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Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supp

Japan has been printing money hand over fist for decades - more than tripling the money supply since 1990 - but their CPI has been dead-ass flat. [1] Money supply matters, but more money doesn't immediately mean higher prices. More money doesn't necessarily mean each unit is worth less than before because it doesn't exist in isolation. What you do with that money matters. [edit] Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! [1] https://fred.stlouisfed.org/series/JPNCPIALLMINMEI https://fred.stlouisfed.org/series/JPNCPIALLMINMEI

MegaButts 5y ago
Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.
- arcticbull 5y ago
  btw to be clear, I don't think that the increase in money supply has had zero impact. I think it's actually a key part. Folks saved a bunch of money - to your point, invested it in the stock market - and then when restrictions lifted, they went out and bought stuff. This spike in demand contributed to inflation, no doubt, and it was in part created by new money. I'm not sure that the alternative - at least from the Fed's perspective - of allowing the US to enter a deflationary spiral in 2020 would have done us better. I also think that these issues are transient, and caused by a very poor transition out of COVID lockdowns and into normalcy. It's taking longer than I thought to resolve, but I do think that not taking too much dramatic action and letting the market sort it out is the path forward.
  - MegaButts 5y ago
    > I also think that these issues are transient I think the amplification of these issues is transient, but that the overall trend is still up. I believe CPI will come down again soon, but then start to trend up again without drastic measures from The Fed (much more than raising rates by 25 basis points a few times a year like they're currently discussing). The world economy is complicated though. Nobody was predicting covid a few years ago. Not many people were predicting a war last year. Who knows what crazy wrench reality will throw in the system soon.
nightski 5y ago
The Yen is not the world reserve currency and does not have the status of the petrodollar.
- arcticbull 5y ago
  ... which would give printing more Yen outsize impact. There's demand for new US dollars all over the world. There's far less demand for the Yen. The Yen, for what it's worth, is the preferred Asian reserve currency. And the 'petrodollar' is a consequence of US power, it doesn't give the US power.
  - criddell 5y ago
    Why do some see using the Euro or other money for oil as a threat to the value of the US dollar?
steve76 5y ago
dyndos 5y ago
Japan is a bit of a special case. They had extraordinarily high private-sector credit growth before their bubble burst. Now their private-sector debt has been dramatically shrinking, which would have led to deflation. Basically, Japan's public-sector debt growth is offsetting private-sector debt shrinkage. This dynamic is unique to Japan.
aww_dang 5y ago
>if I print money to build a new port... This is where the argument breaks down in my view. You cannot effectively centrally plan an economy. Granting these special favors for pet projects creates malign incentives. Those who are closest to the money spigot benefit disproportionally as compared to those who receive the newly printed money later. See also: Richard Cantillon. The decentralized market price discovery mechanism is disrupted by the malign incentives created by the money printers. Even if central planners could acquire enough information to effectively plan an economy, the problem of corruption and malign incentives remains. That said, central planners cannot effectively out-compete the decentralized price discovery mechanism of a generally unhampered market. They are limited and fallible bureaucrats, where the market participants are legion. Institutional group-think is yet another obstacle. Finally, even if you could conclude that your centrally planned port was not a bad investment, can you measure the cost of lost innovation? The opportunities not taken by the market because capital was misallocated by central planners for a port?
Manuel_D 5y ago
> Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! Only if that new port resulted in value added equal to the money printed. If the port only adds, say, half the value it's going to lead to inflation. If you just print a bunch of money to give to unemployed people, it's going to lead to inflation.
- harambae 5y ago
  It's worse than just giving out money to unemployed people, I know people with jobs (working for large corporations, not a business of their own) that applied for and got six figures worth of fraudulent PPP loans. Wanna guess how many people actually get caught for that? I guess we'll find out in a year or two. I'm guessing almost none.

MegaButts 5y ago

Fair. I'm not an expert on the economy of Japan (although I know a little bit). But in this case the money being printed is being used to prop up the stock market. It's essentially creating an artificial bubble. So yes, you're right. How you use the money matters. But the US government isn't using it to help consumers, it's using it to help corporations. I did not articulate this in my original comment, and concede you're (mostly) right. I maintain that "the money printer goes brrrr" is the main issue in the US, but admittedly I'm not providing as much data as you and your arguments aren't bad.

arcticbull 5y ago
btw to be clear, I don't think that the increase in money supply has had zero impact. I think it's actually a key part. Folks saved a bunch of money - to your point, invested it in the stock market - and then when restrictions lifted, they went out and bought stuff. This spike in demand contributed to inflation, no doubt, and it was in part created by new money. I'm not sure that the alternative - at least from the Fed's perspective - of allowing the US to enter a deflationary spiral in 2020 would have done us better. I also think that these issues are transient, and caused by a very poor transition out of COVID lockdowns and into normalcy. It's taking longer than I thought to resolve, but I do think that not taking too much dramatic action and letting the market sort it out is the path forward.
- MegaButts 5y ago
  > I also think that these issues are transient I think the amplification of these issues is transient, but that the overall trend is still up. I believe CPI will come down again soon, but then start to trend up again without drastic measures from The Fed (much more than raising rates by 25 basis points a few times a year like they're currently discussing). The world economy is complicated though. Nobody was predicting covid a few years ago. Not many people were predicting a war last year. Who knows what crazy wrench reality will throw in the system soon.

nightski 5y ago

The Yen is not the world reserve currency and does not have the status of the petrodollar.

arcticbull 5y ago
... which would give printing more Yen outsize impact. There's demand for new US dollars all over the world. There's far less demand for the Yen. The Yen, for what it's worth, is the preferred Asian reserve currency. And the 'petrodollar' is a consequence of US power, it doesn't give the US power.
- criddell 5y ago
  Why do some see using the Euro or other money for oil as a threat to the value of the US dollar?

steve76 5y ago

dyndos 5y ago

Japan is a bit of a special case. They had extraordinarily high private-sector credit growth before their bubble burst. Now their private-sector debt has been dramatically shrinking, which would have led to deflation. Basically, Japan's public-sector debt growth is offsetting private-sector debt shrinkage. This dynamic is unique to Japan.

aww_dang 5y ago

>if I print money to build a new port... This is where the argument breaks down in my view. You cannot effectively centrally plan an economy. Granting these special favors for pet projects creates malign incentives. Those who are closest to the money spigot benefit disproportionally as compared to those who receive the newly printed money later. See also: Richard Cantillon. The decentralized market price discovery mechanism is disrupted by the malign incentives created by the money printers. Even if central planners could acquire enough information to effectively plan an economy, the problem of corruption and malign incentives remains. That said, central planners cannot effectively out-compete the decentralized price discovery mechanism of a generally unhampered market. They are limited and fallible bureaucrats, where the market participants are legion. Institutional group-think is yet another obstacle. Finally, even if you could conclude that your centrally planned port was not a bad investment, can you measure the cost of lost innovation? The opportunities not taken by the market because capital was misallocated by central planners for a port?

Manuel_D 5y ago

> Concrete example: if I print money to build a new port, and that new port leads to a decrease in shipping costs? Then prices go down, meaning each dollar is worth more than before I increased the supply. New money is an investment. It's the liability side of the books. The asset side of the books (what we got for it) matters too! Only if that new port resulted in value added equal to the money printed. If the port only adds, say, half the value it's going to lead to inflation. If you just print a bunch of money to give to unemployed people, it's going to lead to inflation.

harambae 5y ago
It's worse than just giving out money to unemployed people, I know people with jobs (working for large corporations, not a business of their own) that applied for and got six figures worth of fraudulent PPP loans. Wanna guess how many people actually get caught for that? I guess we'll find out in a year or two. I'm guessing almost none.