3 ms·
Inflation can be created, basically, by two things, an excess of demand respect to what the economy can produce or problems of supply. Personally, I'm surprise
by RobertoG 6y ago
Inflation can be created, basically, by two things, an excess of demand respect to what the economy can produce or problems of supply.
Personally, I'm surprise at how robust are the global supply chains that have been able to keep things more or less normal despise what we have been through the last year.
The quantity of reserves created by the Central Banks are irrelevant if they are not spend in the economy. There are two effects to this "printing money": one is that the interest rate goes down facilitating borrowing from the private sector. The second is that governments have the ammunition to spend in stimulus. If the two things happen we could see inflation, but, notice that this the desired effect: compensate for a fall in the normal demand in the economy.
>" [..] central banks over the world have printed an astronomical amount of money. Even though they may state there is no significant inflation, I dont buy it [..]"
It seems to me that, in your model of the world, this should be leading to hyperinflation. If this is the case, my model of the world is wrong and I will make an effort to change it. I wish all the people has been predicting hyperinflation the last 30 years did the same if it doesn't happen. Somehow, I doubt it.
By now, the quantity theory of money based in the fractional reserve banking model should be discredited.
- Threeve303 6y agoThe examples given above seem like a textbook definition of inflation inside of a closed loop economic system. That is not what the U.S. has and it’s definitely not the situation if a country has a reserve currency. The Triffin dilemma may hold the answer in that as you supply your currency to the rest of the world, you are creating local deflationary effects while essentially exporting inflation. When the rest of the world begins using other systems than the reserve currency to conduct trade, the end result is that the inflation returns home as demand for your currency drops.
- RobertoG 6y agoThe grandparent says explicitly in the comment "all the central banks". We are not talking specifically about the USA. Anyway, the "reserve currency" excuse doesn't explain Japan in the last 20 years or the Euro in the last ten. The theory is just wrong. I don't know what more have to happen for people changing their minds. It's spending what can generate inflation, specifically, spending above what the economy can produce. If Biden tomorrow created a trillion dollar coin and keep it under their bed, there will not be inflation. If the Central Banks create reserves, the interest rate will fall to zero (but not more), and if, despise the low interest rates, nobody is borrowing, there will not be inflation.
- Threeve303 6y agoI was referring more to your comment that inflation can be caused by only two things. It's much more complicated than that. In fact, if you were able to predict such things with an accuracy matching the confidence of your position, you would be a very wealthy person indeed.
- neilwilson 6y agoInflation is caused by somebody asking for more money and somebody else paying it. That's a failure of competition keeping prices in check, and little else. The wealthy person you are looking for is Warren Mosler. He retired to the US Virgin Islands many years ago having made a fortune off the back of people who believed in the Quantity Theory of Money You can read his conclusions in the book "Soft Currency Economics".