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> Unpopular opinion but the central banks are the main source of inflation. I mean, that seems obvious, there can't really be inflation if the money supply doe
by tachyonbeam 5y ago
> Unpopular opinion but the central banks are the main source of inflation.
I mean, that seems obvious, there can't really be inflation if the money supply doesn't increase, can there?
If the money supply stays fixed, then some people will save/hoard money. Some people will also be more able than others to acquiring money (possibly because they already owned assets/rental property), maybe they were born rich. The amount of money that is circulating will automatically decrease. That tends to produce deflation.
The problem is that if you have deflation in your economy, it also increases the incentive for people to save/hoard money even more. Why would you spend your money today when it will be worth more later? You have a feedback loop where the amount of money circulating just keeps decreasing, and so prices automatically have to go down.
- mywittyname 5y ago> I mean, that seems obvious, there can't really be inflation if the money supply doesn't increase, can there? Depending on your definition, sure there can be. Private lending is the primary driver of inflation. Most wealth is on paper anyway, so long as people don't try to get actual cash, then an economy can experience significant inflation with a fixed supply of money. You don't even need lending to drive inflation without a money supply increase. There are lots of bitcoin millionaires out there who can't actually liquidate their holdings for cash, but could, in theory, actually buy other physical goods with it at roughly face value. Central banks don't have a monopoly on inflation, despite everyone's apparent belief that they do. They are a major influencer, yes, but at USD-scale, they don't have all that much control. You can see this in how the Fed almost always misses their inflation targets.