The French Crime of 1873: An Essay on the Emergence of the International Gold Standard, 1870–1880

[pmward]

I still don't understand why we have not had massive inflation. My inability to explain the effect of multiple rounds of QE and enormous deficits has a lot to do with why I embraced Harry Browne's market agnosticism.

Well there's a few pieces at play.

1) deflationary population trends (baby boomers retiring and millennials taking forever to join the workforce)

2) global deflationary trends provide inflationary headwinds locally

3) QE went to banks not people

3a) We swapped from a corridor system to a floor system, which means that the reserves provide by QE now pay banks interest so it lowers the banks desire to put that money at risk by lending it out when they can get a risk free return for just sitting on it.

3b) since all the QE went to banks when it did find its way out of the banks reserves it wound up in assets as opposed to in productive economic spending. It inflated asset prices but provided no real growth.

4) The general population is overly trusting of the U.S. government and the Fed, they believe that after the Fed rescued us in 2008 that they have more power than they really do.

5) Reserve status on currency means a consistently large foreign investment surplus, which means we *have* to have an equally large trade deficit, which is an inflationary headwind.

I'm sure there are others I'm missing. Needless to say inflation is only loosely correlated to money supply. Now if the money we printed made its way into the hands of the general public as opposed to just into bank reserves and assets then I believe it would have been hugely inflationary. If we continue our flirtation with MMT we will be able to see if this hypothesis holds true. I still think Browne's agnosticism still holds though, as it was essentially the first real implementation of MPT (and to this day the most pure popularized form of MPT). The underlying fact that money always *has* to find a home somewhere, means that even if the correlations are not perfect, one of the assets will always be in a bull market. Money has to go somewhere, so something is always going to be bought. If not stocks and bonds, then real assets. There is benefit in taking highly volatile uncorrelated assets and placing them against each other in a portfolio that is regularly rebalanced.

[Kbg]

Here ya go in two simple charts:

https://fred.stlouisfed.org/series/M2

https://fred.stlouisfed.org/series/M2V

Just cuz you create money does not mean it will get used and clearly it has not been...batta bing, no inflation. We've become so financial instrument oriented that we forget the real physical economy has always been and will always be the actual driver of these things. We will have inflation again when wage growth takes us there and it just hasn't. My leading guess (though I have no idea), technology has made for a ton of efficiency which requires a very small work force to create it as compared to the industrial world.

[pmward]

Here ya go in two simple charts:

https://fred.stlouisfed.org/series/M2

https://fred.stlouisfed.org/series/M2V

Just cuz you create money does not mean it will get used and clearly it has not been...batta bing, no inflation. We've become so financial instrument oriented that we forget the real physical economy has always been and will always be the actual driver of these things. We will have inflation again when wage growth takes us there and it just hasn't. My leading guess (though I have no idea), technology has made for a ton of efficiency which requires a very small work force to create it as compared to the industrial world.

Technology definitely plays a part in weak wage growth. As does globalization and the reduction in unions. However, most of those factors have kind of run their course; the bulk of the damage has been done. The trends in globalization and unions especially have been tapering off and even starting to reverse in some industries. All of these things have added to the wealth divide, where since the early 80s non C-suite workers have received a trend of a consistently lower and lower share of the profits. Seeing the political landscape right now it makes me feel even more sure that over the next decade we are likely to see wage growth start to play out again. Not to mention the possibility of helicopter money via MMT. If the money actually finds its way to the people as opposed to banks, companies, and assets we will definitely see inflation start to pick up. I think the next decade will be interesting, as I think we may see both negative interest rates and the return of inflation in the same decade. This is a big part of why I'm so bullish gold in the 2020's, as negative interest rates and/or increasing inflation would be very good for gold.

[boglerdude]

Defining inflation as CPI is misleading, why not make CPI 50% weighted to the price of smartphones

Whats the inflation rate of assets that are fixed in supply, over the last decade. Gold, tuition, urban rents.

Its funny how people complaining about high rent, turn around and block legislation to increase housing.
https://la.curbed.com/2019/5/16/1862821 ... -postponed

[pmward]

Defining inflation as CPI is misleading, why not make CPI 50% weighted to the price of smartphones

Smartphones are a good example of why CPI is BS. Because when Apple releases a new phone they see it as an upgrade and something worth more money. So a price increase in the phone if released in line with an "upgrade" doesn't effect the CPI because they count that you paid more but received more. It definitely adds a degree of negative skew to tech, services, or any other kind of product that sees regular upgrades.

[pmward]

Timely article that came in one of my newsletters today about how our current definition of inflation in a fiat currency is flawed: https://integratinginvestor.com/the-opp ... inflation/

[Libertarian666]

I still don't understand why we have not had massive inflation. My inability to explain the effect of multiple rounds of QE and enormous deficits has a lot to do with why I embraced Harry Browne's market agnosticism.

We have had massive inflation, but it was in the prices of housing, medical care, and tuition.

[boglerdude]

When I asked The Braintrust (https://old.reddit.com/r/badeconomics/) why inflation is necessary, they said:

https://slate.com/business/1998/08/baby ... onomy.html

[jhogue]

I still don't understand why we have not had massive inflation. My inability to explain the effect of multiple rounds of QE and enormous deficits has a lot to do with why I embraced Harry Browne's market agnosticism.

We have had massive inflation, but it was in the prices of housing, medical care, and tuition.

I would certainly agree that there has been above-CPI increases in the cost of medical care and higher education, as well as post-Great Recession housing. But when I said "massive inflation," I meant inflation of the run-a-way, Weimar Republic sort. Gold went up after 2009, but then went back down. There was a flight to safety in US Treasurys, but the interest rate on LTTs seems pretty tame. As Medium Tex used to say, it is just as easy to write a deflationary narrative for the next decade as it is to write an inflationary narrative. In the meantime, I find market agnosticism to be the most logical and profitable "non-narrative."