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> that'll happen, but it'll be too late and the currency will have devalued 10x or more by then Im curious why you think inflation in the US is going to go fro

• nostrademons 6y ago
  Because in the absence of quick intervention (i.e. Volcker), it's a feedback loop. The basic money equation from macro-econ 101 is MV = PQ: money supply * velocity of money = average price level * quantity of goods sold. Under normal conditions, V is assumed to be constant, and so you either increase the money supply to keep up with greater economic output (M ∝ Q) or if you increase it too fast, you get inflation (M ∝ P). This is "ordinary" inflation: it's predictable, controllable by the central bank, and follows roughly linear equations. When people notice and then start to assume inflation, their behavior changes. If you know that your dollars are going to be worth 20% less next year, you have an incentive to get rid of your dollars as quickly as possible. You'll spend them as soon as you get them, because they'll quickly become worthless otherwise. This shows up as an increase in V, and it means that even holding the money supply constant, you still get inflation (V ∝ P). Moreover, because the cause of the increased price level was increased velocity of money, this feedback loop becomes self-reinforcing: the higher prices go, the quicker people want to get rid of their money and turn them into hard goods. At this point the central bank has lost control of the economy, and you have hyperinflation. Looking at data on a few dozen instances of hyperinflation, the threshold seems to be ~20% inflation annually. Below this, consumers write off inflation as annoying but don't change their behavior significantly. Above it, hyperinflation seems inevitable: there are very few instances of sustained inflation above 20%/year where the government has later managed to bring it down, and it usually ends with hyperinflation, a currency crisis, and the replacement of the currency (and usually government) with a new one. We've observed price increases > 20% in a number of industries this year: commodities (listed above), housing, food, and labor is getting up there. It hasn't filtered down into CPI numbers because those are averages, and inflation is flat or even negative among some demographics. But prices in fundamental industries tend to bubble up eventually, and if the Fed is focused on bringing back the stagnant parts of the economy while other areas are raising prices at 50-100%/year, inflation will cross that threshold throughout the economy before they can react. (Incidentally, historical incidents of hyperinflation usually happen in the transition between a command to a market economy, the two most common examples being when wartime gives way to peacetime, and when communism gives way to capitalism. The transition from a pandemic economy to a normal economy has many elements in common with that: there's a large shift in consumer demand while the economy has been optimizing for pandemic production for the last year.)
  • imtringued 6y ago
    Hyperinflation is caused by a collapse of production capacity(think of weimar republik or the collapse of coal and gas power plants in texas). Where do you see that happening? Obviously, there is a collapse in house construction rates and that's why you see house prices go up but that's a long term trend which started decades ago and not something caused by the Fed. >(Incidentally, historical incidents of hyperinflation usually happen in the transition between a command to a market economy, Most command economies simply didn't provide enough production capacity to meet the demand of all citizens. >the two most common examples being when wartime gives way to peacetime, and when communism gives way to capitalism. China had massive food shortages that were papered over by price controls. Just because someone fakes the numbers doesn't mean there was food for everyone. By introducing a free market you are merely revealing an existing collapse in production The Weimar Republik is a classic example of a collapse in production capacity. Germany lost the war, winners destroy factories and there is a lack of working age men because they died in the war. People don't have fond memories of there being food everywhere and some speculating capitalist driving up prices because of greed. No, there were many days where they got three slices of bread per day and a hand sized lump of coal to heat their home. >The transition from a pandemic economy to a normal economy has many elements in common with that: there's a large shift in consumer demand while the economy has been optimizing for pandemic production for the last year.) How exactly is that going to result in a food shortage?