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What happens when you get high inflation and the central bank can't stop money printing because it would cause your sovereign to default, like we saw this week

What happens when you get high inflation and the central bank can't stop money printing because it would cause your sovereign to default, like we saw this week in the UK?

fbn79 4y ago
Actually higher is inflation the lover is absolute value of sovereign debt
mywittyname 4y ago
Is there any evidence that this inflation is due to "money printing"? The reason I mention this is that the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency. Even bastions of stability like the CHF have lost 10% of their value against the dollar. So any produces or services that touch an American company in any capacity are going to see inflation. The subject is far more complex than money printing...If there was "one weird trick to stop inflation," then we'd never have inflation.
- andreilys 4y ago
  Is there any evidence that increasing the money supply causes inflation? Yes, basic logic. Central banks purchasing assets like index funds, bonds, etc. will naturally cause prices to rise. I’m not entirely sure how you can steel man an argument that printing trillions of dollars will not lead to higher inflation but I’m happy to hear it.
  - mywittyname 4y ago
    Sorry, this simple argument fails because central banks have been doing this for 15 years, and 13 of those years they were complaining about a lack of inflation. Ergo, the current inflationary environment is not the result of central bank activities. A bunch of things have changed in the past few years, which could trigger inflation. A massive pandemic that continues to kill millions every month, lock downs in China that curb the ability of the world's largest producer of goods to produce goods, a war in Europe which has caused a massive energy crisis. So where I'm sitting, basic logic exculpates central banks.
    - nicoburns 4y ago
      > and 13 of those years they were complaining about a lack of inflation I think this was mistaken. There has been huge inflation over those 13 years, it's just been in specific asset classes like houses rather than general goods.
      - echoplex 4y ago
        Bingo. It’s completely idiotic to think there was no inflation. Nobody complained when the stock market doubled. Some people complained when the house market doubled. Everybody complains when energy prices double.
        notch656a 4y ago
        Only dumb peasants that weren't long on leveraged energy futures complain when energy prices double. Check-mate, poors.
    - gr1zzlybe4r 4y ago
      If the pandemic were truly killing millions of people every month then by this point we'd've seen a dip in the global population.
      - rnk 4y ago
        Maybe not millions a month but excess deaths are a real thing. That's from loss of treatments bc of the covid impact on the entire worldwide health system, as well as people getting sick or weakened from covid, and then people dying from covid directly. Last cal year: about 5 mil covid deaths, about 15 million more people died than expected (aka excess deaths) - so 10 million more on top of covid https://www.who.int/data/stories/global-excess-deaths-associated-with-covid-19-january-2020-december-2021 https://www.who.int/data/stories/global-excess-deaths-associ.... This other paper has more breakdown. Search for "estimated cumulative excess deaths", 15-25 million through Sept 2022. It's ballpark but it's not insignificant. https://ourworldindata.org/excess-mortality-covid https://ourworldindata.org/excess-mortality-covid
- uup 4y ago
  Inflation was high before the exchange rate started to dip. I’ve only researched the U.S., but there is a lot of evidence that free money greatly increased demand and lead to inflation. Given that a lot of the world invests money in the U.S., the Fed’s loose money policy likely has knock on effects throughout the world. And then you add on the loose monetary policy of the other central banks…
- bko 4y ago
  Excessive money printing doesn't always cause inflation, but pretty much every instance of high inflation coincided with excessive money printing. The story just makes sense. Low interest rates means banks have more money to lend, everyone else gets more money (unfinanced stimulus payments) which means they have more money to spend on this driving prices up. Its hard to tease out. It's like lung cancer. Before it was directly associated with smoking, the evidence was overwhelming when you consider that nearly every case of lung cancer happened in people who were heavy smokers. Add a mechanism to how inhaling smoke into your lungs can increase the probability of cancer and you have pretty compelling evidence that smoking is the culprit. Others with a stake will try to confuse you (cigarette companies, central banks, etc), but its pretty obvious.
  - rnk 4y ago
    Causality or correlation? Every central bank at times has to deal with inflation and deflation, increasing or reducing the money supply. Inflation today has a lot of different factors than inflation in various times in the past - huge increases in energy costs (Russian invasion leads to so much more, gas shortages in europe which drives everything else up they make), fertilizer made in good part from petroleum related things gets more exp, food gets more exp, Ukraine doesn't export as much food so there's a shortage of that. Add on covid supply squeeze. You get huge inflationary pressure WITHOUT ANY MONEY SUPPLY CHANGES. I'm kind of tired of people wasting everyone's time arguing about whether the us causes inflation because we aren't on a gold supply anymore, or crypto is the savior or source of our problems, on increases in the money supply. We were stimulating the economy in the us (and in europe too I guess). imho, the US fed will fail to knock down inflation much because they can't control these external factors, energy prices increased, supply decreased (in part bc Euro stopped buying Russian petro products), food shortage. These are outside their control. I keep reading articles the last few days saying we are close to a deflationary spiral on prices, going completely the other way. Who knows who is right. But I am right that there are these external factors causing inflation.
    - zhoujianfu 4y ago
      Yeah, that’s what I don’t get… the inflation we’re seeing is clearly a result of the energy spike from Russia’s invasion plus the end of Covid (demand came surging back for things like air travel and diminished supply takes a while to catch up). It seems pretty clear low interest rates and printing money which has been going on since 2008 probably isn’t the cause.
- notch656a 4y ago
  Taxation, Debt, and Inflation are the primary means by which government extracts from the populace. No one wanted to tell the populace they were going to tax the fuck out of them to prop up businesses and the unemployed during lockdowns, so instead they just "tax" by allowing rampant inflation and then blame it on central bank, Russia, whatever.
- mensetmanusman 4y ago
  All the things matter. If there was no printing, prices would still rise due to pandemic issues related to less things being built and war issues related to less energy supply. Ie supply is down right now
- radford-neal 4y ago
  > ... the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency. If the European central bank started reducing the supply of Euros, the Euro would increase in value relative to the USD. The rise in the USD isn't an earthquake or weather phenomenon independent of everything else.
- deleted 4y ago
  [deleted]
tmn 4y ago
People get poorer on a real basis and the debt gets diluted to a reasonable level. After enough inflation things can stabilize again.
- echoplex 4y ago
  People are not affected equally. Inflation benefits debtors, punishes creditors. It’s hardly fair and arguably a moral hazard. People that lived frugally and saved their income essentially have subsidized risk takers that took on debt.
  - zhoujianfu 4y ago
    To play devil’s advocate, perhaps risk takers should be rewarded?

What happens when you get high inflation and the central bank can't stop money printing because it would cause your sovereign to default, like we saw this week in the UK?

fbn79 4y ago

Actually higher is inflation the lover is absolute value of sovereign debt

mywittyname 4y ago

Is there any evidence that this inflation is due to "money printing"? The reason I mention this is that the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency. Even bastions of stability like the CHF have lost 10% of their value against the dollar. So any produces or services that touch an American company in any capacity are going to see inflation. The subject is far more complex than money printing...If there was "one weird trick to stop inflation," then we'd never have inflation.

andreilys 4y ago
Is there any evidence that increasing the money supply causes inflation? Yes, basic logic. Central banks purchasing assets like index funds, bonds, etc. will naturally cause prices to rise. I’m not entirely sure how you can steel man an argument that printing trillions of dollars will not lead to higher inflation but I’m happy to hear it.
- mywittyname 4y ago
  Sorry, this simple argument fails because central banks have been doing this for 15 years, and 13 of those years they were complaining about a lack of inflation. Ergo, the current inflationary environment is not the result of central bank activities. A bunch of things have changed in the past few years, which could trigger inflation. A massive pandemic that continues to kill millions every month, lock downs in China that curb the ability of the world's largest producer of goods to produce goods, a war in Europe which has caused a massive energy crisis. So where I'm sitting, basic logic exculpates central banks.
  - nicoburns 4y ago
    > and 13 of those years they were complaining about a lack of inflation I think this was mistaken. There has been huge inflation over those 13 years, it's just been in specific asset classes like houses rather than general goods.
    - echoplex 4y ago
      Bingo. It’s completely idiotic to think there was no inflation. Nobody complained when the stock market doubled. Some people complained when the house market doubled. Everybody complains when energy prices double.
      - notch656a 4y ago
        Only dumb peasants that weren't long on leveraged energy futures complain when energy prices double. Check-mate, poors.
  - gr1zzlybe4r 4y ago
    If the pandemic were truly killing millions of people every month then by this point we'd've seen a dip in the global population.
    - rnk 4y ago
      Maybe not millions a month but excess deaths are a real thing. That's from loss of treatments bc of the covid impact on the entire worldwide health system, as well as people getting sick or weakened from covid, and then people dying from covid directly. Last cal year: about 5 mil covid deaths, about 15 million more people died than expected (aka excess deaths) - so 10 million more on top of covid https://www.who.int/data/stories/global-excess-deaths-associated-with-covid-19-january-2020-december-2021 https://www.who.int/data/stories/global-excess-deaths-associ.... This other paper has more breakdown. Search for "estimated cumulative excess deaths", 15-25 million through Sept 2022. It's ballpark but it's not insignificant. https://ourworldindata.org/excess-mortality-covid https://ourworldindata.org/excess-mortality-covid
uup 4y ago
Inflation was high before the exchange rate started to dip. I’ve only researched the U.S., but there is a lot of evidence that free money greatly increased demand and lead to inflation. Given that a lot of the world invests money in the U.S., the Fed’s loose money policy likely has knock on effects throughout the world. And then you add on the loose monetary policy of the other central banks…
bko 4y ago
Excessive money printing doesn't always cause inflation, but pretty much every instance of high inflation coincided with excessive money printing. The story just makes sense. Low interest rates means banks have more money to lend, everyone else gets more money (unfinanced stimulus payments) which means they have more money to spend on this driving prices up. Its hard to tease out. It's like lung cancer. Before it was directly associated with smoking, the evidence was overwhelming when you consider that nearly every case of lung cancer happened in people who were heavy smokers. Add a mechanism to how inhaling smoke into your lungs can increase the probability of cancer and you have pretty compelling evidence that smoking is the culprit. Others with a stake will try to confuse you (cigarette companies, central banks, etc), but its pretty obvious.
- rnk 4y ago
  Causality or correlation? Every central bank at times has to deal with inflation and deflation, increasing or reducing the money supply. Inflation today has a lot of different factors than inflation in various times in the past - huge increases in energy costs (Russian invasion leads to so much more, gas shortages in europe which drives everything else up they make), fertilizer made in good part from petroleum related things gets more exp, food gets more exp, Ukraine doesn't export as much food so there's a shortage of that. Add on covid supply squeeze. You get huge inflationary pressure WITHOUT ANY MONEY SUPPLY CHANGES. I'm kind of tired of people wasting everyone's time arguing about whether the us causes inflation because we aren't on a gold supply anymore, or crypto is the savior or source of our problems, on increases in the money supply. We were stimulating the economy in the us (and in europe too I guess). imho, the US fed will fail to knock down inflation much because they can't control these external factors, energy prices increased, supply decreased (in part bc Euro stopped buying Russian petro products), food shortage. These are outside their control. I keep reading articles the last few days saying we are close to a deflationary spiral on prices, going completely the other way. Who knows who is right. But I am right that there are these external factors causing inflation.
  - zhoujianfu 4y ago
    Yeah, that’s what I don’t get… the inflation we’re seeing is clearly a result of the energy spike from Russia’s invasion plus the end of Covid (demand came surging back for things like air travel and diminished supply takes a while to catch up). It seems pretty clear low interest rates and printing money which has been going on since 2008 probably isn’t the cause.
notch656a 4y ago
Taxation, Debt, and Inflation are the primary means by which government extracts from the populace. No one wanted to tell the populace they were going to tax the fuck out of them to prop up businesses and the unemployed during lockdowns, so instead they just "tax" by allowing rampant inflation and then blame it on central bank, Russia, whatever.
mensetmanusman 4y ago
All the things matter. If there was no printing, prices would still rise due to pandemic issues related to less things being built and war issues related to less energy supply. Ie supply is down right now
radford-neal 4y ago
> ... the Euro would experience inflation even if the central bank turned to a policy "money destroying" because the USD is absolutely crushing every currency. If the European central bank started reducing the supply of Euros, the Euro would increase in value relative to the USD. The rise in the USD isn't an earthquake or weather phenomenon independent of everything else.
deleted 4y ago
[deleted]

tmn 4y ago

People get poorer on a real basis and the debt gets diluted to a reasonable level. After enough inflation things can stabilize again.

echoplex 4y ago
People are not affected equally. Inflation benefits debtors, punishes creditors. It’s hardly fair and arguably a moral hazard. People that lived frugally and saved their income essentially have subsidized risk takers that took on debt.
- zhoujianfu 4y ago
  To play devil’s advocate, perhaps risk takers should be rewarded?