3 ms·

I keep seeing people make the assumption that the inflation that the world is currently experiencing is something that supply side monetary policy can stop. I'

I keep seeing people make the assumption that the inflation that the world is currently experiencing is something that supply side monetary policy can stop. I'm skeptical of that assumption.

01100011 4y ago
Correct me if I'm wrong, but doesn't the fed control the demand side by (indirectly?) controlling the money supply? If I understand correctly, the fed is currently trying to reduce demand to match the limited supply by pulling money out of the economy.
- t-3 4y ago
  In my view, the money supply has very little to do with inflation for modern fiat currencies - especially USD. Dollars are not backed by tangible goods which can be valued, like gold. They are backed by "confidence", which can be roughly seen as something like the proportion of trade conducted using them. In this view, inflation would be caused by slowing economic activity, loss of USD trade dominance, and geopolitical shifts toward multipolarity. Nobody knows or cares about the number of dollars in the world, but we all see new economic currents flowing in Asia and the "global south".
- wonnage 4y ago
  It's also kind of a sham, "reducing demand" basically means reducing the amount of cash people have to spend, since it currently exceeds the amount of goods we can supply. The nominal prices of things might go down but the average American won't be able to afford any more, since the whole point was to reduce demand. Even worse, higher rates tend to strengthen currency value, which makes imports cheaper but hurts domestic exports. It's already very hard to devalue the USD due to its status as a reserve currency and this exacerbates that problem. We run the risk of triggering a manufacturing recession, which will helpfully "reduce demand" with layoffs but not make anyone better off.

3 ms·

I keep seeing people make the assumption that the inflation that the world is currently experiencing is something that supply side monetary policy can stop. I'

by beebmam 4y ago

I keep seeing people make the assumption that the inflation that the world is currently experiencing is something that supply side monetary policy can stop. I'm skeptical of that assumption.

01100011 4y ago
Correct me if I'm wrong, but doesn't the fed control the demand side by (indirectly?) controlling the money supply? If I understand correctly, the fed is currently trying to reduce demand to match the limited supply by pulling money out of the economy.
- t-3 4y ago
  In my view, the money supply has very little to do with inflation for modern fiat currencies - especially USD. Dollars are not backed by tangible goods which can be valued, like gold. They are backed by "confidence", which can be roughly seen as something like the proportion of trade conducted using them. In this view, inflation would be caused by slowing economic activity, loss of USD trade dominance, and geopolitical shifts toward multipolarity. Nobody knows or cares about the number of dollars in the world, but we all see new economic currents flowing in Asia and the "global south".
- wonnage 4y ago
  It's also kind of a sham, "reducing demand" basically means reducing the amount of cash people have to spend, since it currently exceeds the amount of goods we can supply. The nominal prices of things might go down but the average American won't be able to afford any more, since the whole point was to reduce demand. Even worse, higher rates tend to strengthen currency value, which makes imports cheaper but hurts domestic exports. It's already very hard to devalue the USD due to its status as a reserve currency and this exacerbates that problem. We run the risk of triggering a manufacturing recession, which will helpfully "reduce demand" with layoffs but not make anyone better off.