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A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. When you c

A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. When you create new money prices don't rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable. The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency. If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable. Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.

goatinaboat 6y ago
At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.
- sheeshkebab 6y ago
  Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation, where increasing m2 (giving money directly to banks) seems to not have the same effect, based on decades of similar policies in Japan. Some prices will still (real estate) increase but staples do not. Or so I read in various places... Not sure if I personally subscribe to the above, but as long as we don’t experience collapse of currency/dollar and ensuing hyperinflation, we should be ok.
  - goatinaboat 6y ago
    Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation Well, sure, if you give a bunch of people some money and they all decide to spend it on re-doing their homes at the same time then the prices charged by local tradesmen will probably go up, then correct themselves again when the peak demand passes. I'd argue that's not a bad thing in the sense that real work is being done, and the money is circulating in real goods and services - because if value is actually being created then there is something backing the new money.
  - nojs 6y ago
    The only difference is that we call the former “inflation” and the latter “my stocks are doing well”. It’s all inflation in the end.
    - imtringued 6y ago
      Well, the CPI is exclusively about consumer prices. It's not about savings vehicles like stocks. But you are right. Wealth inequality is the cost of this form of monetary policy.
  - throw0101a 6y ago
    Inflation is dependent on money supply and money velocity. And velocity has been going down for a decade or two (in the US) and recently dropped off a cliff: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V See also: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...
User23 6y ago
> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? Ah yes the classic some’s good more’s better fallacy. Some salt is good on food, but keep adding more and it’s inedible. Just because there isn’t a discrete point where you can say it’s too much (that one grain made it too salty) doesn’t mean that there’s no such thing as too much. There are many other such cases, for example drug titration springs to mind.
- yxhuvud 6y ago
  Like with salt, there is definitely such a thing as too little of it though.
  - dnautics 6y ago
    How do you know that it's not like alcohol, where there all levels of consumption increase cancer risk?
    - User23 6y ago
      There's a similar controversy about radiation hormesis[1]. Personally my suspicion is that low doses are at least harmless if not therapeutic, because of the evolutionary benefits of the stress response[2]. However I do freely admit that it's possible that there is no therapeutic or even safe level of alcohol consumption. Similarly there may be no safe level of BPA exposure or any number of other stressors. [1] https://en.wikipedia.org/wiki/Radiation_hormesis https://en.wikipedia.org/wiki/Radiation_hormesis [2] https://en.wikipedia.org/wiki/Stress_(biology) https://en.wikipedia.org/wiki/Stress_(biology)
throw0101a 6y ago
> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. "How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)": * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... > The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? Because while it may be "OK to print money to pay for some things" it may not be OK for others. Making "everyone a millionaire" may be one of those times when it is not-OK. > Ultimately, printing money doesn't make anyone more productive or produce anything. Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more "productive" aspects of the economy: * https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation You've managed to fit quite a few straw men in one post.
- Robotbeat 6y ago
  Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.
  - Retric 6y ago
    It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.
    - eecc 6y ago
      But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.
chrisseaton 6y ago
> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? If one slice of cake tastes nice why wouldn't you enjoy eating a million slices of cake?
- j7ake 6y ago
  Because the size of the cake is fixed (analogy to the economy), and cutting that piece of cake into 10 slices or a million slices (analogy to increasing money supply) is not going to make a difference in the amount of cake there is for people.
  - harryh 6y ago
    The size of the cake is not constant. It grows over time. We are much richer now than we were in the past.
    - j7ake 6y ago
      Yeah that is true. Maybe I'll just say that the size of the cake (economy) grows but is fairly independent of how you slice the cake. So printing money doesn't increase the size of the economy.
      - harryh 6y ago
        Yes, but with a larger cake, it makes sense to have more slices. There are other reasons that inflation is good too, having to do with sticky wages and recessions. I'm not sure how to work that into the cake analogy though.
        j7ake 6y ago
        Yeah the reality is that the size of the cake changes, and slicing the cake in different ways can feed back to the growth of the cake. The perceived value of each slice relies a lot in the psychology of the public. It's the job of the central bank to make sure the slices are proportioned properly and the perceived value of each slice of cake is maintained.
foerbert 6y ago
> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable. This much is patently false, and probably even still false once you account for the accepted exaggeration in most appeals to the entirety of human history. There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver. And for the smaller, more recent portion of human history it is again probably largely untrue. I'd point to Debt: The First 5000 Years by David Graeber [0]. I'm sure many people have many opinions on the work, particularly around these parts, but I believe it at least does a good job of refuting this particular statement. [0]https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
- JohnJamesRambo 6y ago
  https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ I realize some of these graphs may be coincidences but it makes a compelling case for me in understanding our current wealth inequality. When you can create money backed by nothing, those closest to the printer will know best how to funnel it into their pockets.
  - api 6y ago
    When you have money backed by gold, those who have it benefit from its appreciation. Same is true of any deflationary currency. Wealth tends to flow uphill. Even in Communism the politically connected realized that wealth in that system was political capital and learned to position themselves to accumulate it. There is a reason the USSR collapsed and gave way to one of the most aristocratic states in the world. I don’t discount that site though. A lot more happened in or around the early 70s than just the collapse of Bretton Woods. I also don’t dismiss your comment as untrue. A fair inflationary currency would almost literally drop money from helicopters, not issue it to banks and governments. Still I imagine over time people would learn how to chase the helicopters. All systems will be gamed. No exceptions.
    - jkhdigital 6y ago
harryh 6y ago
> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Housings costs are included as part of the CPI. I'm not sure why you think otherwise. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
- incrudible 6y ago
  The GP is mistaken in assuming that rent is excluded from the CPI, however mortgages and other costs of home ownership are not considered consumption and are therefore excluded. This is the first item of the FAQ in the document that you linked. As a matter of fact, home ownership has become a highly speculative play for the ordinary wage earner and this is largely due to asset price inflation as a result of low-interest rate policies (worldwide, not just the US).
  - harryh 6y ago
    It's important to understand that while mortgages are not part of CPI, imputed rent is. So the consumption costs of living in a home one owns are taken into account.
    - zbzbBn 6y ago
      Imputed rent is meaningless since there’s no market discovery of the price. It’s like asking what the position and momentum of particle is simultaneously. You can’t know the price of something you don’t intend to rent unless you rent it, but you’re not renting it because you have no intention of renting. Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.
      - TheCoelacanth 6y ago
UncleMeat 6y ago
Even ignoring the incredibly false claim that we used gold/silver systems for most of human history, what is mining gold or silver if not "printing money"? Why is that considered acceptable by gold/silver proponents?
- JoBrad 6y ago
  The fact that gold and silver’s value is really just as arbitrarily assigned as the value of anything else is usually also overlooked.
  - chii 6y ago
    It's more that the amount of gold and silver cannot be manipulated as easily as paper/fiat money. Proponents of the gold standard, at heart, simply does not trust the authorities to set fiat policies. Sometimes, that's a correct assessment (ala, Venezuela). But in the US, and other developed countries, the central banks are fairly transparent, and at least tries to keep to their mandates.
    - JoBrad 6y ago
      I’ll grant the “as easily” part, but also counter with diamonds and China’s influence on the availability of rare earth elements.
    - imtringued 6y ago
      I personally don't believe that the problem is with the currency. The problems lie deeper. If fiat mismanagement is all it took to ruin an economy the USA would be suffering from hyperinflation by now. The truth is that these countries suffer from structural problems like food imports and petroleum exports that have dropped in value. If they were able to produce their necessities on their own they wouldn't be such problematic countries.
- TheOtherHobbes 6y ago
  It isn't. Gold/Silver are tangible stores of value. The value is imaginary but humans like to see and touch things and decorate their houses with shiny, and you can't paper your walls with government IOUs. Which is why we don't have a gold/silver economy, but we do have a property and land economy which has taken its place. These "investments" are based on a pile of almost-free fiat government IOUs. They have been converted into equally imaginary tangible value. You happen to be able to live in this store of value if you choose to, but at the high end hardly anyone does. It's a form of imaginative arbitrage for high end abstract markets, just like gold/silver, cowrie shells, and big round rocks are. (And BTC, in its own way.) Which is why at the high end economics is almost entirely faith-based. Fundamental use value is swamped almost instantly by an imaginary tradable value. And that is based entirely on faith in the stability and potential of the investment of your choice. The consumer market is different because prices - including rentals - have some relationship to scarcity and use value. But there's still a large element which is faith-driven and subject to an irrational boom/bust cycle as faith and hope waver - partly driven by central bank and government signalling about future outcomes.
simonh 6y ago
I think you’ve got some legitimate concerns there, but a lot of what you say doesn’t make much sense to me. Mortgages in their entirety aren’t part of CPI because mortgages are an investment with a return. They’re not a consumed good, you still have your house after you’ve paid it off, although some CPI calculations separate or rent or a rental component of mortgages. Of course it can be included in overall household spending, and changes in household mortgage payments are an important economic indicator but CPI is a specific thing with a specific meaning. Printing money by itself is not ok, it matters an awful lot what is done with it. Your argument is classic “if it’s ok to do this thing in specific circumstances to solve a particular problem, why not do it all the time for everything as much as possible”. Kind of weird argument, what can I say except, er, no. You’re quite right the cost for producing goods is falling and stable prices just mean our money is falling in value, it just doesn’t seem that way because these effects cancel out. The article is making the exact same argument. I think where were likely to agree is that if we’re going to rescue financial markets and corporations in hard times, why not also help ordinary people? If corporate welfare is ok, how come personal welfare isn’t? In some situations like an economic collapse or like Coronavirus deficit spending is essential, I don’t buy your skepticism of that, but I do think it needs to be more equitably deployed. By and large this is what actually happened this time around with wage support here in the UK and direct payments to households in the US. There are arguments to be had about the level and Lana e of this kind of spending, but I think they’re both needed to at least some degree. The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.
- baybal2 6y ago
  > The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness. This Enemies of America had zero resistance in co-opting both extremes on income scale of American society to turn against it. How many will be ready to fight when the time comes, will they fight for a broke country whose elites put them into misery to begin with?
lottin 6y ago
> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. They are not excluded, why do people keep parroting this?
hkt 6y ago
> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable Actually, in 1933 the US ended the use of the gold standard, following the UK (well, British Empire) which abandoned it in 1931. What came to an end in 1970 was the Bretton-Woods system where global currencies were pegged against the dollar. There was political control over the tax rate between 1946 and 1971, but the US was always able to unilaterally end the system. It did so to print money to fund the Vietnam war (sort of). The peg against the dollar meant america could have $100 of stuff from the UK or France by printing it, whereas we needed to pony up actual goods and services. It wasn't ideal. The system was also put under pressure by petrodollars. Western purchases of oil were a leak of the currency outside of the Bretton Woods countries. Since Bretton Woods was ultimately about governments being able to regulate their currencies, petrodollars weakened their grasp and created markets which threatened confidence in the system. The 1980s are where the real issues began, because most countries moved to fractional reserve banking rather than full reserve. The risks this produced in the system caused the 2008 crisis and led to the epic price inflation in housing etc we have seen in the last forty years. QE is an admission of defeat of the system introduced in the 80s, a hope that eventually we can go back to that time. No interest group has been strong enough to properly challenge this system, so it has yet to die. TL;DR it ain't about gold, it is about banks Edit: removed errant hyphens in "Bretton Woods".
- zabzonk 6y ago
  Nit pickery: Bretton Woods is not hyphenated; it's not some guy or guys name, it's a place in New Hampshire.
  - hkt 6y ago
    Hah, reasonable. I'll edit the post.
- jedharris 6y ago
  You say that in the 1980s "most countries moved to fractional reserve banking rather than full reserve". This is at best confusing: in most developed countries fractional reserve banking, regulated by central banks, goes back to the 1600s. The bank runs that have occurred throughout US history were only possible because essentially all our banks used fractional reserve banking. Also, the 2008 crisis was not due to or amplified by fractional reserve banking. The debt overhang was due to mortgage brokers and investment bankers (often without a retail bank license) selling securities -- effectively bonds secured by mortgages. As with any security, these had the explicit risk of becoming valueless, but this risk was hand-waved away by corrupt bond rating and other tricks. In fact, I'm pretty sure that no bank customers lost any deposits due to the 2008 crisis. Fractional reserve regulation worked exactly as intended.
incrudible 6y ago
> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? This is a variant of the "slippery slope" fallacy. Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation. Indeed, if you're in the market for a new home, you are paying a huge premium due to asset price inflation. However, this alternative is preferable to the situation where a liquidity crisis causes massive waves of bankruptcies, leaving you without a job to finance a home in the first place. Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.
- JProthero 6y ago
  It might also be worth noting that the current practice of quantitative easing incorporates a potential corrective mechanism for inflation that the traditional monetary expansion associated with historical episodes of hyperinflation did not. When central banks engage in quantitative easing, they purchase financial assets (typically government bonds, corporate debt, stocks etc.) that can in principle be sold back to the market at a later date. When an initial central bank purchase is made, the amount of money in circulation increases, but that increase can be reversed if the asset is sold. If the asset is sold at purchase price, there is no net change in the money supply; if it is sold at a loss there is an increase proportional to the loss, and if it is sold at a profit there is a decrease proportional to the profit. If money creation is instead used to, for instance, purchase consumable goods and services or pay wages (this is typically what happens when hyperinflation occurs), then the monetary expansion cannot be reversed in the same way — some other mechanism like tax rises would be needed. The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise. If banks and large corporate investors are the recipients of the money then, all else being equal, the prices of the things those organisations buy (principally investments like bonds and stocks) may rise. My understanding is that the experience with quantitative easing has been that it has caused a kind of price inflation, but primarily the prices affected have been those of the assets purchased by institutional investors (i.e. stock markets have risen, and bond yields and interest rates in general have been suppressed).
dkjaudyeqooe 6y ago
Printing money is fine since the Fed does it responsibly and uses it to achieve highly beneficial outcomes that aid the economy. And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury. The big question regarding hysterical claims about printing money, etc is: it's been happening for over a decade in multiple large advanced economies, why hasn't there been a disaster? This time is different, right?
- TheColorYellow 6y ago
  > why hasn't there been a disaster? Would the GFC count? Technically it wasn't a system shattering event (more like system shuddering), but boom and bust cycles certainly do seem to be growing.
  - chii 6y ago
    > Would the GFC count? how would you know that the GFC wouldn't have been worse had the Feds not printed back then?
    - ric2b 6y ago
      How do you know it still would've happened at all? This isn't a very productive conversation.
  - dkjaudyeqooe 6y ago
    Printing money (at the current scale) only started in response to the GFC.
  - jedharris 6y ago
    The GFC does not count. The GFC was caused by (1) bad underwriting policies (banks, AIG) that generated a huge debt overhang and (2) bad and poorly understood dependencies between banks that led to breakdown of the normal flows of assets between the banks. None of this was in any way dependent on or catalyzed by government money creation. The same dynamic cause the beginning of the great depression in 1929-30 due to excessive margin lending and then runs on banks. At that time the US was on the gold standard.
goseeastarwar 6y ago
Read “The Deficit Myth” by Stephanie Kelton, it’s a primer for MMT and covers essentially everything you’re talking about.
aseerdbnarng 6y ago
>> Ultimately, printing money doesn't make anyone more productive or produce anything. That statement is easily refuted by running it backwards: say reducing the amount of money in circulation via a huge once-off tax would thus have no impact on productivity which of course is silly. >> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? if drinking water is good, isnt drowning even better? Creation of money either by expansion of private debt or governments running a current account deficit have always had the effect of goosing GDP figures. The 'free money' the central bank is creating is merely nominally swapping out the value of private-debts for equivalent nominal government debts. The money-creation is the net difference between the two and not equivalent to a blanket cheque.
- Supermancho 6y ago
  > That statement is easily refuted by running it backwards Operations are not correct based on if they are reversible, nor are economic truths.
  - aseerdbnarng 6y ago
    Economic truths are remarkably robust to reality or logic.
__throwaway9 6y ago
> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. This is not totally true. The ability to print money enables redistribution without taxes. Bank loans and credit would not be nearly what is is today without all of the various methods that the government allows to borrow debt on debt. Those loans and credit help start companies and build houses. Cryptocurrencies won’t change how things need to work to avoid economic collapse, because those that understand how things work won’t change.
- chii 6y ago
  > Cryptocurrencies won’t change how things need to work to avoid economic collapse cryptos won't be able to be loaned as easily, since it's hard to create more cryptos on demand. So if there's a surge in demand for loans, the price of loans (aka, interest rate) will surge. Under a fiat system, the state/central banking authorities can simply make more credit available to satisfy those loans, and thus keeping interest rate stable in the face of huge demand.
  - ItsMonkk 6y ago
    Bitcoin is like gold. Tether is like USD. You don't trade the gold, you trade the dollars. They never printed more gold, they printed more dollars. Tether has printed $2B in the past week. Loans will be freely available.
matheusmoreira 6y ago
It's not just money printing either. Fractional reserve banking and money lending creates just as much inflation. People deposit real money into the bank. It keeps a fraction and loans out the rest. That loaned money eventually gets used to pay debts and it gets once again deposited into the bank. It keeps a fraction and loans out the rest... The exact same money gets loaned many times. The situation keeps looping and looping and with every iteration new money that doesn't actually exist is created by the bank. It will only start existing once real value is created or extracted from the planet, thereby making possible to repay the loan. Inflation is like a tax. When government and banking institutions inflate the currency, they systematically and worst of all invisibly rob people of their purchasing power.
- lorenzhs 6y ago
  That's a common misconception of how money creation works. If you want to learn more, this Bank of England article is a good introduction (pdf): https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
H8crilA 6y ago
> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Why is there so much misinformation about the CPI? Literally the biggest component of the US CPI (at 33%) is housing/shelter. See Table 1, column Relative Importance: https://www.bls.gov/news.release/archives/cpi_02102021.htm https://www.bls.gov/news.release/archives/cpi_02102021.htm At least get familiar with the definition before criticising anything.
- robocat 6y ago
  CPI does NOT include housing in the UK - and this article was written from a UK perspective. In the UK: “The CPI takes no account of housing costs”. “the CPIH does include [housing costs but] it uses an approach called ‘rental equivalence’ – not the mortgage payments but how much rent the householder would pay for an equivalent property”. “the RPI takes account of mortgage interest payments”. From: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-cpi/ https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c...
- throwawaycuriou 6y ago
  You are correct about its inclusion but how home asset inflation is measured is arguably faulty - more akin to an 'implied rent'. https://wolfstreet.com/2021/03/11/house-price-inflation-in-cpi-is-of-course-baloney-but-it-accounts-for-1-4-of-total-cpi/ https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...
- BurnAphterRead 6y ago
  https://wolfstreet.com/2021/03/11/house-price-inflation-in-cpi-is-of-course-baloney-but-it-accounts-for-1-4-of-total-cpi/ https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...
brippalcharrid 6y ago
Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). They become reliant on an unending stream of new efficiencies from innovation to hide its effects and globalisation, as you mentioned, is another handy way of staving off the political effects of the debasement of one's currency (although it's perhaps not as sustainable or reliable). When that fails, the redistributive mechanisms can always always be compounded with things like tax thresholds failing to rise with inflation, increases in tax rates, or new taxes (inheritance tax, for instance, is relatively recent), but taxation-by-inflation is definitely the unacknowledged elephant in the room. Overall, today's mixed economies have a lot more central control than the average person realises, and it's no wonder that Marx was such a fan of central banking.
- gruez 6y ago
  >Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). This doesn't really work because when inflation goes up, so do interest rates. Inflation was rampant in the 70s, but so were the interest rates, so there isn't any free lunch here.
  - brippalcharrid 6y ago
    To a certain (limited to moderate) extent it does work, though, and this directly influences how much governments borrow in the present day. If long-term expectations for rates of inflation were zero or negative then governments would tend to decrease their borrowing over time, all other things being equal.
- imtringued 6y ago
  Governments love inflation because they want their citizens to do productive work instead of swimming in literal gold like in a scrooge mcduck vault.
  - brippalcharrid 6y ago
tzs 6y ago
In one of my tax classes in law school, the professor recommended an optional book that when more into the theory behind tax. That book brought up an interesting idea to discuss concerning printing money. Suppose you have a society with a total economy of say 10^9 dollars, and you need to allocate 10% of the to the government for it to operate. The conventional approach is various taxes. Income taxes, sales taxes, VAT, property taxes, the list goes on and on. The question the book asked is why not just have the government print the money it needs? Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy. So why not replace taxes with printing money to fund the government? It has a couple of clear advantages. First, no more need for everyone to file tax returns, employers to withhold tax payments, and all that jazz, and no need for the government to have a giant tax collecting apparatus or a giant tax code. Second, it makes tax evasion a lot harder. There are some downsides too. First, it would take away a large part of the usefulness of taxation as a way to change behavior. Deductions, credits, progressive rate structure--all gone. Deductions and credits could be replaced with government subsidies, but if you aren't careful you will end up recreating much of the complexity and bureaucracy that the old tax system had. Second, the inflation would be significant enough that it wouldn't take many years before even small things involve large numbers of dollars. This could probably be addressed by going to an almost all electronic money system so you could just periodically re-scale the whole thing. Third, inflation from printing money doesn't affect all assets equally, so this would encourage people to try to hold more of the wealth in assets that are less affected. People lean toward that anyway to deal with normal inflation, but with the current system if there is too much off that the government can use tax incentives to nudge things in the other direction. I remember this leading to some interesting discussion in class. Even if it is not practical, thinking about it is interesting. It can get you to really think about what money really is.
- gruez 6y ago
  There's a name for what you described: modern monetary theory. AFAIK there really isn't a consensus on whether it works or not.
  - 6y ago
deleted 6y ago
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esja 6y ago
It's even worse when you consider that central banks have been deliberately keeping wages down through decades of inflation targeting, while ignoring asset prices. And fiscal policy has done nothing to compensate for this. It's actually made things worse by imposing much higher taxes on earned income than on capital gains and other wealth. The perfect recipe for greater and greater inequality.
pmorici 6y ago
Assuming inflation causes wages to rise with prices inflation is beneficial to home owners with a mortgage because your housing costs are largely locked in while your wages rise.
cryptica 6y ago
It's kind of ridiculous to think that everyone is talking about money printing now. It's become such an obvious force in society that it cannot be ignored even by the layperson. And economists keep repeating "It's nothing, it's not a problem". They're so disconnected from reality, they won't realize there is a problem until they have a noose around their necks.
dcolkitt 6y ago
> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Housing definitely isn't excluded from CPI calculations. In fact housing is by far the biggest single component of the basket used to calculate inflation.[1] Moreover, there's really no evidence that long-term housing inflation is running faster than the broader economy. In 2019 the average American consumer spent 25% of their income on housing and 15% on shelter.[2] (Aside, "shelter" just includes the cost of rent, mortgage, property taxes and maitenance. Whereas "housing" includes utilities, appliances, furniture, housekeeping, laundry, etc.) In 1990, the average household spent a virtually identical 27% of income on housing and 15% on shelter.[3] If housing was inflating much faster than the rest of the economy, we'd expect to see increasing shares of income dedicated to housing. [1]https://www.bls.gov/cpi/tables/relative-importance/2020.htm https://www.bls.gov/cpi/tables/relative-importance/2020.htm [2]https://www.bls.gov/cex/2019/standard/multiyr.pdf https://www.bls.gov/cex/2019/standard/multiyr.pdf [3]https://www.bls.gov/cex/1990/Standard/income.pdf https://www.bls.gov/cex/1990/Standard/income.pdf
- deleted 6y ago
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ForHackernews 6y ago
> has to pay rent or make mortgage payments. One of these things is not like the others. Inflation benefits debtors at the expense of creditors. If I owe $500,000 on a fixed-rate mortgage, I'm thrilled to see inflation because it makes my debt cheaper to pay off.
- ric2b 6y ago
  Only if your wages rise accordingly. And don't forget that your taxes are going up as well unless tax brackets are adjusted for inflation.
loveistheanswer 6y ago
>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. This is a great point. The 3 main goals of the Fed[1] are: 1. Maximize employment 2. Stable prices 3. Moderate long-term interest rates Maximizing employment and keeping prices stable are antithetical to the realities of automation and ephemeralization. If we want to use our automative technology correctly, we should be minimizing employmemt, and decreasing prices. [1]https://en.m.wikipedia.org/wiki/Federal_Reserve_Act https://en.m.wikipedia.org/wiki/Federal_Reserve_Act
trthomps 6y ago
> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. I look it as raising taxes on the rich is too hard, and too easy to roll back. Just give the people who need it most the money, devaluing rich people's money. It's just a more efficient form of wealth transfer, and inflation isn't an issue as long as the deficit growth doesn't exceed long term growth. > At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. Also, did you forget about fractional reserve lending? Banks don't need the fed to create money, they do it on their own all the time.
- goatcode 6y ago
  > devaluing rich people's money Do the very rich, the top 1% * n, keep much of their wealth in liquid currency?
0x4d464d48 6y ago
Cantillon Effect getting into full swing.
tarsinge 6y ago
Also deflation could be an interesting tool to cool down the economy and so literally cool down climate. Less consumption is what is needed.
mancerayder 6y ago
>If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable. On top of that, there is talk, political rhetoric perhaps but still talk, of moving manufacturing back in house. The US wants to do it with chip manufacturing on nat security grounds. Trump and Bernie popularity was partially on anti NAFTA grounds. There's increasing hostility between China and US (witness the MS hack last week). Nothing stays the same, and we might be in for some surprises.
brightball 6y ago
And ultimately, nobody is ever comfortable answering the question of why it’s okay to move it to China? Somehow it’s okay for people in China to have super low wages? This is an issue I’ve always had with overseas production. It feels like this weird out-of-sight, out-of-mind ethical problem that usually comes from people opposed to bringing more manufacturing to the US (aka - “it’s not the jobs we want”). And it doesn’t make sense.
imtringued 6y ago
>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency. Deflation is what happens when there is an oversupply of products. Primarily caused by increased productivity through technological progress. You have to print more money just to maintain stable prices. If you didn't do this then companies would cut down on production capacity and simply produce less goods. This would cause a downward spiral of production and since we all know that fiat currencies are backed by the existence of an economy that lets you exchange the fiat currency for goods and services the fact that the economy is shrinking is a bad thing for holders of the currency and it's bad for workers who are receiving incomes in the future. Since we cut down on production we also need less workers and thus your future income will be lower. Your best bet would be to obtain wealth as soon as possible and simply sit on it. >Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. It could be worse. Since you print money every year that means future people will receive the money first. If you cease to print money then the ones who received it first are people in the past which could be centuries ago. Would you be willing to work for someone who inherited their wealth 200 years ago and did nothing with it except sit on it? By "sit" I mean scrooge mcduck vaults. No investments.
99_00 6y ago
>The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? No one is advocating for unlimited money printing. The fact that money printing is being used to inflate financial assets that benefits elites is a policy and political failure not a repudiation of monitary policy.
- tastyfreeze 6y ago
  Jerome Powell said the Fed has unlimited lending at its disposal. That is the engine that drives printing. Their intent is to print without limit until the economy is working the way they think it should.
  - 99_00 6y ago
    >Their intent is to print without limit until the economy is working the way they think it should. That's not in evidence. You are assuming their intentions without providing evidence to backup your claim. It's a fact that the Fed has unlimited lending powers. Jerome Powell is the chair of the Federal Reserve. Explaining his powers doesn't show he intends to use them. Maybe you have the quote or you miswrote?
beardyw 6y ago
I think rent and mortgage are different. We bought our first house in 1977. If you take a look at the graph that was just before inflation shot up to 15%. It was a hard time but wages did catch up and after a few years I had a mortgage which was proportionately much less than I started with. For those renting there was no plus side. I think the poorest suffer most, as usual.
IG_Semmelweiss 6y ago
I think you missed an important element. Inflation does not hit countries evenly as well. Right now, US is exporting inflation in droves. I've seen it firsthand abroad.

goatinaboat 6y ago

At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages. Indeed. If a government is dead set on printing money then it should give that money directly to people - many of whom will use it to pay down mortgages so the banks will get it anyway, but it will also do some good on the way.

sheeshkebab 6y ago
Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation, where increasing m2 (giving money directly to banks) seems to not have the same effect, based on decades of similar policies in Japan. Some prices will still (real estate) increase but staples do not. Or so I read in various places... Not sure if I personally subscribe to the above, but as long as we don’t experience collapse of currency/dollar and ensuing hyperinflation, we should be ok.
- goatinaboat 6y ago
  Economically speaking, increasing base money supply (giving money directly to people) does in fact increase inflation Well, sure, if you give a bunch of people some money and they all decide to spend it on re-doing their homes at the same time then the prices charged by local tradesmen will probably go up, then correct themselves again when the peak demand passes. I'd argue that's not a bad thing in the sense that real work is being done, and the money is circulating in real goods and services - because if value is actually being created then there is something backing the new money.
- nojs 6y ago
  The only difference is that we call the former “inflation” and the latter “my stocks are doing well”. It’s all inflation in the end.
  - imtringued 6y ago
    Well, the CPI is exclusively about consumer prices. It's not about savings vehicles like stocks. But you are right. Wealth inequality is the cost of this form of monetary policy.
- throw0101a 6y ago
  Inflation is dependent on money supply and money velocity. And velocity has been going down for a decade or two (in the US) and recently dropped off a cliff: * https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V See also: * https://en.wikipedia.org/wiki/Money_supply#Link_with_inflation https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...

User23 6y ago

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? Ah yes the classic some’s good more’s better fallacy. Some salt is good on food, but keep adding more and it’s inedible. Just because there isn’t a discrete point where you can say it’s too much (that one grain made it too salty) doesn’t mean that there’s no such thing as too much. There are many other such cases, for example drug titration springs to mind.

yxhuvud 6y ago
Like with salt, there is definitely such a thing as too little of it though.
- dnautics 6y ago
  How do you know that it's not like alcohol, where there all levels of consumption increase cancer risk?
  - User23 6y ago
    There's a similar controversy about radiation hormesis[1]. Personally my suspicion is that low doses are at least harmless if not therapeutic, because of the evolutionary benefits of the stress response[2]. However I do freely admit that it's possible that there is no therapeutic or even safe level of alcohol consumption. Similarly there may be no safe level of BPA exposure or any number of other stressors. [1] https://en.wikipedia.org/wiki/Radiation_hormesis https://en.wikipedia.org/wiki/Radiation_hormesis [2] https://en.wikipedia.org/wiki/Stress_(biology) https://en.wikipedia.org/wiki/Stress_(biology)

throw0101a 6y ago

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. "How the CPI measures price change of Owners’ equivalent rent of primary residence (OER) and Rent of primary residence (Rent)": * https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an... > The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? Because while it may be "OK to print money to pay for some things" it may not be OK for others. Making "everyone a millionaire" may be one of those times when it is not-OK. > Ultimately, printing money doesn't make anyone more productive or produce anything. Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more "productive" aspects of the economy: * https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation You've managed to fit quite a few straw men in one post.

Robotbeat 6y ago
Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.
- Retric 6y ago
  It seems like lack of money is unlikely to cause liquidity issues rather than some other issue preventing money from circulating through the economy. Inflation actually solves the second problem rather than the first as it punishes those who hoard cash.
  - eecc 6y ago
    But it does so at the expense of those looking to borrow it productively. Wealth tax punishes hoarders without the collateral damage of preventing most from having sane mortgages.

chrisseaton 6y ago

> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? If one slice of cake tastes nice why wouldn't you enjoy eating a million slices of cake?

j7ake 6y ago
Because the size of the cake is fixed (analogy to the economy), and cutting that piece of cake into 10 slices or a million slices (analogy to increasing money supply) is not going to make a difference in the amount of cake there is for people.
- harryh 6y ago
  The size of the cake is not constant. It grows over time. We are much richer now than we were in the past.
  - j7ake 6y ago
    Yeah that is true. Maybe I'll just say that the size of the cake (economy) grows but is fairly independent of how you slice the cake. So printing money doesn't increase the size of the economy.
    - harryh 6y ago
      Yes, but with a larger cake, it makes sense to have more slices. There are other reasons that inflation is good too, having to do with sticky wages and recessions. I'm not sure how to work that into the cake analogy though.
      - j7ake 6y ago
        Yeah the reality is that the size of the cake changes, and slicing the cake in different ways can feed back to the growth of the cake. The perceived value of each slice relies a lot in the psychology of the public. It's the job of the central bank to make sure the slices are proportioned properly and the perceived value of each slice of cake is maintained.

foerbert 6y ago

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable. This much is patently false, and probably even still false once you account for the accepted exaggeration in most appeals to the entirety of human history. There was no unified monetary system for the vast majority of human history, never mind one based on gold and silver. And for the smaller, more recent portion of human history it is again probably largely untrue. I'd point to Debt: The First 5000 Years by David Graeber [0]. I'm sure many people have many opinions on the work, particularly around these parts, but I believe it at least does a good job of refuting this particular statement. [0]https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

JohnJamesRambo 6y ago
https://wtfhappenedin1971.com/ https://wtfhappenedin1971.com/ I realize some of these graphs may be coincidences but it makes a compelling case for me in understanding our current wealth inequality. When you can create money backed by nothing, those closest to the printer will know best how to funnel it into their pockets.
- api 6y ago
  When you have money backed by gold, those who have it benefit from its appreciation. Same is true of any deflationary currency. Wealth tends to flow uphill. Even in Communism the politically connected realized that wealth in that system was political capital and learned to position themselves to accumulate it. There is a reason the USSR collapsed and gave way to one of the most aristocratic states in the world. I don’t discount that site though. A lot more happened in or around the early 70s than just the collapse of Bretton Woods. I also don’t dismiss your comment as untrue. A fair inflationary currency would almost literally drop money from helicopters, not issue it to banks and governments. Still I imagine over time people would learn how to chase the helicopters. All systems will be gamed. No exceptions.
  - jkhdigital 6y ago

harryh 6y ago

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Housings costs are included as part of the CPI. I'm not sure why you think otherwise. https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-and-rent.pdf https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...

incrudible 6y ago
The GP is mistaken in assuming that rent is excluded from the CPI, however mortgages and other costs of home ownership are not considered consumption and are therefore excluded. This is the first item of the FAQ in the document that you linked. As a matter of fact, home ownership has become a highly speculative play for the ordinary wage earner and this is largely due to asset price inflation as a result of low-interest rate policies (worldwide, not just the US).
- harryh 6y ago
  It's important to understand that while mortgages are not part of CPI, imputed rent is. So the consumption costs of living in a home one owns are taken into account.
  - zbzbBn 6y ago
    Imputed rent is meaningless since there’s no market discovery of the price. It’s like asking what the position and momentum of particle is simultaneously. You can’t know the price of something you don’t intend to rent unless you rent it, but you’re not renting it because you have no intention of renting. Even if you “pretend” to rent by putting out a fake add and then not signing the rental agreement, that doesn’t count. That only gives you the demand side of the price. Since you know that you don’t intend to actually rent your home, you will not give serious consideration the opportunity cost of renting out your home.
    - TheCoelacanth 6y ago

UncleMeat 6y ago

Even ignoring the incredibly false claim that we used gold/silver systems for most of human history, what is mining gold or silver if not "printing money"? Why is that considered acceptable by gold/silver proponents?

JoBrad 6y ago
The fact that gold and silver’s value is really just as arbitrarily assigned as the value of anything else is usually also overlooked.
- chii 6y ago
  It's more that the amount of gold and silver cannot be manipulated as easily as paper/fiat money. Proponents of the gold standard, at heart, simply does not trust the authorities to set fiat policies. Sometimes, that's a correct assessment (ala, Venezuela). But in the US, and other developed countries, the central banks are fairly transparent, and at least tries to keep to their mandates.
  - JoBrad 6y ago
    I’ll grant the “as easily” part, but also counter with diamonds and China’s influence on the availability of rare earth elements.
  - imtringued 6y ago
    I personally don't believe that the problem is with the currency. The problems lie deeper. If fiat mismanagement is all it took to ruin an economy the USA would be suffering from hyperinflation by now. The truth is that these countries suffer from structural problems like food imports and petroleum exports that have dropped in value. If they were able to produce their necessities on their own they wouldn't be such problematic countries.
TheOtherHobbes 6y ago
It isn't. Gold/Silver are tangible stores of value. The value is imaginary but humans like to see and touch things and decorate their houses with shiny, and you can't paper your walls with government IOUs. Which is why we don't have a gold/silver economy, but we do have a property and land economy which has taken its place. These "investments" are based on a pile of almost-free fiat government IOUs. They have been converted into equally imaginary tangible value. You happen to be able to live in this store of value if you choose to, but at the high end hardly anyone does. It's a form of imaginative arbitrage for high end abstract markets, just like gold/silver, cowrie shells, and big round rocks are. (And BTC, in its own way.) Which is why at the high end economics is almost entirely faith-based. Fundamental use value is swamped almost instantly by an imaginary tradable value. And that is based entirely on faith in the stability and potential of the investment of your choice. The consumer market is different because prices - including rentals - have some relationship to scarcity and use value. But there's still a large element which is faith-driven and subject to an irrational boom/bust cycle as faith and hope waver - partly driven by central bank and government signalling about future outcomes.

simonh 6y ago

I think you’ve got some legitimate concerns there, but a lot of what you say doesn’t make much sense to me. Mortgages in their entirety aren’t part of CPI because mortgages are an investment with a return. They’re not a consumed good, you still have your house after you’ve paid it off, although some CPI calculations separate or rent or a rental component of mortgages. Of course it can be included in overall household spending, and changes in household mortgage payments are an important economic indicator but CPI is a specific thing with a specific meaning. Printing money by itself is not ok, it matters an awful lot what is done with it. Your argument is classic “if it’s ok to do this thing in specific circumstances to solve a particular problem, why not do it all the time for everything as much as possible”. Kind of weird argument, what can I say except, er, no. You’re quite right the cost for producing goods is falling and stable prices just mean our money is falling in value, it just doesn’t seem that way because these effects cancel out. The article is making the exact same argument. I think where were likely to agree is that if we’re going to rescue financial markets and corporations in hard times, why not also help ordinary people? If corporate welfare is ok, how come personal welfare isn’t? In some situations like an economic collapse or like Coronavirus deficit spending is essential, I don’t buy your skepticism of that, but I do think it needs to be more equitably deployed. By and large this is what actually happened this time around with wage support here in the UK and direct payments to households in the US. There are arguments to be had about the level and Lana e of this kind of spending, but I think they’re both needed to at least some degree. The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness.

baybal2 6y ago
> The article is about the UK though and I’m a Brit and we do have a fairly well developed social welfare system compared to the US and many aspects of it such as the NHS are much less controversial than in the US. This comes from our experiences in the world wars when the entire country was expected to come together for a common cause. It became untenable after that to throw people out on the street with no support and just say “Thanks for the help, see you in 20 years for the next world war. Until then you’re on your own.” It was also about national security. Far too many people were unfit for national service due to malnutrition and disease. Ensuring a fit healthy population became essential to our military preparedness. This Enemies of America had zero resistance in co-opting both extremes on income scale of American society to turn against it. How many will be ready to fight when the time comes, will they fight for a broke country whose elites put them into misery to begin with?

lottin 6y ago

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. They are not excluded, why do people keep parroting this?

hkt 6y ago

> The world used gold/silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable Actually, in 1933 the US ended the use of the gold standard, following the UK (well, British Empire) which abandoned it in 1931. What came to an end in 1970 was the Bretton-Woods system where global currencies were pegged against the dollar. There was political control over the tax rate between 1946 and 1971, but the US was always able to unilaterally end the system. It did so to print money to fund the Vietnam war (sort of). The peg against the dollar meant america could have $100 of stuff from the UK or France by printing it, whereas we needed to pony up actual goods and services. It wasn't ideal. The system was also put under pressure by petrodollars. Western purchases of oil were a leak of the currency outside of the Bretton Woods countries. Since Bretton Woods was ultimately about governments being able to regulate their currencies, petrodollars weakened their grasp and created markets which threatened confidence in the system. The 1980s are where the real issues began, because most countries moved to fractional reserve banking rather than full reserve. The risks this produced in the system caused the 2008 crisis and led to the epic price inflation in housing etc we have seen in the last forty years. QE is an admission of defeat of the system introduced in the 80s, a hope that eventually we can go back to that time. No interest group has been strong enough to properly challenge this system, so it has yet to die. TL;DR it ain't about gold, it is about banks Edit: removed errant hyphens in "Bretton Woods".

zabzonk 6y ago
Nit pickery: Bretton Woods is not hyphenated; it's not some guy or guys name, it's a place in New Hampshire.
- hkt 6y ago
  Hah, reasonable. I'll edit the post.
jedharris 6y ago
You say that in the 1980s "most countries moved to fractional reserve banking rather than full reserve". This is at best confusing: in most developed countries fractional reserve banking, regulated by central banks, goes back to the 1600s. The bank runs that have occurred throughout US history were only possible because essentially all our banks used fractional reserve banking. Also, the 2008 crisis was not due to or amplified by fractional reserve banking. The debt overhang was due to mortgage brokers and investment bankers (often without a retail bank license) selling securities -- effectively bonds secured by mortgages. As with any security, these had the explicit risk of becoming valueless, but this risk was hand-waved away by corrupt bond rating and other tricks. In fact, I'm pretty sure that no bank customers lost any deposits due to the 2008 crisis. Fractional reserve regulation worked exactly as intended.

incrudible 6y ago

> The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? This is a variant of the "slippery slope" fallacy. Money is being printed to maintain liquidity, at the cost of inflation, because a liquidity crisis is considered worse than inflation. Indeed, if you're in the market for a new home, you are paying a huge premium due to asset price inflation. However, this alternative is preferable to the situation where a liquidity crisis causes massive waves of bankruptcies, leaving you without a job to finance a home in the first place. Your (proto-Austrian?) view of economics has long been disproven empirically, as well as theoretically (monetarism and subsquent). Its only purpose now is to sell gold/silver to people who need an oversimplified economic theory that fits their world view.

JProthero 6y ago
It might also be worth noting that the current practice of quantitative easing incorporates a potential corrective mechanism for inflation that the traditional monetary expansion associated with historical episodes of hyperinflation did not. When central banks engage in quantitative easing, they purchase financial assets (typically government bonds, corporate debt, stocks etc.) that can in principle be sold back to the market at a later date. When an initial central bank purchase is made, the amount of money in circulation increases, but that increase can be reversed if the asset is sold. If the asset is sold at purchase price, there is no net change in the money supply; if it is sold at a loss there is an increase proportional to the loss, and if it is sold at a profit there is a decrease proportional to the profit. If money creation is instead used to, for instance, purchase consumable goods and services or pay wages (this is typically what happens when hyperinflation occurs), then the monetary expansion cannot be reversed in the same way — some other mechanism like tax rises would be needed. The economic behaviour of the recipients of the newly created money is also significant. If consumers are the recipients then, all else being equal, the prices of the goods and services that consumers buy may be expected to rise. If banks and large corporate investors are the recipients of the money then, all else being equal, the prices of the things those organisations buy (principally investments like bonds and stocks) may rise. My understanding is that the experience with quantitative easing has been that it has caused a kind of price inflation, but primarily the prices affected have been those of the assets purchased by institutional investors (i.e. stock markets have risen, and bond yields and interest rates in general have been suppressed).

dkjaudyeqooe 6y ago

Printing money is fine since the Fed does it responsibly and uses it to achieve highly beneficial outcomes that aid the economy. And I don't know who you think is getting "free money". The Fed creates it and then uses it to buy bonds. It then gives most of the excess earnings from those bonds to the US Treasury. The big question regarding hysterical claims about printing money, etc is: it's been happening for over a decade in multiple large advanced economies, why hasn't there been a disaster? This time is different, right?

TheColorYellow 6y ago
> why hasn't there been a disaster? Would the GFC count? Technically it wasn't a system shattering event (more like system shuddering), but boom and bust cycles certainly do seem to be growing.
- chii 6y ago
  > Would the GFC count? how would you know that the GFC wouldn't have been worse had the Feds not printed back then?
  - ric2b 6y ago
    How do you know it still would've happened at all? This isn't a very productive conversation.
- dkjaudyeqooe 6y ago
  Printing money (at the current scale) only started in response to the GFC.
- jedharris 6y ago
  The GFC does not count. The GFC was caused by (1) bad underwriting policies (banks, AIG) that generated a huge debt overhang and (2) bad and poorly understood dependencies between banks that led to breakdown of the normal flows of assets between the banks. None of this was in any way dependent on or catalyzed by government money creation. The same dynamic cause the beginning of the great depression in 1929-30 due to excessive margin lending and then runs on banks. At that time the US was on the gold standard.

goseeastarwar 6y ago

Read “The Deficit Myth” by Stephanie Kelton, it’s a primer for MMT and covers essentially everything you’re talking about.

aseerdbnarng 6y ago

>> Ultimately, printing money doesn't make anyone more productive or produce anything. That statement is easily refuted by running it backwards: say reducing the amount of money in circulation via a huge once-off tax would thus have no impact on productivity which of course is silly. >> If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? if drinking water is good, isnt drowning even better? Creation of money either by expansion of private debt or governments running a current account deficit have always had the effect of goosing GDP figures. The 'free money' the central bank is creating is merely nominally swapping out the value of private-debts for equivalent nominal government debts. The money-creation is the net difference between the two and not equivalent to a blanket cheque.

Supermancho 6y ago
> That statement is easily refuted by running it backwards Operations are not correct based on if they are reversible, nor are economic truths.
- aseerdbnarng 6y ago
  Economic truths are remarkably robust to reality or logic.

__throwaway9 6y ago

> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. This is not totally true. The ability to print money enables redistribution without taxes. Bank loans and credit would not be nearly what is is today without all of the various methods that the government allows to borrow debt on debt. Those loans and credit help start companies and build houses. Cryptocurrencies won’t change how things need to work to avoid economic collapse, because those that understand how things work won’t change.

chii 6y ago
> Cryptocurrencies won’t change how things need to work to avoid economic collapse cryptos won't be able to be loaned as easily, since it's hard to create more cryptos on demand. So if there's a surge in demand for loans, the price of loans (aka, interest rate) will surge. Under a fiat system, the state/central banking authorities can simply make more credit available to satisfy those loans, and thus keeping interest rate stable in the face of huge demand.
- ItsMonkk 6y ago
  Bitcoin is like gold. Tether is like USD. You don't trade the gold, you trade the dollars. They never printed more gold, they printed more dollars. Tether has printed $2B in the past week. Loans will be freely available.

matheusmoreira 6y ago

It's not just money printing either. Fractional reserve banking and money lending creates just as much inflation. People deposit real money into the bank. It keeps a fraction and loans out the rest. That loaned money eventually gets used to pay debts and it gets once again deposited into the bank. It keeps a fraction and loans out the rest... The exact same money gets loaned many times. The situation keeps looping and looping and with every iteration new money that doesn't actually exist is created by the bank. It will only start existing once real value is created or extracted from the planet, thereby making possible to repay the loan. Inflation is like a tax. When government and banking institutions inflate the currency, they systematically and worst of all invisibly rob people of their purchasing power.

lorenzhs 6y ago
That's a common misconception of how money creation works. If you want to learn more, this Bank of England article is a good introduction (pdf): https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

H8crilA 6y ago

> To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Why is there so much misinformation about the CPI? Literally the biggest component of the US CPI (at 33%) is housing/shelter. See Table 1, column Relative Importance: https://www.bls.gov/news.release/archives/cpi_02102021.htm https://www.bls.gov/news.release/archives/cpi_02102021.htm At least get familiar with the definition before criticising anything.

robocat 6y ago
CPI does NOT include housing in the UK - and this article was written from a UK perspective. In the UK: “The CPI takes no account of housing costs”. “the CPIH does include [housing costs but] it uses an approach called ‘rental equivalence’ – not the mortgage payments but how much rent the householder would pay for an equivalent property”. “the RPI takes account of mortgage interest payments”. From: https://www.thetimes.co.uk/money-mentor/article/rpi-versus-cpi/ https://www.thetimes.co.uk/money-mentor/article/rpi-versus-c...
throwawaycuriou 6y ago
You are correct about its inclusion but how home asset inflation is measured is arguably faulty - more akin to an 'implied rent'. https://wolfstreet.com/2021/03/11/house-price-inflation-in-cpi-is-of-course-baloney-but-it-accounts-for-1-4-of-total-cpi/ https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...
BurnAphterRead 6y ago
https://wolfstreet.com/2021/03/11/house-price-inflation-in-cpi-is-of-course-baloney-but-it-accounts-for-1-4-of-total-cpi/ https://wolfstreet.com/2021/03/11/house-price-inflation-in-c...

brippalcharrid 6y ago

Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). They become reliant on an unending stream of new efficiencies from innovation to hide its effects and globalisation, as you mentioned, is another handy way of staving off the political effects of the debasement of one's currency (although it's perhaps not as sustainable or reliable). When that fails, the redistributive mechanisms can always always be compounded with things like tax thresholds failing to rise with inflation, increases in tax rates, or new taxes (inheritance tax, for instance, is relatively recent), but taxation-by-inflation is definitely the unacknowledged elephant in the room. Overall, today's mixed economies have a lot more central control than the average person realises, and it's no wonder that Marx was such a fan of central banking.

gruez 6y ago
>Governments love inflation, because it enables them to inflate away the value of debt which would otherwise be unsustainable (or electorally unpopular). This doesn't really work because when inflation goes up, so do interest rates. Inflation was rampant in the 70s, but so were the interest rates, so there isn't any free lunch here.
- brippalcharrid 6y ago
  To a certain (limited to moderate) extent it does work, though, and this directly influences how much governments borrow in the present day. If long-term expectations for rates of inflation were zero or negative then governments would tend to decrease their borrowing over time, all other things being equal.
imtringued 6y ago
Governments love inflation because they want their citizens to do productive work instead of swimming in literal gold like in a scrooge mcduck vault.
- brippalcharrid 6y ago

tzs 6y ago

In one of my tax classes in law school, the professor recommended an optional book that when more into the theory behind tax. That book brought up an interesting idea to discuss concerning printing money. Suppose you have a society with a total economy of say 10^9 dollars, and you need to allocate 10% of the to the government for it to operate. The conventional approach is various taxes. Income taxes, sales taxes, VAT, property taxes, the list goes on and on. The question the book asked is why not just have the government print the money it needs? Printing 10^8 dollars would not quite do it because of the inflation that would cause, but if it printed 1.11 x 10^8 dollars then the government would have enough to buy 10% of the inflated economy. So why not replace taxes with printing money to fund the government? It has a couple of clear advantages. First, no more need for everyone to file tax returns, employers to withhold tax payments, and all that jazz, and no need for the government to have a giant tax collecting apparatus or a giant tax code. Second, it makes tax evasion a lot harder. There are some downsides too. First, it would take away a large part of the usefulness of taxation as a way to change behavior. Deductions, credits, progressive rate structure--all gone. Deductions and credits could be replaced with government subsidies, but if you aren't careful you will end up recreating much of the complexity and bureaucracy that the old tax system had. Second, the inflation would be significant enough that it wouldn't take many years before even small things involve large numbers of dollars. This could probably be addressed by going to an almost all electronic money system so you could just periodically re-scale the whole thing. Third, inflation from printing money doesn't affect all assets equally, so this would encourage people to try to hold more of the wealth in assets that are less affected. People lean toward that anyway to deal with normal inflation, but with the current system if there is too much off that the government can use tax incentives to nudge things in the other direction. I remember this leading to some interesting discussion in class. Even if it is not practical, thinking about it is interesting. It can get you to really think about what money really is.

gruez 6y ago
There's a name for what you described: modern monetary theory. AFAIK there really isn't a consensus on whether it works or not.
- 6y ago

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esja 6y ago

It's even worse when you consider that central banks have been deliberately keeping wages down through decades of inflation targeting, while ignoring asset prices. And fiscal policy has done nothing to compensate for this. It's actually made things worse by imposing much higher taxes on earned income than on capital gains and other wealth. The perfect recipe for greater and greater inequality.

pmorici 6y ago

Assuming inflation causes wages to rise with prices inflation is beneficial to home owners with a mortgage because your housing costs are largely locked in while your wages rise.

cryptica 6y ago

It's kind of ridiculous to think that everyone is talking about money printing now. It's become such an obvious force in society that it cannot be ignored even by the layperson. And economists keep repeating "It's nothing, it's not a problem". They're so disconnected from reality, they won't realize there is a problem until they have a noose around their necks.

dcolkitt 6y ago

> A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading. Housing definitely isn't excluded from CPI calculations. In fact housing is by far the biggest single component of the basket used to calculate inflation.[1] Moreover, there's really no evidence that long-term housing inflation is running faster than the broader economy. In 2019 the average American consumer spent 25% of their income on housing and 15% on shelter.[2] (Aside, "shelter" just includes the cost of rent, mortgage, property taxes and maitenance. Whereas "housing" includes utilities, appliances, furniture, housekeeping, laundry, etc.) In 1990, the average household spent a virtually identical 27% of income on housing and 15% on shelter.[3] If housing was inflating much faster than the rest of the economy, we'd expect to see increasing shares of income dedicated to housing. [1]https://www.bls.gov/cpi/tables/relative-importance/2020.htm https://www.bls.gov/cpi/tables/relative-importance/2020.htm [2]https://www.bls.gov/cex/2019/standard/multiyr.pdf https://www.bls.gov/cex/2019/standard/multiyr.pdf [3]https://www.bls.gov/cex/1990/Standard/income.pdf https://www.bls.gov/cex/1990/Standard/income.pdf

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ForHackernews 6y ago

> has to pay rent or make mortgage payments. One of these things is not like the others. Inflation benefits debtors at the expense of creditors. If I owe $500,000 on a fixed-rate mortgage, I'm thrilled to see inflation because it makes my debt cheaper to pay off.

ric2b 6y ago
Only if your wages rise accordingly. And don't forget that your taxes are going up as well unless tax brackets are adjusted for inflation.

loveistheanswer 6y ago

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. This is a great point. The 3 main goals of the Fed[1] are: 1. Maximize employment 2. Stable prices 3. Moderate long-term interest rates Maximizing employment and keeping prices stable are antithetical to the realities of automation and ephemeralization. If we want to use our automative technology correctly, we should be minimizing employmemt, and decreasing prices. [1]https://en.m.wikipedia.org/wiki/Federal_Reserve_Act https://en.m.wikipedia.org/wiki/Federal_Reserve_Act

trthomps 6y ago

> Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. I look it as raising taxes on the rich is too hard, and too easy to roll back. Just give the people who need it most the money, devaluing rich people's money. It's just a more efficient form of wealth transfer, and inflation isn't an issue as long as the deficit growth doesn't exceed long term growth. > At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. Also, did you forget about fractional reserve lending? Banks don't need the fed to create money, they do it on their own all the time.

goatcode 6y ago
> devaluing rich people's money Do the very rich, the top 1% * n, keep much of their wealth in liquid currency?

0x4d464d48 6y ago

Cantillon Effect getting into full swing.

tarsinge 6y ago

Also deflation could be an interesting tool to cool down the economy and so literally cool down climate. Less consumption is what is needed.

mancerayder 6y ago

>If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I'm still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I'm also buying them with currency that's less valuable. On top of that, there is talk, political rhetoric perhaps but still talk, of moving manufacturing back in house. The US wants to do it with chip manufacturing on nat security grounds. Trump and Bernie popularity was partially on anti NAFTA grounds. There's increasing hostility between China and US (witness the MS hack last week). Nothing stays the same, and we might be in for some surprises.

brightball 6y ago

And ultimately, nobody is ever comfortable answering the question of why it’s okay to move it to China? Somehow it’s okay for people in China to have super low wages? This is an issue I’ve always had with overseas production. It feels like this weird out-of-sight, out-of-mind ethical problem that usually comes from people opposed to bringing more manufacturing to the US (aka - “it’s not the jobs we want”). And it doesn’t make sense.

imtringued 6y ago

>I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you're also buying them with less valuable currency. Deflation is what happens when there is an oversupply of products. Primarily caused by increased productivity through technological progress. You have to print more money just to maintain stable prices. If you didn't do this then companies would cut down on production capacity and simply produce less goods. This would cause a downward spiral of production and since we all know that fiat currencies are backed by the existence of an economy that lets you exchange the fiat currency for goods and services the fact that the economy is shrinking is a bad thing for holders of the currency and it's bad for workers who are receiving incomes in the future. Since we cut down on production we also need less workers and thus your future income will be lower. Your best bet would be to obtain wealth as soon as possible and simply sit on it. >Ultimately, printing money doesn't make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it. It could be worse. Since you print money every year that means future people will receive the money first. If you cease to print money then the ones who received it first are people in the past which could be centuries ago. Would you be willing to work for someone who inherited their wealth 200 years ago and did nothing with it except sit on it? By "sit" I mean scrooge mcduck vaults. No investments.

99_00 6y ago

>The whole argument for printing money being OK is dumb. If it's OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire? No one is advocating for unlimited money printing. The fact that money printing is being used to inflate financial assets that benefits elites is a policy and political failure not a repudiation of monitary policy.

tastyfreeze 6y ago
Jerome Powell said the Fed has unlimited lending at its disposal. That is the engine that drives printing. Their intent is to print without limit until the economy is working the way they think it should.
- 99_00 6y ago
  >Their intent is to print without limit until the economy is working the way they think it should. That's not in evidence. You are assuming their intentions without providing evidence to backup your claim. It's a fact that the Fed has unlimited lending powers. Jerome Powell is the chair of the Federal Reserve. Explaining his powers doesn't show he intends to use them. Maybe you have the quote or you miswrote?

beardyw 6y ago

I think rent and mortgage are different. We bought our first house in 1977. If you take a look at the graph that was just before inflation shot up to 15%. It was a hard time but wages did catch up and after a few years I had a mortgage which was proportionately much less than I started with. For those renting there was no plus side. I think the poorest suffer most, as usual.

IG_Semmelweiss 6y ago

I think you missed an important element. Inflation does not hit countries evenly as well. Right now, US is exporting inflation in droves. I've seen it firsthand abroad.