10 ms·

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency

by ahepp 6y ago

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

kangaroozach 6y ago
Printing money is debasing currency, no? We are stealing purchasing power from every holder of dollars.
- klodolph 6y ago
  This is incorrect. The value of money will change, and the amount of money will change, but they are not perfect mirrors of each other.
- ahepp 6y ago
  Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism. Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)
  - jbay808 6y ago
    If I run a bakery and you run, say, the Mint... Ten years ago, I bake a loaf of bread, and sell it for a dollar. Then I invent an amazing machine that can produce the same bread more cheaply. I'm about to drop my bread prices, but you mint some new coins and add them into circulation. So I keep the price at a dollar per loaf. I scrutinize my bread supply chain to the last detail. I optimize the flour, I optimize the temperature. I fire all the workers and replace them with machines. I'm saving every penny I can. Loaves get made faster! Loaves get made cheaper! Bread is flying off the conveyor belt! You pull a lever and crank up the printing press. Dollars are being added in the millions, in the billions! The price of bread stays at a dollar; has the currency been debased? I honestly don't know.
    - jbay808 6y ago
      (Addendum: If your salary was a dollar ten years ago, and a dollar today, you can afford just as much bread as you used to, but your chance of buying a majority share in my bakery, or outbidding me on a house in a good school district, has gone way down.)
    - chii 6y ago
      > The price of bread stays at a dollar; has the currency been debased? I honestly don't know. i say no it hasn't. Imagine a third person, who mows lawn for $1 an hour. He has not improved his lawn mowing during this time period which the baker has made improvements to bread making. So the work of mowing the lawn for $1 should stay the same regardless of what the bakers did - and therefore, the lawn mower being able to buy bread for $1 is not unreasonable.
    - imtringued 6y ago
      You are building pressure into the system. It's like letting a dam fill up. That water is not circulating (please bear with tiny mistakes in my analogies). It's staying somewhere and it is ready to be deployed at any given time. If there is a natural disaster or any other kind of pressure to empty the dam then there is a very real risk of a flood. The currency has not been debased. However, the potential for it to debase in the future has grown massively. One day politicians are going to discover sensible policy (maybe Biden will do it, I don't know) and somehow magically increase inflation. That same day will open all floodgates on all dams. The correct strategy would be to increase taxes and interest rates and cut stimulus spending once that has happened and we'll be fine. Crying hyperinflation is not the right strategy.
  - vbtemp 6y ago
    Have you had to pay for medical care, child care, housing, care for elderly or disabled loved ones and/or education?? How on earth can you say that inflation has remained low??? All of those have become insanely expensive and people die all the time because they can't afford them! Just because cheap, crappy electronics and egg McMuffins don't appreciate in cost and stay crappy and cheap does NOT mean inflation is low. Anyone can play stupid games where you say inflation is low if you only pick certain goods made by robots or poor people overseas.
    - freeone3000 6y ago
      But none of those things have risen at the same rate, or even comparable rates. The increase in childcare has kept up with the average wage increase, but education is hundreds of times more! I don't even know how you'd price medical care, as everyone is effectively charged differently, even for the same service. Housing doesn't track either of those -- purchasing follows literally nothing, renting follows local wage. So what's going on here? (As a note, local wages have risen less than the government's calculation of inflation, which is primarily food and secondarily consumer goods)
      - throw0101a 6y ago
        > […] but education is hundreds of times more! You're not wrong, but I ran into an interesting observation: yes the prices for many high-end institutions have gone up, but those are 'list' prices. How many people pay list? How many people get bursaries and offsets from endowments? I'd be interested in seeing those stats.
  - imtringued 6y ago
    From what I can tell MMT is about carefully choosing the right place and strategy to print money. By recognizing what the real limits to borrowing are you also gain an understanding of what to spend the borrowed money on.
- throw0101a 6y ago
  No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity: The equation for inflation is: M x V = P x Q Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
  - freeone3000 6y ago
    What makes V increase? A new big investment opportunity? A savings tax? What starts money circulating?
    - throw0101a 6y ago
      Economic activity: > The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3] * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money Good video by a CFA trainer: * https://www.youtube.com/watch?v=l0mh7cCjwDU https://www.youtube.com/watch?v=l0mh7cCjwDU The first 10 minutes (maybe 20) probably has the most pertinent information to this discussion, but I've found the entire video to be interesting on inflation.
      - Gatsky 6y ago
        But what if you had an artificial cessation of economic activity which then suddenly resumed in the midst of a massive fiscal stimulus, unprecedented supply chain disruption and geopolitical manipulation of free trade?
        throw0101a 6y ago
        We're about to find out. The traditional thing to do is raise interest rates when things start getting hot. But having "too much" economic activity is in some ways better than not enough with people being unemployed and such.
waterhouse 6y ago
Ceteris paribus, creating more money reduces its value. If, over some time period, you double the money supply, yet the monetary price of a basket of consumer goods stays the same, then that means the monetary price would have been cut in half if you hadn't printed anything. So, just because other effects are strong enough to counteract your debasing doesn't mean you're not debasing the currency.
- eli_gottlieb 6y ago
  >Ceteris paribus, creating more money reduces its value. Ceteris is not paribus at all. If we're complaining about potential inflation rather than worrying about the raging pandemic and a full-blown depression like unto the Great Depression, we're in comparatively good shape!
- vkou 6y ago
  > Ceteris paribus, creating more money reduces its value. That is correct. What you're missing is that a large fraction of created money used to come from banks lending money. During a recession, or a pandemic, that lending tightens, which slows the rate at which money is created, and speeds the rate at which money starts getting destroyed. It's why the fed prints money during recessions, and destroys money during economic booms.
anewaccount2021 6y ago
We printed more money last year than we printed from 1776-2000. The dollar has already lost 99% of its purchasing power from its inception (that isn't agitprop, its a verifiable fact when measured against fixed commodities over time). How much house can a dollar buy versus twenty years ago? If the dollar was indeed rising in value over time, a dollar would buy more house today than in 2000. Before we left the gold standard, a dollar indeed held its purchasing power over decades. The price of gold is effectively an inverse measure of the value of a dollar given that the amount of gold is basically fixed.
- karpierz 6y ago
  How many iPhones can a dollar buy 20 years ago?
  - jbay808 6y ago
    How many Dodo birds can a dollar buy today? A better question might be, how much would you have volunteered to pay twenty years ago for the functionality an iPhone gets you today? In 2001, if today's iPhone were being sold, what price would have made it a successful product among average consumers? (Not, say, the military or super-wealthy). I think... Less than $10,000 for certain, less than $5,000 most likely. In that sense the price has certainly come down, but semiconductors and electronics has obviously gone through rapid technological scaling and deflation is expected in that sector.
pishpash 6y ago
Interest rates have yet to respond because they are being held down actively by central banks. Those are not market forces.
- NeutronStar 6y ago
  > Those are not market forces. Neither is printing money.
- ahepp 6y ago
  I actually mis-spoke. I meant to say "inflation has yet to respond". Interest rates is the manipulated variable, inflation is the observed. Appreciate you catching that.
- imtringued 6y ago
  I agree. The interest rates should be mildly positive and go up over time. Inflation is almost on track in the US. The only missing piece is a public declaration that there will be no more easy money in the future. That will drive up inflation to slightly above 2% because everyone will be scrambling to do productive work.

by ahepp 6y ago

Yet interest rates have yet to respond (unless I have missed some major news). You are correct to point out the risk, but I don't think we can call it currency debasement yet.

kangaroozach 6y ago

Printing money is debasing currency, no? We are stealing purchasing power from every holder of dollars.

klodolph 6y ago
This is incorrect. The value of money will change, and the amount of money will change, but they are not perfect mirrors of each other.
ahepp 6y ago
Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism. Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)
- jbay808 6y ago
  If I run a bakery and you run, say, the Mint... Ten years ago, I bake a loaf of bread, and sell it for a dollar. Then I invent an amazing machine that can produce the same bread more cheaply. I'm about to drop my bread prices, but you mint some new coins and add them into circulation. So I keep the price at a dollar per loaf. I scrutinize my bread supply chain to the last detail. I optimize the flour, I optimize the temperature. I fire all the workers and replace them with machines. I'm saving every penny I can. Loaves get made faster! Loaves get made cheaper! Bread is flying off the conveyor belt! You pull a lever and crank up the printing press. Dollars are being added in the millions, in the billions! The price of bread stays at a dollar; has the currency been debased? I honestly don't know.
  - jbay808 6y ago
    (Addendum: If your salary was a dollar ten years ago, and a dollar today, you can afford just as much bread as you used to, but your chance of buying a majority share in my bakery, or outbidding me on a house in a good school district, has gone way down.)
  - chii 6y ago
    > The price of bread stays at a dollar; has the currency been debased? I honestly don't know. i say no it hasn't. Imagine a third person, who mows lawn for $1 an hour. He has not improved his lawn mowing during this time period which the baker has made improvements to bread making. So the work of mowing the lawn for $1 should stay the same regardless of what the bakers did - and therefore, the lawn mower being able to buy bread for $1 is not unreasonable.
  - imtringued 6y ago
    You are building pressure into the system. It's like letting a dam fill up. That water is not circulating (please bear with tiny mistakes in my analogies). It's staying somewhere and it is ready to be deployed at any given time. If there is a natural disaster or any other kind of pressure to empty the dam then there is a very real risk of a flood. The currency has not been debased. However, the potential for it to debase in the future has grown massively. One day politicians are going to discover sensible policy (maybe Biden will do it, I don't know) and somehow magically increase inflation. That same day will open all floodgates on all dams. The correct strategy would be to increase taxes and interest rates and cut stimulus spending once that has happened and we'll be fine. Crying hyperinflation is not the right strategy.
- vbtemp 6y ago
  Have you had to pay for medical care, child care, housing, care for elderly or disabled loved ones and/or education?? How on earth can you say that inflation has remained low??? All of those have become insanely expensive and people die all the time because they can't afford them! Just because cheap, crappy electronics and egg McMuffins don't appreciate in cost and stay crappy and cheap does NOT mean inflation is low. Anyone can play stupid games where you say inflation is low if you only pick certain goods made by robots or poor people overseas.
  - freeone3000 6y ago
    But none of those things have risen at the same rate, or even comparable rates. The increase in childcare has kept up with the average wage increase, but education is hundreds of times more! I don't even know how you'd price medical care, as everyone is effectively charged differently, even for the same service. Housing doesn't track either of those -- purchasing follows literally nothing, renting follows local wage. So what's going on here? (As a note, local wages have risen less than the government's calculation of inflation, which is primarily food and secondarily consumer goods)
    - throw0101a 6y ago
      > […] but education is hundreds of times more! You're not wrong, but I ran into an interesting observation: yes the prices for many high-end institutions have gone up, but those are 'list' prices. How many people pay list? How many people get bursaries and offsets from endowments? I'd be interested in seeing those stats.
- imtringued 6y ago
  From what I can tell MMT is about carefully choosing the right place and strategy to print money. By recognizing what the real limits to borrowing are you also gain an understanding of what to spend the borrowed money on.
throw0101a 6y ago
No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity: The equation for inflation is: M x V = P x Q Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- freeone3000 6y ago
  What makes V increase? A new big investment opportunity? A savings tax? What starts money circulating?
  - throw0101a 6y ago
    Economic activity: > The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3] * https://en.wikipedia.org/wiki/Velocity_of_money https://en.wikipedia.org/wiki/Velocity_of_money Good video by a CFA trainer: * https://www.youtube.com/watch?v=l0mh7cCjwDU https://www.youtube.com/watch?v=l0mh7cCjwDU The first 10 minutes (maybe 20) probably has the most pertinent information to this discussion, but I've found the entire video to be interesting on inflation.
    - Gatsky 6y ago
      But what if you had an artificial cessation of economic activity which then suddenly resumed in the midst of a massive fiscal stimulus, unprecedented supply chain disruption and geopolitical manipulation of free trade?
      - throw0101a 6y ago
        We're about to find out. The traditional thing to do is raise interest rates when things start getting hot. But having "too much" economic activity is in some ways better than not enough with people being unemployed and such.

waterhouse 6y ago

Ceteris paribus, creating more money reduces its value. If, over some time period, you double the money supply, yet the monetary price of a basket of consumer goods stays the same, then that means the monetary price would have been cut in half if you hadn't printed anything. So, just because other effects are strong enough to counteract your debasing doesn't mean you're not debasing the currency.

eli_gottlieb 6y ago
>Ceteris paribus, creating more money reduces its value. Ceteris is not paribus at all. If we're complaining about potential inflation rather than worrying about the raging pandemic and a full-blown depression like unto the Great Depression, we're in comparatively good shape!
vkou 6y ago
> Ceteris paribus, creating more money reduces its value. That is correct. What you're missing is that a large fraction of created money used to come from banks lending money. During a recession, or a pandemic, that lending tightens, which slows the rate at which money is created, and speeds the rate at which money starts getting destroyed. It's why the fed prints money during recessions, and destroys money during economic booms.

anewaccount2021 6y ago

We printed more money last year than we printed from 1776-2000. The dollar has already lost 99% of its purchasing power from its inception (that isn't agitprop, its a verifiable fact when measured against fixed commodities over time). How much house can a dollar buy versus twenty years ago? If the dollar was indeed rising in value over time, a dollar would buy more house today than in 2000. Before we left the gold standard, a dollar indeed held its purchasing power over decades. The price of gold is effectively an inverse measure of the value of a dollar given that the amount of gold is basically fixed.

karpierz 6y ago
How many iPhones can a dollar buy 20 years ago?
- jbay808 6y ago
  How many Dodo birds can a dollar buy today? A better question might be, how much would you have volunteered to pay twenty years ago for the functionality an iPhone gets you today? In 2001, if today's iPhone were being sold, what price would have made it a successful product among average consumers? (Not, say, the military or super-wealthy). I think... Less than $10,000 for certain, less than $5,000 most likely. In that sense the price has certainly come down, but semiconductors and electronics has obviously gone through rapid technological scaling and deflation is expected in that sector.

pishpash 6y ago

Interest rates have yet to respond because they are being held down actively by central banks. Those are not market forces.

NeutronStar 6y ago
> Those are not market forces. Neither is printing money.
ahepp 6y ago
I actually mis-spoke. I meant to say "inflation has yet to respond". Interest rates is the manipulated variable, inflation is the observed. Appreciate you catching that.
imtringued 6y ago
I agree. The interest rates should be mildly positive and go up over time. Inflation is almost on track in the US. The only missing piece is a public declaration that there will be no more easy money in the future. That will drive up inflation to slightly above 2% because everyone will be scrambling to do productive work.