9 ms·

What do you mean? Inflation can be easily created - just create more dollars and credit them to people's bank accounts; you will soon see all kinds of prices go

What do you mean? Inflation can be easily created - just create more dollars and credit them to people's bank accounts; you will soon see all kinds of prices going up.

brandmeyer 6y ago
If this was true, then the monetary policies of the 2008 financial crash and the 2020 pandemic would both have created consumer price inflation. They haven't. We've seen some asset price inflation instead. In effect we did create a bunch of dollars and credited them to people's home equity and mutual funds... where it just sat there doing a whole bunch of nothing to consumer prices and wages.
- WillPostForFood 6y ago
  2008 policies wasn't that effective at putting money in people's pockets though. 2020 was more effective, but probably to early to tell if it is inflationary until lockdowns go away and people have more options to spend?
- agent008t 6y ago
  Take it to the extreme. What do you suppose would happen if every American household is credited with a billion dollars tomorrow?
  - toss1 6y ago
    Good thought experiment Not nearly as much inflation as you might think Most of everyone's newfound Billion would sit idle The inflation would come from the $200K/year everyone was spending, as in if you just gave everyone $200K*expectedRemainingLifeExpectancy, you'd get the same consumer inflation The extra billions would go into inflating assets. The key concept here is velocity of money - really interesting concept that surprisingly (at least at first for me) falls out of the formulas in Econ1 classes. It does relatively equate to the actual turnover of a piece of currency, as in how many times does that George Washington bill change hands in the year after you spend it? The key policy hack is to give help to people who will SPEND the money, not to banks and corps who will just park it in investments. That gets the multiplier effect you need out of crashes.
    - 0xfaded 6y ago
      Unless everyone moves to protect their new found billion by buying assets, in which case asset prices shoot the roof. This is not a problem, since most assets these days are unproductive, and like you say, no one would notice a difference in their day to day lives. The one place people would notice is housing. The fix is to see somehow make houses a toxic asset that cost exactly the value the provide in the form of a roof, and no more.
      - toss1 6y ago
        >> somehow make houses a toxic asset that cost exactly the value the provide in the form of a roof, and no more. Wow, that seems like a plan just bulging with answers to the question: "What Could Go Wrong?". Yikes Pretty clearly, rent control doesn't work either, it just creates two distorted markets. Homeless shelters don't work except for a few cold nights. Housing projects don't usually create good conditions either. With housing, the problem is like cars - there is no answer to "what is best?" because everyone needs/wants something different. It is not just 'transportation' or just 'a roof and walls'. I want a sportscar and a 3-bay garage to work on it; you want a pickup truck to haul bursh and supplies for the small cabin you want, and That Guy wants just a lot of Lyft credits and airline miles and a bedroom in a shared apartment because he's rarely there... It might be better to approach the demand side, just ensure that the regional minimum wages are enough that a full time job is over the poverty level, so people can afford to get housed. Edit: Moreover, and maybe more on point: Housing costs are MANY more things than a mere dry bed, hot shower, and place to cook. Housing is different for everyone, from individuals to families. And the cost includes everything -- the rawaccommodations, the quality, the environment & neighborhood, the convenience, the school district, the expectation that more housing and/or amenities and/or jobs will or won't be built or destroyed in the future, and more. And so the solution is to either ignore all of that, or destroy it? Moreover, how would you even do it?
        mikem170 6y ago
        Fiddling with the demand side causes problems. Better would be to lift the restrictions on supply, loosen the zoning laws. /Soapbox (not aimed at you): I've been reading zoning regulations in several localities. "Land of the free" my ass! More like control and conformity. It doesn't make sense to me why accessory dwelling units are not allowed in areas with high demand, or more duplexes, triplexes, and walkups. There's no safety issues involved. It's simply greedy property owners imposing on others because they are selfish and can get away with it.
  - dodobirdlord 6y ago
    The economy isn’t a linear response system. Thought experiments about extremes tell us little or nothing about non-extreme areas of the domain.
- tomp 6y ago
  > If this was true, then the monetary policies of the 2008 financial crash and the 2020 pandemic would both have created consumer price inflation. Not really, as this post explains: https://www.lynalden.com/money-printing/ https://www.lynalden.com/money-printing/ TL;DR: QE is mostly meant for banks, it was used to increase bank reserves (as banks were forced to do by the regulators), and didn't substantially increase the amount of money available in the economy. But this time (COVID-stimulus) might be different.
- dantheman 6y ago
  Have you seen the stock market, housing, and education -- there is a huge amount of inflation. Technology is keeping it in check for a lot of consumer goods but the dollar has lost a huge amount of its value.
  - PeterStuer 6y ago
    You're forgetting the war backed petrodollar
- vp8989 6y ago
  "where it just sat there doing a whole bunch of nothing to consumer prices and wages." Your primary residence should be thought of as a consumption item, whether you rent or own. If homes cost more to buy or rent since the QE (and they do) then we absolutely have had consumer price inflation.
  - supertrope 6y ago
    Too many people consider their house a store of value, a significant portion of their retirement assets, and/or a speculative asset that can be cash out refinanced.
- willcipriano 6y ago
  Thought experiment: You print a trillion dollar bill and throw it in a underground vault. You look around. "Hey no inflation" so you print some more. You keep this up for a while. Years pass and someone finds the vault and begins to spend the money inside, what happens? Right now much of that printed money is sitting in stocks and bonds, what happens when that is no longer a great place to be? What if those dollars decide they want to be used to buy say houses, instead of bonds?
  - 015a 6y ago
    Exactly this; the Fed has been printing like crazy, but the new money has relatively low velocity. Velocity is required for inflation, not just the money itself. Look at stock market prices of the past ten years; its the largest bull market in US history. The US Dollar isn't getting inflated by the printing; the stock market is.
  - frongpik 6y ago
    There's too few building permits being issued these days.
  - nradov 6y ago
    Those dollars have been used to buy houses. Residential real estate prices are up in most areas.
  - imtringued 6y ago
    You know, the idea that we have run out of profitable investments is absurd when you consider the massive housing shortage in major cities. Is the truth that we simply banned all those investments and companies like Uber are trying to work around that backwards legislation?
    - supertrope 6y ago
      Even with the benefit of a society built in the image of the automobile (toll free roads, free parking everywhere, highways, sprawl) Uber is not profitable.
- dv_dt 6y ago
  In 2008 and really also in 2020, the bulk of the created dollars wasn't given to people where it might create consumer price inflation, by a vast degree it was allocated at the top. There it is creating asset price inflation local to the place of major injection. It's a poor stimulus effect if one is trying to use it to move the economy.
boh 6y ago
Having things cost more isn't an issue if the economy grows at relatively the same rate as the nation's money supply. For the economy to be considered inflationary, the money supply has to outgrow economic growth. The OP is making the argument (at least how I interpret it) that economic growth has been stagnant, and that the money supply hasn't been effectively put to work in the real economy. The US inflation rates are more a reflection of central bank activity vs the actual economy (which is deflationary).
imtringued 6y ago
Yes, but you have to give the dollars to the right people.

What do you mean? Inflation can be easily created - just create more dollars and credit them to people's bank accounts; you will soon see all kinds of prices going up.

brandmeyer 6y ago

If this was true, then the monetary policies of the 2008 financial crash and the 2020 pandemic would both have created consumer price inflation. They haven't. We've seen some asset price inflation instead. In effect we did create a bunch of dollars and credited them to people's home equity and mutual funds... where it just sat there doing a whole bunch of nothing to consumer prices and wages.

WillPostForFood 6y ago
2008 policies wasn't that effective at putting money in people's pockets though. 2020 was more effective, but probably to early to tell if it is inflationary until lockdowns go away and people have more options to spend?
agent008t 6y ago
Take it to the extreme. What do you suppose would happen if every American household is credited with a billion dollars tomorrow?
- toss1 6y ago
  Good thought experiment Not nearly as much inflation as you might think Most of everyone's newfound Billion would sit idle The inflation would come from the $200K/year everyone was spending, as in if you just gave everyone $200K*expectedRemainingLifeExpectancy, you'd get the same consumer inflation The extra billions would go into inflating assets. The key concept here is velocity of money - really interesting concept that surprisingly (at least at first for me) falls out of the formulas in Econ1 classes. It does relatively equate to the actual turnover of a piece of currency, as in how many times does that George Washington bill change hands in the year after you spend it? The key policy hack is to give help to people who will SPEND the money, not to banks and corps who will just park it in investments. That gets the multiplier effect you need out of crashes.
  - 0xfaded 6y ago
    Unless everyone moves to protect their new found billion by buying assets, in which case asset prices shoot the roof. This is not a problem, since most assets these days are unproductive, and like you say, no one would notice a difference in their day to day lives. The one place people would notice is housing. The fix is to see somehow make houses a toxic asset that cost exactly the value the provide in the form of a roof, and no more.
    - toss1 6y ago
      >> somehow make houses a toxic asset that cost exactly the value the provide in the form of a roof, and no more. Wow, that seems like a plan just bulging with answers to the question: "What Could Go Wrong?". Yikes Pretty clearly, rent control doesn't work either, it just creates two distorted markets. Homeless shelters don't work except for a few cold nights. Housing projects don't usually create good conditions either. With housing, the problem is like cars - there is no answer to "what is best?" because everyone needs/wants something different. It is not just 'transportation' or just 'a roof and walls'. I want a sportscar and a 3-bay garage to work on it; you want a pickup truck to haul bursh and supplies for the small cabin you want, and That Guy wants just a lot of Lyft credits and airline miles and a bedroom in a shared apartment because he's rarely there... It might be better to approach the demand side, just ensure that the regional minimum wages are enough that a full time job is over the poverty level, so people can afford to get housed. Edit: Moreover, and maybe more on point: Housing costs are MANY more things than a mere dry bed, hot shower, and place to cook. Housing is different for everyone, from individuals to families. And the cost includes everything -- the rawaccommodations, the quality, the environment & neighborhood, the convenience, the school district, the expectation that more housing and/or amenities and/or jobs will or won't be built or destroyed in the future, and more. And so the solution is to either ignore all of that, or destroy it? Moreover, how would you even do it?
      - mikem170 6y ago
        Fiddling with the demand side causes problems. Better would be to lift the restrictions on supply, loosen the zoning laws. /Soapbox (not aimed at you): I've been reading zoning regulations in several localities. "Land of the free" my ass! More like control and conformity. It doesn't make sense to me why accessory dwelling units are not allowed in areas with high demand, or more duplexes, triplexes, and walkups. There's no safety issues involved. It's simply greedy property owners imposing on others because they are selfish and can get away with it.
- dodobirdlord 6y ago
  The economy isn’t a linear response system. Thought experiments about extremes tell us little or nothing about non-extreme areas of the domain.
tomp 6y ago
> If this was true, then the monetary policies of the 2008 financial crash and the 2020 pandemic would both have created consumer price inflation. Not really, as this post explains: https://www.lynalden.com/money-printing/ https://www.lynalden.com/money-printing/ TL;DR: QE is mostly meant for banks, it was used to increase bank reserves (as banks were forced to do by the regulators), and didn't substantially increase the amount of money available in the economy. But this time (COVID-stimulus) might be different.
dantheman 6y ago
Have you seen the stock market, housing, and education -- there is a huge amount of inflation. Technology is keeping it in check for a lot of consumer goods but the dollar has lost a huge amount of its value.
- PeterStuer 6y ago
  You're forgetting the war backed petrodollar
vp8989 6y ago
"where it just sat there doing a whole bunch of nothing to consumer prices and wages." Your primary residence should be thought of as a consumption item, whether you rent or own. If homes cost more to buy or rent since the QE (and they do) then we absolutely have had consumer price inflation.
- supertrope 6y ago
  Too many people consider their house a store of value, a significant portion of their retirement assets, and/or a speculative asset that can be cash out refinanced.
willcipriano 6y ago
Thought experiment: You print a trillion dollar bill and throw it in a underground vault. You look around. "Hey no inflation" so you print some more. You keep this up for a while. Years pass and someone finds the vault and begins to spend the money inside, what happens? Right now much of that printed money is sitting in stocks and bonds, what happens when that is no longer a great place to be? What if those dollars decide they want to be used to buy say houses, instead of bonds?
- 015a 6y ago
  Exactly this; the Fed has been printing like crazy, but the new money has relatively low velocity. Velocity is required for inflation, not just the money itself. Look at stock market prices of the past ten years; its the largest bull market in US history. The US Dollar isn't getting inflated by the printing; the stock market is.
- frongpik 6y ago
  There's too few building permits being issued these days.
- nradov 6y ago
  Those dollars have been used to buy houses. Residential real estate prices are up in most areas.
- imtringued 6y ago
  You know, the idea that we have run out of profitable investments is absurd when you consider the massive housing shortage in major cities. Is the truth that we simply banned all those investments and companies like Uber are trying to work around that backwards legislation?
  - supertrope 6y ago
    Even with the benefit of a society built in the image of the automobile (toll free roads, free parking everywhere, highways, sprawl) Uber is not profitable.
dv_dt 6y ago
In 2008 and really also in 2020, the bulk of the created dollars wasn't given to people where it might create consumer price inflation, by a vast degree it was allocated at the top. There it is creating asset price inflation local to the place of major injection. It's a poor stimulus effect if one is trying to use it to move the economy.

boh 6y ago

Having things cost more isn't an issue if the economy grows at relatively the same rate as the nation's money supply. For the economy to be considered inflationary, the money supply has to outgrow economic growth. The OP is making the argument (at least how I interpret it) that economic growth has been stagnant, and that the money supply hasn't been effectively put to work in the real economy. The US inflation rates are more a reflection of central bank activity vs the actual economy (which is deflationary).

imtringued 6y ago

Yes, but you have to give the dollars to the right people.