More Money != More Inflation

[Kbg]

Worth a read...

I think this link should get you behind the paywall...if not, sorry for the tease.

https://www.wsj.com/articles/inflation- ... _permalink

[yankees60]

Worth a read...

I think this link should get you behind the paywall...if not, sorry for the tease.

https://www.wsj.com/articles/inflation- ... _permalink

Yes, it did. Thanks!

[Pointedstick]

The gap between excess demand and constrained supply showed up as sharply higher prices.

Yeah, the money supply alone was always only part of the story; the balance of supply and demand determines inflation, with the money supply simply being a proxy for demand in most cases. The money supply can be expanded without creating inflation if 1) people are optimistic enough to spend it immediately and 2) there is unused or easily expandable supply capacity that meets the new demand. In the case where predictions about these prove accurate, then you don't get any new inflation, and this is what those who want to expand the money supply are always hoping for. Sometimes it does work.

But sometimes people on average save the money they've received from expanding the money supply. This is what happened in Japan. They could give people all the money in the world but people just didn't want to spend it, so there was no new demand and no new supply pressures and no higher inflation. The result was setting the stage for potential future inflation when that money gets spent later, as a result of people aging into mandatory retirement account distributions or society-level increase in optimism, confidence, or culture that make people want to spend down their savings. But even then, if the economy has a lot of slack capacity during the moment when this happens, it could work out. But that can't really be timed, of course, so it's an inflation risk.

And sometimes supply can't accommodate to demand. This is my reading of what's happening right now throughout the entire world--not just the USA. The money supply expansion during the COVID-19 pandemic was mostly saved until economies fully re-opened, at which point it unleashed a wave of demand that interacted quite poorly with the the unusual combination of labor shortages, raw material and energy shortages caused by the war in Ukraine, shipping bottlenecks, and production capacity limitations in China.

These things are temporal and will end though, and once they do I expect inflation to die down again. But there is also very little national governments can do about them in the short term since they're international phenomena. The whole world's connected now.

[Jack Jones]

The money supply expansion during the COVID-19 pandemic was mostly saved until economies fully re-opened, at which point it unleashed a wave of demand that interacted quite poorly with the the unusual combination of labor shortages, raw material and energy shortages caused by the war in Ukraine, shipping bottlenecks, and production capacity limitations in China.

These things are temporal and will end though, and once they do I expect inflation to die down again. But there is also very little national governments can do about them in the short term since they're international phenomena. The whole world's connected now.

So how do we feel about the money supply expansion during COVID-19? Was it money well spent? I know I received money when I didn't need it.

Is this a power we want the feds to have? In return for giving them this power, they are supposed to provide price stability. How is that going?

[Pointedstick]

So how do we feel about the money supply expansion during COVID-19? Was it money well spent? I know I received money when I didn't need it.

I agree, me too. I would have been fine with some kind of means-testing. Of course the political problem with means-testing is that you get complaints from people on the right who say that you're subsidizing poverty and incentivizing bad decision-making. Granting the benefit universally removes that objection because then at least people who were more fortunate or managed their lives better don't get less--at the cost of wasting money by providing benefits to those who don't need them. Gotta pick your poison.

Is this a power we want the feds to have? In return for giving them this power, they are supposed to provide price stability. How is that going?

Congress created that money, not the Fed. They spent it into existence. Without the Fed, Congress could (and did, before the Fed existed) just as easily spend money into existence themselves. You want to be angry at Congress here, not the Fed.

[I Shrugged]

They couldn’t take the time to do it right, this was truly helicopter money.

[boglerdude]

If inflation is 8% the Fed should offer us a 6% (at least) savings account. They are supposed to push back on reckless spending.

[mathjak107]

Except the 8% inflation is coming from things people need as part of their daily living .

Raising Interest rates can’t produce the 5 million workers we are short or make car chips ….

One third of the cpi increases are new and used car prices .

There isn’t a lot of borrowing going on as corporations have huge war chests .

Even the slowing of the housing market has been mostly lack of decent supply not buyers in decent areas

[dockinGA]

If inflation is 8% the Fed should offer us a 6% (at least) savings account. They are supposed to push back on reckless spending.

I'm not certain current inflation is still actually that high. Remember that the 8% is backwards looking. July's month over month inflation was flat. August MOM was 0.1%. If that pace were maintained over the next 10 months we would be discussing a YOY inflation rate of less than 1%. In other words, inflation may have already peaked, who knows.

As mathjak mentioned, some of the major drivers, used cars and housing, are showing definite signs of price reductions. So have gasoline and certain commodities. TIPS now have positive real yields, and breakeven inflation for the next year is just a little over 2.5% if I'm doing my math correctly. It would seem that the market is expecting inflation to normalize fairly quickly.

[Jack Jones]

Is this a power we want the feds to have? In return for giving them this power, they are supposed to provide price stability. How is that going?

Congress created that money, not the Fed. They spent it into existence. Without the Fed, Congress could (and did, before the Fed existed) just as easily spend money into existence themselves. You want to be angry at Congress here, not the Fed.

I meant feds as in the elites in Washington. It doesn't matter to me if it's the Fed or Congress, some people are allowed to create money out of thin air and distribute it as they choose. Those who are closest to the fount benefit the most because the money they receive is "fresh". They can spend it in an economy that has not yet inflated due to the money printing. Those furthest from the fount get no money and have to suffer the effects of inflation. This is too much power in my opinion. In return for this power, they are supposed to provide price stability. That's the deal right?

Also, isn't it a conflict of interest to be a debtor to the tune of $30 Trillion and in charge of the price stability of that debt?

https://www.bloomberg.com/news/articles ... -inflation

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

There is a revolution in progress.

[Kbg]

Basically the Fed does provide price stability, but it does not control the real economy when it comes to basic supply and demand. Influence yes, control no.

[Pointedstick]

I meant feds as in the elites in Washington. It doesn't matter to me if it's the Fed or Congress, some people are allowed to create money out of thin air and distribute it as they choose. Those who are closest to the fount benefit the most because the money they receive is "fresh". They can spend it in an economy that has not yet inflated due to the money printing. Those furthest from the fount get no money and have to suffer the effects of inflation. This is too much power in my opinion. In return for this power, they are supposed to provide price stability. That's the deal right?

Honestly I do think this is reasonable. The power to create money (somebody has to do it...) comes with responsibility, and clearly that power was not used terribly responsibly during COVID times.

...For understandable reasons, of course. And the alternative might have been worse. But still, a reasonable criticism in my book. We can demand better.

At the same time I also think it's important to acknowledge that a lot of contributors to the current bout of inflation are non-monetary in origin--in particular shortages in the supply of food, fossil fuels, goods manufactured overseas, and affordable housing. Those have different causes than just "there's too much money in the US economy."

[yankees60]

Is this a power we want the feds to have? In return for giving them this power, they are supposed to provide price stability. How is that going?

Congress created that money, not the Fed. They spent it into existence. Without the Fed, Congress could (and did, before the Fed existed) just as easily spend money into existence themselves. You want to be angry at Congress here, not the Fed.

I meant feds as in the elites in Washington. It doesn't matter to me if it's the Fed or Congress, some people are allowed to create money out of thin air and distribute it as they choose. Those who are closest to the fount benefit the most because the money they receive is "fresh". They can spend it in an economy that has not yet inflated due to the money printing. Those furthest from the fount get no money and have to suffer the effects of inflation. This is too much power in my opinion. In return for this power, they are supposed to provide price stability. That's the deal right?

Also, isn't it a conflict of interest to be a debtor to the tune of $30 Trillion and in charge of the price stability of that debt?

https://www.bloomberg.com/news/articles ... -inflation

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

There is a revolution in progress.

Just reading this in the book Xan recommended seems to somewhat align with what you wrote above and is another example of “plus ça change, plus c’est la même chose”

"Lincoln was unavailable as the tender legislation reached a climax. The House ringleaders—Spaulding, Hooper, and Stevens—were apoplectic over the Senate’s deference to bondholders. Their idea had been to contrive an equality, so that $100 of U.S. Notes were valued the same as $100 of specie. It was “simple in its machinery, and easily understood”—so claimed Stevens. The Senate provision for interest payments in coin upset the balance, because it created a greater demand for gold than for notes. What infuriated Stevens about the Senate’s “cunning scheme” was the disequilibria it introduced between the financial class and everyone else. The closest among the Republican leaders to a genuine revolutionary, Stevens thundered, “It creates two classes of currency, one for bankers and brokers, and another for the people.”"