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The Ultimate Guide to Inflation
- anm89 5y agoSo awesome to see Lyn Alden at the top of Hacker News. She is an absolute genius! If you aren't familiar with her work and thinking I think a good introduction interview is: https://www.youtube.com/watch?v=f_JmGLMjIOk&t=35s https://www.youtube.com/watch?v=f_JmGLMjIOk&t=35s Fun fact: She is an electrical / industrial engineer by trade, not an economist.
- silexia 5y agoI agree. I made a great bet at the beginning of the pandemic, but then the Fed hurt me with it's quick action. I didn't understand macroeconomics, but Lyn Alden has really helped me understand it better with her long form articles.
- vmception 5y agoI wonder if the Court of Claims would cover trading losses from the Fed’s actions I should look up the judges to get a feel for their predilections I wanted to see S&P 12,000 for a moment
- sbelskie 5y agoHow would the Fed fulfilling its mandate give anyone a case for recovering their trading losses?
- vmception 5y agoA different part of the Federal government has a mandate of paying people harmed by the Federal Governments actions. Just make the argument and see. Google Scholar has all of that court’s cases online in plain text.
- sbelskie 5y agoBut if the government raises taxes you don’t get to sue for lost expected income (absent some specific extenuating circumstances), do you?
- vmception 5y agoWhat do the Court of Claims cases say? Were those cases dismissed?
- sbelskie 5y agoI’m not a lawyer or a scholar on these matters, so can you help point me to the Court of Claims you mean? The only one I can find no longer exists: “The Court of Claims was a federal court that heard claims against the United States government. It was established in 1855, renamed in 1948 to the United States Court of Claims (67 Stat. 226), and abolished in 1982.”
- vmception 5y agoThe court of federal claims still exists, odd one word messed up your google-fu
- sbelskie 5y agoIt was an honest question. It didn’t mess up any googling. I just don’t know anything about the particular legal structure/origin/whatever of the court you brought up, and so I had no way to know if the slight difference in name was meaningful or not.
- vmception 5y agoI could have worded that better, I still think it is odd that the search engine didn't correct you to the most likely correct source. I honestly wonder what the extent of the accepted arguments are to that court.
- jbay808 5y agoI really liked her article on understanding Japanification, which I probably found linked from HN too. I'd never heard of her before but I immediately added her to my favourites. https://www.lynalden.com/economic-japanification/ https://www.lynalden.com/economic-japanification/
- dang 5y agoSome other threads from that site: An Economic Analysis of Ethereum - https://news.ycombinator.com/item?id=25811356 https://news.ycombinator.com/item?id=25811356 - Jan 2021 (111 comments) The Fraying of the US Global Currency Reserve System - https://news.ycombinator.com/item?id=25558573 https://news.ycombinator.com/item?id=25558573 - Dec 2020 (17 comments) The fraying of the U.S. global currency reserve system - https://news.ycombinator.com/item?id=25407583 https://news.ycombinator.com/item?id=25407583 - Dec 2020 (344 comments) Banks, QE, and Money-Printing - https://news.ycombinator.com/item?id=24978567 https://news.ycombinator.com/item?id=24978567 - Nov 2020 (235 comments) Why This Is Unlike the Great Depression - https://news.ycombinator.com/item?id=22890151 https://news.ycombinator.com/item?id=22890151 - April 2020 (2 comments) How to Win a Currency War - https://news.ycombinator.com/item?id=22837518 https://news.ycombinator.com/item?id=22837518 - April 2020 (60 comments) The Global Dollar Short Squeeze - https://news.ycombinator.com/item?id=22828991 https://news.ycombinator.com/item?id=22828991 - April 2020 (211 comments)
- dnautics 5y agoWhile most of the article is good, It's really sad that she apes the old refrain that inflation hurts the poor because they are in debt. Many of the poor cannot even be in debt because they have no access to the financial system. Those that do, mostly have access to payday lending. It's laughable to hold the opinion that inflation will do anything for someone who owes 10% on top by next month. For the middle class, it's one step up -- credit cards, still laughable to think that a 2% inflation will help out someone with a 15% APR revolving line of credit. The place where it starts to help is when you have large capital loans on fixed interest like home ownership. But her graphs in the next section relating inflation to wealth gap capture the 1% vs the rest, which is not necessarily a mechanistically informative figure of merit... I'd like to see it where the wealth gap when you draw the line closer to something like the low-interest loan accessibility gap.
- anm89 5y agoI think you are misunderstanding her argument and tbh I don't think anyone makes the claim that inflation hurts the poor because they are in debt. If anything it is the exact opposite. Inflation is a benefit to debtors because they get to pay back principal in devalued currency. That's why a cheap 30 year mortgage is an amazing deal in an inflationary environment Inflation hurts people who don't have access to debt and who are more dependent on cash and on fixed incomes. This is exactly what Lyn claims here: > There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expect that high levels of inflation have a reasonable probability of occurring.
- dnautics 5y agoHoly mistype. In GP post I meant to type "good for the poor because they are in debt", which is what Lyn uncritically forwards in OP as a (to be fair common) argument. "lower classes also have more debt which gets partially inflated away in inflationary environments, and..." Also the wealthy benefit greatly from debt-based financial instruments (corporate bonds for the companies they run, leveraged trading, forex, options) even if they aren't in debt personally.
- cerved 5y agoIf she's not an economist, what is it that lends credence to her writing about economics and monetary policy?
- runeks 5y agoThe fact that it’s possible to acquire knowledge outside of university.
- cerved 5y agoRight, so what is it about this particular individual that lends credibility? If an economist was writing about computer science, everybody on HN would dismiss it.
- hnick 5y agoPer her bio: I have a bachelor’s degree in electrical engineering and a master’s degree in engineering management, with a focus on engineering economics and financial modeling. I oversee the finances and day-to-day operations of an engineering facility. I’ve been performing investment research for over fifteen years in various public and private capacities. So it is a mixture of education and practical experience. Whether that lends weight to her output is up to the reader.
- Cthulhu_ 5y agoI was waiting for the first gatekeeping comment, and there it is.
- CRConrad 5y agoWhat's "gatekeeping" about asking for credentials? Does the fact that she's not an economist also automatically make her an authority on astronomy, medicine, and history, or how does this work...? "No no no, in order to be an authority on astronomy it doesn't help not to be an economist; you need not to be a historian!", or what?
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- crb002 5y agoM2/Population https://twitter.com/SMT_Solvers/status/1391506520488153091/photo/1 https://twitter.com/SMT_Solvers/status/1391506520488153091/p... That is an unprecedented hockey stick.
- ubertoop 5y agoInteresting but, I don't really think I understand what this is. Would you mind explaining it in lay terms?
- R0b0t1 5y agoIt describes a very sharp increase in created money. The poster of the linked tweet is implying this is unique and we will see negative economic effects (like inflation) because of it. Parent to that tweet is arguing we have not seen those effects despite past federal reserve action and so there is no worry. The wider context to this conversation is that some people [who?] believe federal reserve policy is flawed and supported by systemic bias in the reporting of economic indicators like GDP.
- dlp211 5y agoIt's not created money. We didn't just print this money. The money is printed on collateral, that is private industry traded assets for US dollars. This graph also completely ignores that the US dollar is the de facto reserve currency of the world, so dividing dollars by US population is fairly meaningless in 2021.
- refurb 5y agoThe fed is creating money. They buy treasuries with money that doesn’t exist as a way of increasing the money supply.
- dlp211 5y agoYou mean they are buying assets and thus the money is simply providing liquidity and has tangential value. They aren't just printing it and giving it away, this subtle but significant difference is one of the reasons that money supply and inflation have very little if anything to do with one another.
- treeman79 5y agoDidn’t see healthcare. My dads carefully planned retirement was ruined because he never imagined how expensive it would get. I pay 1400 a month for a family. Still doesn’t cover a lot.
- okoslaatoo 5y agoI upvoted you.
- david-gpu 5y agoPlease be aware of the HN guidelines [0]. For example, > Please don't comment about the voting on comments. It never does any good, and it makes boring reading. [0] https://news.ycombinator.com/newsguidelines.html https://news.ycombinator.com/newsguidelines.html
- lotsofpulp 5y agoI have no idea how families that earn less than $100k are saving enough money for healthcare expenses / loss of income in their years between 50 and 65 (or whatever age Medicare will start at in the future). Unless you have a cushy government job with those benefits or a high paying white collar job, those years are the most likely for you to lose income due to age, health reasons, etc and any new job you get probably won’t have any benefits, or decent ones.
- lupire 5y agoThey aren't. That's what the "tax the rich" stuff is all about.
- sgerenser 5y agoWith ACA that’s only really a problem for those just over the income cliff. Health insurance costs after subsidy for most retired folks pulling, say, 50k-60k or so per year from retirement accounts and social security are pretty low.
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- okoslaatoo 5y agoinflation 150 years is not enough history. inflation is part of game theory.
- polskibus 5y agoPlease elaborate and /or share some links for someone interested in this angle.
- hogFeast 5y agoYou should use 150 years across multiple countries i.e. 150 years * N countries. In-sample annual probability of Weimar is well under 0.5% so it is still a tricky topic to reason about even if you have a bigger sample.
- kebman 5y agoDon't make it more complicated than it actually is, or you'll end up like Erasmus Montanus. The causality of hyper-inflation is a pretty simple principle to understand. And the effects are visible. I was there, in pre-war Yugoslavia, when my mother cashed in 1000 NOK for what to my 12 year old eyes looked like Scrooge McDuck amounts of Yugo Dinars. We had to get extra bags to carry it all. Meanwhile everywhere we turned, people were in despair because all value was evaporating. And what was left over, was heavily rationed.
- echelon 5y agoDownsides aside, won't inflation help exports and keep USD-denominated trade attractive? It's not like we're the only economy suffering. We might be doing the best of the whole lot.
- kebman 5y agoWell, the ECB is also printing, and the overseas cooperation is pretty good. But it's still visible on the currency charts that something is going on. Just go to Trading View and have a look. Also compare when money printing started after the "Rony Crash" in March 2020, and when a lot of stocks, commodities, and not least Bitcoin started mooning like crazy soon after. What you're witnessing is a giant transfer of wealth.
- nradov 5y agoInflation only improves the balance of trade if we inflate faster than our trading partners. Lately many countries have been engaged in a competitive currency devaluation race to the bottom.
- kebman 5y agoWell, since March 2020 the Euro has increased in value to the US Dollar.
- lotsofpulp 5y agoGood article with lots of data. I would like to see data on price increases by category of household expenses broken down by metro region of the US going back 3 or 4 decades. I feel like nationwide statistics are not very useful once the gap between certain regions gets so wide.
- devops000 5y agoAfter talking so much about inflation we will surely have inflation. It’s a self-fulfilled profecy. I am going to issue a debit.
- vowelless 5y agoAs usual, an amazing article by Lyn Alden. I love her work. One of my favorite articles of last year was this: https://www.lynalden.com/fraying-petrodollar-system/ https://www.lynalden.com/fraying-petrodollar-system/
- nabla9 5y ago>My base case going forward continues to be that with the combination of sizable broad money supply growth, along with public opinion pushing the pendulum back away from globalization, consumer price inflation is likely to be higher in the 2020s decade than in the 2010s decade. The biggest news is that Fed changes its inflation targeting goal. It's now average inflation targeting 2.0%. This means that Fed allows inflation run above 2.0% for some time until average matches the goal.
- cortesoft 5y agoI've wondered what the effect our modern digital economy has had on consumer price inflation. Normally, an increase in money supply would cause consumer goods to increase in price, since more people are able to buy them and there is a limit on how much of any particular physical good is available. This isn't the case, however, for digital goods. If there are suddenly 100 million new people who want to buy a Netflix subscription, it isn't like we are going to see the price of a Netflix subscription go up because there isn't enough Netflix to go around. The marginal cost for a new subscriber is practically zero, so there should be no price increase caused by a shortage. It would be easy to see that inflation would be essentially zero if ALL goods people wanted to buy were digital ones... no amount of demand can eat up the supply, since supply is practically infinite. Of course, in the real world, some goods are digital and some are physical. If you gave everyone $5000, some of that would go to Netflix subscriptions, which wouldn't effect consumer prices, and some would go to buying TVs to play Netflix on, which WOULD cause inflation. I am curious how much of our current "low inflation even with an increasing money supply" is caused by our increasing spending on non-exclusionary goods.
- vmception 5y agoThese organizations would be expected to have some marginal cost increases from running data centers and physical hardware cost increases and they would calculate passing these on to consumers. Or as an excuse to. But I guess that is covered by your example and understanding that their physical costs being non-digital goods. So, fun thought exercise.
- cortesoft 5y agoYeah, that is why I intentionally said "practically zero" instead of actually zero, because there are some marginal costs. They are just orders of magnitude less than what they are for physical goods. But yeah, I am just curious how that math all works out on a macro scale.
- itslennysfault 5y agoThis is a good point, and there is also no finite limit which is what typically makes the supply and demand machine go brrrrrrrr. Netflix pays some % of their monthly subscription fee for servers. The amount really doesn't matter, and they can add the entire planet as subscribers before running out of servers so the supply is infinite for all practical purposes.
- banbanbang 5y agoFind it comical that Wall Street and Fed are keeping gold muted while everything else has gone parabolic. Tells you where their priorities are in this cycle.
- RickJWagner 5y agoSo many factors going in right now... Government printing money nonstop. Material shortages (real and manufactured). Demands for increased wages. It's going to be a bad time to be on fixed income.
- omalleyt 5y agoTime to buy gold.
- HNfriend234 5y agoProblem with gold is that it is also inflationary only difference is it is mines that "print" more gold instead of a central bank. Cryptocurrencies are better since they have geometric decay built into the algorithm to make them deflationary by default.
- DylanBohlender 5y agoPrecious metals are also risky long-term in that we don't know how "precious" they truly are in a solar system-wide context. We can make well-informed guesses, but until there are boots on the ground of the Moon, Mars, and the asteroid belt, we can't know for sure.
- spurgu 5y agoThen again you can create new cryptocurrencies out of thin air.
- deanak 5y agoSo far it's a lot of words and graphs with a tenuous grip on reality in a few places: > There are, however, some groups in lower income brackets that do poorly in inflationary environments. If someone doesn’t have a lot of money and lives on a fixed income in retirement, they have a lot of vulnerability to inflation. Those sorts of folks should consider owning inflation hedges to protect their lifestyle, if they expect that high levels of inflation have a reasonable probability of occurring. If you think someone in a low tax bracket on fixed income has the spare money to invest in anything, you're not understanding the words "low income" or "fixed." > Capital had political control from the late 1800s through the 1920s. Labor had political control from the 1930s through the 1970s. Capital again had political control from the 1980s through the 2010s. I’m not sure what’s next but signs are increasingly pointing towards labor regaining some influence, and it’s a topic I continue to monitor. What?
- xyzzyz 5y ago> If you think someone in a low tax bracket on fixed income has the spare money to invest in anything, you're not understanding the words "low income" or "fixed." The low fixed income often comes from investment. For example, you save money in 401k, then as you near retirement, you shift investments into safer instruments ie. bonds. The result is exactly low fixed income and vulnerability to inflation.
- deanak 5y agohttps://www.epi.org/publication/retirement-in-america/ https://www.epi.org/publication/retirement-in-america/ > Nearly half of families have no retirement account savings at all. https://www.nytimes.com/2021/01/26/upshot/stocks-pandemic-inequality.html https://www.nytimes.com/2021/01/26/upshot/stocks-pandemic-in... > Families grouped by percentiles of net worth: > Bottom 50: 50% of Families | 1% of Equities | 0% of Stock I'm not sure why you think the poor have investment portfolios. They don't.
- xyzzyz 5y ago> I'm not sure why you think the poor have investment portfolios. They don't. I never said or implied anything of the sort. I recommend reading carefully what I actually said, and then addressing that instead.
- lupire 5y agoThis a gem: > John Williams’ Shadow Stats, for example, calculates that annual price inflation has been around 5-10% for the past decade if it was calculated as it used to be. Interestingly, he has not raised his subscription price for his data at all since at least 2008. Of course, it's bit of an unfair jab because he might be growing his subscriber base, or isn't getting paying customers but doesn't care.
- JKCalhoun 5y agoCurious about the yacht pictured in the article. Appears to be owned by the Emir of Qatar.
- jpmattia 5y agoThe section on owner's equivalent rent (OER) is worth finding in the long article: OER accounts for about 1/3 of the CPI. However, when you view OER in light of the housing bubble around 2006, CPI was negligibly affected. IMHO, it is a large signal that CPI fails to accurately describe consumer inflation for a large segment of the population.
- Negitivefrags 5y agoBut in 2008 the housing bubble popped and the prices came back down to 2004 levels. Wouldn't you say then that the CPI was correct not to adjust too far to account for it? And if you think housing right now has increased a lot and the CPI isn't taking that into account, perhaps that says something about what is to come....
- jpmattia 5y ago> Wouldn't you say then that the CPI was correct not to adjust too far to account for it? My point was it missed the largest housing cost rise in multiple generations, despite housing being ~1/3 of the CPI. That it then also missed the downward correction is just more evidence that the CPI is uncorrelated to housing costs.
- aazaa 5y ago> Inflation: During periods of moderate to high inflation, gold and commodities tend to do extremely well. Equities outperform bonds more often than not, but it depends on the type of equities and their starting valuations, and therefore have a huge variance. Real estate does well, mainly because leverage attached to it gets melted away from inflation. Bonds do poorly in inflationary environments. The article doesn't talk specifically about gold, but I believe it should. From this chart, you can see that gold started an upward trend in price pre-pandemic that peaked in August of last year, and has since declined noticeably: https://www.tradingview.com/symbols/XAUUSD/ https://www.tradingview.com/symbols/XAUUSD/ Gold is supposed to be the canary in the coal mine for inflation. The slightest whiff of inflation is supposed to send the price soaring, usually led by gold mining stocks. This hasn't happened. As the price of copper, lumber, other base commodities, houses, used cars, and possibly even labor, has surged, gold has barely budged. What does gold's lackluster performance so far say about the future direction of inflation? That's the question people worried about (hyper)inflation should be asking themselves. Many in the gold market claim that the price is being manipulated by central banks, by the paper derivatives market, an other forces. But it's very hard to believe that literally every other commodity is flying to the moon while gold is stuck in the basement due to "manipulation." Something isn't adding up here.
- nine_zeros 5y agoCrypto
- paulpauper 5y agoAnother type of inflation: relative inflation. This means inflation of the CPI relative to foreign goods and foreign purchasing power. This take into account the strength of the US dollar. The US has low inflation in this regard.Americans have seen their purchasing power surge relative to much of the developing world, which over the past few years have falling currencies.
- ItsMonkk 5y agoI've been researching this topic independently over the last year and about 70% of what I've researched is presented beautifully within this article. What a great post. The only thing I would try to add that she left off was just the Fed's power[0] over this entire topic. It's mentioned slightly with interest rates dropping, but they play such a pivotal role, together with the yield curve, that it needs to be mentioned. The Fed has the power to have a yield curve inversion, which drops the amount of broad money available, which creates a recession, which has people lose their jobs, which depresses CPI inflation. Once the loss of jobs occur, they drop interest rates back to where they were and along we go for another cycle. [0]: https://fred.stlouisfed.org/graph/?g=AzYM https://fred.stlouisfed.org/graph/?g=AzYM
- sbelskie 5y agoIs your claim that the Fed intentionally causes this cycle? I’m not sure I understand what their supposed goal is here.
- ItsMonkk 5y agoI think the generally understood stance from economists is that they fear inflation(despite the well researched article we're responding to that states that we won't see hyper-inflation!) more than they fear recessions, and that no one truly knows whats going on when a yield curve inversion happens and why it creates recessions. It is well established that unemployment and inflation is linked, see the Phillips curve. In practice, it keeps working so they keep doing it.
- paulpauper 5y agothe fed wuld alsmot never allow it to invert if they can prevent it.
- jameslk 5y agoThis sounds awfully similar to the Austrian business cycle theory: https://en.m.wikipedia.org/wiki/Austrian_business_cycle_theory https://en.m.wikipedia.org/wiki/Austrian_business_cycle_theo...
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- mensetmanusman 5y ago“ The power of technological deflation is important not to overstate, though. In everyday use, the rise of the smart phone displaced a lot of house phones, cameras, video recorders, film, CD players, iPods, beepers, radios, scanners, roadmaps, and many ATMs. They also displaced a big percentage of physical newspapers, calendars, dictionaries, encyclopedias, and books. In more niche areas they displaced some mobile game devices, pocket translators when traveling, compasses, voice recorders, and photo scrapbooks. We folded many of our devices and consumables into one powerful device with dozens of software applications.” This, and we haven’t even discussed the amazing tech in food production that is getting better daily. (Satellites telling tractors in iowa what to do based on hyper spectral drone flyovers). I remember our family taking a few years monthly payments to get me encyclopedias, and now we have wiki.
- HNfriend234 5y agoThis is true but it is imperative that citizens have a reliable currency to use to do transactions. This is why I think it is imperative that we transition over to cryptocurrencies that are based on strong fundamentals that make money reliable. https://en.wikipedia.org/wiki/Money https://en.wikipedia.org/wiki/Money
- km3r 5y agoEvery economy in the world has and will continue to operate with some inflation, taking away an inflationary currency is dangerous and will serve to further entrench the wealth inequality we have seen grow over the past century. Sure crypto is nice because you don't have to trust a central government, but you already are trusting that government with the other 99% parts of life, rendering this sort of moot. In addition, monetary policies in times of crisis would not work in the world of crypto. Sometimes to prevent a total collapse, the fed needs to print some money. Sure it's not the best/most perfect tool, and should be used very sparingly, but to discredit it as unnecessary is a gross misunderstanding of modern monetary theories.
- clarkmoody 5y ago
- sologoub 5y agoThis chart in the expense share of a typical income illustrates a number of issues well, but healthcare stands out like crazy: https://mobile.twitter.com/_cingraham/status/1231950129843671042 https://mobile.twitter.com/_cingraham/status/123195012984367... College, transportation and housing are all pretty high overall, but the healthcare share is just stunning. If we were looking at dramatically better outcomes or services, fine. Unfortunately, doctors get to see patients for less and less time, billing is going up and you don’t really see anything in return. Most other developed nations put a stop to this a long time ago…
- neuroma 5y agoI presume you are in the USA. I watch and marvel at how the USA has such expensive health care and yet apparently has poorer outcomes than other G10 nations, in aggregate. The NHS in my home country is undergoing privatisation of the more lucrative or self-contained components. But it seems important for other countries to watch and learn from this example because free market economics are so often heralded as a solution to inefficiency, cartels, and high prices. Why healthcare is not as amenable to the benefits of capitalism is no doubt complex, but if I may speculate, I'd suggest that choice is not really a good thing in healthcare. All we want is good care, and we want it quickly and conveniently. Choice is only needed if we are getting poor care. Furthermore, the infrastructure (buildings, equipment, supply chains, specialists) are sufficiently costly that often the market cannot entertain multiple variations. In other words, we can't always have many equally equipped hospitals competing to do the same things.
- syshum 5y ago>>yet apparently has poorer outcomes than other G10 nations I assume you have data for this? Something more than the flawed infant mortality rate that is often cited but is a very poor judge of a health system in reality? Something like 5 year cancer survival rates. Time a person waits on Specialist Wait List, the time it takes a person to get a replacement Hip, MIR, or Heart Stent. All of which I believe the US is very high or at the top of those statistics
- kart23 5y ago>However, folks who had property with a fixed-rate mortgage going into the 1970s, generally did very well. The house price kept up with inflation, but the mortgage was devalued against inflation, and so home equity went up by quite a bit, along with their wages. Being a debtor is good when inflation hits, and having an asset that has historically outpaced inflation is doubly good. I believe this is a part of why home prices are rising, people know its going to be a lucrative investment over the coming years, and the downside is minimal at low rates.
- shubik22 5y agoSeems like a solid, albeit somewhat dry explanation of inflation. I love concrete examples of how inflation impacts people’s lives, and there are a few that really helped clarify my understanding of inflation that I like to point others to now. 1) https://www.npr.org/sections/money/2015/12/02/458222801/episode-216-how-four-drinking-buddies-saved-brazil https://www.npr.org/sections/money/2015/12/02/458222801/epis.... A great Planet Money episode about how Brazil combatted hyperinflation by just replacing their currency. 2. https://slate.com/business/1998/08/baby-sitting-the-economy.html https://slate.com/business/1998/08/baby-sitting-the-economy..... A Paul Krugman Slate article about a 1978 journal article that uses the example of a babysitting coop to illustrate the way that the monetary supply can have ramifications on the real economy. 3. And the Money Kept Rolling In (and Out) https://www.amazon.com/dp/1586483811/ref=cm_sw_r_cp_api_glt_fabc_HX6M0Z6K2FJNX9JWQ7JJ https://www.amazon.com/dp/1586483811/ref=cm_sw_r_cp_api_glt_.... A much longer read, but this is book about the economic crisis in Argentina is one of my favorite economics books, and also teaches you a lot about the international monetary system as well.
- dnautics 5y agoKrugman's blindness to the patently obvious solution to babysitting coop scrip story is astounding. If anything it belies the Marxist philosophy that an hour of work is an hour of work. It's completely ridiculous that any arbitrary pair of hours should be equivalent to each other. They should not have pegged the currency, and that is the problem. When you think inflation is a hammer and all planned economies are nails, people are gonna get hurt.
- marcosdumay 5y ago> by just replacing their currency And stopping printing money and balancing the budget. Also a lot of legal interventions to stop some habits, and even a constitution change. The Real was a complex and multifaceted project.
- blake1 5y agoReads like it was written by someone who reads many inflation “truthers,” but is too empirical to believe the hype. Correctly rejects the asset-price inflation theories, which hold that the stock market, Bitcoin, and fine art appreciations are evidence of hidden inflation. Also correctly points out the flaws in CPI, while ignoring the many improved inflation measures, like trimmed mean, the MIT billion price index, or the Fed’s preferred core PCE measure.
- simonsarris 5y agoMentioning M2 without mentioning the accounting change that completely changes the graph starting May 2020 is very odd. Of course the percent change is large when you start measuring a different thing from before. The simplest explanation of accounting change can be found here: https://www.collaborativefund.com/blog/the-fed-isnt-printing-as-much-money-as-you-think/ https://www.collaborativefund.com/blog/the-fed-isnt-printing... But the St Louis fed also publishes a disclaimer at the bottom of their graph about it: https://fred.stlouisfed.org/series/M2 https://fred.stlouisfed.org/series/M2
- karagenit 5y agoAre you sure that's correct? If I'm reading the article you linked correctly, they basically decided to count savings accounts as M1 instead of M2. But since M1 is included in M2... this shouldn't change the total value of M2? So all of the increases in M2 were actually due to printing of more money (among other things).
- thebean11 5y agoWouldn't counting savings as M1 allow the bank to create additional M2 due to fractional reserve?
- karagenit 5y agoI don't think so. When the pandemic hit, the fed made the reserve ratio 0% for all accounts, so counting savings accounts as M1 wouldn't really change how much money banks could lend. However, even under normal circumstances (transactional accounts have a reserve ratio of 10%, other accounts have a reserve ratio of 0%) counting savings accounts as transactional (M1) would actually increase the reserve requirement for banks, decreasing the amount they could loan and therefore decreasing M2 overall.
- fukmbas 5y agoTldr?
- marsven_422 5y agoInflation is when the government prints money out of thin air. It's like a hidden tax, and as such stealing. Is and always has been. Everything else is post facto justification for said money printing.
- PhaedrusV 5y agoI get the argument from the fed about hedonic adjustments and increased quality of life, but that's not how people measure their happiness. Subjective happiness is how you're doing relative to those around you. The hedonic adjustments are all about objective quality of life. Sure, my resources in my working class midwest neighborhood would be the envy of Louis XVI's court, but that doesn't matter to me when my neighbor gets a new car. I wonder how difficult it would be to build a "Subjective Inflation" measure that was useful. Based on category consumption by income quintile you can figure out rough price inflation experienced. With the understanding that happiness is mostly about keeping up with the Joneses you can just assume away the hedonic quality boost and call it "subjective inflation". The point from the inflation link about not being to eat ipads is critical. Increased resources are definitely nice, but the happiness derived from them is zero-sum, and at the end of the day they're taking more of my income. This, coupled with the stagnation of median wages, means that: We're not getting any happier as a cohort, and The things we consume cost a bigger chunk of our earnings every year I buy the link's argument that we should expect price inflation. Interestingly, this analysis is done with mostly pre-COVID data. COVID has amplified all these trends leading to price-inflation, and narrowed our demand into fewer goods and services. That further amplifies the inflationary forces that were already gearing up to make the 20's crazy. Buckle up. There's going to be a lot of people who feel like their quality of life is crashing.
- karatinversion 5y ago> coupled with the stagnation of median wages But this is an effect that only appears in real, i.e. inflation-adjusted, wages?
- 127 5y agoJust throwing this in the air: in the 1970, getting off the gold standard made it possible to take much more debt in varied ways. This probably enabled the rich and the corporations to drain a much larger part of the economy for themselves. Also throwing this in the air: debt might not actually increase productivity unless it's explicitly only used for productive purposes. Even then it seems dubious. The whole argument of using debt to build a business smells funny. Right now if you look, people who have access to cheap debt, are buying assets with it. A lesser version of this has been probably going on for decades.
- zby 5y ago"The whole argument of using debt to build a business smells fnny" - so what is the alternative? Do you believe that equity is the only way to finance a business?
- notsureaboutpg 5y agoI believe in many societies this was the main way to finance businesses, or profit sharing investments (essentially equity). This is because in olden days, outstanding debts could land you in debtors prison or essentially leave you enslaved to the person to whom you owed a debt so people were not as willing to take on debt for financing a business
- 127 5y agoSmells funny because it's used to defend so many different pathologies. Alternatives? Break up big banks that are too big to fail. Build up many small, local banks that actually give a shit about their surrounding community.
- Gustomaximus 5y ago> The whole argument of using debt to build a business smells funny. I think this conflates generally running at a loss with debt, but there is also positive investment. E.g. Many property developers run on ever increasing debt as they grow, and many of these business do really well. They are using debt to create something of value, sell it and then replay debt. But if a company is using debt (or equity) to keep growing with overly hopeful future profitability plans, then yeah this is not good. Both use debt, one is totally normal and common. The other 'smells funny', so I feel it more about the value creation the debt is used for to build the business than the actual debt.
- midjji 5y agoHas anyone seen any study or discussion of inflation arbitrage? Not in the trivial sense of if you predict inflation borrow and invest, but in the case of viewing a country as multiple separate markets and there being inflation differences between them, which in turn means there is opportunity for arbitrage? It seems to me like a failure to accept that adjacent markets sharing a currency can have different rates of inflation is a large part of why people are so damned bad at understanding and measuring inflation. The article is a good example, every metric and estimate proposed assumes that there is a single inflation rate for the currency. But if you instead thought of it as one good being trades in multiple different market places, then its obvious that there could be differences in price between these markets which traders could exploit. Critically, unless they did so and doing so was a near perfect market, there would effectively be multiple different prices for the commodity and the textbook use of inflation would be such a shitty model as to be near useless. If you instead asked, how many ingots of currencium would I need to buy a bag of other goods, it would be obvious that this would also require a statement of in market A. I doubt the reason this arbitrage opportunity is entirely missed, but it could be that its unusually hard to exploit. However, I suspect it is partly because even among financially literate people, a currency has one rate of inflation is a common idea. That said, the single market model where currency has a common price provides shitty predictions. For instance, the strongest counter argument against the apparently obvious statement. SNP500 has not increased more in value in 2020 than 2019, its mostly just inflation, is: No metric of inflation say it has been anywhere near 40% in 2020. However, if we view this as two different markets, A(capital), B(consumer) where the inflation is different for each. Then any metric which is designed to predict inflation assuming its the same in both would by necessity underestimate one and overestimate the other. The counterargument would be that if this was the case an efficient market would eliminate the arbitrate opportunity. But thats barely true in the most ideal cases, and its easy enough to come up with such arbitrate opportunities. For instance, we know that historically, whenever there is inflation, stocks respond quickly, but salaries generally lag behind. This is damned near proof of the multi market model on its own, but a model with more parameters always fits the data better. A sufficient, but not necessary proof would be the existence of insurance contracts for and against inflation in another market priced in the same currency. In short, is there a reason that salary futures aren't a thing?
- lbschenkel 5y agoSome personal anecdotes. I grew up during the hyperinflation days in Brazil (80s, early 90s): talking about 60% a month. People would get their salary and run to the supermarket and buy everything they needed for the month, because if they waited a single day the prices would have changed. A lot of people internalized that habit and still do that nowadays (not in the sense of running to the supermarket, but buying a lot for the whole month). This was before barcodes, and every item had a price label on it. Supermarkets had people employed full time just to be remarking the items. I remember running to pick up an item on one end of a shelf while the employee was remarking the items coming from the other end, so you could buy the item at yesterday's price. I lived through 6 currency changes. Usually when prices started being in the scale of millions, the government would announce that in a very short period (sometimes that being next week), there was a new currency with a new name and 1000 OLD = 1 NEW. Until the government could replace all existing bills, the old bills would be accepted as if they were the new bills (at 1/1000 of the face value, of course). Old bills passing through the banking system would be stamped with the name of the new currency and the new value before being put back into circulation. Contracts like rentals were all indexed: there was a clause saying the price would be corrected every month using the official index that tracked the inflation. Or were pegged to the dollar. This by itself fed into the positive feedback loop that was perpetuating the hyperinflation. The government tried some bizarre measures to tame inflation. Often they would try freezing all prices, but that was never sustainable for long. The craziest one was probably in 1990 when the government simply froze 80% of everybody's money in the bank for 18 months to reduce the amount of money in the economy. This was a total disaster and even caused many suicides. In 1994 hyperinflation was finally tamed when the current currency, Real, was introduced. It was the culmination of an ingenious plan that actually worked. Feel free to ask me more, if you're interested.
- ohashi 5y agoI feel like you ended the story too soon. Let's hear about the Real and how it worked.
- lbschenkel 5y agoReplied at https://news.ycombinator.com/item?id=27104509 https://news.ycombinator.com/item?id=27104509
- tomohawk 5y ago> If the government and central bank were to create a trillion new dollars and give the 100 richest people in the country an extra $10 billion each with that money, what would they spend it on? All of their physical needs and desires are met many times over already. Rich people are rich because they invest when they can instead of spending. Poor people spend because they think that's what rich people do and they want to feel rich. Expecting rich people to suddenly behave like poor people makes no sense. These wealthy people would invest the money, likely by buying up other businesses that didn't get the handout.
- bern4444 5y agoI've believed for a bit of time now that the only real reason for the FED to pursue a 2% inflation goal (and I personally believe inflation is far higher than 2%) is to reduce the US's increasing debt burden over time. If the debt were far lower and more manageable, inflation wouldn't be as necessary a goal as a mechanism to try and reduce its actual value over time. As this article discusses a bit, inflation is a great way to rob the middle and lower class of value in a way that the upper class is more able to avoid (though not completely) especially due to lack of wage growth at lower levels. Or perhaps stated in a different context, the target inflation goal might be very different with a much smaller debt. Now that the US (and many other economies) are addicted to near 0 interest rates, and with all the increased spending (regardless if anyone thinks the spending is "good" or "bad"), I have difficulty seeing how we can dig out of what appears to me as a bit of a hole even with the potential productivity gains the current spending is supposed to spur. Raise interest rates at this time, and everyone takes a big hit especially as the US is spending a ton more so that's not really an option anytime soon. Keep them low and the only solution to the next economic downturn is to again spend our way out, only furthering the need to keep interest rates close to 0 (making this a bit of a vicious cycle). No one knows where this ends (I certainly don't and I think any economist who says otherwise is lying whether they know it or not) but the rising cost of the majority of goods that people spend on (health, education, homes and rent) scares me quite a bit as a young adult looking at the next 20 years as I think about wanting to establish my life despite my own luck in having a high paying career in software engineering.
- prakhar897 5y ago>> More specifically, the top 1% of households in the United States have $39.4 trillion in assets and less than $0.8 trillion in debts, which gives them a net worth of $38.6 trillion. So, they have a debt/equity ratio of just 2%. Almost their their entire balance sheet consists of assets. Meanwhile, the bottom 50% of households have $7.6 trillion in assets and $5.1 trillion in debts, resulting in just $2.5 trillion in net worth. So, they have a debt/equity ratio of 200%. Their balance sheets have a lot of debt relative to equity, and almost as much in debt as in assets. Isn't this statement misleading? I know Jeff Bezos personally doesn't hold any debts but Amazon does. So, if inflation happens, it will indirectly benifit bezos. Hence, Inflation is good for everyone ( Both poor and rich).... Am I missing something?