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I love all the excuses for why inflation is spiking other than insane amounts of money printing. “Supply chain issues!” “Temporary demand increases!” When every

I love all the excuses for why inflation is spiking other than insane amounts of money printing. “Supply chain issues!” “Temporary demand increases!” When every single commodity and financial asset are rising at absurd levels month after month, it’s pretty clear what the cause is.

nscalf 6y ago
It does seem like the most obvious cause. Though inflation is really really weird, I had a professor explain the feds tools to control inflation back in college. According to her, the #1 tool they have to control inflation is announcing what inflation will be before it could even happen. Companies write it into their contracts, and that sets the bar for corporate spending and expectations. It's going to be interesting to see how well that holds up when the amount being printed is this extreme. We're definitely going to learn something about the fundamental truths of our economy/global economy/modern monetary theory.
gumby 6y ago
I don't think it's necessarily absurd. Clearly more cash has flushed into the system and that is inherently inflationary, but that alone doesn't tell you how to look forward. Part of the cash that came in has circulated through the lowest level of the financial system (extended unemployment -> rent continues to be paid, tacos eaten etc). Because of the demand shock I think that got sponged up by that level; you see it here in the Bay Area and in NYC: in both cases rents have fallen. Part of the cash has been handouts to large players and a lot of that ends up in the market due to low interest rates. And that in turn funds people who were employed through 2020 to drive other asset prices up (in other words: home sales). But in a demand shock the whole system collapses: commodities aren't purchased, factories furlough etc. When that comes back to life you get inflation for the opposite reason: there's a demand pickup that can't be satisfied by the suppliers so the suppliers can get away with asking for more cash (and the cash has been accruing unspent for the last year). That price rise will bring in other players (house builders, air conditioner manufacturers etc) which will drive the prices down. Plus the government is trying to increase demand by increasing people in jobs by fixing bridges and hiring child care (so more people can go to work...). Who knows which (my first paragraph or last two) will dominate? Nobody! It's pretty hard to complain about the cash that was flushed in because people have to eat and, thanks to gravity, have to sleep somewhere. It's like surgery: you cut a hole in someone which isn't good but you have to do it to try to get to something that isn't working properly. You have to wait to see if the patient recovers.
- N1H1L 6y ago
  Except for China, the US has done very well actually economically in COVID. It probably is the second best performing economy from March 2020 (when COVID started) to March 2021. Look at India for example - it's economy is in tatters and given the currently horrific second wave - years of economic progress has been wiped out. Sometimes Reddit or HN is too deeply invested IMO in the US bubble to look out at the bigger world. Countries would kill for slightly higher inflation to have a healthy functioning economy right now.
  - jonny_eh 6y ago
    I suspect it's because the US printed money while other countries did not.
    - Dma54rhs 6y ago
      ECB printed plenty and the block is not doing that great. Obviously bad vaccine rollout didn't help.

nscalf 6y ago

It does seem like the most obvious cause. Though inflation is really really weird, I had a professor explain the feds tools to control inflation back in college. According to her, the #1 tool they have to control inflation is announcing what inflation will be before it could even happen. Companies write it into their contracts, and that sets the bar for corporate spending and expectations. It's going to be interesting to see how well that holds up when the amount being printed is this extreme. We're definitely going to learn something about the fundamental truths of our economy/global economy/modern monetary theory.

gumby 6y ago

I don't think it's necessarily absurd. Clearly more cash has flushed into the system and that is inherently inflationary, but that alone doesn't tell you how to look forward. Part of the cash that came in has circulated through the lowest level of the financial system (extended unemployment -> rent continues to be paid, tacos eaten etc). Because of the demand shock I think that got sponged up by that level; you see it here in the Bay Area and in NYC: in both cases rents have fallen. Part of the cash has been handouts to large players and a lot of that ends up in the market due to low interest rates. And that in turn funds people who were employed through 2020 to drive other asset prices up (in other words: home sales). But in a demand shock the whole system collapses: commodities aren't purchased, factories furlough etc. When that comes back to life you get inflation for the opposite reason: there's a demand pickup that can't be satisfied by the suppliers so the suppliers can get away with asking for more cash (and the cash has been accruing unspent for the last year). That price rise will bring in other players (house builders, air conditioner manufacturers etc) which will drive the prices down. Plus the government is trying to increase demand by increasing people in jobs by fixing bridges and hiring child care (so more people can go to work...). Who knows which (my first paragraph or last two) will dominate? Nobody! It's pretty hard to complain about the cash that was flushed in because people have to eat and, thanks to gravity, have to sleep somewhere. It's like surgery: you cut a hole in someone which isn't good but you have to do it to try to get to something that isn't working properly. You have to wait to see if the patient recovers.

N1H1L 6y ago
Except for China, the US has done very well actually economically in COVID. It probably is the second best performing economy from March 2020 (when COVID started) to March 2021. Look at India for example - it's economy is in tatters and given the currently horrific second wave - years of economic progress has been wiped out. Sometimes Reddit or HN is too deeply invested IMO in the US bubble to look out at the bigger world. Countries would kill for slightly higher inflation to have a healthy functioning economy right now.
- jonny_eh 6y ago
  I suspect it's because the US printed money while other countries did not.
  - Dma54rhs 6y ago
    ECB printed plenty and the block is not doing that great. Obviously bad vaccine rollout didn't help.