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We’re basing the prediction of inflation on the notion that there’s more money “sloshing around out there”. I’m not convinced that more of it is sloshing. Wage

We’re basing the prediction of inflation on the notion that there’s more money “sloshing around out there”. I’m not convinced that more of it is sloshing. Wage growth has been largely absent for many people in the 12 years since the crisis, and as a result those people haven’t had more money to spend. The money clearly exists of course given that it’s been printed, but there’s a good chance it just isn’t finding it’s way into people’s pockets.

avianlyric 6y ago
Just because many people haven’t seen wage growth, doesn’t mean money isn’t sloshing around out there. Remember 20% of Americans own ~80% of all the wealth in the US. So if your looking for sloshing money you should look at what they’re doing, not what “most” people are doing. I think it’s fair to say that those a big chunk of those 20% probably have more money than they know what to do with, which probably means money is sloshing somewhere.
- flatline 6y ago
  20% is 1 of 5, hardly easy to miss. A lot of that money goes toward expenses in HCOL areas, where more people live, and the salaries are higher. A lot goes into consumer goods. People buy stuff, a lot of it. A lot of the rest is in the stock market in retirement accounts because nobody has pensions anymore. Americans don’t save a lot of money, and are not particularly fiscally responsible, that money is not hiding in slosh it’s being spent. Now start talking the top 1-2% and the story changes dramatically. A few of those people are wage slaves who spend a lot, but the majority are not, and really do live different lives.
  - Swizec 6y ago
    > Now start talking the top 1-2% and the story changes dramatically. Probably the top 5-6%. The numbers are lower but the behavior is similar. You’d be surprised how soon you hit the “More money than I know what to do with” line. Make 150 to 200k/year (not uncommon on HN) and what are you gonna do, buy a new car every year? Rent is paid, food is paid, clothes are good, 1 or 2 vacations per year, go out to eat whenever you want, one-off nice purchases aren’t a big concern ... it’s cushy. Not enough to buy real estate cash or anything like that, but def more slosh than you need.
    - flatline 6y ago
      My ex...liked to spend money. We made 300k combined in 2019 in a MCOL area, and I still have no idea where it all went. Mortgage, nice cars, eating out, a couple vacations - all gone! I’ve heard of people making 7 figures and can barely afford their lifestyle. Rule of thumb, people spend what they make. Some spend on saving/investing. I think that’s what sets apart the top percentage with a few exceptions, they make money work for them, not the other way around.
      - eloff 6y ago
        Most people just ramp up their lifestyle when they make more money. I've been petty conservative about doing that and living below my means since the start of my career. In the beginning I was saving 80% of my income. That dropped over time as I got married and had to accept ramping up my expenses, but I've saved enough over the years to be about halfway to financial independence by my mid thirties. I strongly recommend intensely saving as the only fiscally responsible way to live. I don't think it's affected my happiness negatively at all. I couldn't buy everything I wanted, but having that safety net was well worth it in exchange.
        disgruntledphd2 6y ago
        The trouble with this approach (although rational for an individual) is that if everyone who can does this, we end up with even more of a global savings glut than we already have, and interest rates go even more negative. As an aside, it's very odd to me that we have so much money sloshing around, and yet we're not spending it on infrastructure that would help us get off the fossil fuel treadmill and towards a more sustainable system.
        ericmay 6y ago
        Eh it’s not really odd. You are mistakenly believing that your goals (and mine here are the same) align with others and that it is an obvious course of action. For most Americans “drive my SUV down the 10 lane highway” is normal and ideal. They don’t give a shit about anything else. Sorry to say.
  - bobthepanda 6y ago
    Personally, my issue with the term "sloshing" is that it implies the money is floating around in liquid form ready to tick up inflation. It's not. There are a lot of places where this money has gone that are illiquid though. One would be American property; for most households a good chunk of their wealth is their house. In high-COL, high-property areas the main thing preventing a fall in house price is the lack of supply. Another part of it is China and other countries with large amounts of USD. China has tight capital controls though so none of that money is about to leave suddenly any time soon. but if a big chunk left at once it would probably make the 1998 Asian capital flight look like child's play. Some countries like Saudi Arabia are trying to figure out how to spend it; Vision Fund literally created (and destroyed) very big companies in very short order. When Japan had this problem the hangover lasted for a decade, and depending on your view may even be continuing to this day. Of course, the market can stay irrational longer than you can stay solvent, so these things are mostly theoretical until they're not. But no use holding your breath trying to wait for it.
    - headmelted 6y ago
      Exactly all of this. A lot of people (myself included) are just kind of nervously waiting for the other shoe to drop. That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone. The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. If in the future we start exiting our homes and going on vacations again the velocity could shoot up sharply - at which point a lot more money is moving into the system all at once. By then, there’s a good chance the horse has bolted for capping inflation.
      - throw0101a 6y ago
        > That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. You're not wrong, but it's a problem I'd "like" to have: too much economic activity. I'd rather worry about inflation and things running hot, with low unemployment (or high participation rate), than the opposite. Remember late 2019, when the US unemployment rate was 3.5%? * https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE > The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. When the central bank's rate is zero, they're flooding the market with liquidity, and bond yields are zero (or negative), then that's a signal for governments to open the taps: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex... When rates are non-zero and bond yields are high(er), then it is dangerous to print money, and government spending could 'crowd out' private economic activity.
- mandelbrotwurst 6y ago
  Is the distribution of the money supply similar to the distribution of all types of wealth?
- Spooky23 6y ago
  It’s pretty easy to find the 20%. You look at the neighborhoods with new construction in suburban areas for 35-45 year olds with kids. Or the urban neighborhoods with new property and 25-40 DINKs or same sex couples. That’s the cohort that’s prospering. Problem is the wealth is mostly house. Once you hit the groove, house value keeps you going. Those folks get derailed by layoffs at the wrong time or divorce.
deleted 6y ago
[deleted]
mr_toad 6y ago
It’s all going into the housing market. Try getting a loan for anything else and you need a pound of flesh as collateral.
- usefulcat 6y ago
  Consider also that the value of the stock market is approximately 5x what it was 12 years ago: SPY on 2/23/09: 73.93 SPY on 1/22/21: 382.99
throw0101a 6y ago
> I’m not convinced that more of it is sloshing. A lot of the 'inflationistas' only look at the quantity/supply of money (M1/2), and don't bother examining what it is doing. The velocity of money is an important component: > This view can also be represented by the so-called “quantity theory of money,” which relates the general price level, the total goods and services produced in a given period, the total money supply and the speed (velocity) at which money circulates in the economy in facilitating transactions in the following equation: * https://www.stlouisfed.org/on-the-economy/2014/september/what-does-money-velocity-tell-us-about-low-inflation-in-the-us https://www.stlouisfed.org/on-the-economy/2014/september/wha... * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money As you said, if it's just sitting around, it's not going to effect CPI: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...
- ItsMonkk 6y ago
  Yep, people keep conflating growth of the money supply should lead to rising CPI inflation. But money isn't neutral, you need to pay attention to the Cantillion Effect. When money enters into the economy through the wealthy, they buy stocks and it gets trapped. You can track this trapped money by looking at the velocity. When you increase the money supply by dropping interest rates, its essentially given according to whom is already wealthy. So if interest rates drop, you should expect the money supply to rise, velocity to drop, and assets to rise, but CPI should barely be touched. Therefore the more wealth inequality you have, the less that money supply increases through interest rates affects the CPI. The CPI tracks how the common person spends their money. On the other hand if you were to institute a UBI, this would barely touch the money supply, but the CPI would sky-rocket. Disentangle the two concepts. I've built up an intuition that the money supply should match changes in productivity, and that if it doesn't it will eventually lead to problems. But it's also notable that the trend is extremely important. If you do match, everything should be fine and this can last forever. If the money supply rises faster than productivity, you see what we've seen these past 50 years since we've been off the gold standard, a huge surge in asset prices. And if productivity rises faster than the money supply, people flee assets and into money. This is called a Deflationary Spiral. But the opposite state is basically an Inflationary Spiral, with people unwilling to spend their assets. Dalio in his "Explaining the Economic Machine" video talks about a "Beautiful Deleveraging". My thought currently is that such a thing isn't possible. If you wait for the debt to get so bad that you have to do something, you can't match productivity anymore. Therefore the only thing you are left to do is grow the money supply less than productivity. And that changes everything. Suddenly the trend is to money. And once the money managers work that out, they all rush out of assets and into cash. This triggers a crash. So it's the trend that dominates, and there is no way to balance the deleveraging.
ChrisLomont 6y ago
>Wage growth has been largely absent for many people in the 12 years since the crisis, Median real household income [1] since the bottom of the crisis has risen over 20%. Median real personal income [2] is up over 15% over the same time (a younger demographic). If you dig more you find similar income gains across every quintile and breakdown. The vast majority of groups from what I can find have seen decent wage growth. Which group and how large is it that has largely absent wage growth? Citation? [1] https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N [2] https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N

avianlyric 6y ago

Just because many people haven’t seen wage growth, doesn’t mean money isn’t sloshing around out there. Remember 20% of Americans own ~80% of all the wealth in the US. So if your looking for sloshing money you should look at what they’re doing, not what “most” people are doing. I think it’s fair to say that those a big chunk of those 20% probably have more money than they know what to do with, which probably means money is sloshing somewhere.

flatline 6y ago
20% is 1 of 5, hardly easy to miss. A lot of that money goes toward expenses in HCOL areas, where more people live, and the salaries are higher. A lot goes into consumer goods. People buy stuff, a lot of it. A lot of the rest is in the stock market in retirement accounts because nobody has pensions anymore. Americans don’t save a lot of money, and are not particularly fiscally responsible, that money is not hiding in slosh it’s being spent. Now start talking the top 1-2% and the story changes dramatically. A few of those people are wage slaves who spend a lot, but the majority are not, and really do live different lives.
- Swizec 6y ago
  > Now start talking the top 1-2% and the story changes dramatically. Probably the top 5-6%. The numbers are lower but the behavior is similar. You’d be surprised how soon you hit the “More money than I know what to do with” line. Make 150 to 200k/year (not uncommon on HN) and what are you gonna do, buy a new car every year? Rent is paid, food is paid, clothes are good, 1 or 2 vacations per year, go out to eat whenever you want, one-off nice purchases aren’t a big concern ... it’s cushy. Not enough to buy real estate cash or anything like that, but def more slosh than you need.
  - flatline 6y ago
    My ex...liked to spend money. We made 300k combined in 2019 in a MCOL area, and I still have no idea where it all went. Mortgage, nice cars, eating out, a couple vacations - all gone! I’ve heard of people making 7 figures and can barely afford their lifestyle. Rule of thumb, people spend what they make. Some spend on saving/investing. I think that’s what sets apart the top percentage with a few exceptions, they make money work for them, not the other way around.
    - eloff 6y ago
      Most people just ramp up their lifestyle when they make more money. I've been petty conservative about doing that and living below my means since the start of my career. In the beginning I was saving 80% of my income. That dropped over time as I got married and had to accept ramping up my expenses, but I've saved enough over the years to be about halfway to financial independence by my mid thirties. I strongly recommend intensely saving as the only fiscally responsible way to live. I don't think it's affected my happiness negatively at all. I couldn't buy everything I wanted, but having that safety net was well worth it in exchange.
      - disgruntledphd2 6y ago
        The trouble with this approach (although rational for an individual) is that if everyone who can does this, we end up with even more of a global savings glut than we already have, and interest rates go even more negative. As an aside, it's very odd to me that we have so much money sloshing around, and yet we're not spending it on infrastructure that would help us get off the fossil fuel treadmill and towards a more sustainable system.
        ericmay 6y ago
        Eh it’s not really odd. You are mistakenly believing that your goals (and mine here are the same) align with others and that it is an obvious course of action. For most Americans “drive my SUV down the 10 lane highway” is normal and ideal. They don’t give a shit about anything else. Sorry to say.
- bobthepanda 6y ago
  Personally, my issue with the term "sloshing" is that it implies the money is floating around in liquid form ready to tick up inflation. It's not. There are a lot of places where this money has gone that are illiquid though. One would be American property; for most households a good chunk of their wealth is their house. In high-COL, high-property areas the main thing preventing a fall in house price is the lack of supply. Another part of it is China and other countries with large amounts of USD. China has tight capital controls though so none of that money is about to leave suddenly any time soon. but if a big chunk left at once it would probably make the 1998 Asian capital flight look like child's play. Some countries like Saudi Arabia are trying to figure out how to spend it; Vision Fund literally created (and destroyed) very big companies in very short order. When Japan had this problem the hangover lasted for a decade, and depending on your view may even be continuing to this day. Of course, the market can stay irrational longer than you can stay solvent, so these things are mostly theoretical until they're not. But no use holding your breath trying to wait for it.
  - headmelted 6y ago
    Exactly all of this. A lot of people (myself included) are just kind of nervously waiting for the other shoe to drop. That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. This should be concerning to everyone. The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. If in the future we start exiting our homes and going on vacations again the velocity could shoot up sharply - at which point a lot more money is moving into the system all at once. By then, there’s a good chance the horse has bolted for capping inflation.
    - throw0101a 6y ago
      > That the money exists but isn’t moving through the economy means that we’re essentially building more pressure in a system that is already at 0% interest rates. You're not wrong, but it's a problem I'd "like" to have: too much economic activity. I'd rather worry about inflation and things running hot, with low unemployment (or high participation rate), than the opposite. Remember late 2019, when the US unemployment rate was 3.5%? * https://fred.stlouisfed.org/series/UNRATE https://fred.stlouisfed.org/series/UNRATE > The absence of velocity will encourage central banks to print more money in the belief that it will encourage spending when it clearly hasn’t done that. When the central bank's rate is zero, they're flooding the market with liquidity, and bond yields are zero (or negative), then that's a signal for governments to open the taps: > I would summarize the Keynesian view in terms of four points: > 1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn’t enough spending. Such episodes can happen for a variety of reasons; the question is how to respond. > 2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain. > 3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by “printing money”, using the central bank’s power of currency creation to push interest rates down. > 4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses. * https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-explained/ https://krugman.blogs.nytimes.com/2015/09/15/keynesianism-ex... When rates are non-zero and bond yields are high(er), then it is dangerous to print money, and government spending could 'crowd out' private economic activity.
mandelbrotwurst 6y ago
Is the distribution of the money supply similar to the distribution of all types of wealth?
Spooky23 6y ago
It’s pretty easy to find the 20%. You look at the neighborhoods with new construction in suburban areas for 35-45 year olds with kids. Or the urban neighborhoods with new property and 25-40 DINKs or same sex couples. That’s the cohort that’s prospering. Problem is the wealth is mostly house. Once you hit the groove, house value keeps you going. Those folks get derailed by layoffs at the wrong time or divorce.

deleted 6y ago

[deleted]

mr_toad 6y ago

It’s all going into the housing market. Try getting a loan for anything else and you need a pound of flesh as collateral.

usefulcat 6y ago
Consider also that the value of the stock market is approximately 5x what it was 12 years ago: SPY on 2/23/09: 73.93 SPY on 1/22/21: 382.99

throw0101a 6y ago

> I’m not convinced that more of it is sloshing. A lot of the 'inflationistas' only look at the quantity/supply of money (M1/2), and don't bother examining what it is doing. The velocity of money is an important component: > This view can also be represented by the so-called “quantity theory of money,” which relates the general price level, the total goods and services produced in a given period, the total money supply and the speed (velocity) at which money circulates in the economy in facilitating transactions in the following equation: * https://www.stlouisfed.org/on-the-economy/2014/september/what-does-money-velocity-tell-us-about-low-inflation-in-the-us https://www.stlouisfed.org/on-the-economy/2014/september/wha... * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money As you said, if it's just sitting around, it's not going to effect CPI: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...

ItsMonkk 6y ago
Yep, people keep conflating growth of the money supply should lead to rising CPI inflation. But money isn't neutral, you need to pay attention to the Cantillion Effect. When money enters into the economy through the wealthy, they buy stocks and it gets trapped. You can track this trapped money by looking at the velocity. When you increase the money supply by dropping interest rates, its essentially given according to whom is already wealthy. So if interest rates drop, you should expect the money supply to rise, velocity to drop, and assets to rise, but CPI should barely be touched. Therefore the more wealth inequality you have, the less that money supply increases through interest rates affects the CPI. The CPI tracks how the common person spends their money. On the other hand if you were to institute a UBI, this would barely touch the money supply, but the CPI would sky-rocket. Disentangle the two concepts. I've built up an intuition that the money supply should match changes in productivity, and that if it doesn't it will eventually lead to problems. But it's also notable that the trend is extremely important. If you do match, everything should be fine and this can last forever. If the money supply rises faster than productivity, you see what we've seen these past 50 years since we've been off the gold standard, a huge surge in asset prices. And if productivity rises faster than the money supply, people flee assets and into money. This is called a Deflationary Spiral. But the opposite state is basically an Inflationary Spiral, with people unwilling to spend their assets. Dalio in his "Explaining the Economic Machine" video talks about a "Beautiful Deleveraging". My thought currently is that such a thing isn't possible. If you wait for the debt to get so bad that you have to do something, you can't match productivity anymore. Therefore the only thing you are left to do is grow the money supply less than productivity. And that changes everything. Suddenly the trend is to money. And once the money managers work that out, they all rush out of assets and into cash. This triggers a crash. So it's the trend that dominates, and there is no way to balance the deleveraging.

ChrisLomont 6y ago

>Wage growth has been largely absent for many people in the 12 years since the crisis, Median real household income [1] since the bottom of the crisis has risen over 20%. Median real personal income [2] is up over 15% over the same time (a younger demographic). If you dig more you find similar income gains across every quintile and breakdown. The vast majority of groups from what I can find have seen decent wage growth. Which group and how large is it that has largely absent wage growth? Citation? [1] https://fred.stlouisfed.org/series/MEHOINUSA672N https://fred.stlouisfed.org/series/MEHOINUSA672N [2] https://fred.stlouisfed.org/series/MEPAINUSA672N https://fred.stlouisfed.org/series/MEPAINUSA672N