8 ms·

There is inflation because of the increase in money supply, but it is not in consumer goods - it is in financial assets

thu2111 7y ago
Yep. Inflation visible in this graph: https://www.macrotrends.net/2488/sp500-10-year-daily-chart https://www.macrotrends.net/2488/sp500-10-year-daily-chart Money is created by the central banks but it doesn't instantly appear in people's pockets as cash. That would be required to create instant consumer inflation but the path is much more winding than that. The money goes into the financial system primarily via banks and bond purchases. CBs buying up debt then gets translated into share buybacks, share buybacks push up stock prices, higher stock prices make the middle class feel more wealthy and so they spend more on middle class things like houses, pushing up house prices, higher house prices get translated into more income going to builders and builders buy things at the store. Traditional measures of inflation like bread or chocolate bar prices are at the end of a very, very long pipeline of money.
- dharma1 7y ago
  This is the best analysis of the subject I have seen - https://news.ycombinator.com/item?id=22234042 https://news.ycombinator.com/item?id=22234042 It makes for long, but delightfully rewarding reading. Ray Dalio's thinking on the subject is also worth checking out
  - dev-ns8 7y ago
    Link to Ray Dalio write-up?
    - dharma1 7y ago
      This touches on it: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro... And you can get his free book on debt cycles here: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/
- RugnirViking 7y ago
  Why do higher stock prices make the middle class feel more wealthy? Is it really that common to own enough stocks to make up a significant portion of your wealth? As far as I can tell its essentially just a useless hobby unless you have significant savings. The only people I know that are into stocks are also into things like horse racing etc, and they make/lose about as much from it.
  - woofcat 7y ago
    >Why do higher stock prices make the middle class feel more wealthy? Is it really that common to own enough stocks to make up a significant portion of your wealth? At least in my country the stock market is basically you're retirement fund unless you're one of the few people with a Government pension. Most companies here offer a matching program to invest for your retirement. This is dumped into the stock market for general growth, with the idea that it's there when you retire.
    - RugnirViking 7y ago
      Maybe so, but I can't imagine the day-to-day contractions or growth spurts in the economy have much of an effect on your retirement planning, or your general consuming habits.
      - woofcat 7y ago
        day-to-day no, however it means people are more keen to pay attention to market news. After all, choosing bad investments that earn you say 4% y/o/y return, vs 15% y/o/y results in _massive_ changes on the scale of 20-40 years.
  - mech1234 7y ago
    >A once-every-three-years study by the Federal Reserve Board found that in 2016, 51.9 percent of families owned stocks, either directly or as part of a fund. https://www.politifact.com/california/statements/2018/sep/18/ro-khanna/what-percentage-americans-own-stocks/ https://www.politifact.com/california/statements/2018/sep/18... I would add that there is so much total stock wealth, even though the top 10% own 84% of said wealth, the remaining amount is very very large.
perl4ever 7y ago
How is "inflation in financial assets" different from deflation? The only way you can tell stuff is inflating or deflating is by comparing it to something.

Yep. Inflation visible in this graph: https://www.macrotrends.net/2488/sp500-10-year-daily-chart https://www.macrotrends.net/2488/sp500-10-year-daily-chart Money is created by the central banks but it doesn't instantly appear in people's pockets as cash. That would be required to create instant consumer inflation but the path is much more winding than that. The money goes into the financial system primarily via banks and bond purchases. CBs buying up debt then gets translated into share buybacks, share buybacks push up stock prices, higher stock prices make the middle class feel more wealthy and so they spend more on middle class things like houses, pushing up house prices, higher house prices get translated into more income going to builders and builders buy things at the store. Traditional measures of inflation like bread or chocolate bar prices are at the end of a very, very long pipeline of money.

dharma1 7y ago
This is the best analysis of the subject I have seen - https://news.ycombinator.com/item?id=22234042 https://news.ycombinator.com/item?id=22234042 It makes for long, but delightfully rewarding reading. Ray Dalio's thinking on the subject is also worth checking out
- dev-ns8 7y ago
  Link to Ray Dalio write-up?
  - dharma1 7y ago
    This touches on it: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro... And you can get his free book on debt cycles here: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/
RugnirViking 7y ago
Why do higher stock prices make the middle class feel more wealthy? Is it really that common to own enough stocks to make up a significant portion of your wealth? As far as I can tell its essentially just a useless hobby unless you have significant savings. The only people I know that are into stocks are also into things like horse racing etc, and they make/lose about as much from it.
- woofcat 7y ago
  >Why do higher stock prices make the middle class feel more wealthy? Is it really that common to own enough stocks to make up a significant portion of your wealth? At least in my country the stock market is basically you're retirement fund unless you're one of the few people with a Government pension. Most companies here offer a matching program to invest for your retirement. This is dumped into the stock market for general growth, with the idea that it's there when you retire.
  - RugnirViking 7y ago
    Maybe so, but I can't imagine the day-to-day contractions or growth spurts in the economy have much of an effect on your retirement planning, or your general consuming habits.
    - woofcat 7y ago
      day-to-day no, however it means people are more keen to pay attention to market news. After all, choosing bad investments that earn you say 4% y/o/y return, vs 15% y/o/y results in _massive_ changes on the scale of 20-40 years.
- mech1234 7y ago
  >A once-every-three-years study by the Federal Reserve Board found that in 2016, 51.9 percent of families owned stocks, either directly or as part of a fund. https://www.politifact.com/california/statements/2018/sep/18/ro-khanna/what-percentage-americans-own-stocks/ https://www.politifact.com/california/statements/2018/sep/18... I would add that there is so much total stock wealth, even though the top 10% own 84% of said wealth, the remaining amount is very very large.

perl4ever 7y ago

How is "inflation in financial assets" different from deflation? The only way you can tell stuff is inflating or deflating is by comparing it to something.