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The elephant in the room: The ECB creating > 2 trillion euros out of thin air for COVID response (As did the BoE, the Fed etc), whilst simultaneously suspending

The elephant in the room: The ECB creating > 2 trillion euros out of thin air for COVID response (As did the BoE, the Fed etc), whilst simultaneously suspending half their economies so that productive output dropped significantly. It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion. It is largely ignored by modern "economists" (particularly the modern monetary theorists, who hold the idea that we can just keep creating money at no cost). Energy price increases are not just unique to Europe, but they are occurring globally for the same reasons. This trend began well before the Russian invasion, but clearly after the 2020 response to COVID. From most-impactful to least-impactful on the price of energy (and everything else), you have 1: Reckless monetary policy. 2: Reckless green agenda. 3. RUS/UKR conflict. #3 certainly provides a convenient excuse for those in power though, who are directly responsible for #1 and #2.

hahaitsfunny 4y ago
nephanth 4y ago
Doesn't fully answer the question. Increases in monetary mass inflate the prices mostly uniformly. European markets have seen prices of energy rise way more than the others. Also, you are calling the covid policies "reckless". I believe they were fully measured and calculated. Of course the economies are in a bad state after being put under perfusion for a year. But nobody thought it would be otherwise, it was just the less bad option
- sparkie 4y ago
  > Increases in monetary mass inflate the prices mostly uniformly. I've heard this argument against QTM several times, but it is not entirely what is predicted by QTM. If we take Cantillon's explanation for how increases in the quantity of money affect prices[1], he suggests something completely different - the things which go up in price first are luxuries and stocks (things purchased by those who have early access to the new money, who are by large, already wealthy) - then it is the providers of those luxuries who are next to access the new money, and the goods they purchase are next to become inflated. The inflation does not happen over night, or uniformly, but is gradual. It might be the case that prices rises become uniform eventually, but as the process is on-going there are some commodities which are affected before others. Energy in particular impacts every industry, so there is no doubt that any rise in energy prices will be similarly met with price rises in all goods sold by any company which now must have additional energy expenditures. They will increase the price of the goods they sell to compensate. So while energy prices might be way ahead of other price rises now, it won't be long until the price of everything else follows. It's going to get much worse yet. The usual argument against QTM is that it is monetary velocity, not money supply, which is the leading factor in inflation. However, as evidenced by Lyn Alden[2], there is no long-term correlation between inflation and monetary velocity. There is a very difficult to miss correlation between money supply and inflation though. > I believe they were fully measured and calculated Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. These are just a few select headlines, but you can get the picture without me providing an exhaustive list. - "Our best view is that the effect on inflation will be neither particularly large nor persistent."[3] (Jerome Powell) - "I doubt we are going to see an inflationary cycle." [4] (Janet Yellen) - "Experts Agree: Inflation is Transitory, Manageable"[5] - "It’s official – inflation is no longer transitory"[6] - "Why Did Almost Nobody See Inflation Coming?"[7] - Inflation is a good thing![8] OTOH, this armchair economist here predicted what would happen over 2 years ago, and unsurprisingly, it happened (is happening)[9] (May 1, 2020) --- [1]:https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.pdf https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.... (Part 2, Chapter 6) [2]:https://www.lynalden.com/inflation/#supply https://www.lynalden.com/inflation/#supply [3]:https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to-inflation-heres-what-economists-are-saying https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to... [4]:https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will-reach-full-economic-employment-next-year-202105071640 https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will... [5]:https://groundworkcollaborative.org/news/experts-agree-inflation-is-transitory-manageable/ https://groundworkcollaborative.org/news/experts-agree-infla... [6]:https://moneyweek.com/economy/inflation/604181/transitory-inflation-and-the-federal-reserve https://moneyweek.com/economy/inflation/604181/transitory-in... [7]:https://www.project-syndicate.org/commentary/2021-us-inflation-forecasting-errors-economic-models-by-jason-furman-2022-01 https://www.project-syndicate.org/commentary/2021-us-inflati... [8]:https://edition.cnn.com/2021/12/01/economy/inflation-good-bad-winners-losers/index.html https://edition.cnn.com/2021/12/01/economy/inflation-good-ba... [9]:https://news.ycombinator.com/item?id=23040832 https://news.ycombinator.com/item?id=23040832
  - neilwilson 4y ago
    "There is a very difficult to miss correlation between money supply and inflation though." What's the money supply and inflation in Japan? You can't see the 'money supply' unless it is stationary. If it moves, then it gets taxed away. There is no correlation between what some people call money supply and what some people call velocity - largely because the proposed mechanism for decomposing GDP into those two values (the MV bit) is unscientific nonsense. You can prove that if you have ever held a balance in a bank account for any length of time, held any monetary savings in currency or bank account form, or ever not immediately spent money the instant you get it. It has zero velocity. What you perhaps have overlooked is the opposite correlation - that too much inflation causes money. If you have higher prices then to maintain the same transaction levels at the same speed we need a greater quantity of money in flow. Which is what happens. People start borrowing to pay the higher prices, which creates money. This current set of price rises is a supply side hiccup caused by lockdown and an opportunistic Russia and OPEC, who we have given excess power by closing down the carbon economy before we had properly built out the green one.
  - nephanth 4y ago
    > Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. Ok maybe I sound like a conspiracy theorist, but if I worked at a central bank or at a government, and predicted a spike in inflation, the last thing I'd do is tell the press. Instead I'd have the media push the "everything's fine" narrative to keep the wheel turning and avoid any kind of panic
neilwilson 4y ago
"It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion." There isn't at all that doesn't end up being comparing apples and pears, or curve fitting to a belief. Because there is no mechanism for £100 in a drawer or kept in a bank account to cause inflation. Which are the only two ways that money will show up for you to complain about it. Moreover money was not created by QE. All that happened was existing money was swapped for a different type of money. In physical terms the duration and interest rate was different which altered the yield curve. That's it. But it didn't work. We've had a decade of interest rate jiggling and none of it has caused price rises to stay in bounds in either direction. There comes a point when we have to reject the hypothesis. "Creating" base money didn't cause price rises for a decade (and still aren't in Japan), and changing interest rates or threatening to change interest rates didn't stop price rises breaking out. It's time to reject the 'adjusting interest rates and money stock controls the economy' hypothesis, and shift to something far more direct. Monetary policy is at best hopelessly ineffective and at worst doesn't work at all.

hahaitsfunny 4y ago

nephanth 4y ago

Doesn't fully answer the question. Increases in monetary mass inflate the prices mostly uniformly. European markets have seen prices of energy rise way more than the others. Also, you are calling the covid policies "reckless". I believe they were fully measured and calculated. Of course the economies are in a bad state after being put under perfusion for a year. But nobody thought it would be otherwise, it was just the less bad option

sparkie 4y ago
> Increases in monetary mass inflate the prices mostly uniformly. I've heard this argument against QTM several times, but it is not entirely what is predicted by QTM. If we take Cantillon's explanation for how increases in the quantity of money affect prices[1], he suggests something completely different - the things which go up in price first are luxuries and stocks (things purchased by those who have early access to the new money, who are by large, already wealthy) - then it is the providers of those luxuries who are next to access the new money, and the goods they purchase are next to become inflated. The inflation does not happen over night, or uniformly, but is gradual. It might be the case that prices rises become uniform eventually, but as the process is on-going there are some commodities which are affected before others. Energy in particular impacts every industry, so there is no doubt that any rise in energy prices will be similarly met with price rises in all goods sold by any company which now must have additional energy expenditures. They will increase the price of the goods they sell to compensate. So while energy prices might be way ahead of other price rises now, it won't be long until the price of everything else follows. It's going to get much worse yet. The usual argument against QTM is that it is monetary velocity, not money supply, which is the leading factor in inflation. However, as evidenced by Lyn Alden[2], there is no long-term correlation between inflation and monetary velocity. There is a very difficult to miss correlation between money supply and inflation though. > I believe they were fully measured and calculated Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. These are just a few select headlines, but you can get the picture without me providing an exhaustive list. - "Our best view is that the effect on inflation will be neither particularly large nor persistent."[3] (Jerome Powell) - "I doubt we are going to see an inflationary cycle." [4] (Janet Yellen) - "Experts Agree: Inflation is Transitory, Manageable"[5] - "It’s official – inflation is no longer transitory"[6] - "Why Did Almost Nobody See Inflation Coming?"[7] - Inflation is a good thing![8] OTOH, this armchair economist here predicted what would happen over 2 years ago, and unsurprisingly, it happened (is happening)[9] (May 1, 2020) --- [1]:https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.pdf https://cdn.mises.org/An%20Essay%20on%20Economic%20Theory_2.... (Part 2, Chapter 6) [2]:https://www.lynalden.com/inflation/#supply https://www.lynalden.com/inflation/#supply [3]:https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to-inflation-heres-what-economists-are-saying https://www.pgpf.org/blog/2021/04/could-covid-relief-lead-to... [4]:https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will-reach-full-economic-employment-next-year-202105071640 https://www.fxstreet.com/news/us-treasury-sec-yellen-we-will... [5]:https://groundworkcollaborative.org/news/experts-agree-inflation-is-transitory-manageable/ https://groundworkcollaborative.org/news/experts-agree-infla... [6]:https://moneyweek.com/economy/inflation/604181/transitory-inflation-and-the-federal-reserve https://moneyweek.com/economy/inflation/604181/transitory-in... [7]:https://www.project-syndicate.org/commentary/2021-us-inflation-forecasting-errors-economic-models-by-jason-furman-2022-01 https://www.project-syndicate.org/commentary/2021-us-inflati... [8]:https://edition.cnn.com/2021/12/01/economy/inflation-good-bad-winners-losers/index.html https://edition.cnn.com/2021/12/01/economy/inflation-good-ba... [9]:https://news.ycombinator.com/item?id=23040832 https://news.ycombinator.com/item?id=23040832
- neilwilson 4y ago
  "There is a very difficult to miss correlation between money supply and inflation though." What's the money supply and inflation in Japan? You can't see the 'money supply' unless it is stationary. If it moves, then it gets taxed away. There is no correlation between what some people call money supply and what some people call velocity - largely because the proposed mechanism for decomposing GDP into those two values (the MV bit) is unscientific nonsense. You can prove that if you have ever held a balance in a bank account for any length of time, held any monetary savings in currency or bank account form, or ever not immediately spent money the instant you get it. It has zero velocity. What you perhaps have overlooked is the opposite correlation - that too much inflation causes money. If you have higher prices then to maintain the same transaction levels at the same speed we need a greater quantity of money in flow. Which is what happens. People start borrowing to pay the higher prices, which creates money. This current set of price rises is a supply side hiccup caused by lockdown and an opportunistic Russia and OPEC, who we have given excess power by closing down the carbon economy before we had properly built out the green one.
- nephanth 4y ago
  > Not sure if you have been reading the news for the past couple of years, but the narrative pushed by the media and central banks has shifted quite dramatically over that period. Ok maybe I sound like a conspiracy theorist, but if I worked at a central bank or at a government, and predicted a spike in inflation, the last thing I'd do is tell the press. Instead I'd have the media push the "everything's fine" narrative to keep the wheel turning and avoid any kind of panic

neilwilson 4y ago

"It has been known for centuries that large increases in the stock of money result in broad price increases, and there is a mountain of historical evidence to support this notion." There isn't at all that doesn't end up being comparing apples and pears, or curve fitting to a belief. Because there is no mechanism for £100 in a drawer or kept in a bank account to cause inflation. Which are the only two ways that money will show up for you to complain about it. Moreover money was not created by QE. All that happened was existing money was swapped for a different type of money. In physical terms the duration and interest rate was different which altered the yield curve. That's it. But it didn't work. We've had a decade of interest rate jiggling and none of it has caused price rises to stay in bounds in either direction. There comes a point when we have to reject the hypothesis. "Creating" base money didn't cause price rises for a decade (and still aren't in Japan), and changing interest rates or threatening to change interest rates didn't stop price rises breaking out. It's time to reject the 'adjusting interest rates and money stock controls the economy' hypothesis, and shift to something far more direct. Monetary policy is at best hopelessly ineffective and at worst doesn't work at all.