4 ms·

If our currency is debased, where's the inflation?

by MiroF 6y ago

grey-area 6y ago
Seems to have turned up in insane asset prices, making the rich richer. Unfortunate that it's the wrong kind of inflation.
- MiroF 6y ago
  Or maybe conditions in the world have changed that make assets more valuable... If the currency was "debased" it would show up everywhere.
  - Rury 6y ago
    >If the currency was "debased" it would show up everywhere Not necessarily. Prices are dictated by supply/demand - and different goods have different amounts of supply/demand. As so, it's theoretically possible to continually print money into existence, and use it all to buy Tesla stock, until there are no more shares of Tesla stock left for sale. Under such a hypothetical scenario, INFLATION would only happen in Tesla's Stock price - as all this extra money spurred DEMAND for Tesla stock and wasn't accompanied by an increase in SUPPLY of Tesla stock. However, the price of shirts would remain the same - as none of this money changed the SUPPLY/DEMAND of shirts. As so - inflation doesn't necessarily have to happen everywhere. Note, this is mainly why CPI is a bad indicator of inflation - as it doesn't track the inflation that is happening around us - inflation in assets like stocks / real estate. This also explains why prices of real estate in certain cities are way pricier than others, and also why the stock market can be way overvalued when the economy is doing bad.
lumost 6y ago
Asset prices have grown faster than incomes in the U.S for the last several decades; this trend appears to be accelerating. In my neighborhood of Boston, YoY condo prices are growing at 8%. On paper I've been paid to live in my condo for the last few years. <Speculation> IMHO the method that the Fed uses to inject currency biases towards asset classes by controlling borrowing costs. In an industrial economy, this would typically result in direct investment into new equipment, and an agricultural economy the tilling of new land. However, growth in services or tech is rarely debt-financed as there are relatively low CapEx costs and high opex loads. Given the relative maturity of the industrial and agricultural sectors, there aren't many places in the economy that can productively absorb debt-backed financing. What we end up with is relatively static asset classes absorbing massive debt-based financing and inflating overall asset prices. Unfortunately, several of these asset prices bleed over as costs to workers who need a home, a rent for their place of business, or an education to acquire skills. While in a healthy economy, everyone's cost is someone else's income. As long as the Central bank is applying a QE strategy, your cost is a mortgage or a rent backed by a mortgage; the "income" side of the equation is just the central bank. Asset holders benefit from holding assets that magically increase in price. </Speculation>
- dannyw 6y ago
  Inflating asset prices is just UBI for the wealthy.

If our currency is debased, where's the inflation?

by MiroF 6y ago

If our currency is debased, where's the inflation?

Seems to have turned up in insane asset prices, making the rich richer. Unfortunate that it's the wrong kind of inflation.

MiroF 6y ago
Or maybe conditions in the world have changed that make assets more valuable... If the currency was "debased" it would show up everywhere.
- Rury 6y ago
  >If the currency was "debased" it would show up everywhere Not necessarily. Prices are dictated by supply/demand - and different goods have different amounts of supply/demand. As so, it's theoretically possible to continually print money into existence, and use it all to buy Tesla stock, until there are no more shares of Tesla stock left for sale. Under such a hypothetical scenario, INFLATION would only happen in Tesla's Stock price - as all this extra money spurred DEMAND for Tesla stock and wasn't accompanied by an increase in SUPPLY of Tesla stock. However, the price of shirts would remain the same - as none of this money changed the SUPPLY/DEMAND of shirts. As so - inflation doesn't necessarily have to happen everywhere. Note, this is mainly why CPI is a bad indicator of inflation - as it doesn't track the inflation that is happening around us - inflation in assets like stocks / real estate. This also explains why prices of real estate in certain cities are way pricier than others, and also why the stock market can be way overvalued when the economy is doing bad.

lumost 6y ago

Asset prices have grown faster than incomes in the U.S for the last several decades; this trend appears to be accelerating. In my neighborhood of Boston, YoY condo prices are growing at 8%. On paper I've been paid to live in my condo for the last few years. <Speculation> IMHO the method that the Fed uses to inject currency biases towards asset classes by controlling borrowing costs. In an industrial economy, this would typically result in direct investment into new equipment, and an agricultural economy the tilling of new land. However, growth in services or tech is rarely debt-financed as there are relatively low CapEx costs and high opex loads. Given the relative maturity of the industrial and agricultural sectors, there aren't many places in the economy that can productively absorb debt-backed financing. What we end up with is relatively static asset classes absorbing massive debt-based financing and inflating overall asset prices. Unfortunately, several of these asset prices bleed over as costs to workers who need a home, a rent for their place of business, or an education to acquire skills. While in a healthy economy, everyone's cost is someone else's income. As long as the Central bank is applying a QE strategy, your cost is a mortgage or a rent backed by a mortgage; the "income" side of the equation is just the central bank. Asset holders benefit from holding assets that magically increase in price. </Speculation>

dannyw 6y ago
Inflating asset prices is just UBI for the wealthy.