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Agree the Russian invasion doesn't help matters... but this is not the primary cause of inflation. The amount of money that the US has simply created and spent

Agree the Russian invasion doesn't help matters... but this is not the primary cause of inflation. The amount of money that the US has simply created and spent in last couple of years in unprecedented. The amount of money inserted into the US economy dwarfs that of the TARPP and related bailouts of 2008 by a factor of 4. You just cannot create and hand out that much cash in an economy and not expect inflation.

iso1631 4y ago
If you think the dollar is worth less then no doubt that's reflected in say gold prices, which were between 1600 and 1900 from July 2011 to April 2013. They are currently 1800. If all that extra money had devalued fiat currencies globally (at roughly the same value), why hasn't gold increased?
- jcadam 4y ago
  Smells like manipulation of PM prices.
- fsociety999 4y ago
  Gold markets are manipulated like crazy. This article talks about it a bit https://www.bullionstar.com/blogs/ronan-manly/gold-silver-price-manipulation-the-greatest-trick-ever-pulled/ https://www.bullionstar.com/blogs/ronan-manly/gold-silver-pr... There have been a number of cases of banks being found guilty of it as well: - https://www.reuters.com/article/us-usa-metals-charges/u-s-charges-jpmorgan-metals-traders-over-alleged-market-manipulation-idUSKBN1W11BF https://www.reuters.com/article/us-usa-metals-charges/u-s-ch... - https://www.reuters.com/article/jp-morgan-spoofing-penalty-idUSKBN26K325 https://www.reuters.com/article/jp-morgan-spoofing-penalty-i... Look up naked short selling if you want to see how this works. Essentially, futures markets allow trading gold without holding any physical gold so banks can take dollars and use that to short the price of gold. It has gotten to the point where more “paper gold” is bought and sold on futures markets than physical gold that exists in the world.
  - iso1631 4y ago
    Lovely. So what comodities would you prefer? Corn's about the same as in 2011, Copper, Soy etc. US M1 supply has increased 40 fold since 2011. If that's hiding "real" inflation, why are commodities less than 1/10th of the cost they were 10 years ago?
- JoshuaDavid 4y ago
  I think that in order to have any chance of actually measuring the value of money, whatever metric is used would have to be something that cannot be sold (because otherwise, when the value of money drops relative to the value of the inflation measure, people will sell the inflation measure to buy money, and vice versa, in order to keep their portfolios balanced). We see it with gold, and with bitcoin, and with stocks, and housing, and the general saying that "during a market crash, everything is correlated". Of course, that leads to the question of "what would serve as a good proxy for the actual value of currency", and I don't have a good answer to that. CPI is the traditional answer, but I don't think it's a sufficient one because 1. CPI misses out on some of what people care about (e.g. asset prices are actually important in determining what kind of long-term lifestyle people can afford) 2. We want to disentangle "commodities went up because of supply shocks that will resolve themselves" and "commodities went up because money is permanently worth less", to the extent that it is even meaningful to disentangle these things So yeah, it is entirely possible that the dollar is worth less [relative to what people care about], and also gold is worth less [relative to what people care about], and it is even possible that that is causally downstream of injecting a bunch of dollars into the economy, but I have no idea how one would robustly demonstrate that that was or was not the case. If you have any ideas on that front I'd love to hear them. Also if you are aware of any assets that are _strongly and reliably anticorrelated_ with most other assets during recessions, I would be interested for much more personal reasons.
  - iso1631 4y ago
    Asset prices aren't that important on a day to day basis, what matters more is the cost. If I have a 300k mortgage over 25 years at 7% that's $2121 a month If I have a 500k mortgage over 25 years at 2% that's $2120 a month The "price" doesn't really matter at that scale, it's the monthly payment, which hasn't gone up despite house prices increasing 67% (More importantly with things constrained by zoning/land availability, the monthly price will be set to take all my spare case, as there's more demand than supply, so prices rise until the demand drops, which means people choosing not to live in that area. In other words the higher the salaries in a given area with fixed supply, the higher the cost of housing - be it mortgage or rent) On the other hand if my weekly shop goes from $150 to $200, that's a 30% increase, and does make a difference.
kelnos 4y ago
I'm not convinced. I agree that Russia/Ukraine is not the main driver of inflation (certainly isn't helping, though), but I would look more toward supply chain shortages than money-printing. Prices go up when things are hard to find but the demand is still there -- not exactly grad-level econ.
- whimsicalism 4y ago
  To be fair, demand is up.
- eastbound 4y ago
  Fixing supply chain shortages? That sounds hard! I’d rather believe there is a big knob somewhere underground that drives the entire economy, and that we can adjust its basepoint to make people richer or poorer! More seriously, Ukraine is probably not the reason of scarcity, but if you want to solve the supply chain, you’ll hit China very fast: Their growing local population means that one day, they’ll keep everything they produce for themselves. And that’s big enough to be the cause of inflation: Mid-term inflation is probably due to lack of productivity during Covid; long-term inflation is certainly due to the lack of goods produces in the West, while the East starts to keep their production.
whimsicalism 4y ago
Day 212 of HN forgetting that velocity is a thing. [0] [0]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- jgust 4y ago
  What's the ELI5 version of how to interpret this trend line?
  - whimsicalism 4y ago
    The basic Fisher equation of exchange is that Velocity * Money Supply = Price Level (changes in this are inflation) * Economic Output During early pandemic, velocity tanked because people were spending less so it was not a foregone conclusion that increasing the money supply as much as the Fed did would lead to inflationary changes in the price level. Now, we are seeing velocity somewhat rebound while output is not increasing as much as we would expect and the Fed is doing little to scale back money supply.
    - jgust 4y ago
      Thanks for the education!

iso1631 4y ago

If you think the dollar is worth less then no doubt that's reflected in say gold prices, which were between 1600 and 1900 from July 2011 to April 2013. They are currently 1800. If all that extra money had devalued fiat currencies globally (at roughly the same value), why hasn't gold increased?

jcadam 4y ago
Smells like manipulation of PM prices.
fsociety999 4y ago
Gold markets are manipulated like crazy. This article talks about it a bit https://www.bullionstar.com/blogs/ronan-manly/gold-silver-price-manipulation-the-greatest-trick-ever-pulled/ https://www.bullionstar.com/blogs/ronan-manly/gold-silver-pr... There have been a number of cases of banks being found guilty of it as well: - https://www.reuters.com/article/us-usa-metals-charges/u-s-charges-jpmorgan-metals-traders-over-alleged-market-manipulation-idUSKBN1W11BF https://www.reuters.com/article/us-usa-metals-charges/u-s-ch... - https://www.reuters.com/article/jp-morgan-spoofing-penalty-idUSKBN26K325 https://www.reuters.com/article/jp-morgan-spoofing-penalty-i... Look up naked short selling if you want to see how this works. Essentially, futures markets allow trading gold without holding any physical gold so banks can take dollars and use that to short the price of gold. It has gotten to the point where more “paper gold” is bought and sold on futures markets than physical gold that exists in the world.
- iso1631 4y ago
  Lovely. So what comodities would you prefer? Corn's about the same as in 2011, Copper, Soy etc. US M1 supply has increased 40 fold since 2011. If that's hiding "real" inflation, why are commodities less than 1/10th of the cost they were 10 years ago?
JoshuaDavid 4y ago
I think that in order to have any chance of actually measuring the value of money, whatever metric is used would have to be something that cannot be sold (because otherwise, when the value of money drops relative to the value of the inflation measure, people will sell the inflation measure to buy money, and vice versa, in order to keep their portfolios balanced). We see it with gold, and with bitcoin, and with stocks, and housing, and the general saying that "during a market crash, everything is correlated". Of course, that leads to the question of "what would serve as a good proxy for the actual value of currency", and I don't have a good answer to that. CPI is the traditional answer, but I don't think it's a sufficient one because 1. CPI misses out on some of what people care about (e.g. asset prices are actually important in determining what kind of long-term lifestyle people can afford) 2. We want to disentangle "commodities went up because of supply shocks that will resolve themselves" and "commodities went up because money is permanently worth less", to the extent that it is even meaningful to disentangle these things So yeah, it is entirely possible that the dollar is worth less [relative to what people care about], and also gold is worth less [relative to what people care about], and it is even possible that that is causally downstream of injecting a bunch of dollars into the economy, but I have no idea how one would robustly demonstrate that that was or was not the case. If you have any ideas on that front I'd love to hear them. Also if you are aware of any assets that are _strongly and reliably anticorrelated_ with most other assets during recessions, I would be interested for much more personal reasons.
- iso1631 4y ago
  Asset prices aren't that important on a day to day basis, what matters more is the cost. If I have a 300k mortgage over 25 years at 7% that's $2121 a month If I have a 500k mortgage over 25 years at 2% that's $2120 a month The "price" doesn't really matter at that scale, it's the monthly payment, which hasn't gone up despite house prices increasing 67% (More importantly with things constrained by zoning/land availability, the monthly price will be set to take all my spare case, as there's more demand than supply, so prices rise until the demand drops, which means people choosing not to live in that area. In other words the higher the salaries in a given area with fixed supply, the higher the cost of housing - be it mortgage or rent) On the other hand if my weekly shop goes from $150 to $200, that's a 30% increase, and does make a difference.

kelnos 4y ago

I'm not convinced. I agree that Russia/Ukraine is not the main driver of inflation (certainly isn't helping, though), but I would look more toward supply chain shortages than money-printing. Prices go up when things are hard to find but the demand is still there -- not exactly grad-level econ.

whimsicalism 4y ago
To be fair, demand is up.
eastbound 4y ago
Fixing supply chain shortages? That sounds hard! I’d rather believe there is a big knob somewhere underground that drives the entire economy, and that we can adjust its basepoint to make people richer or poorer! More seriously, Ukraine is probably not the reason of scarcity, but if you want to solve the supply chain, you’ll hit China very fast: Their growing local population means that one day, they’ll keep everything they produce for themselves. And that’s big enough to be the cause of inflation: Mid-term inflation is probably due to lack of productivity during Covid; long-term inflation is certainly due to the lack of goods produces in the West, while the East starts to keep their production.

whimsicalism 4y ago

Day 212 of HN forgetting that velocity is a thing. [0] [0]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

jgust 4y ago
What's the ELI5 version of how to interpret this trend line?
- whimsicalism 4y ago
  The basic Fisher equation of exchange is that Velocity * Money Supply = Price Level (changes in this are inflation) * Economic Output During early pandemic, velocity tanked because people were spending less so it was not a foregone conclusion that increasing the money supply as much as the Fed did would lead to inflationary changes in the price level. Now, we are seeing velocity somewhat rebound while output is not increasing as much as we would expect and the Fed is doing little to scale back money supply.
  - jgust 4y ago
    Thanks for the education!