
| part of CPI, imputed rent is. So the consumption costs of
| living in a home one owns are taken into account.
| zbzbBn wrote:
| Imputed rent is meaningless since there's no market
| discovery of the price.
|
| It's like asking what the position and momentum of
| particle is simultaneously. You can't know the price of
| something you don't intend to rent unless you rent it,
| but you're not renting it because you have no intention
| of renting.
|
| Even if you "pretend" to rent by putting out a fake add
| and then not signing the rental agreement, that doesn't
| count. That only gives you the demand side of the price.
| Since you know that you don't intend to actually rent
| your home, you will not give serious consideration the
| opportunity cost of renting out your home.
| TheCoelacanth wrote:
| It's not meaningless. It's an estimate based on market
| data.
|
| Every component of CPI is an estimate, that doesn't mean
| it's meaningless.
| gruez wrote:
| >Even if you "pretend" to rent by putting out a fake add
| and then not signing the rental agreement, that doesn't
| count. That only gives you the demand side of the price.
| Since you know that you don't intend to actually rent
| your home, you will not give serious consideration the
| opportunity cost of renting out your home.
|
| The point of the fake ad is to gauge what the current
| market clearing price is, which presumably already takes
| into account the current supply/demand. It's not any
| different than using the current stock price to judge
| what an entire company is worth (market cap), even though
| only a fraction of the shares are actually on the order
| book.
| Supermancho wrote:
| > It's not any different than using the current stock
| price to judge what an entire company is worth (market
| cap)
|
| It's interesting to note, the stock price is a small part
| of a company's valuation. There are many different
| structures for stock issuance.
| svajsvsj wrote:
| Two problems with that:
|
| 1. Clearing price assumes efficient markets. My house in
| my neighborhood is one of maybe three (probably much less
| judging by the rental units friends of similar means live
| in) like it that will be available throughout the year.
|
| I don't agree a fake add will get the clearing price in
| these conditions.
|
| Even if I put up an ad to rent a room in a student house
| -one of tens of thousands in a typical college town- the
| hypothesis fails since students are extremely sensitive
| to distance to their main building, nearby amenities,
| availability of parking, etc.
|
| 2. Even in the stock market the clearing price is
| dubious; the market cap of a company is a useful bit of
| fantasy. By multiplying the clearing price by the
| outstanding shares there is an implicit and incredible
| assumption that all the shareholders value the shares
| equally - which is obviously not true, some share-holders
| believe the stock has more promise, others are
| sentimental (the founder's family members).
|
| And that 'price*shares == company worth' is not true is
| evident in mergers and acquisitions which can be very
| acrimonious events. If the clearing price times the
| outstanding shares were a fair measure of the market cap,
| why would rational investors care about a merger except
| for the costs associated w/ closing?
|
| But bringing this all back to the OP. Housing cost for
| the majority of the middle class is not meaningfully
| included in the CPI, except with a flawed metric.
| gruez wrote:
| >1. Clearing price assumes efficient markets. My house in
| my neighborhood is one of maybe three (probably much less
| judging by the rental units friends of similar means live
| in) like it that will be available throughout the year.
|
| Yes, low liquidity in the rental market means that
| there's a spread in the estimates, but I don't see how it
| follows that "imputed rent is meaningless". The low
| liquidity can cause the estimate to be both above or
| below reality. Do you have evidence that the inflation
| numbers for the housing component of the CPI is totally
| detached from actual market prices?
|
| >2. Even in the stock market the clearing price is
| dubious; the market cap of a company is a useful bit of
| fantasy. By multiplying the clearing price by the
| outstanding shares there is an implicit and incredible
| assumption that all the shareholders value the shares
| equally - which is obviously not true, some share-holders
| believe the stock has more promise, others are
| sentimental (the founder's family members).
|
| Again, this seems to be more of a complaint that the
| market cap figure isn't 100% accurate, rather than that
| the number is "meaningless" as claimed in your original
| comment. It seems like the entirety of your argument (for
| both imputed rent and market cap) is "well there are
| these factors that causes the number to be inaccurate,
| therefore the number is totally meaningless and should be
| ignored".
| __throwaway9 wrote:
| > Ultimately, printing money doesn't make anyone more
| productive or produce anything. All it does is redistribute
| wealth from those that were first to get the new free money
| away from those that were last to contact it.
|
| This is not totally true.
|
| The ability to print money enables redistribution without
| taxes.
|
| Bank loans and credit would not be nearly what is is today
| without all of the various methods that the government allows
| to borrow debt on debt.
|
| Those loans and credit help start companies and build houses.
|
| Cryptocurrencies won't change how things need to work to avoid
| economic collapse, because those that understand how things
| work won't change.
| chii wrote:
| > Cryptocurrencies won't change how things need to work to
| avoid economic collapse
|
| cryptos won't be able to be loaned as easily, since it's hard
| to create more cryptos on demand. So if there's a surge in
| demand for loans, the price of loans (aka, interest rate)
| will surge. Under a fiat system, the state/central banking
| authorities can simply make more credit available to satisfy
| those loans, and thus keeping interest rate stable in the
| face of huge demand.
| ItsMonkk wrote:
| Bitcoin is like gold. Tether is like USD. You don't trade
| the gold, you trade the dollars. They never printed more
| gold, they printed more dollars.
|
| Tether has printed $2B in the past week. Loans will be
| freely available.
| tzs wrote:
| In one of my tax classes in law school, the professor
| recommended an optional book that when more into the theory
| behind tax. That book brought up an interesting idea to discuss
| concerning printing money.
|
| Suppose you have a society with a total economy of say 10^9
| dollars, and you need to allocate 10% of the to the government
| for it to operate.
|
| The conventional approach is various taxes. Income taxes, sales
| taxes, VAT, property taxes, the list goes on and on.
|
| The question the book asked is why not just have the government
| print the money it needs?
|
| Printing 10^8 dollars would not quite do it because of the
| inflation that would cause, but if it printed 1.11 x 10^8
| dollars then the government would have enough to buy 10% of the
| inflated economy.
|
| So why not replace taxes with printing money to fund the
| government?
|
| It has a couple of clear advantages. First, no more need for
| everyone to file tax returns, employers to withhold tax
| payments, and all that jazz, and no need for the government to
| have a giant tax collecting apparatus or a giant tax code.
| Second, it makes tax evasion a lot harder.
|
| There are some downsides too. First, it would take away a large
| part of the usefulness of taxation as a way to change behavior.
| Deductions, credits, progressive rate structure--all gone.
| Deductions and credits could be replaced with government
| subsidies, but if you aren't careful you will end up recreating
| much of the complexity and bureaucracy that the old tax system
| had.
|
| Second, the inflation would be significant enough that it
| wouldn't take many years before even small things involve large
| numbers of dollars. This could probably be addressed by going
| to an almost all electronic money system so you could just
| periodically re-scale the whole thing.
|
| Third, inflation from printing money doesn't affect all assets
| equally, so this would encourage people to try to hold more of
| the wealth in assets that are less affected. People lean toward
| that anyway to deal with normal inflation, but with the current
| system if there is too much off that the government can use tax
| incentives to nudge things in the other direction.
|
| I remember this leading to some interesting discussion in
| class. Even if it is not practical, thinking about it is
| interesting. It can get you to really think about what money
| really is.
| OscarCunningham wrote:
| > Printing 10^8 dollars would not quite do it because of the
| inflation that would cause, but if it printed 1.11 x 10^8
| dollars then the government would have enough to buy 10% of
| the inflated economy.
|
| This makes it sound like you're treating 'size of the
| economy' (GDP) and 'size of the economy' (amount of money) as
| equal. But they're not. In the US, GDP is about $22T/year and
| amount of money is about $7T (so the average dollar is spent
| about 3 times a year). So if the government wanted to spend
| 10% of GDP, it would have to print $2.2T which would cause
| about 2.2/7 = 31% inflation. In fact the government spends
| 35% of GDP, so inflation would be around 100%. The value of
| the dollar would halve every year.
| gruez wrote:
| There's a name for what you described: modern monetary
| theory. AFAIK there really isn't a consensus on whether it
| works or not.
| imtringued wrote:
| No, it isn't because he removed all taxation. MMT is also
| about using money to destroy taxation and eliminate
| inflation.
|
| In other words, MMT is about understanding the mechanism
| behind inflation. If you know how inflation works then you
| have full control over it. You can raise and lower it at
| will and use this power to actually achieve policy goals.
|
| For example, by injecting money exactly where it causes
| inflation you can directly cause inflation. It sounds
| obvious in retrospect and it explains why current central
| bank policies fail to create inflation.
|
| The money never reaches the hands of people who actually
| spend it.
|
| Once you reach your policy goals you can stop printing
| money. Meanwhile if you create money fruitlessly without
| achieving policy goals you end up creating more money than
| necessary.
|
| The irony behind MMT is that by printing more money you end
| up printing less money.
| esja wrote:
| It's even worse when you consider that central banks have been
| deliberately keeping wages down through decades of inflation
| targeting, while ignoring asset prices. And fiscal policy has
| done nothing to compensate for this. It's actually made things
| worse by imposing much higher taxes on earned income than on
| capital gains and other wealth. The perfect recipe for greater
| and greater inequality.
| lottin wrote:
| > To arbitrarily exclude the biggest expense to consumers from
| CPI is pretty misleading.
|
| They are not excluded, why do people keep parroting this?
| ilaksh wrote:
| I doubt anyone will read this but my take is that in the current
| system they actually do need to print money to solve the
| liquidity problems but that creates other problems.
|
| It's like everyone is thirsty, but people (and large companies)
| keep hoarding water. They have some giant taps that they can turn
| on. So they do.
|
| But the issues start with the fact that money is debt, and only a
| few well-connected countries are able to print money and get away
| with not having to pay it back. That is a great injustice, and it
| leads to a type of domination and poverty.
|
| I feel like the solution is for money to be more sophisticated.
| It needs to be tied to distributed resource tracking and
| regulated in a more sophisticated way. This was totally
| impossible before but with new decentralization technologies it
| is.
|
| One crazy idea might be to have very good public food production
| data based on ubiquitous data collection protocols that can be
| analyzed by many people. Then have a type of money that is
| specifically for ensuring food security. And another for housing
| security.
|
| All of these types of things are only really feasible if you have
| a functioning government that you can trust. That is probably the
| hardest part.
| JProthero wrote:
| From the article:
|
| > _The first of these ideas says that if demand for a product
| rises and the supply does not then its price is going to
| increase. Economists would say this is so basic that no one could
| really argue with it. So let me do so._
|
| _First, this assumes that there are no alternative products
| available. The reality is that there usually are. Few things are
| so essential now that this is not the case. Secondly, this
| assumes we will not wait for what we want. We often will, and
| that smooths demand._
|
| That buyers may choose alternative products, and that purchases
| may be deferred, both seem to be valid observations to me, but
| neither amounts to an argument against the proposition that the
| price of a product will increase if demand for that product rises
| and its supply does not.
|
| If buyers purchase alternative products, or defer their
| purchases, then they are not buying the product in question, and
| demand for that product therefore does not in fact rise.
|
| The author appears to be trying to criticise an orthodox
| prediction in economics about what will happen under certain
| conditions not by -- as he suggests he is doing -- arguing with
| the logic of the prediction, but instead by asserting that the
| conditions the prediction applies to do not arise.
|
| Regardless of whether his conclusions about price inflation make
| sense, he does not actually make the argument that he purports
| to.
| betwixthewires wrote:
| >Current debate about inflation isn't really about whether it's
| likely: it isn't.
|
| No, inflation is _guaranteed_ , in fact, a 3% yearly inflation
| rate is deliberately targeted.
|
| I'm sure the writer meant "hyperinflation", still, say what you
| mean, and beyond that, having read the rest of it, it is full of
| weasel words and uncited or unexplained premises. Further, it
| does not actually address any of the ideas that the title implies
| it is countering. I'm just going to say it: this is a shit tier
| article.
| iagovar wrote:
| Keep in mind that inflation is most likely to have an "hedonic
| adjustment" in your country (I presume the US) too.
|
| When you look at differences of prices from decades before, in my
| country you can see that electronics got much cheaper in general,
| but basic stuff and real state go more expensive, while salaries
| barely changed.
|
| If you speak spanish, Pablo Gil explains it well in his videos.
| iso1210 wrote:
| New Which? research shows that in the UK we actually spend less
| on food than previous generations did, and many popular foods
| are cheaper now than they were 30 years ago.
|
| In the 1950s we spent a third of our income on food shopping,
| but in 1974 this had gone down to 24%. By 2016 food shopping
| accounted for just 10.5% of our income.
|
| https://www.which.co.uk/news/2019/11/heres-how-our-food-pric...
|
| So food prices have collapsed, electronics too, what 'basic
| stuff' is left?
| frankbreetz wrote:
| Housing, healthcare, education.
| danans wrote:
| And infrastructure
| jiriknesl wrote:
| As Bastiat once said, there's a thing that can be seen and the
| thing that cannot be seen.
|
| Maybe parking ticket will be the same 1 pound as it is now.
|
| The UK's bill out of this will be +- half trillion pounds over
| coming (3 ?) years. Rishi Sunak is already rising taxes, they
| will raise them even more.
|
| So even if "optically" the prices will not grow, you will do the
| same amount of work, create the same amount of value, but after
| HMRC taking their cut, you will end up with less quid in your
| wallet. You will be able to buy less.
|
| And paying of all this will take decades. If it is a whole
| career, whole life, it's equivalent of permanent inflation.
|
| Or did anyone think they can just print money without raising
| taxes? Come on!
| bko wrote:
| > Remember that the inflation that we are talking about is that
| with regard to consumer prices, which is often related to wages.
| It does not relate to asset inflation on things like shares, or
| house prices, which can behave quite differently, as the last
| decade's shown.
|
| I like how the article waves off asset inflation. The federal
| reserve creates trillions of dollars in new money, shares and
| house prices go up considerably, and we have no inflation. It's a
| win-win. In a wealthy society like outs, assets are exactly where
| you would see the inflation. Demand for staple goods isn't going
| to go up.
|
| This is just a transfer of wealth to asset holders.
| ptero wrote:
| > In a wealthy society like outs, assets are exactly where you
| would see the inflation. Demand for staple goods isn't going to
| go up
|
| Demand may not go up, but the costs for producers will and
| those costs are going to get passed to consumers.
|
| Prices of many things, from meat to eggs to lumber, are already
| up a lot. I also see signs "sorry, our costs are rising, so we
| have to pass a portion of the increase to you" in supermarkets.
|
| Printed money (in the real world, especially with a single
| party railroading it) will, for the most part, benefit those
| who do not need it. And the portion that will reach the lower
| incomes will be eaten away by taxes, inflation and rising costs
| of doing things.
| 542458 wrote:
| I don't disagree that house prices are too high, but...
|
| House prices are up, but most people don't pay the price of a
| house - they pay the mortgage on it. Because interest rates are
| rock bottom the inflation of the price of a 25 year mortgage is
| just about in-line with most other goods. If house prices
| increase by 100% while interest goes from 6% to 2%, cost of a
| mortgage only increases by about 25%. (One complication here is
| that the down payment is not affected by interest rates, as so
| is much larger today in real dollars.)
| pintxo wrote:
| You still have to pay back the principal though?
| Price per Unit | Interest | Annuity | Duration [years] |
| Interest payed -------------- | -------- |
| ----------- | ------------------ | --------------
| 100,000.00 | 5.0% | 12,000.00 | 10.8 |
| 29,626.35 150,000.00 | 2.5% | 12,000.00 |
| 15.0 | 30,040.09 200,000.00 | 1.0%
| | 12,000.00 | 18.2 | 18,876.33
|
| Unfortunately the increase in asset price is not covered by
| the decrease in the interest rates. And yes, prices here have
| nearly doubled over the last 10 years. And you could easily
| get a mortgage for less than 5% in 2011 here.
| 542458 wrote:
| I was using the monthly cost of a 30 year mortgage. Monthly
| for 30 years a 500K mortgage at 6% is roughly 3K. Monthly
| for 30 years a 1000K mortgage at 2% is about 3.7K.
|
| So a 100% increase in sticker price with -4% interest
| change yields an actual cost increase of 25%.
| lotsofpulp wrote:
| This comparison of an increase in price and decrease in
| interest rate is not useful because if interest rates
| come down, mortgages can be refinanced at the lower
| interest rate.
|
| The 100% more expensive house actually costs 100% more
| (nominally).
| monktastic1 wrote:
| Monthly cost of a house tells you very little about the
| "true cost of ownership" (a concept that I wish were
| taught more widely). That includes things like taxes,
| opportunity cost of capital, maintenance, etc. Doubling
| the price of the house will not quite double the TCO
| (because maintenance may not increase by much depending
| on various factors, and taxes can take time to catch up),
| but it will not be a mere 25% increase either.
| dwiel wrote:
| That is true and means current prices may not be much higher,
| but it makes homeownership much more risky. If interest rates
| ever go back up, the price would go down and you could wind
| up owning a house where your principal is much higher than
| it's current value. This is ok if you don't want to move. If
| you ever want to move though, even to a house with an equal
| price, you may end up owing the bank a lot of money.
| 7_my_mind wrote:
| But what are the chances of the housing demand evaporating?
| In most cities where the housing bubble exists, it exists
| for a reason. The city is growing because all jobs are
| relocating to cities and universities located within these
| cities have growing student populations.
|
| The demand is considered very stable so the risk of that
| happening is quite low.
|
| And before anyone says it, I don't think we are going to
| experience a remote work revolution any time soon.
| seibelj wrote:
| It's not that demand evaporates, it's that if you can
| afford $2500 a month mortgage, and interest rates at 2%,
| the value of house you can afford is much higher than at
| 4%. The limit on house prices is capped at what a family
| can pay per month combined with mortgage rate. So if
| rates go up, and you own a 800k house that is now 600k in
| resale because people can't get approved for 800k
| mortgage now. So you are stuck and can't move unless you
| can afford the loss.
| iso1210 wrote:
| My understanding of US mortgages is they tend to be a
| fixed interest for the entire life of the loan -- i.e.
| with a 25 year mortgage at 2% paying $2k a month, if
| interest rates went upto 10% in 2030, you'd carry on
| paying $2k/month.
|
| In the UK the longest fixed rates I've seen are 10 years
| seibelj wrote:
| Right but how much loan you can get in the US is tied to
| how much monthly payment you can afford. If interest
| rates are 2% the total price of the house can go up with
| the same monthly payment. At 4% you can't afford as much
| house. Housing prices generally fall when rates rise.
| Once you are locked into a loan, you pay the same amount.
| But if you need to sell and you only put 5% down on an
| 800k house, and now the house can only sell for 650k, you
| would have to make up the difference on the note.
| iso1210 wrote:
| But you won't be kicked out of the house because the
| monthly repayment increased by an extra $1k a month.
|
| I was in negative equity in the UK for nearly a decade
| after buying in September 2007 and seeing value collapse
| 40% pretty much the day after exchanging contracts
| (Northern Rock bank run). A new built flat was always
| going to deprecate a little, but when the flat directly
| below us told a year later for 60% the price we paid it
| wasn't fun.
|
| Solution when I did need to move was to rent out the flat
| (which covered the interest payments and maintenence) and
| rent somewhere else until 2016, when the price had
| recovered enough to sell it for the price I bought it at.
| bko wrote:
| That's a great point. I was curious about his as well so I
| did some simple calculations and wrote about it. Your
| intuition is correct, and if you look at median mortgage
| payment relative to median income, owning is about as
| affordable as its been since we started collecting data.
| There's a huge difference in mortgage payment based on
| interest rate:
|
| > To put that into perspective, a $100k 30 year fixed rate
| mortgage would cost you $1,543/mo at 18.45% and only $442/mo
| at 3.38%.
|
| Points up front is also lower now than it has been
| historically. I think low rates definitely fueled home prices
| and of course there are neighborhoods that are exceptions
|
| https://mleverything.substack.com/p/buying-a-home-in-the-
| us-...
| [deleted]
| simonh wrote:
| You stopped reading too early, the article goes into this in
| depth. As with a lot of commenters here, in fact pretty much
| all of them I've read so far, you've got completely the wrong
| end of the stick about what this article is saying. For
| example:
|
| " Now, not everyone was fortunate enough to see the benefit of
| that. In fact, many households are deeper in debt now than a
| year ago. Many more just got by. But the best off just got
| richer. That's what QE does."
| boyband6666 wrote:
| In something so long and meandering, that's not a surprise. I
| also stopped readng before it got any further; to be
| compelling it needs to be a lot shorter - there is not that
| much content in it!
| simonh wrote:
| It's making a very specific argument on a single subject,
| the contention that we are likely to see runaway consumer
| price inflation in the coming years. The article says this
| is wrong and explains why. I think it makes a very strong
| case for this. I don't happen to agree with the author's
| conclusion that therefore government should embark on a
| massive programme of capital infrastructure spending and
| such, but the rest of it is well argued. Economics is
| complicated so it's an extensive argument.
| boyband6666 wrote:
| So I've a degree and masters in economics, before heading
| down the more statistical route. I can't say I found it
| compelling, and some of the issues waved away were too
| alarming for my liking.
|
| The asset price inflation that's happening, and as a
| result the crazy investments (Softbank style) in search
| of _some_ return are worrying. These are storing up
| problems for the future. I don 't find the 'return to
| gold and it'll all be fine' any more compelling. I don't
| much care for the politics side, and advocating for no vs
| tons of spending seems to gloss over the very real
| problems with each approach.
| imtringued wrote:
| Infrastructure spending would put an end to QE and the
| increasing wealth inequality.
| boyband6666 wrote:
| Potentially; infrastructure is quite a broad term, and
| some sectors of the economy are pretty maxed out. Spend
| it on telecomms, and how much would flow overseas?
|
| I'm in the UK and we're increasing spending on 5G, but
| lots just goes elsewhere. Our constrution sector has
| limited capacity, and has less now we have EU staff
| leaving (and not arriving), so any extra spending will
| just lead to price inflation (and wages for already well
| paid people). Actually getting new people (and companies)
| in to these sectors is hard, not as sexy, and as a result
| doesn't seem to happen.
|
| The US may be different, but there are few really easy
| answers in economics. Almost everything has second order
| effects that you might not like! That said, having been
| to the US a lot, there is a lot of infrastructure that
| does need attention...
| cryptica wrote:
| I think the biggest problem we face right now as a society is
| that many people think "I'm getting everything I need right now
| so I'm not going to complain" but they don't realize how fragile
| the economy is becoming and that they're basically signing away
| all of their freedoms. Allowing their salaries and negotiating
| power to silently inflate away into the hands of asset holders.
|
| It's not just their own freedoms that they're giving up, but also
| that of others who are currently struggling. Don't be surprised
| if society is divided and becomes increasingly divided. Sooner or
| later, it's going to get ugly.
| HPsquared wrote:
| Conveniently the author excludes house prices from his definition
| of inflation.
| bildung wrote:
| _> onveniently the author excludes house prices from his
| definition of inflation._
|
| Beause that is appreciation, not inflation. Investment vs.
| consumption. If you bought Tesla stock at $100, and now it is
| at $200, that's appreciation. If the price of a kWh of
| electricity goes up, that's inflation.
| imtringued wrote:
| Asset appreciation is exactly the word I was looking for!
|
| Asset inflation has the problem that it's not the asset that
| is inflating. It's dollar inflation in relation to the asset
| in question. Asset appreciation is the exact same concept
| with terminology that cuts straight to the point.
| throw0101a wrote:
| Because that is not "inflation". There is another economic term
| for that phenomenon, and conflating the two only creates
| confusion:
|
| * https://en.wikipedia.org/wiki/Economic_bubble
|
| Inflation/CPI is (roughly) about the cost of living determined
| via a basket of goods and services that one needs on
| daily/weekly/monthly basis. Financial assets are not needed to
| live: the bottom-half of US wage earners have no/little
| financial assets and yet are effected by inflation when they go
| shopping.
|
| And while shelter is, it is taken into account via rent or
| rent-equivalent (mortgage carrying costs):
|
| * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-
| an...
|
| I'm not sure where and when the idea of financial assets being
| included into the concept of inflation started, but it's a
| first world 'problem' of the wealthy.
| [deleted]
| yanderekko wrote:
| Uh, mere growth in asset prices is not a strong indicator of
| a bubble. How much would property prices have to decline for
| this asset class to no longer have supernormal returns for
| the past 20 years? Do you actually think that that's going to
| happen?
| HPsquared wrote:
| Don't average people buy houses? It's a bit of an artificial
| distinction to exclude them.
|
| Inflation is also defined as expansion of the money supply
| (monetary inflation), and mortgages are a major source of
| money creation - the rate of this process being closely
| related to house prices.
| throw0101a wrote:
| Taken into account; see the BLS.gov link.
|
| * https://awealthofcommonsense.com/2020/07/mortgage-rates-
| are-...
|
| Some places have negative mortgage rates:
|
| * https://www.theguardian.com/money/2019/aug/13/danish-
| bank-la...
|
| Homes seem to have had consistent carrying costs over the
| decades, and that is what determines the CPI. Yes, prices
| have gone up, but (a) interest rates have dropped, and (b)
| people are getting a lot more housing for their money
| (e.g., (average) square footage up).
| Majromax wrote:
| > Don't average people buy houses? It's a bit of an
| artificial distinction to exclude them.
|
| When an average person buys a house and lives in it for a
| decade, _they still have the house_.
|
| Inflation is defined by _consumption_ expenditures. I buy
| food, eat it, and no longer have that food to sell. I pay
| the power bill, having consumed power that cannot be
| resold.
|
| The consumed portion of housing is _rent_. And that is
| included in price indices; statistical agencies have to go
| to the trouble of modelling an owner-equivalent for owner-
| occupied housing.
|
| If you're still concerned about the technical definitions
| of what goes into a consumer price index, then you have
| plenty of others to choose from. The GDP deflator (a price
| index based on everything produced in the economy) shows
| trends very similar to the consumer price index over the
| medium-term.
|
| > Inflation is also defined as expansion of the money
| supply (monetary inflation),
|
| And those two concepts are not in fact equivalent. Going
| from an observed change in the money supply to changes in
| prices requires more intricate assumptions about how the
| economy works. The same money-supply increase can cause an
| increase in price levels in one country (say Venezuela)
| rather than another (the United States) depending on
| beliefs about permanence and the background state of the
| economy.
| lmilcin wrote:
| Inflation is only an issue for you if you have cash (or
| equivalent) that will devalue or plan to take mortgage that will
| be expensive if subsequently the inflation falls.
|
| The way the economy progresses these are going to be less and
| less problems for normal people.
| jackcosgrove wrote:
| If you say inflation of consumer staples matters, while inflation
| of assets does not matter, you are accepting a two tier economy
| between consumers and asset holders. Stock ownership has become
| more available recently because of technology, but the more
| important asset class to most people is housing. That's because
| housing is also shelter, and by inflating part of the market for
| shelter - owner-occupied dwellings - beyond the reach of many you
| increase demand for rentable shelter. I don't think this
| distinction between two kinds of inflation is helpful, especially
| when one is considered bad and the other benign.
| harryh wrote:
| CPI takes into account the cost of shelter.
|
| https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
| lottin wrote:
| Shelter is a "service" whose consumption we call rent. Rent
| therefore qualifies as consumption expenditure and is included
| in the CPI. Owning a home doesn't make any difference, you
| still pay rent to the owner (which in this case is yourself).
| The distinction between inflation and asset price "inflation"
| is important because they are not the same thing. Inflation is
| an increase in the price level, whereas an increase in the
| price of some assets is that.
| dnautics wrote:
| A simple thought experiment:
|
| - Suppose you are spending 90% of your income on day-to-day
| expenses. Your margin of survival is 10%. Then there is 2%
| inflation. Now your margin of survival is ~8% which is a ~20%
| decrease.
|
| - Suppose you are spending 20% of your income on day-to-day
| expenses. Your margin of survival is 80%. Then there is 2%
| inflation. Your margin of survival is still ~80% which is a
| negligible decrease.
|
| For those who will say "wages catch up". They don't catch up for
| people on fixed income (welfare, retirement), and not catching up
| for the labor class is a policy feature:
| https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...
|
| > Yet when you have very low inflation, getting relative wages
| right would require that a significant number of workers take
| wage cuts. So having a somewhat higher inflation rate would lead
| to lower unemployment...
| iso1210 wrote:
| > For those who will say "wages catch up". They don't catch up
| for people on fixed income (welfare, retirement),
|
| In the UK the state pension is pegged to increase by at least
| CPI or wages, there's no economic reason not to peg welfare or
| retirement to CPI, just a political one.
| dnautics wrote:
| how do you peg retirement to CPI? Where is that money coming
| from?
| iso1210 wrote:
| State retirement the government simply increases it (as in
| the UK)
|
| For private retirement you buy an inflation linked annuity
| dnautics wrote:
| "government simply increases it"
|
| print more money, cause pain for everyone who isn't
| privileged to work for the government.
|
| "inflation linked annuity"
|
| socialize the risk for big businesses/municipal debt
| (inflation linked annuities are often bundles of
| investments that can produce a yield that matches
| inflations, you can't magically create these things)
| sitkack wrote:
| Inflation is a tool to push wages down, you can collectively
| bargain against labor with inflation.
|
| If you are in the owning class, you want wages tied to a
| currency and not the CPI. And you want a steady form of
| inflation that you can account for, while labor costs can
| drop at 2% plus per year.
| imtringued wrote:
| Inflation is a tool to increase future wages at the expense
| of past wages.
| iso1210 wrote:
| > Inflation is a tool to push wages down, you can
| collectively bargain against labor with inflation.
|
| And labour collectively bargains to ensure pay remains on
| track with inflation, so no problem
| sitkack wrote:
| Working As Intended.
| xiphias2 wrote:
| Of course CPI is declining if the definition is this (and
| probably similar in every other country):
|
| https://en.wikipedia.org/wiki/United_States_Chained_Consumer...
| dls2016 wrote:
| Who exactly thinks that inflation is going to happen? The nytimes
| had a crazy article the other day (well they have one everyday
| about inflation it seems), where the "inflation fears" are
| attributed to wall street and political commentary. Yet the
| article ends with Jamie Dimon (quoted throughout the article)
| saying, "I dont really think we should worry about it."
|
| Also there's a perfunctory mention of gas prices but nothing
| about production. I could go on about how bad the article is.
|
| Give tax breaks to the rich and we hear nothing. Give working
| class and poor people a few thousand dollars and we get to hear
| about all their moral failings: the money will be spent on GME!
| Some people just saved their stimulus (NPR)! Inflation!
|
| The source of all this hubbub seems to be, checks notes: Larry
| "women cant do math" Summers.
|
| https://www.nytimes.com/2021/03/10/business/economy/inflatio...
| iso1210 wrote:
| Global stock markets drop as inflation fears prompt sell-off
|
| https://www.theguardian.com/business/2021/feb/26/global-stoc...
|
| Inflation Fears Will Settle, But Only If Growth Continues
|
| https://www.forbes.com/sites/randybrown/2021/03/11/inflation...
|
| Inflation fears hit markets as Fed sticks with low-rate policy
|
| https://www.spglobal.com/marketintelligence/en/news-insights...
| pessimizer wrote:
| It's really no joke that these sort of memes are pushed
| through every form of media until they dominate the debate. I
| wish there were newspapers that published my fears every
| morning, but would be cited in "serious" company as evidence
| of the reality of those fears.
| dls2016 wrote:
| Ok, so Jamie Dimon says not to worry and Jerome Powell
| doesn't see the US exceeding 2% target rate for an extended
| period of time.
|
| Your Guardian link is about the market (!= economy) and
| quotes "Andy Haldane, warned that an inflationary "tiger"
| might be on the loose"... so one "might".
|
| Your Forbe's link says, "Could this debt buildup and related
| deficit spending push inflation and rates significantly
| higher? Developed economy experience suggests the answer is
| no. Over the last two centuries, wealthy democracies have
| generally succeeded in preventing capital flight." And it has
| a sub-section entitled "Corrosive Inflation Is Fairly Rare".
|
| Your third link has a quote, ""The market's still trying to
| figure [this] out, myself included," said Dominic Nolan,
| senior managing director at Pacific Asset Management". Ok...
| so a money manager admitting he's still "figuring it out".
|
| What is the point of these links?
|
| Does anyone have a simple back-of-the-envelope calculation
| which shows that $1.9 trillion is "wrong" for inflation? If
| so, I haven't seen it. Instead we just get to read about the
| id of money managers (and probably classmates of the
| journalists).... barf...
|
| And I would ask you to do your own calculation. Is a few
| thousand dollars per family going to materially change the
| nature of their chronic underpayment (relative to
| productivity increases of last 40 years)?
| iso1210 wrote:
| The point is that 8 in 10 only read headlines, and there
| are many headlines saying about inflation fears, which
| embeds in peoples subconsciousness and is then used by
| politicians and commentators to manipulate
| [deleted]
| tomp wrote:
| > Larry "women cant do math" Summers.
|
| This is such a gross misrepresentation of his statement that it
| makes me doubt every other point you're trying to make.
| rebelos wrote:
| That hardly matters when you're talking about one of the all
| time greatest crooks who got away with it (and still does)
| [1].
|
| [1] https://prospect.org/economy/falling-upward-larry-
| summers/
| dls2016 wrote:
| I know, if you overlay two Gaussians with different means and
| standard deviations... I get what he was trying to say (not
| that I agree the situation is so simple). Yes, I was being
| sarcastic.
|
| But to redirect, the point of my sarcasm is: what sort of
| track record does he have at predicting these things? He's
| the one who gave us a turd stimulus last time. And now he's
| putting his views on stroll again, why believe him?
|
| https://www.theguardian.com/commentisfree/cifamerica/2012/ja.
| ..
|
| History hasn't treated him nicely and virtually no one is
| backing him up this time. And if he's so good at math, then
| what is the mechanism by which a few thousand extra dollars
| per family will lead to long term inflation problems? The
| whole thing is farcical and reeks of class warfare.
| jtdev wrote:
| Jerome Powell last week:
|
| "But I do think it's more likely that what happens in the next
| year or so is going to amount to prices moving up but not
| staying up and certainly not staying up to the point where they
| would move inflation expectations materially above 2%."
|
| I find this incredibly hard to believe personally... I think
| the 2% projection is bogus, and find it unlikely that prices
| will magically just come down following this anticipated
| inflationary event?? Have we ever experienced that outside of
| very subsidized markets?
|
| https://www.axios.com/federal-reserve-powell-inflation-3061f...
| dkjaudyeqooe wrote:
| Prices don't need to come down, just stop going up. Given the
| current state of the economy there's no evidence that this
| level of stimulus is actually inflationary.
|
| But there are many tools that the Fed has to tame rising
| prices. It could suck liquidity out of the market by selling
| their massive collection of bonds, or just raise interest
| rates.
|
| It's actually very unlikely that the Fed would have to do
| much of either of those because just the threat would have
| people acting very differently in terms of lending,
| investment and hiring/pay rises.
| dls2016 wrote:
| Bogus in which direction? The Fed has had a 2% target rate
| for the last 15 years, I think, and has only exceeded it for
| a handful of quarters. Under what theory would giving people
| a few thousand dollars push it over 2% for any extended
| period of time?
|
| So Powell is saying there are no inflation fears!
|
| Edit: I've never heard of "breakeven" rates, sounds like a
| betting market. Forgive if I don't believe that rich
| investors can actually predict this stuff. Again, what track
| record do they have?
| dkjaudyeqooe wrote:
| People on the right need a boogeyman whenever (poor) people
| get a benefit, to scare them lest they lose the will to
| work.
|
| So lately it's been inflation (not the deficit now that
| it's paying for tax cuts for the rich).
|
| Meanwhile a deflationary spiral is truly scary, but it
| doesn't sound scary (my money is worth more!) so these
| people don't focus on it.
| dls2016 wrote:
| It's not even "the right"! The narrative is uniform from
| NyTimes and onward.
| jpgvm wrote:
| Actually yes, all the damn time.
|
| The deflationary forces at work in our economy greatly
| outweigh the inflationary forces even in the face of massive
| fiscal stimulus and easy money policies.
|
| In fact I predict as a result of the workplace changes
| enabled by forced work from home during the pandemic these
| deflationary forces will accelerate and put even more
| pressure on wage growth (which is by far the biggest
| influencer of consumer inflation).
|
| We are already seeing the first stages of this with an exodus
| of knowledge workers out of high cost of living areas. This
| is merely the first stage and these early movers will reap a
| temporary benefit of carrying their existing salary to a
| lower cost area but the long term impact is companies will
| now freely hire from lower cost areas and as a whole depress
| prices of labour.
|
| Not to mention the emphasis this places on digitisation of
| processes that results in increasing efficiencies (read less
| employees, especially low skill ones) and economies of scale.
|
| I think the future of inflation is headed one way, to the
| absolute dumps for the foreseeable future with perhaps a tiny
| bump to 3-4% during Covid recovery. Long term I see the Fed
| actually struggling to keep things hot enough to run
| inflation up to their target without stepping in to force
| wage growth and labour competition up.
| dls2016 wrote:
| A lot of people think the Fed already has problems seeing
| as how they barely ever hit their 2% target! Their tools
| don't seem to work already!
| dkjaudyeqooe wrote:
| That's an interesting idea, but I'm not sure that will
| counteract the natural competition for talent, and for less
| desirable skills locality doesn't seem like such an issue
| (ie you can find relatively mediocre talent in most
| places).
| imtringued wrote:
| One problem with the current form of monetary policy is
| that it is "pricing out" people. Now that asset prices are
| higher you have to cut back spending to afford the
| increased prices. This is especially important for people
| who are saving for retirement and those who want to buy a
| house with a mortgage.
|
| I personally see myself falling into "traps" where I cut
| back on spending because it is easier to make money from
| investments than from actual honest work. Sometimes it is
| even circular. I invest more so that I can afford consumer
| spending in the future even though buying the thing I need
| is is not out of reach for me.
| ldbooth wrote:
| In Fareed Zakaria's book The Post American World Order, he makes
| a great point that India (services) and China (goods) have been
| deflationary for certain goods/services in expensive economies.
| If you think of CPI as an average of deflationary and (local,
| expensive) inflationary products, the trend we are seeing in the
| US of large local assets (with local cost basis) versus a
| cellphone (Chinese cost basis), the stagnant measure of CPI
| versus the increases we see in local costs of living is better
| explained. All these metrics are faulted and manipulated.
|
| The underlying desire of capitalist institutions making a markup
| on every possible local market ("rents") in is inflationary to
| local costs and when the external markets costs go up, that's
| when total inflation will go 'shazam'.
| moralsupply wrote:
| The article should be renamed to: "Why measuring inflation using
| the CPI is misleading"
|
| The CPI is designed by the government in order to give it plenty
| of slack to keep printing money.
| imtringued wrote:
| No, it is the opposite. Low CPI is a curse, something that has
| to be combated by creating more money. It's not an excuse, you
| really don't want your economy to suffer deflation.
|
| You are free to criticize ineffective central bank policies
| that drive inequality though.
| sgt101 wrote:
| >The government is forecasting that businesses already
| overburdened with debt because of Covid are going to borrow at
| near record amounts to fund investment and I can say with near
| certainty that they won't be, because banks will not be lending,
| and that ends that suggestion then.
|
| Banks will be lending, they will have to because they need to get
| the cash (printed by the central banks) off their balance sheets.
| They will do this by lending left right and centre.
|
| Wages will probably lift as well because there are several
| structural skills shortages in the economy at the moment - due to
| Brexit and some other factors.
| Cypher wrote:
| It's only a threat to savings, pensions and those that have no
| inflation adjusting assets.
| dubeye wrote:
| Probably worth some context... the author very often writes about
| plan B Scottish independence, which calls for swift escalation of
| the independence process, including the economics. For example
| establishing a new currency in months, rather than the years more
| established economists advise might be less risky.
|
| MMT is pretty popular with plan B movement, as it offers a speedy
| solution to things like deficit, austerity measures. Inflation is
| the main restricting factor on money printing, so those who want
| to rush into independence are always quick to downplay inflation
| risks.
| mchusma wrote:
| The opening pretty much sums up that this isn't a research piece,
| it's a political opinion piece: "Current debate about inflation
| isn't really about whether it's likely: it isn't. Instead it's
| about whose vision of the future is going to win. Is it going to
| be the right-wing demand for small government that the inflation
| fetishists promote, or the one we need"
|
| I think inflation concerns are not the realm of "right-wing
| inflation fetishists", it's in fact the standard theory about
| what will happen when large amounts of money is printed. You can
| make reasonable arguments about why this time is different, but
| this strategy will make me tune out real fast.
| mrkeen wrote:
| > Current debate about inflation isn't really about whether it's
| likely: it isn't
|
| See the first chart. Nowhere on the chart is inflation not
| happening.
| daniel-s wrote:
| I don't like when people argue someone by looking for a
| technicality, or anything else that's not addressing the main
| point of what someone said. We all understand what he meant.
| His main argument has a lot to criticise, stick to that.
| mrkeen wrote:
| It wasn't a technicality, it was the first sentence. And it
| threw me so wildly that I did not understand the rest of what
| he said.
| [deleted]
| nicklecompte wrote:
| Obviously the author means inflation exceeding the 2% target
| that various central banks agree is necessary for a healthy
| economy:
|
| > Since the 1990s central banks have been given the target of
| keeping inflation low. 2% has been the goal. But in practice as
| this diagram shows, the trend was already strongly downward
| before central banks were given this goal.
|
| If you want to argue that 2% is too high then feel free to do
| that. But it's not helpful (to you or other commenters) to take
| the most facile and ignorant reading of the article possible,
| and then wonder why the first chart "contradicts" the author.
| djcjr wrote:
| You are asserting that he and other commenters to follow are
| taking "the most facile and ignorant reading of the article
| possible" on what grounds?
| throw0101a wrote:
| You are being overly literal. When people colloquially say
| "inflation is bad" or "will be a problem", they mean "high
| inflation", for some meaning of 'high', like >4% or some such.
|
| US inflation was around 3% during in 1990s, and yet there was
| an economic boom at that time. See also 1950s.
|
| And yet people are freaking out because there's an uptick in US
| 10 year bonds at the moment... to 1.6%... which is where things
| were in January 2020 (pre-pandemic).
|
| If a massive US spending bill _only (only!) gets us to_ where
| things were before the economic conflagration, then it shows
| how much in the economic hole things are, and how much things
| need to be filled in to get back onto stable economic footing.
| [deleted]
| plank_time wrote:
| Asset inflation is the cause of income inequality. That's why it
| has been a huge problem especially during Obama's time until now.
| It's 100% the fault of the Federal Reserve but they refuse to
| take blame.
|
| Lower income households cannot accumulate assets. But the Feds
| policies have created asset inflation and not CPI inflation. So
| the lower income families can't complain they can't buy food, but
| they can't buy anything else like a house.
|
| They can't compete against anyone unless they start investing in
| assets but they can't.
|
| Meanwhile in Silicon Valley there is so much wealth it's reached
| critical mass. House prices are a joke because anyone who has
| stock compensation has made a ridiculous amount of money.
|
| The difference between asset accumulators and those that don't is
| stark. My wife and I have become multi millionaires in the last 5
| years because our house and stock have gone through the roof. My
| friends without stock don't have as much luck and are in the same
| position as before but no ability to buy anything. I mean for
| Christ's sake my comic book collection value has quintupled for
| no good reason except people chasing assets.
|
| So of course you won't see inflation in assets because the Fed is
| burying their heads in the sand over it.
| TobyBrull wrote:
| Some would argue, of course, that inflation well above 2% has
| been with us for at least a decade if you don't measure by the
| biased CPI. I don't see how it helps the argument to bring
| politics into this by saying such people are "right-wing [...]
| inflation fetishists". Didn't read beyond that.
| imtringued wrote:
| You can complain about wealth inequality and asset appreciation
| all you want but so far I haven't seen even the tiniest hint of
| inflation.
| harryh wrote:
| Anyone who argues this is a conspiracy theorist making
| statements not based on actual evidence.
| fuzzfactor wrote:
| I don't think there is any conspiracy either.
|
| What theory would you use to explain the evidence which shows
| that lifestyle recovery of many consumers which had come
| almost within reach, by less than 1 percent, never did
| actually arrive and has been moving back beyond reach faster
| than 1 percent for a while?
|
| Everyone knows that 1 percent is less than 2 percent so it
| has to be some other explanantion besides "that's not nearly
| as bad as 2 percent".
| evrydayhustling wrote:
| The data analysis and argumentation in this article is pretty
| broken.
|
| - The decade by decade plot, which is highly influenced by
| alignment of periods, actually shows a 50% drop in inflation from
| the 80s to the 90s. Then says that 90s policy mandates made no
| difference.
|
| - Fitting a linear trend to 100s of years of economic data with
| diverse data and economic regimes is meaningless wrt shorter-term
| policy. I guess we should expect -5% interest rate in 2100,
| because it dropped that fast between 1450 to 1550?
|
| - Similarly, the arguments that COVID or Brexit should simply be
| blips seems like an outright denial that economic change happens.
| Wars, epidemics, and trade agreements shape history by reordering
| which economies are competitive.
|
| I feel the need to say that I'm extremely in favor of spending on
| COVID relief etc, and I get the frustration that folks use FUD to
| complicate policy around social support spending until it fails.
| But the same thing happens around the spending itself. Late in
| the article the author discusses the way QE has been regressive,
| disproportionately impacting the rich. What makes anyone so
| confident that other forms of injecting money into the economy
| won't get siphoned the same way?
|
| We're getting to a dumb moment in this debate where people are
| accepting flimsier and flimsier arguments that we should be able
| to "Just Do It" regarding spending, without consequences. If
| we're going to do some economically radical things, let's do so
| with eyes open that we will be headed to uncharted territory.
| dundarious wrote:
| I agree it's somewhat weak on the historical trend argument,
| and in explaining the relevance of the interest rate to
| inflation argument.
|
| > - Similarly, the arguments that COVID or Brexit should simply
| be blips seems like an outright denial that economic change
| happens. Wars, epidemics, and trade agreements shape history by
| reordering which economies are competitive.
|
| He doesn't make a general case for such a denial. Only that
| COVID and Brexit are going to be blips _specifically with
| respect to inflation_. From the article:
|
| > If either Brexit of coronavirus cause an inflation blip it
| will not last, and we need not worry about it in that case. So
| neither is the 'something else' that must be motivating
| inflation fears.
|
| I found the arguments about the net money supply to be somewhat
| persuasive.
|
| And as for alternative QE money being siphoned and being
| similarly regressive, I'm inclined to agree with the
| redistribution part of daniel-s's comment, and to infer that
| direct cash payments to individuals resist being siphoned so
| easily:
|
| > Ultimately, printing money doesn't make anyone more
| productive or produce anything. All it does is redistribute
| wealth from those that were first to get the new free money
| away from those that were last to contact it.
|
| Edit: I assumed this meant it redistributes _to_ the first to
| contact it, but on second reading, I'm not sure the intended
| meaning.
| carlosf wrote:
| > let's do so with eyes open that we will be headed to
| uncharted territory.
|
| That's how I think. In economics, society and very complex
| systems in general, one can rarely predict the consequences of
| most actions. The best we can do is brace ourselves (hedge)
| while those with power play their cards.
| rebelos wrote:
| > Late in the article the author discusses the way QE has been
| regressive, disproportionately impacting the rich. What makes
| anyone so confident that other forms of injecting money into
| the economy won't get siphoned the same way?
|
| What the hell are you talking about? This isn't nearly as
| complicated as you think. It's been readily demonstrated that
| the consumption multiplier effect on unemployment transfers and
| bottom-up stimulus generally is far stronger than what can be
| accomplished with alternatives. This is intuitively obvious:
| give dollars to people who place the highest value on a
| marginal dollar (because they're using it for essentials) and
| you'll maximize consumption; give it to people at the other end
| and you'll maximize hoarding and wealth extraction.
| 1996 wrote:
| The statement needs to be quantified: not a threat _ONLY IN THE
| SHORT RUN_.
|
| Yes you don't see it on your graphs right now.
|
| But IIRC 20% more money was printed by the fed for covid.
|
| Unless you can refute modern economic theory, we still have
| PV=MQ, and the only thing saving us from inflation at the moment
| is the low velocity of money: in lockdown or with most high
| velocity businesses closed or operating at a fraction of what
| they did before (ex: bar, restaurants), the velocity will remain
| low.
|
| We won't see anything on the graphs as long as V remains low.
|
| However, as soon as they reopen and operate closer to their
| normal capacity, velocity _WILL_ rise. When that happen,
| inflation _WILL_ rise.
|
| There's no magical way to wish inflation away. We will eventually
| get 20% inflation. The only question is how soon.
|
| Yes, central banks may plan to have 2% per year for 9 years
| (19.5% inflation) if somehow they think business will not be able
| to catch up immediately (a closed restaurant will not get as many
| clients when it reopens) which is plausible.
|
| However, I don't buy that, because 1) we are talking about 9
| years, while the closed restaurant example will take more like 1
| to 2 years max to work at normal capacity again 2) it would
| require _TREMENDOUS_ discipline: no QE whatsoever for 9 years -
| which is politically impossible if unemployment rises for
| whatever reason (say the aftermath of a bubble, or a crisis due
| to malinvestment fueled by the low rates) 3) it fully ignores the
| rebound effect: deprived of social contact for too long, more
| people than usual will want to go to bars and restaurant - at
| least at first
|
| I personally envision 5 to 7% inflation when things return to
| normal in the US (so schoolyear 2021-2022)
| [deleted]
| Majromax wrote:
| > Unless you can refute modern economic theory, we still have
| PV=MQ, and the only thing saving us from inflation at the
| moment is the low velocity of money: in lockdown or with most
| high velocity businesses closed or operating at a fraction of
| what they did before (ex: bar, restaurants), the velocity will
| remain low.
|
| This theory was put to the test between 2007 and 2019, where
| the Fed greatly increased the monetary base during and after
| the financial crisis. As it turns out, the velocity of base
| money was much more flexible than assumed, and the monetary
| base remained greatly increased (about 4x its pre-recession
| level) without excess inflation.
|
| In comparison, the covid-related increase to the monetary base
| has been less than a doubling (see
| https://fred.stlouisfed.org/series/BOGMBASE).
|
| > I personally envision 5 to 7% inflation when things return to
| normal in the US (so schoolyear 2021-2022)
|
| If you really think that, then go to a broker, buy TIPS
| (inflation-protected securities), and go short nominal bonds of
| equivalent duration. The five-year breakeven inflation rate
| (US) predicted from these bonds is about 2.5%
| (https://fred.stlouisfed.org/series/T5YIE), so if your views
| are correct you would make a mint.
| imtringued wrote:
| >Unless you can refute modern economic theory, we still have
| PV=MQ, and the only thing saving us from inflation at the
| moment is the low velocity of money: in lockdown or with most
| high velocity businesses closed or operating at a fraction of
| what they did before (ex: bar, restaurants), the velocity will
| remain low.
|
| Actually this is an argument in favor of inflation and yet it
| failed to materialize. Stagflation is what happens when the
| central bank keeps creating more money and businesses are
| unable to meed the demand by expanding production. If such a
| supply shock fails to create inflation then almost nothing
| will.
| eecc wrote:
| Well, I'm only worried that interests go up because "governments
| have to fund themselves on the market". This would mean
| sabotaging the post-COVID (and post Austerity) stimuli by
| preventing the middle class from accessing sane mortgage
| financing.
|
| I understand the QE excess needs to be somehow removed from the
| market, but the proper way should be through increasing upper-
| percentile taxation. This way competition dynamics are maintained
| without making the weakest pay for all the admission price
| henvic wrote:
| Inflation hits hardest the poorer who doesn't have diversified
| savings or their wealth in properties, stocks, or anything else
| that is likely to at least hold value.
|
| Inflation basically steals wealth from everyone - especially the
| poorest that makes the mistake of saving cash - and gives the
| money to the richest friendly with state powers. It's unethical
| and a crime against humanity, even more so considering that the
| fiat currency people are forced to use is legal tender, and you
| cannot exchange your earnings in other more stable currencies
| legally in most jurisdiction with this doutrine (almost all).
|
| https://wtfhappenedin1971.com/
| carlob wrote:
| I think by most estimates the poorest half of the population
| have negative wealth, if that is true then inflation actually
| reduces their debt.
| D_Alex wrote:
| Unfortunately higher inflation comes with higher interest
| rates. So if you have "negative wealth" you are no better
| off.
| iso1210 wrote:
| The poorest have a negative net worth, so inflation reduces
| their debt.
|
| The next lot have some wealth in property and pensions.
| Property especially benefits from inflation as the remaining
| mortgage reduces as a %age
|
| Now sue, if inflation is high and wages don't increase with
| inflation that does effect the poorest, but the poorest are
| screwed anyway.
|
| Median savings account levels based on earnings:
| Bottom 20% of earners: $600 20th to 39.9th percentile:
| $1,700 40th to 59.9th percentile: $3,800 60th
| to 79.9th percentile: $8,200 80th to 89.9th percentile:
| $18,700 Top 10% of earners: $62,000
| henvic wrote:
| Only if you consider the poorest living in a mortgaged house
| that costs $800,000 with $720,000 left to pay while making
| $120,000 a year.
|
| This is not valid for the poor people making $15,000 a year
| with $600 in their bank account. These people are losing a
| lot of wealth.
|
| Debt is not that easily accessed by everyone! And when it
| comes at the cost of inflation as it often (or even almost
| always!) does, it's even worse.
| iso1210 wrote:
| They aren't losing a lot of wealth, they don't have it.
| ptero wrote:
| > The poorest have a negative net worth, so inflation reduces
| their debt
|
| Yes, and it helps those who got into debt some time in the
| past, and without this debt have a positive cash flow today;
| for example a graduate making good salary but saddled with
| old student loans.
|
| But I think (although not 100% sure) most poorer people in
| debt do _not_ have a positive cash flow even when not
| counting debt payment. They are getting deeper into debt
| because they spend more than they get. And inflation will
| probably push those people deeper into the hole: they are on
| bare essentials (cannot cut those; and they are getting more
| expensive), and their jobs are more likely to be cut.
|
| Richer folks by comparison have many options to hedge against
| inflation, from property sprinkled around the world to
| commodities, precious metals in cold storage, inflation-
| resistant stocks, etc. My 2c.
| vladimirralev wrote:
| The poor can only take high premium inflation adjusted loans.
| Inflation doesn't reduce the burden. The poor would generally
| make minimum wage ($7.25 in the US for about 15-20 years
| now). Same people who say there is no inflation call this "a
| starvation wage" never making the link between printing money
| and the wages pushing poor people into starvation. The poor
| spend most of their money on housing, food, medical and
| energy. All of which are massively up (6% up YoY average last
| week). Food and energy of course are ignored in headline
| inflation as a rule.
| UncleMeat wrote:
| The poor don't have savings in cash. Inflation loss on a
| nonexistent savings account is virtually zero.
|
| If you are concerned about this, would you be okay with a
| direct payment to populations without enough money to save in
| equities? That'd fix the problem.
| throw0101a wrote:
| > _The poor don 't have savings in cash. Inflation loss on a
| nonexistent savings account is virtually zero._
|
| The poor are also often in debt, and inflation helps eat away
| at that. Especially if they can get wage increases based on
| the CPI.
|
| Which is why minimum wage should (IMHO) be linked to
| inflation/CPI.
| moralsupply wrote:
| The minimum wage is universally zero.
|
| Government-mandated minimum wage is effective price
| control, which never works. It has the effect of taking
| people who are not qualified to produce enough value to
| justify the minimum wage out of the job market. It's a
| mechanism to keep poor people poor.
|
| CPI barely reflects the actual inflation of the currency.
| Whatever it doesn't cover in its calculation tends to get
| overinflated. The government designs the CPI to be low in
| comparison to "real" monetary inflation so that it can get
| away with printing more money.
| imtringued wrote:
| This is why the raise in minimum wage should be
| compensated by also offering government jobs that do pay
| minimum wage or slightly less. Given enough time people
| will actually end up getting their minimum wage or even
| more than minimum wage.
|
| However the talks about a $15 minimum wage actually have
| one very interesting detail. There are no plans for an
| immediate hike. It's going to be raised over time which
| means companies have enough time to adapt. It also sends
| a clear psychological signal to everyone that the times
| of cheap labor are going to be over because it is
| something that is happening year by year.
| 1996 wrote:
| The poor may have some cash, if only $100 in the bank. They
| certainly have no bonds, stocks, or real estate.
|
| If they have no cash and only draw a salary, it will still
| hit them badly, as salaries are not inflation adjusted, and
| any pay increase requires negotiations with the employer -
| who may decide to increase the wage by only a fraction of the
| inflation.
|
| Said differently: all people who don't have wealth in
| inflation proof assets (stocks, real estate etc) suffer from
| inflation.
| henvic wrote:
| I can't believe you were downvoted for saying the truth.
|
| It's sad engineers making even $200,000 or more can't
| understand how even $100-1000 in the bank can change lives
| forever for many people in poor countries.
|
| It's even sadder when some of them come from places that
| had hyper inflation, and can't see the big picture.
| UncleMeat wrote:
| The point is that this is a terrible argument for "we
| should switch to gold" or "we should have 0% inflation".
| Losing $2-$20 to inflation annually is trivially handled
| with tax credits or whatever.
| henvic wrote:
| You definitely have no idea about what you're talking
| about when you say that 20% inflation should be trivially
| handled.
| UncleMeat wrote:
| $2-$20 is 2% of $100-$1000.
| iso1210 wrote:
| He's claiming that people who go into their overdraft and
| credit cards every month have $100 in their bank. They
| don't, most people live paycheck to paycheck, their bank
| balance just before payday is $nothing
| leetcrew wrote:
| this is definitely not true. the median US household has
| several thousand dollars in their checking account. they
| might be living paycheck-to-paycheck in the sense that
| their net cashflow is close to zero, but they don't have
| nothing in their bank account just before payday. you
| would have to go deep into the 20th percentile to find
| households like you describe.
|
| https://www.thebalance.com/what-is-the-average-bank-
| account-...
| mrtksn wrote:
| Salaries are always adjusted to the inflation if there's a
| free market.
|
| Depending on how hard is the inflation, you receive yearly,
| semi yearly, monthly, weekly or in extreme cases daily
| adjustments. Your salary updates also include the expected
| inflation.
|
| That's of course when the economy is performing well. If
| the economy is slowing in an inflationary environment, you
| may easily end up on the wrong side since every update is
| actually a salary renegotiation and in a slowing economy
| your job might receive pay cuts in real terms.
| carlob wrote:
| > Said differently: all people who don't have wealth in
| inflation proof assets (stocks, real estate etc) suffer
| from inflation.
|
| Except those who are in debt
| leetcrew wrote:
| inflation is typically priced into interest rates.
| unexpected changes in inflation can benefit either
| creditors or debtors, but a constant rate of inflation is
| a non-factor.
| leetcrew wrote:
| annual losses from inflation on $100 are pretty trivial
| though, somewhere around $3/yr. the stickiness of wages is
| the bigger issue for the poor re inflation.
|
| also people with assets are not totally protected from
| inflation. suppose I bought a $10k asset in 2001 that, for
| whatever reason, perfectly tracked inflation. if I sold it
| today, I would owe 15% tax on a nominal gain of 50%,
| resulting in a real loss.
| axlee wrote:
| The fact that you never mention debt a single time shows me
| that you're pushing an agenda and not offering a full
| analysis.
| henvic wrote:
| The fact that you are demanding him to mention debt shows
| you've a short-sighted view of the world, seeing only
| what happens close to home from what appears to be a
| privileged point-of-view.
|
| Not everyone in the world has easy access to credit like
| you imply. You're the one pushing an agenda here.
| ghostwriter wrote:
| if you insist on mentioning the debt to support your
| argument, you exclude and dismiss those who do everything
| to never live off debt. Those are not rich, they are hard
| working people who try desperately to bring economic
| stability into their families and to get into a lower
| middle class.
| ibeckermayer wrote:
| What about debt is relevant? Sure, if you're in debt then
| a sense you "owe less", in that the units you owe are now
| worth less. But practically speaking, if you're an hourly
| or salaried employee that's too poor to own significant
| securities or real estate assets and your wages don't
| keep pace with inflation (wtfhappenedin1971.com), that's
| a totally meaningless ivory tower economics point. You're
| just further priced out of those assets, are paying more
| for the consumer goods you need to live that are now
| inflated, and you're still paying the same dollar amount
| on your debt.
| UncleMeat wrote:
| Great. Let's make minimum wage automatically adjust to
| inflation, force businesses to provide CoL increases, and
| provide a tax credit for the poor against savings loss.
|
| In my experience, the libertarian community that hates
| inflation so much uses the poor as a rhetorical cudgel
| rather than an actual primary concern.
| mrtksn wrote:
| That's not the case at all. All this "gold standart" stuff and
| BTCs claim is to preserve wealth and poor people by definition
| don't have wealth.
|
| Let me tell you how poor's life looks like when things are
| alright: You have a job that is good enough to cover your rent,
| your food, your bills and the instalments of your phone and
| computer and you might put aside a little bit that at some time
| in the future you might use to pay the downpayment of an
| apartment or a car.
|
| When there's a steep inflation, be it anything from Turkey
| level to Venezuela level inflation, your salary gets adjusted
| to sustain your lifestyle and you put your money in
| Gold/USD/EUR/GBP/AnythingMoreStable or property.
|
| That's it. Poor don't get any poorer just because of inflation.
| If anything, if the inflation has accelerated the disposable
| amount of your salary increases in real terms since your loan
| payments remain the same most of the time. The lender usually
| incorporates this into the rates but every now and then the
| inflation can be beyond the expected and you may end up paying
| much less in real terms.
|
| When the things are not alright, the inflation is irrelevant to
| you. Whatever little you have, you are going to spend it before
| any meaningful impact due inflation. Next time you get money,
| you will get more to match the increase in the prices.
|
| How do I know? I have been there. I've seen an inflation where
| you cannot predict the price of the bread tomorrow and I have
| seen a stable inflation where you simply incorporate it into
| your calculation and you are fine. I've lived in 2 two
| countries that dropped 0's from their currency, one dropped
| 000, the other dropped 000,000.
|
| The inflation bites when it is unstable and unpredictable. Then
| businesses cannot incorporate the inflation into their cash
| flow and the economy slows down due to risk and difficulties of
| doing business. That's when the poor are impacted hard because
| that's when they loose jobs and switch to "things are not
| alright" mode.
| ZoomZoomZoom wrote:
| >your salary gets adjusted to sustain your lifestyle
|
| Wait, did I miss the application for this or something?
|
| >and you put your money in
| Gold/USD/EUR/GBP/AnythingMoreStable or property.
|
| Unless it's illegal.
|
| > if the inflation has accelerated the disposable amount of
| your salary increases in real terms since your loan payments
| remain the same most of the time.
|
| So you have a choice: 1. Take a leap of faith your income
| _will_ get adjusted to real inflation numbers and take a loan
| hoping it will get eaten by inflation, at the same time
| increasing the debt pressure on your income and your psyche.
| 2. Not taking a loan so having no instrument to even partly
| negate the effect of inflation and having no adequate
| alternative instruments to loans /mortgages to save the value
| of your income.
| mrtksn wrote:
| >Unless it's illegal.
|
| If it's illegal that's not inflation's problem. You
| probably have dictatorship/controlled market problem. In
| any case, if there's a problem with the legal free market
| you use street vendors. That's how it's been done
| everywhere since ever.
|
| You take a leap of faith that you will have this income for
| the foreseeable feature, why wouldn't you take a leap of
| faith that it going to be adjusted to fair market value?
|
| If the economy is alright, you simply get paid you fair
| market compensation. When there's an inflation, you get
| adjustment.
|
| Don't forget that inflation is not only for the chocolates
| and candies in the shop but also for the resources that
| businesses use and one of this resource is human resource,
| which means salaries are going up.
|
| You don't think that at 20% of inflation businesses will
| end up with practically slave labour in few years, don't
| you? Salaries are always adjusted to meet the inflation.
| That's not because the businesses feel altruistic, it's
| because in a free market unadjusted prices create an
| arbitrage. If your salary is not adjusted, you go work
| somewhere else. Your unadjusted salary is some
| businessmen's opportunity to have you at no extra real
| terms cost(normally they would have offered you more of
| what you ear currently, now they can transfer you by simply
| giving you a fair market salary).
| dnautics wrote:
| > Salaries are always adjusted to meet the inflation
|
| This does not agree with the policy reason for inflation,
| which is explicitly to give labor class a silent pay cut:
|
| https://krugman.blogs.nytimes.com/2010/02/13/the-case-
| for-hi...
| mrtksn wrote:
| You missed the part about the economy doing fine. Anyway,
| salaries don't stay static because people are not static
| - they age and get seniority, change jobs, get promoted,
| get redundant because technology and market changes etc.
|
| It's probably not the inflation that is eating in the
| wages in many cases. A lot of wages moved from
| established professions to software developers or moved
| from deindustrializing countries to China and so on.
| %1-%2 inflation is a noise regarding to changes in
| salaries. My grandfathers income from his profession did
| not perish due to the inflation but because of the
| proliferation of sneakers and cultural change that made
| sporty shoes acceptable in workplaces.
| imtringued wrote:
| It's a "pay cut" to less productive work and a pay raise
| to more productive work.
| ptero wrote:
| > When there's a steep inflation, be it anything from Turkey
| level to Venezuela level inflation, your salary gets adjusted
| to sustain your lifestyle
|
| Only at the lowest levels, where it has no relation to
| economics anyway: most governments will work to ensure that
| poor who have nothing to lose will not be pushed into long-
| term hunger; if they do, they revolt. So either the costs of
| the food and barebones medical care (broken bones, etc.) will
| be subsidized for them or the money will be bumped up.
|
| There is a second group where this adjustment is likely to
| happen: Army and government workers. If you starve those, you
| quickly feel it. Everyone else gets to fend for themselves
| and is usually much, much worse off. I have also lived in a
| country going through hyperinflation and unless one is in a
| select group (likely linked to organized crime) one
| definitely does not get salary adjusted to sustain the
| lifestyle. In fact, the lifestyle one had usually crumbles.
| My 2c.
| mrtksn wrote:
| You are right but probably in your case there's a second
| component: Economy crumbling due to political instability
| or something of that sort.
|
| Extreme inflation is not the same as the inflation we see
| in the western countries, it is usually accompanied with
| some turmoil therefore the salaries do get adjusted but
| they get adjusted beneath the inflation as the economy gets
| smaller. Once the stability is achieved, you can end up
| with an order of magnitude higher inflation that the rich
| western countries but have noticeable increase from year to
| year in terns of quality of life and access to import
| goods.
|
| Probably my claims don't cover any case of hyperinflation
| because that always comes with other problems too,
| therefore you probably don't have a healthy economy in
| hyperinflation.
| lmarcos wrote:
| > especially the poorest that makes the mistake of saving cash
|
| Perhaps a bit off topic, but: do the majority of the people who
| are not considered part of the "poorest" ones do put their
| savings in stocks, properties and the like?
|
| The majority of people I know in their 20s, 30s with a decent
| income per month (I admit, mostly software engineers) don't do
| other thing than put cash in their regular bank accounts. No
| stocks, no properties. If any, they have a "savings account"
| that offer like 0.001% interests. This is in Western Europe.
| DavidSJ wrote:
| If you have a steady income and significant savings (say,
| anything more than six months of expenses), and you haven't
| invested a significant fraction of that savings in some
| growth-oriented asset class like stocks, you're making a very
| foolish long-term decision.
| jtdev wrote:
| The equities and real estate markets don't exactly look
| appealing right now; I can either watch inflation slowly
| eat at savings while waiting for better market conditions,
| or potentially watch a significant portion of net worth
| evaporate when a mega correction occurs - which is looking
| very likely.
| frongpik wrote:
| You sound like a surfer who is watching big waves at the
| shore and is waiting for "the right moment", but at any
| moment it's either too shallow for the surf board, or
| there's a big scary wave that's about to collapse.
| imtringued wrote:
| The best time to start is today but you should never put
| all your money into something you don't understand. Start
| small and grow from there. You'll probably change your
| mind along the way.
| deanmoriarty wrote:
| If your cash position is a one-time thing that's fine I
| guess, but if you've been saying that for a few years
| (most people in that position do, not saying it's you)
| then you've been losing a lot.
|
| I've been constantly invested in index funds for 10+
| years, never sold a position, including before/after
| March 2020. Some positions I have are up more than 200%.
| A crash of 50% won't do me too much damage, I'll still be
| way, way far ahead of the many friends I have who have
| been in cash since 2015, repeating your same "a
| correction is likely, I'll wait for the bottom to get
| in".
| jtdev wrote:
| I have a similar approach: I typically have ~60% of net
| worth invested across index funds and tech growth stocks.
| But I've been building my cash position in recent months
| mostly via sale of said index funds and growth stocks (I
| was able to dodge the downturn in tech stocks in recent
| weeks), but also by simply banking funds that would
| otherwise have been put directly into equities. Now I'm
| reluctant to reinvest as I see significant risk in the
| market short term. I don't intend to remain on the
| sidelines.
|
| I'm beginning to question the maxim that "you can't time
| the market"... sure, you're unlikely to time the exact
| top or bottom, but an approximation can result in
| significant risk reduction and/or upside.
| lmarcos wrote:
| I don't disagree. I just say that, in my limited life
| experience, most of my acquaintances do not have other
| thing than cash in the bank. These acquaintances are not
| precisely "poor".
| chrisseaton wrote:
| > most of my acquaintances do not have other thing than
| cash in the bank
|
| That's madness - I can't imagine why they'd do that.
| Their money would be rapidly eroding away.
|
| But also - remember almost every professional has a
| pension, which is always invested, so yes almost every
| professional owns stocks and shares.
| adamnew123456 wrote:
| > That's madness - I can't imagine why they'd do that.
|
| I think your confusion is in assuming that this is
| something you _do_ rather than it being the status quo
| that receives no attention.
|
| Up until recently I had about $80k sitting in a HYSA
| while interest rates on that account dropped like a rock.
| I only really noticed that after crunching the numbers
| and figuring out that was much beyond what I would
| realistically need. It took a few days to figure out what
| I could do about that given my income and employment
| situation.
|
| I'm not sure how much of this applies to someone who is
| natively middle-class, but I find that part of the luxury
| of having a good income and a minimal lifestyle is just
| not thinking about money. If that's where your baseline
| is then you need some other motivation to scrutinize your
| finances. It comes more easily to me because I find it
| interesting but I can see someone without that drive just
| letting cash sit and being satisfied that the number
| looks big enough.
| chrisseaton wrote:
| Here's a motivating way to think about it - if you have
| $100k in a bank account and you're getting 0 or next to 0
| interest, you're effectively paying about $7.5k a year
| for that bank account in the first year, due to a
| guesstimate 7.5% long-term medium risk amortised
| investment return you missed out on.
|
| Due to compound interest the amount you're effectively
| paying is going to keep going up every year. After 20
| years the effective yearly fee you're paying for having
| that bank account is... $30k a year.
|
| Maybe that $30k a year fee to store $100k is worth if to
| some people due to the government-backend security of
| bank deposits... but long term I think the dealer is
| always winning that game.
|
| People need to learn about interest and compound interest
| in school.
|
| And this is all before we even talk about inflation
| further eating into your pile. Money in a bank account is
| dead money - it'll rot away to nothing.
| bfostbfostbfost wrote:
| Can you please give some advice as to how to convert cash
| savings to a better yield investment? Especially in this
| current market where it "feels" to me (I am ignorant)
| that the stock market is artificially high. Maybe start
| to dollar cost average in to etf/mutual funds, to avoid a
| bad timing of "shift cash into market at an all time high
| right before it crashes"? Sorry for the ignorant question
| but the thought of cash savings eroding quickly while I
| don't really know the best plan for it keeps me up at
| night. Cheers.
| imtringued wrote:
| I would recommend you to form a habit of putting some
| money into investments every month, not because of DCA or
| whatever investment strategy is the best, no simply
| because starting small and growing incrementally is a
| tried and true strategy for everything in life. If things
| go wrong you can always quit.
| chrisseaton wrote:
| The US markets may feel artificially high to you, but a
| conventional modest-return, low-risk investment account
| that you can arrange with any high-street investment
| advisor is going to be extremely broad in their
| portfolio. The US markets that you think are inflated may
| comprise 5% or something of it. It'll also be invested in
| Asia, Africa, South America, and in different industries.
|
| These kind of broad and boring investments always return
| about 5-10% or something like that a year. Occasionally
| they go down one year if there's a big bust up, but if
| you look over a ten year window it's always going up.
|
| So why doesn't everyone invest in them if they're so
| dependable? Am I selling a get-rich-quick scheme? The
| reason is they're too modest for most people who are
| trying to get more like 15%. But those people take more
| risk - the kind of risk you're probably worried about.
|
| And so why does the bank pay so little interest? Well
| they're getting that 5-10% from similar modest-return,
| low-risk investments (well probably a bit less less as
| they're more cautious)... and pocketing it.
| statstutor wrote:
| Since you will have to pay for housing in [local currency],
| and I'd usually prioritise housing higher than optimally
| growing wealth, I'd suggest you first hold enough cash to
| pay for housing as far as you need it - probably a lot
| longer than 6 months.
|
| Your advice is fine advice, _if_ you already own your
| housing and have savings on top of that, which many or most
| people don 't.
| iso1210 wrote:
| > If you have a steady income and significant savings
|
| Only the richest have 6 months expenses in savings.
| Majority live paycheck-to-paycheck
| 7_my_mind wrote:
| It depends on the culture. I also live in western Europe and
| in my community even the literally illiterate shepherds that
| I grew up amongst, have their money in stocks and bonds or
| intermediary funds.
| ant6n wrote:
| Right now it doesn't seem like a great time to invest.
| Although that's been true for 4 years. In some sense it would
| be good if the powers that be would allow a market
| correction.
| the_giraffe wrote:
| The author covered the arguments for why QE is not inflationary
| well. However, they failed to address how government spending and
| fiscal stimulus (which is vastly different from QE) is not
| inflationary.
|
| I agree that QE causes asset price inflation but normally does
| not cause much consumer price inflation. However, I believe
| government spending and fiscal stimulus most certainly will.
|
| Massive amounts of government fiscal stimulus is used to combat
| deflation, which it seems to do well, at least initially. The
| threat of deflation is usually caused by a slow in monetary
| velocity. But when monetary velocity returns inflation is likely
| to increase at a rate greater than we would see without any
| stimulus. The whole idea of it seems to be to combat deflation
| with inflation. So if that is not inflationary then why are
| governments around the world doing it? And why are we to assume
| them to be infallible and that they know exactly what the proper
| medicine is for a broken economy?
|
| I think it's wreckless to dismiss the possibility of inflation
| when we have already been seeing it in the dramatic decline in
| the purchasing power of consumer goods by fiat currencies for
| decades.
| oramit wrote:
| I didn't get too far into this article because the writing was so
| stilted. Then I realized it was just a series of tweets merged
| together without much of an attempt to clean it up. Not a good
| way to explain something as complex (and polarizing) as
| inflation.
| 300bps wrote:
| I was not impressed with the article despite his status as a
| professor. For one example, he either seemed to have a very basic
| understanding of price elasticity of supply or he dumbed the
| article down to the point of being not possible to understand
| what his argument is.
|
| He also seems to not truly understand the scope of quantitative
| easing that has gone on. The $1.9 trillion in stimulus just
| passed in the US is a drop in the bucket compared to the Federal
| Reserve's unprecedented $7 trillion balance sheet:
|
| https://www.federalreserve.gov/monetarypolicy/bst_recenttren...
|
| And setting the bank reserve rate to 0% from its normal 10%.
| There are literally tens of trillions of dollars of stimulus that
| have been created. This money is finding its way into everything
| except ironically the items that are tracked by CPI.
|
| When a crypto currency created as a joke reaches a market cap >
| $7.5 billion you may have an inflationary bubble on your hands.
|
| https://coinmarketcap.com/currencies/dogecoin/
| Majromax wrote:
| > The $1.9 trillion in stimulus just passed in the US is a drop
| in the bucket compared to the Federal Reserve's unprecedented
| $7 trillion balance sheet:
|
| Not at all. The Fed's balance sheet expansion is widely
| believed to be ultimately temporary, to be wound down over time
| once conditions normalize. Moreover, its expansion has all
| taken the form of _collateralized_ loans, which is why the
| linked graph is of the _asset_ side of a balance sheet.
|
| Fiscal policy, however, does not create any such assets owned
| by the Treasury. The required deficit spending is fundamentally
| unsecured, uncollateralized credit, even though the US federal
| government has an excellent credit rating.
|
| > This money is finding its way into everything except
| ironically the items that are tracked by CPI.
|
| You could also look at the GDP price deflator
| (https://fred.stlouisfed.org/series/A191RI1Q225SBEA), which
| doesn't have a basket-of-goods problem, and see similar trends.
|
| > When a crypto currency created as a joke reaches a market cap
| > $7.5 billion you may have an inflationary bubble on your
| hands.
|
| No, it's a speculative bubble. Very different.
| moralsupply wrote:
| Dogecoin was created as a joke, but as money Doge is a lot more
| sound than any fiat currencies out there.
|
| It's not that Doge is a bubble. The bubble is the US Dollar.
| (insert Doge meme image here)
| imtringued wrote:
| >This money is finding its way into everything except
| ironically the items that are tracked by CPI.
|
| You do know that the sole goal of the fed's monetary expansion
| is to raise CPI inflation? So by that measure the Fed is an
| absolute failure. It never created inflation.
| FpUser wrote:
| >"The state is what the inflation fetishists really hate. And
| what they know is that society wants a bigger state right now."
|
| The author of course knows perfectly what the "society wants". To
| me this whole article reads like it's been written in a state of
| delirium.
| krupan wrote:
| Downplays inflation risks of governments printing money, but does
| point out this aspect:
|
| "...many households are deeper in debt now than a year ago. Many
| more just got by. But the best off just got richer. That's what
| QE does.
|
| This bias to the already wealthy within QE was not by chance..."
| Klwohu wrote:
| If inflation's not a threat then moving away from inflationary
| assets isn't a threat either. And that's precisely what lots of
| people are trying to do right now.
| nobrains wrote:
| I don't understand, if any country HAS to print money, why not
| via direct payments to the public?
| imtringued wrote:
| The usual argument for supply side stimulus is that everyone
| spends most of their money. So if you give businesses money
| they will produce more things and grow the economy.
|
| The problems start when people are too poor to afford those
| additional products and companies simply stop investing into
| growth because they can't sell their products. Once you reach
| this point, giving them more money does nothing.
| TheButlerian wrote:
| Hah, the working class will get utterly crushed and they will
| applaud from the windows lol.
| kangaroozach wrote:
| Totally wrong definition of inflation. Inflation of money supply
| is a driver of higher prices. But inflation is not higher prices
| themselves. Inflation is same as debasing currency and stealing
| purchasing power from the people. It's a stealth tax and a trick.
| Can't work forever.
| imtringued wrote:
| The problem with deflation is that it literally can last
| forever.
| MotherSuperior wrote:
| >I am not saying that inflation or interest rate rises are
| impossible in the future but I am suggesting that those who
| suggesting these are anything but very temporary phenomenon have
| to explain why the trends of many decades are going to reversed
| now and for what reason.
|
| Because the neoliberal economic model that includes a stratified
| scarcity principle (keeping wages as low as possible so consumer
| demand keeps prices down) isn't built for a sustained global
| economic downturn.
|
| The very fact that the Biden administration harpooned the very
| minimum wage increase that they advocated for in the campaign
| should indicate to everyone just how seriously they are taking
| inflation.
| dfilppi wrote:
| That's why people should be permitted to print their own.
| Legalizing counterfeiting would solve all our ills.
| davidhbolton wrote:
| If you want to see an economist repeatedly criticise Richard
| Murphy on a regular ongoing basis, I recommend
| https://www.timworstall.com/category/ragging-on-ritchie/
| pjdemers wrote:
| Inflation won't be a problem for a long time. There is allot of
| slack in the labor market. The article states there are about 10
| million people in the UK who would like a new job. That is a
| small fraction of the hundreds of millions in the rest of world
| who are looking for work. Until a nearly all of them have a good
| job, wages will stay low. Eventually there will be more jobs than
| people who want them, in 50 years or so. Our current monetary
| system won't work in that world, but I will be too old to care.
| RichardHeart wrote:
| Money printing makes the rich richer and the poor poorer. The
| world consists of stuff. Money is used represent it. Make more
| stuff, prices go down. Print more money, prices go up. If you
| already own stuff, it's worth more money. If you don't, you may
| never be able to afford it.
|
| If you're lucky enough to ever get a raise, your income tax may
| rise, whereas, the capital class has their gains tax deferred,
| only paying at sale, and at a lower rate! Join the capital class
| as soon as you can, because it's the best way to get rich and
| stay rich. By the way, the concept that inflation benefits most
| those that receive it first is called the Cantillon effect.
|
| Pull yourself up by your bootstraps? The good news is, saving and
| investing is how the rich stay rich, and they don't have any
| better access to the best assets in the world than you do. Thanks
| to cryptocurrency. Bitcoin, Ethereum and even one I founded have
| all given thousands of % returns. If you're tired of people
| printing out of thin air, that which you have worked so hard for,
| we've got p2p open source solutions for that which do even more
| than just raw accounting.
| imtringued wrote:
| Thank you for bringing up the Cantillon effect it is a concise
| way of describing how QE drives inequality by giving money to
| the wrong people first.
|
| The problem is that now everyone is focusing on the free money
| to be had from the stock market. When you think about it the
| primary way monetary policy helps economies get out of a
| recession is by giving everyone employment. QE causes massive
| asset appreciation. In other words it is keynesian gold digging
| except you are not compensated by how much work you are doing,
| no, you are compensated based on how many financial assets you
| already own. That's incredibly backwards because the entire
| reasoning behind hacks like keynesian gold digging is to give
| the poorest parts of society money so that they can spend it
| and revitalize the economy. Poor people don't own lots of
| Bitcoin or Tesla stocks or whatever else is exploding in price
| so they never benefit in the first place. However, those who
| are on the margin with barely enough savings to put into assets
| will see 3x or even 10x gains and might even decide that this
| is a better way to spend their time instead of doing productive
| work.
|
| I have seen people yolo their student loans into GME with this
| exact reasoning. They do it because they believe they won't
| have to finish college if they make it.
| samvher wrote:
| Where are these thousands of % returns coming out of, if not
| out of thin air?
| perryizgr8 wrote:
| It's all fine guys. We can print as much money as we want.
| Inflation is not a threat. No biggie. Don't worry!
| imtringued wrote:
| This is the wrong mindset. If inflation is low the central bank
| is failing at its core competence.
| gregwebs wrote:
| I would recommend this article for less diatribe and more facts.
| [1]
|
| The summary of either though is that although the government is
| printing money, that printed money is not chasing goods and
| services. Even government checks direct to taxpayers are largely
| ending up in financial instruments: paying off debt or
| rent/mortgage.
|
| The article I linked differs in believing that there are short-
| term inflationary forces as the world adjusts to COVID due to
| changed consumer patterns and disrupted supply chains. This is
| mentioned in the submitted article as well but is dismissed in a
| one-sided way.
|
| Note that many on HN are confused or offended by the title of the
| submitted article because asset inflation is happening now. But
| the submitted article defines inflation as consumer inflation.
|
| I am just as concerned about the consequences of money printing
| as anyone on this forum, but it does seem to have a much more
| minimal effect on consumer inflation then our intuition would
| lead us to believe (depending on how it is implemented). Japan
| would be a good example where a lot of money has been printed but
| never put into circulation: it may be causing problems, but
| consumer inflation is not one of them [2].
|
| I am now more concerned about how our monetary policy appears to
| ensure large trade deficits and thus be the cause of the decrease
| in manufacturing in the US and perhaps a much bigger cause of
| wealth inequality than the normal money printing. This is
| explained in this very long article that is well worth
| understanding [3].
|
| [1] https://www.epbmacroresearch.com/blog/the-money-supply-
| myste...
|
| [2] https://www.lynalden.com/economic-japanification/
|
| [3] https://www.lynalden.com/fraying-petrodollar-system/
| dls2016 wrote:
| So the NAFTA whiners of the 90s were right?
|
| https://m.sevendaysvt.com/vermont/sanders-why-i-oppose-nafta...
| gregwebs wrote:
| Unfortunately it has little to do with NAFTA. The naive
| American view of trade is that goods are cheaper to produce
| in other countries so all production inevitably moves there.
|
| What is supposed to happen in a global economy is that
| currencies strengthen and weaken to exert a balancing effect
| on trade. Because the dollar is the global reserve currency
| there is an artificial demand for dollars so the balancing
| never occurs.
|
| We have a monetary policy that is the invisible hand shaping
| the entire US economy. The massive trade deficits it caused
| are now leading to populism and civil unrest. And yet there
| is no discussion of this root cause and almost no awareness
| of it.
| dls2016 wrote:
| I don't understand, how does this have "little to do" with
| NAFTA? Whose naive view is it that production will move? I
| mean, call me naive, but we could also make laws that say
| production won't be moved.
|
| The monetary policy works hand-in-hand with NAFTA and
| immigration policies so that capital is free to wander the
| globe, sloshing around and popping off asset bubbles while
| workers feel the boot. Again... my naive view.
| gregwebs wrote:
| I agree that trade is required for trade deficit and
| freer trade (e.g. NAFTA) is an accelerator. I say "little
| to do" because to me the important issue is whether we
| have a system where the currency ensures trade means
| trade deficit or a system where currency helps to balance
| trade.
| pessimizer wrote:
| A shorter version of your last ref.
|
| https://www.theguardian.com/commentisfree/cifamerica/2010/oc...
|
| "[....]If the dollar is high and therefore buys lots of foreign
| currency, then imports are cheap. This means that we will buy
| lots of imports.
|
| "If we have low exports and high imports, then we will have a
| large trade deficit. End of story. We can train our workers to
| be more productive, urge our firms to invest more and try to
| improve our public infrastructure, but realistically, none of
| these factors can come close to offsetting the impact of a
| currency that is 20-40% over-valued. A severely over-valued
| currency virtually guarantees a trade deficit."
| gregwebs wrote:
| Yes, your quotes from that article are spot on. The article
| itself though seems to otherwise be tilting at windmills: I
| would encourage everyone to review my longer reference.
| jokethrowaway wrote:
| I'm a bit surprised to see this piece, I haven't heard worries
| about inflation (and I follow free-market capitalists).
|
| What people are worried about is that all this extra money is
| propping up a market bubble and a non-sensical economy. Good luck
| when that's going to burst.
|
| Also, it's debatable whether lockdowns actually saved the NHS or
| just wrecked our small businesses, but I guess we will never know
| for sure.
| megiddo wrote:
| "I am not saying that inflation or interest rate rises are
| impossible in the future but I am suggesting that those who
| suggesting these are anything but very temporary phenomenon have
| to explain why the trends of many decades are going to reversed
| now and for what reason.
|
| Only two reasons are being given. One is that there is going to
| be excess demand after coronavirus. The other is that there will
| be a shortage of supply of goods and services in the economy to
| meet that demand. My argument in this thread is that neither is
| likely."
|
| I like how neither of these addresses really shit monetary
| policy, like over-production of currency. This entire analysis
| assumes the Fed doesn't end up forced to monetize several
| trillion in debt over a couple years.
| hartator wrote:
| > Remember that the inflation that we are talking about is that
| with regard to consumer prices, which is often related to wages.
|
| Or we can use the traditional definition for inflation, the
| increase in monetary supply not an increase in price. Monetary
| inflation is very real in 2020 and 2021. A global increase in
| prices is a potential consequence of monetary inflation but it's
| not mandatory. Monetary inflation is always bad from an economics
| perpective and always ends badly. We always try to forgo lessons
| from the past but this is very economy 101.
| harryh wrote:
| The traditional definition? What?
|
| "In economics, inflation (or less frequently, price inflation)
| is a general rise in the price level in an economy over a
| period of time."
|
| https://en.wikipedia.org/wiki/Inflation
| hartator wrote:
| Webster 1983 definition of inflation:
|
| "An increase in the amount of currency in circulation,
| resulting in a relatively sharp and sudden fall in its value
| and rise in prices: it may be caused by an increase in the
| volume of paper money issued or of gold mined, or a relative
| increase in expenditures as when the supply of goods fails to
| meet the demand."
|
| Hence the use of "traditional definition" wording. Which
| matters for example in classic readings of economics books.
| One can argue that the switch in definitions is more a
| political view to excuse printing money and not backed by any
| economics reasonings.
|
| Ref: https://inflationdata.com/articles/2010/07/21/real-
| definitio...
| RazTeve wrote:
| The author nails it in that inflation alarmists really hate the
| state. Inflation is really the cost of MMT and our modern state
| power. Central banks, whether intended to be separate or not, are
| the backbone that every state is built and funded on.
|
| They also have issues with taxation. Taxes are largely used today
| to take money out of the economy and control the purchasing power
| of currency.
|
| Most people having any awareness of the underpinnings and reason
| that our money is the way it is. Like the fish asking, "what is
| water?"
|
| Money is still evolving. If these central bankers and tax
| collectors push people too hard, something else may emerge as
| money.
| cryptica wrote:
| The financial system is a fraud. It doesn't make sense that you
| can keep borrowing money to pump up the value of a speculative
| asset and then use this growing collateral to borrow even more
| money to pump up the price of that asset even more and repeat ad
| infinitum.
|
| It's extremely frustrating to have to participate in a system
| which is run by a mix of rich crooks and rich idiots. It's
| obvious that it will all end in a disaster but in the meantime,
| massive talent and decades of people's lives are being wasted
| away to cater to a bunch of manipulative crooks.
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