3 ms·

The reason that stimulus spending doesn’t result in hyper-inflation is that the increase in the money supply from the debt creation is almost completely offset

by slv77 6y ago

The reason that stimulus spending doesn’t result in hyper-inflation is that the increase in the money supply from the debt creation is almost completely offset by a drop in monetary velocity. This is because most of the money injected due to a stimulus is quickly locked up due to structural issues where excess savings is quickly funneled to corporate profits, landlords and the ultra wealthy. These funds do not recirculate do the velocity of money drops and inflation doesn’t materialize. In fact the structural issues are so strong in places like Japan that deflation has will naturally result if the money supply isn’t increased with constant stimulus measures. This creates a company store economy where the underclass or government has to perpetually roll an increasing amount of debt.

im3w1l 6y ago
Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture? That they have a higher psychological need for feeling safe, which means sitting on more cash for a rainy day. Maybe the solution could be to run an unbalanced book. Money and debt are often created together, but if all actors of the economy really want to be cash positive, then maybe it calls for having more money than debt.
- throw0101a 6y ago
  > Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture? Could be a component, just like in Germany. When your central bank rate is zero: * https://tradingeconomics.com/euro-area/interest-rate https://tradingeconomics.com/euro-area/interest-rate And your borrowing costs are negative going out thirty years: * https://ca.investing.com/rates-bonds/germany-government-bonds https://ca.investing.com/rates-bonds/germany-government-bond... That's a pretty good indication that spending should increase. Demographics is often said to be a major component. The older a population is, the less spending there tends to be, which tends to impact economic growth, and has a pretty good correlation with (low) interest rates: * https://financialpost.com/opinion/the-natural-rate-of-interest https://financialpost.com/opinion/the-natural-rate-of-intere... * PDF: https://www.fraserinstitute.org/sites/default/files/why-are-interest-rates-so-low.pdf https://www.fraserinstitute.org/sites/default/files/why-are-...
- slv77 6y ago
  After WWII Japan’s exchange rate was fixed in a way that penalized consumption and subsidized production (for export). The result was the rapid rise of Japan as an industrial power in the 60s to the 80s. This is the same strategy that South Korea followed and China is following today. While this strategy in the short term dramatically increases capital investment in a country in the long term it seems to come with a demographic drag. Workers simply stop having children as they are the largest consumption driver. Long term this creates profound demographic changes that ultimately are culturally fatal.

by slv77 6y ago

im3w1l 6y ago

Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture? That they have a higher psychological need for feeling safe, which means sitting on more cash for a rainy day. Maybe the solution could be to run an unbalanced book. Money and debt are often created together, but if all actors of the economy really want to be cash positive, then maybe it calls for having more money than debt.

throw0101a 6y ago
> Kind of thinking aloud here, but could the Japanese situation be a consequence of their culture? Could be a component, just like in Germany. When your central bank rate is zero: * https://tradingeconomics.com/euro-area/interest-rate https://tradingeconomics.com/euro-area/interest-rate And your borrowing costs are negative going out thirty years: * https://ca.investing.com/rates-bonds/germany-government-bonds https://ca.investing.com/rates-bonds/germany-government-bond... That's a pretty good indication that spending should increase. Demographics is often said to be a major component. The older a population is, the less spending there tends to be, which tends to impact economic growth, and has a pretty good correlation with (low) interest rates: * https://financialpost.com/opinion/the-natural-rate-of-interest https://financialpost.com/opinion/the-natural-rate-of-intere... * PDF: https://www.fraserinstitute.org/sites/default/files/why-are-interest-rates-so-low.pdf https://www.fraserinstitute.org/sites/default/files/why-are-...
slv77 6y ago
After WWII Japan’s exchange rate was fixed in a way that penalized consumption and subsidized production (for export). The result was the rapid rise of Japan as an industrial power in the 60s to the 80s. This is the same strategy that South Korea followed and China is following today. While this strategy in the short term dramatically increases capital investment in a country in the long term it seems to come with a demographic drag. Workers simply stop having children as they are the largest consumption driver. Long term this creates profound demographic changes that ultimately are culturally fatal.