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Turns out that tripling the money supply... increased prices. If only there had been some sort of model or discipline that could have predicted this beforehand

by donw 5y ago

Turns out that tripling the money supply... increased prices. If only there had been some sort of model or discipline that could have predicted this beforehand.

e4e78a06 5y ago
Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. The other party doesn't like to balance budgets either and if the Fed even touches interest rates the market (and everyone's 401k) tanks.
- deleted 5y ago
  [deleted]
- PaulDavisThe1st 5y ago
  > Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. What is the scope of the evidence that proves that this claim (which, btw, is really not being trumpeted by anyone "in charge") is false?
  - legalcorrection 5y ago
    The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Greedy companies might collude in an industry here and there, but that doesn’t cause across the board inflation. And this grand conspiracy argument is the position, at least in part, being pushed by the Democratic Party in the US. It’s actually similar to what flailing governments in third world inflationary economies say too. It’s always the evil capitalists raising prices for no reason but to line their pockets. Ignorant drivel meant to appease ignorant people and deflect blame.
    - giantrobot 5y ago
      > The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Nope. Prices are set by what the market is willing to bear. Supply and demand are loosely correlated with the final retail price of things. Demand for a good is based on its current asking price and how the consumer values that good. If the asking price ends up pricing the good out of the market's ability to pay for it the demand will drop irrespective of the supply. As for conspiracies to increase prices, that's just a ludicrous position. All players in the market with the same incentives can move in lockstep with zero coordination. There doesn't need to be a conspiracy when every company basically lives by "make the most money". If you see a competitor raising prices it's the perfect time to raise your own prices irrespective of your costs. If your costs haven't increased then you get better margins for free. There's no need for direct collusion when competitors are looking at the same news and have the same overall playbook.
      - tonyedgecombe 5y ago
        >Nope. Prices are set by what the market is willing to bear. Only when supply is constrained, for example housing in leading cities. Otherwise prices tend to fall to the marginal cost of the item you are buying.
        notch656a 5y ago
        Supply of tangible goods is always constrained, if by nothing else by physical limitations of the earth and our ability to exploit it.
        tonyedgecombe 5y ago
        Except that ignores the innovation we bring to manufacturing. If a car manufacturer finds a way to use less material in a component or a furniture maker finds a way to use more of the tree in their products then that lowers the marginal cost. Their competitors will adopt the same idea or else risk going out of business. Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.
ece 5y ago
If only we actually listened to that model or discipline that keeps pointing out the pitfalls of inequality.
KerrAvon 5y ago
What does the money supply have to do with the supply chain shocks that are actually the root cause of the increased prices?
- chmod600 5y ago
  You claim that supply issues are the root cause, but it's certainly some combination. If monetary and fiscal policy had been tighter, we might not see the same jump when hit with a supply issue.
- sakopov 5y ago
  It's just a domino effect. Demand for good has decreased significantly during COVID as businesses had to scale back. Inevitably suppliers had to shutdown or cut production. FED started printing money in the meantime and giving consumers handouts to stimulate economy and increase spending. Instead, that money went into a stock market frenzy and savings accounts as people were forced to stay home. When COVID restrictions eased and economy started to open up and consumers rushed to spend their savings. This caused businesses and suppliers scramble to meet demand and ultimately triggered the supply chain crisis. As a result the prices on goods have shot up as there was too much money chasing to few goods and the economy wasn't able to keep up with demand after remaining dormant for months.
  - mohanmcgeek 5y ago
    That's so much theorizing just to fit in the "money printing caused inflation" theory
    - notch656a 5y ago
      The influence of supply on price applies not just to goods, but also to money. It's weird to dismiss it in this flippant way.
      - mohanmcgeek 5y ago
        This false notion has caused so much misery in the last couple of centuries.
lamontcg 5y ago
You're literally commenting on an article about a negative supply shock leading to increases in prices and you're concluding it has everything to do with monetary policy.
- OrlandoHakim 5y ago
  Monetary policy is the elephant in the room that no one in charge dare mention. A quick look at the numbers makes this obvious. Consider that 80% of all dollars that exist were created in the past three years. Now ask why Janet Yellen, Jerome Powell, and the Biden administration conveniently forget to mention even the possibility that money printing may have been a contributing factor driving inflation.
  - lamontcg 5y ago
    Literally everyone talks about it, including with the "money printer go brrrr" meme. They even talk about it when it is completely inappropriate like when there's a blatant negative supply shock. It is one of those "unpopular opinions" that are actually enormously popular.
    - notch656a 5y ago
      Does 'literally everyone' include those in charge including the fed board members themselves criticizing their own monetary policies? The critique wasn't that the victims of inflations mention the ballooning the money supply, it's that those in charge of the ballooning tend not to. I think you may have missed where they said 'in charge.' Jerome Powell is not posting "money printer go brrr" memes.
jjeaff 5y ago
We've been multiplying the money supply for decades. The fact that we are only seeing inflation now is proof that increasing money supply is by far the only factor and likely one of the smaller ones.
- tastyfreeze 5y ago
  Um, the dollar buys 1/28th what it did prior to the Fed. The price increases have been small for a very long time. Small enough that you might only notice when buying a product you haven't bought for a few years. Couple the slow creep of inflation with efficiency gains and you might not notice the cost increase for a long time. Now the cost of continually increasing dollar supply and enormous debt is too much. If the Fed increases interest rates the economy tanks. If they create a bunch more money we get runaway inflation. There is no painless way out of this mess. The only real solution is political suicide. So, unfortunately, the dollar will die before we are out of this mess. Hope you are prepared.
  - jjeaff 5y ago
    And pundits have been proclaiming the end is nigh ever since the fed as well. If things get bad enough, the government can raise taxes and hold or destroy that currency. If things progress as you predict, it will become political suicide not to do so. If things get so bad that the dollar fails, there is little anyone can do in terms of financial hedging that will make much difference.

by donw 5y ago

Turns out that tripling the money supply... increased prices. If only there had been some sort of model or discipline that could have predicted this beforehand.

e4e78a06 5y ago

Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. The other party doesn't like to balance budgets either and if the Fed even touches interest rates the market (and everyone's 401k) tanks.

deleted 5y ago
[deleted]
PaulDavisThe1st 5y ago
> Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. What is the scope of the evidence that proves that this claim (which, btw, is really not being trumpeted by anyone "in charge") is false?
- legalcorrection 5y ago
  The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Greedy companies might collude in an industry here and there, but that doesn’t cause across the board inflation. And this grand conspiracy argument is the position, at least in part, being pushed by the Democratic Party in the US. It’s actually similar to what flailing governments in third world inflationary economies say too. It’s always the evil capitalists raising prices for no reason but to line their pockets. Ignorant drivel meant to appease ignorant people and deflect blame.
  - giantrobot 5y ago
    > The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Nope. Prices are set by what the market is willing to bear. Supply and demand are loosely correlated with the final retail price of things. Demand for a good is based on its current asking price and how the consumer values that good. If the asking price ends up pricing the good out of the market's ability to pay for it the demand will drop irrespective of the supply. As for conspiracies to increase prices, that's just a ludicrous position. All players in the market with the same incentives can move in lockstep with zero coordination. There doesn't need to be a conspiracy when every company basically lives by "make the most money". If you see a competitor raising prices it's the perfect time to raise your own prices irrespective of your costs. If your costs haven't increased then you get better margins for free. There's no need for direct collusion when competitors are looking at the same news and have the same overall playbook.
    - tonyedgecombe 5y ago
      >Nope. Prices are set by what the market is willing to bear. Only when supply is constrained, for example housing in leading cities. Otherwise prices tend to fall to the marginal cost of the item you are buying.
      - notch656a 5y ago
        Supply of tangible goods is always constrained, if by nothing else by physical limitations of the earth and our ability to exploit it.
        tonyedgecombe 5y ago
        Except that ignores the innovation we bring to manufacturing. If a car manufacturer finds a way to use less material in a component or a furniture maker finds a way to use more of the tree in their products then that lowers the marginal cost. Their competitors will adopt the same idea or else risk going out of business. Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.

ece 5y ago

If only we actually listened to that model or discipline that keeps pointing out the pitfalls of inequality.

KerrAvon 5y ago

What does the money supply have to do with the supply chain shocks that are actually the root cause of the increased prices?

chmod600 5y ago
You claim that supply issues are the root cause, but it's certainly some combination. If monetary and fiscal policy had been tighter, we might not see the same jump when hit with a supply issue.
sakopov 5y ago
It's just a domino effect. Demand for good has decreased significantly during COVID as businesses had to scale back. Inevitably suppliers had to shutdown or cut production. FED started printing money in the meantime and giving consumers handouts to stimulate economy and increase spending. Instead, that money went into a stock market frenzy and savings accounts as people were forced to stay home. When COVID restrictions eased and economy started to open up and consumers rushed to spend their savings. This caused businesses and suppliers scramble to meet demand and ultimately triggered the supply chain crisis. As a result the prices on goods have shot up as there was too much money chasing to few goods and the economy wasn't able to keep up with demand after remaining dormant for months.
- mohanmcgeek 5y ago
  That's so much theorizing just to fit in the "money printing caused inflation" theory
  - notch656a 5y ago
    The influence of supply on price applies not just to goods, but also to money. It's weird to dismiss it in this flippant way.
    - mohanmcgeek 5y ago
      This false notion has caused so much misery in the last couple of centuries.

lamontcg 5y ago

You're literally commenting on an article about a negative supply shock leading to increases in prices and you're concluding it has everything to do with monetary policy.

OrlandoHakim 5y ago
Monetary policy is the elephant in the room that no one in charge dare mention. A quick look at the numbers makes this obvious. Consider that 80% of all dollars that exist were created in the past three years. Now ask why Janet Yellen, Jerome Powell, and the Biden administration conveniently forget to mention even the possibility that money printing may have been a contributing factor driving inflation.
- lamontcg 5y ago
  Literally everyone talks about it, including with the "money printer go brrrr" meme. They even talk about it when it is completely inappropriate like when there's a blatant negative supply shock. It is one of those "unpopular opinions" that are actually enormously popular.
  - notch656a 5y ago
    Does 'literally everyone' include those in charge including the fed board members themselves criticizing their own monetary policies? The critique wasn't that the victims of inflations mention the ballooning the money supply, it's that those in charge of the ballooning tend not to. I think you may have missed where they said 'in charge.' Jerome Powell is not posting "money printer go brrr" memes.

jjeaff 5y ago

We've been multiplying the money supply for decades. The fact that we are only seeing inflation now is proof that increasing money supply is by far the only factor and likely one of the smaller ones.

tastyfreeze 5y ago
Um, the dollar buys 1/28th what it did prior to the Fed. The price increases have been small for a very long time. Small enough that you might only notice when buying a product you haven't bought for a few years. Couple the slow creep of inflation with efficiency gains and you might not notice the cost increase for a long time. Now the cost of continually increasing dollar supply and enormous debt is too much. If the Fed increases interest rates the economy tanks. If they create a bunch more money we get runaway inflation. There is no painless way out of this mess. The only real solution is political suicide. So, unfortunately, the dollar will die before we are out of this mess. Hope you are prepared.
- jjeaff 5y ago
  And pundits have been proclaiming the end is nigh ever since the fed as well. If things get bad enough, the government can raise taxes and hold or destroy that currency. If things progress as you predict, it will become political suicide not to do so. If things get so bad that the dollar fails, there is little anyone can do in terms of financial hedging that will make much difference.