5 ms·

Isn't printing money when you're short risky economically? My high-school history was a long time ago, but this is what Germany did post-WW1 and it ended in peo

by onei 6y ago

Isn't printing money when you're short risky economically? My high-school history was a long time ago, but this is what Germany did post-WW1 and it ended in people bartering the family silver for the essentials.

pjc50 6y ago
Firstly, it's only somewhat true; look at this graph https://tradingeconomics.com/united-states/money-supply-m0 https://tradingeconomics.com/united-states/money-supply-m0 and note that it's not zero indexed. The raw money supply has doubled .. with surprisingly little effect on prices and wages. Secondly, people get confused between extension of credit and money printing. For that you want the separate measure "M2". Thirdly, the real lesson of the hyperinflation crises of Germany, Zimbabwe, Argentina etc. is that you can't print oil, gold, or the foreign currency needed to buy them. Germany was paying a huge amount of reparations to France (which would be where the family silver ended up - 20 billion goldmarks was paid, which had to come from somewhere). The United States is in a hugely privileged position. It has enough domestic oil and food production for its needs. The gold standard is no longer relevant. Inflation and interest rates remain low. If you imagine a dial with a yellow warning at "8" and a warning redline at "9", the US is currently arguing over whether turning it from 1 to 2 is going to be the end of the world. The limit does exist, but it's a long way away.
- BurningFrog 6y ago
  > with surprisingly little effect on prices and wages. No one - who's talking at least - seems to understand what's going on with this. It's uncharted territory in a world economic system way more complex than when text books were written. I have to think fundamental reality must catch up sooner or later, possibly unravelling in a sudden crash. Then again, I do not understand this!
  - pjc50 6y ago
    Much of economics these days is fatally contaminated with ideology, so it's hard to find good explanations. "MMT" (modern monetary theory) is also ideological but has some interesting ideas that might explain this. Conventional explanations include "price stickiness": wages and prices don't change overnight, they have to be deliberately changed by individuals in the market. And the more technical "transmission mechanism": just as an automatic transmission doesn't immediately convert faster engine RPM into faster road speed, there is substantial lag in the mechanisms by which money production affects prices. The reverse process was seen round about the introduction of the Brazilian "Real". People had become used to inflation and re-negotiating prices regularly. Swapping out the name of the currency helped reset that in the minds of the public. https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real One of the more convincing ideas is that, because fiscal policy is either conservative or only expansionary for high earners, monetary expansion doesn't affect most consumption prices and only affects assets. e.g. house prices and the stock market.
- mrfredward 6y ago
  >If you imagine a dial with a yellow warning at "8" and a warning redline at "9", the US is currently arguing over whether turning it from 1 to 2 is going to be the end of the world. The limit does exist, but it's a long way away. The moment people think a currency is shaky, they get their money out of it and into something else. That leads to a huge oversupply of that currency in exchange markets, crushing exchange rates, and making the prophecy of inflation self-fulfilling. Much like borrowing, the moment people think you need to print money to survive is the moment everything goes to hell. That being said, I think the fed's policy has been pretty reasonable. Europe and Japan have been more aggressive with monetary policy than the U.S. over the last decade, making the dollar very strong and worsening the trade imbalance.
dlp211 6y ago
The US does not generally print money the way Germany did in the early 20th century. While we do perform some small amount of monetary expansion through printing money in the colloquial sense, the vast majority is done by the Fed paying dollars for assets. The Fed will at a later point destroy said dollars when it sells back the assets.
- Red_Leaves_Flyy 6y ago
  Selling the ~4 trillion created is going to take a while. Though I have reservations about that happening at all. Iirc the last time the Fed tried to unwind their balance sheet the market panicked.
- mixmastamyk 6y ago
  Note the graph of the money supply in the pjc50 sibling post.
colinmhayes 6y ago
Sort of, but it's complicated. The us had printed enough money to quadruple the USD money supply since 2008 and there has been no change in inflation.
- Red_Leaves_Flyy 6y ago
  The measure of inflation is problematic. We have seen large inflation in stock prices, houses, etc.
  - mixmastamyk 6y ago
    ^huge ...medicine, college education...
chasd00 6y ago
dissertation after dissertation have been written on the subject. To me, it boils down to as long as the world sees value in the US dollar, or there isn't an alternative, the Fed can print as much as they want. It certainly helps that US debt is denominated in its own currency so debt is as much of a burden on the US as the Fed wants it to be.
- maerF0x0 6y ago
  https://inflationdata.com/Inflation/images/charts/Inflation_Trends/cumulative_inflation.jpg https://inflationdata.com/Inflation/images/charts/Inflation_... Seems to me like breaking the gold standard has lead to quite a bit of inflation. One problem with our view of inflation is that it's compounding... Now, I think the real reason we have compounding and printing of money is that it's a form of taxation (on currency holders) and it makes government debt cheaper and cheaper each year that passes.
  - rovolo 6y ago
    That graph is misleading because you're plotting cumulative inflation on a linear graph rather than a logarithmic graph. The basic issue is that you should expect every 20 pixels to have the same weight, but you feel the impact of inflation as later/earlier rather than later-earlier. For example, compare 1940 to 1950 with 1990 to 2000. Cumulative inflation rises 110% for 1940-1950 and 450% for 1990 to 2000. But, $1 in 1940 will be worth 57¢ in 1950 (145%/255%), and $1 in 1990 will be worth 77¢ in 2000 (1365%/1775%). There are two ways to fix this: you could plot yearly inflation, but it's difficult to see long-term trends; or you can plot cumulative inflation on a logarithmic scale, but people aren't as used to logarithmic scales. yearly: https://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg https://en.wikipedia.org/wiki/File:US_Historical_Inflation_A... cumulative: https://uploads-cdn.omnicalculator.com/images/cpi-inflation/log-cpi.png https://uploads-cdn.omnicalculator.com/images/cpi-inflation/...
    - maerF0x0 6y ago
      understood, but the issue with assuming logarithmic expansion is "normal / desirable" is that it hides the fact that exponential inflation is the same as negative compounding returns on cash. With compounding inflation eventually it will take all of the money currently(today) in circulation just to buy a single loaf of bread.

by onei 6y ago

pjc50 6y ago

Firstly, it's only somewhat true; look at this graph https://tradingeconomics.com/united-states/money-supply-m0 https://tradingeconomics.com/united-states/money-supply-m0 and note that it's not zero indexed. The raw money supply has doubled .. with surprisingly little effect on prices and wages. Secondly, people get confused between extension of credit and money printing. For that you want the separate measure "M2". Thirdly, the real lesson of the hyperinflation crises of Germany, Zimbabwe, Argentina etc. is that you can't print oil, gold, or the foreign currency needed to buy them. Germany was paying a huge amount of reparations to France (which would be where the family silver ended up - 20 billion goldmarks was paid, which had to come from somewhere). The United States is in a hugely privileged position. It has enough domestic oil and food production for its needs. The gold standard is no longer relevant. Inflation and interest rates remain low. If you imagine a dial with a yellow warning at "8" and a warning redline at "9", the US is currently arguing over whether turning it from 1 to 2 is going to be the end of the world. The limit does exist, but it's a long way away.

BurningFrog 6y ago
> with surprisingly little effect on prices and wages. No one - who's talking at least - seems to understand what's going on with this. It's uncharted territory in a world economic system way more complex than when text books were written. I have to think fundamental reality must catch up sooner or later, possibly unravelling in a sudden crash. Then again, I do not understand this!
- pjc50 6y ago
  Much of economics these days is fatally contaminated with ideology, so it's hard to find good explanations. "MMT" (modern monetary theory) is also ideological but has some interesting ideas that might explain this. Conventional explanations include "price stickiness": wages and prices don't change overnight, they have to be deliberately changed by individuals in the market. And the more technical "transmission mechanism": just as an automatic transmission doesn't immediately convert faster engine RPM into faster road speed, there is substantial lag in the mechanisms by which money production affects prices. The reverse process was seen round about the introduction of the Brazilian "Real". People had become used to inflation and re-negotiating prices regularly. Swapping out the name of the currency helped reset that in the minds of the public. https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real One of the more convincing ideas is that, because fiscal policy is either conservative or only expansionary for high earners, monetary expansion doesn't affect most consumption prices and only affects assets. e.g. house prices and the stock market.
mrfredward 6y ago
>If you imagine a dial with a yellow warning at "8" and a warning redline at "9", the US is currently arguing over whether turning it from 1 to 2 is going to be the end of the world. The limit does exist, but it's a long way away. The moment people think a currency is shaky, they get their money out of it and into something else. That leads to a huge oversupply of that currency in exchange markets, crushing exchange rates, and making the prophecy of inflation self-fulfilling. Much like borrowing, the moment people think you need to print money to survive is the moment everything goes to hell. That being said, I think the fed's policy has been pretty reasonable. Europe and Japan have been more aggressive with monetary policy than the U.S. over the last decade, making the dollar very strong and worsening the trade imbalance.

dlp211 6y ago

The US does not generally print money the way Germany did in the early 20th century. While we do perform some small amount of monetary expansion through printing money in the colloquial sense, the vast majority is done by the Fed paying dollars for assets. The Fed will at a later point destroy said dollars when it sells back the assets.

Red_Leaves_Flyy 6y ago
Selling the ~4 trillion created is going to take a while. Though I have reservations about that happening at all. Iirc the last time the Fed tried to unwind their balance sheet the market panicked.
mixmastamyk 6y ago
Note the graph of the money supply in the pjc50 sibling post.

colinmhayes 6y ago

Sort of, but it's complicated. The us had printed enough money to quadruple the USD money supply since 2008 and there has been no change in inflation.

Red_Leaves_Flyy 6y ago
The measure of inflation is problematic. We have seen large inflation in stock prices, houses, etc.
- mixmastamyk 6y ago
  ^huge ...medicine, college education...

chasd00 6y ago

dissertation after dissertation have been written on the subject. To me, it boils down to as long as the world sees value in the US dollar, or there isn't an alternative, the Fed can print as much as they want. It certainly helps that US debt is denominated in its own currency so debt is as much of a burden on the US as the Fed wants it to be.

maerF0x0 6y ago
https://inflationdata.com/Inflation/images/charts/Inflation_Trends/cumulative_inflation.jpg https://inflationdata.com/Inflation/images/charts/Inflation_... Seems to me like breaking the gold standard has lead to quite a bit of inflation. One problem with our view of inflation is that it's compounding... Now, I think the real reason we have compounding and printing of money is that it's a form of taxation (on currency holders) and it makes government debt cheaper and cheaper each year that passes.
- rovolo 6y ago
  That graph is misleading because you're plotting cumulative inflation on a linear graph rather than a logarithmic graph. The basic issue is that you should expect every 20 pixels to have the same weight, but you feel the impact of inflation as later/earlier rather than later-earlier. For example, compare 1940 to 1950 with 1990 to 2000. Cumulative inflation rises 110% for 1940-1950 and 450% for 1990 to 2000. But, $1 in 1940 will be worth 57¢ in 1950 (145%/255%), and $1 in 1990 will be worth 77¢ in 2000 (1365%/1775%). There are two ways to fix this: you could plot yearly inflation, but it's difficult to see long-term trends; or you can plot cumulative inflation on a logarithmic scale, but people aren't as used to logarithmic scales. yearly: https://en.wikipedia.org/wiki/File:US_Historical_Inflation_Ancient.svg https://en.wikipedia.org/wiki/File:US_Historical_Inflation_A... cumulative: https://uploads-cdn.omnicalculator.com/images/cpi-inflation/log-cpi.png https://uploads-cdn.omnicalculator.com/images/cpi-inflation/...
  - maerF0x0 6y ago
    understood, but the issue with assuming logarithmic expansion is "normal / desirable" is that it hides the fact that exponential inflation is the same as negative compounding returns on cash. With compounding inflation eventually it will take all of the money currently(today) in circulation just to buy a single loaf of bread.