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If Milton Friedman were right with this statement, then the increasing money supply since 2008 due to the actions of the Fed, ECB and BoE would imply that since

by DasIch 5y ago

If Milton Friedman were right with this statement, then the increasing money supply since 2008 due to the actions of the Fed, ECB and BoE would imply that since then we've seen either a massive increase in economic output or inflation. Neither of those things happened and as a consequence we can conclude that Friedman was wrong about this.

G3rn0ti 5y ago
> then we've seen either a massive increase in economic output or inflation. No, there wasn't a massive increase in economic output nor a hyperinflation. But there was an asset price inflation. World wide we saw a surge of housing prices (in US, China and Europe -- where money supply grew phenomenally over the years), booming financial markets and a massive price increase of cryptographic money. So much of the growing monetary supply was being absorbed by those markets. But now the time has come where the all the additional money starts having an effect on the price of everyday items. So contrary to what you _want_ to believe, Milton Friedman turns out to be right ... again.
- DasIch 5y ago
  Demand for housing in Europe is also huge as people move towards cities and supply hasn't caught up and struggles to catch up due to regulation and NIMBYism. This naturally leads to an increase in prices. The price changes of everyday items right now can be explained with effects from the pandemic. Perhaps you are right and there is indeed a tipping point and we've crossed that point. Time will tell however people have also claimed we'd reach that tipping point any moment for the last 10 years or so, claiming Friedman was right because of the effects we now has strong broken clock vibes. Perhaps that's genuinely the case but it's still way too early to make that call.
  - deepnotderp 5y ago
    Except CSI across the board has increased incredibly fast compared to historical trends since 2000 ish, not just in cities. EDIT: I meant CSI, Case-Schiller Index, for house prices, a tragic typo XD
    - DasIch 5y ago
      The BLS has a page that shows the CPI over the last 20 years[1]. Looks perfectly fine over that timeframe. Some ups and downs as one would expect but generally on target. [1]: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri...
      - deepnotderp 5y ago
        I meant CSI haha, that was a bad typo
      - Supermancho 5y ago
        Until you look at commodities, minus energy and food. These also happen to be within 1% of all time highs.
roenxi 5y ago
Friedman would still on logically safe ground. The quote says [Inflation -> Monetary policy]. Logically, monetary policy may not necessarily cause inflation. That isn't a pedantic point - if someone gave me 10 trillion dollars and banned me from spending it, there would be no inflation. Or if I lent it all out to people buying assets, or "invested" it in government bonds.
spaetzleesser 5y ago
We have seen a massive increases in stock and housing prices all over the world. I don’t think that either companies have done multiple times better work over the last decade or that houses have improved several times. That should count as inflation.
ItsMonkk 5y ago
Cantillion Effect[0], see my earlier post. If you print money by lowering the interest rate, the new money is created by credit worthy people, who go on to buy assets, so you see no increase in consumption demand, so there is no inflation. If you print money and give it to the average person, you will see consumption demand rise. But that first effect is temporary. When you lower the interest rate, you are storing inflation, and using my previous posts analogy, by trapping it behind a dam. That money still exists, and given a supply shock, that dam will be opened. But it wasn't the supply shock that caused the inflation, it was always the creation of the new money in the first place. So Milton is correct. If the weathy did not have wealth stored, they could not use that wealth, and you would have no inflation. So this year we see a combination of three effects. 1. Less people working, so the average wage goes up. (The people not working retired, as their stock was up by enough, so they are still spending.) This allows the average person to have more money, which they will spend. 2. Governments have given money - and more importantly to the average person - have suspended student loan payments. This means people can spend more of what they earn. 3. Supply shock on goods caused by CO-VID and caused by inefficiencies of the Supply Chain caused by the increased demand and the switch from service economy to more stuff. You'll note that unlike 1971 or Weimar, none of this is exponential. When we reach an equilibrium point, peoples wages will level out, and peoples wages might rise back to the level they were in 1971, but the system will be stable. So the Fed is correct, it's transitory, but that transition might be longer and bigger than they expected. That is, until they raise rates next year. [0]: https://news.ycombinator.com/item?id=25646585 https://news.ycombinator.com/item?id=25646585

by DasIch 5y ago

G3rn0ti 5y ago

> then we've seen either a massive increase in economic output or inflation. No, there wasn't a massive increase in economic output nor a hyperinflation. But there was an asset price inflation. World wide we saw a surge of housing prices (in US, China and Europe -- where money supply grew phenomenally over the years), booming financial markets and a massive price increase of cryptographic money. So much of the growing monetary supply was being absorbed by those markets. But now the time has come where the all the additional money starts having an effect on the price of everyday items. So contrary to what you _want_ to believe, Milton Friedman turns out to be right ... again.

DasIch 5y ago
Demand for housing in Europe is also huge as people move towards cities and supply hasn't caught up and struggles to catch up due to regulation and NIMBYism. This naturally leads to an increase in prices. The price changes of everyday items right now can be explained with effects from the pandemic. Perhaps you are right and there is indeed a tipping point and we've crossed that point. Time will tell however people have also claimed we'd reach that tipping point any moment for the last 10 years or so, claiming Friedman was right because of the effects we now has strong broken clock vibes. Perhaps that's genuinely the case but it's still way too early to make that call.
- deepnotderp 5y ago
  Except CSI across the board has increased incredibly fast compared to historical trends since 2000 ish, not just in cities. EDIT: I meant CSI, Case-Schiller Index, for house prices, a tragic typo XD
  - DasIch 5y ago
    The BLS has a page that shows the CPI over the last 20 years[1]. Looks perfectly fine over that timeframe. Some ups and downs as one would expect but generally on target. [1]: https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri...
    - deepnotderp 5y ago
      I meant CSI haha, that was a bad typo
    - Supermancho 5y ago
      Until you look at commodities, minus energy and food. These also happen to be within 1% of all time highs.

roenxi 5y ago

Friedman would still on logically safe ground. The quote says [Inflation -> Monetary policy]. Logically, monetary policy may not necessarily cause inflation. That isn't a pedantic point - if someone gave me 10 trillion dollars and banned me from spending it, there would be no inflation. Or if I lent it all out to people buying assets, or "invested" it in government bonds.

spaetzleesser 5y ago

We have seen a massive increases in stock and housing prices all over the world. I don’t think that either companies have done multiple times better work over the last decade or that houses have improved several times. That should count as inflation.

ItsMonkk 5y ago

Cantillion Effect[0], see my earlier post. If you print money by lowering the interest rate, the new money is created by credit worthy people, who go on to buy assets, so you see no increase in consumption demand, so there is no inflation. If you print money and give it to the average person, you will see consumption demand rise. But that first effect is temporary. When you lower the interest rate, you are storing inflation, and using my previous posts analogy, by trapping it behind a dam. That money still exists, and given a supply shock, that dam will be opened. But it wasn't the supply shock that caused the inflation, it was always the creation of the new money in the first place. So Milton is correct. If the weathy did not have wealth stored, they could not use that wealth, and you would have no inflation. So this year we see a combination of three effects. 1. Less people working, so the average wage goes up. (The people not working retired, as their stock was up by enough, so they are still spending.) This allows the average person to have more money, which they will spend. 2. Governments have given money - and more importantly to the average person - have suspended student loan payments. This means people can spend more of what they earn. 3. Supply shock on goods caused by CO-VID and caused by inefficiencies of the Supply Chain caused by the increased demand and the switch from service economy to more stuff. You'll note that unlike 1971 or Weimar, none of this is exponential. When we reach an equilibrium point, peoples wages will level out, and peoples wages might rise back to the level they were in 1971, but the system will be stable. So the Fed is correct, it's transitory, but that transition might be longer and bigger than they expected. That is, until they raise rates next year. [0]: https://news.ycombinator.com/item?id=25646585 https://news.ycombinator.com/item?id=25646585