3 ms·

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think

Ok, but why now? Why not 14 years ago, or 10 years ago, or 5 years ago? We've been in a zero-interest-rate, QE world for quite a while. Somehow I do not think it is as trivial as your 8th grade econ textbook might suggest.

rnernento 4y ago
I don't think you realize just how much of the money has been printed in the last 2 years. See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... See M2 over time: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL
- UncleMeat 4y ago
  So? The argument is that inflation always happens when there is fiat printing. We printed a shitload of dollars between 2000-2020, yet inflation was low throughout that period. So the explanation is clearly insufficient.
  - prottog 4y ago
    The government is sandbagging CPI figures in order to lower its obligations that are tied to the official inflation rate, like Social Security payments. This isn't some underworld conspiracy theory; look at some of the academic discussion around ShadowStats. If we take home prices, comparing 2000 to 2019 (before the pandemic-related craziness in the real estate market took place), they went up by 85% in that time period[0], compared to 48.5% in the CPI[1]. [0]: https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS [1]: https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator/consumer-price-index-1913- https://www.minneapolisfed.org/about-us/monetary-policy/infl...
  - WalterBright 4y ago
    > The argument is that inflation always happens when there is fiat printing. The whole point of fiat money is to print excessive amounts of it. It's attractive for governments because they can then spend money buying votes without having to raise taxes (though inflation is a tax). Meanwhile, they blame "speculators" and "profiteers" as scapegoats for the inflation. > yet inflation was low throughout that period The cumulative was a lot, and note that there was never any deflation.
  - vel0city 4y ago
    Compare 2000-2020 on that M2 graph compared to 2020-2022. Jan 2000 - 4,666.2 Jan 2020 - 15,401.8 An increase of 10,735.6 over 120 months, average monthly increase of 89.46. Aug 2022 - 21,711.4 An increase of 6,310 over 20 months, average monthly increase of 315.52 M2 grew 3.5x faster on average since 2020 than previously. I'm not directly stating this is the main or only reason for inflation, but I imagine the rate of increasing the money supply 3.5x faster than before could have some kind of effect.
  - mixmastamyk 4y ago
    The price of my lunch went from ~$8 to ~$18 during this period, it is noticeable. Had a look at the stock or real-estate markets?
    - TexanFeller 4y ago
      That would make me brown bag a sandwich.
7speter 4y ago
No one wants to talk about the actual problem, and will blame government printing money. What’s different now from any point in the last 12 years is that we are at full employment. Going over that causes the economy to overheat. As a study partner for an economics course put it (he took more economics than I did): too many hands competing for goods, the prices go up.
- chasd00 4y ago
  Right, the thing the Fed is doing by raising rates is increasing unemployment but trying to not come right out and say it. Increasing unemployment decreases demand and therefore prices. A hard recession is how this is going to end IMO.
  - andrekandre 4y ago
    > Increasing unemployment decreases demand and therefore prices. said differently (and maybe cynically): the only way to reduce prices is to make people jobless and potentially homeless, destroying families and potentially peoples lives in the process... maybe i am crazy, but this seems like a really bad way to run an economy?
    - chasd00 4y ago
      You’re not crazy and it is bad but that’s how it operates. At the macro scale, the people making these decisions are just looking at percentages on a spreadsheet and turning knobs to get them where they want them.
- WalterBright 4y ago
  > Going over that causes the economy to overheat The notion of an "overheating" economy always sounded like nonsense to me. > full employment Those figures are misleading because a great many people permanently left the work force during the pandemic and are not counted as unemployment.
joycian 4y ago
I like that you're asking for the mechanics. Many people just repeat their mantras. If QE led to inflation quickly and in a simple way, we could have known that long ago. We didn't even have to do it ourselves: Japan did the experiment long before we did. If you know, please explain it to me.
prottog 4y ago
The price of anything that can be converted to a monthly payment, which is most things in this highly financialized economy, inflates when the interest rate is artificially suppressed. The CPI understates that kind of inflation because it looks at the monthly payment, and not the final price. So there are plenty of things like houses or college degrees that have inflated a lot more than the CPI in that "quite a while". There is no reason to believe that the value of money is immune to the law of supply and demand. Besides, if you have an argument to make, you can make it without calling somebody an 8th grader.
BitwiseFool 4y ago
I have only a layman's understanding of financial markets, so keep that in mind. The explanation I've heard is that most of the QE in the 2010's was metered out in such a way that the average person wasn't receiving funds and the money wasn't quickly and directly going into the economy. The post 2008 QE purchased troubled assets and freed up institutions to lend money. It could be said that most of that QE money wound up in stocks and assets such as real estate, which is why valuations were going so crazy over the last decade while consumer goods stayed relatively flat. All of the Covid stimulus, loans, and bailouts were different because so much more of that money went directly into the consumer economy. Price increases were exacerbated because of supply chain disruptions, needing to recoup losses from lock-downs, and the price hikes due to raw materials shortages. There is also a self-fulfilling prophecy that inflation is both higher than reported, and that our officials are lying to us about how bad the problem is. When everyone else is raising prices, it is a lot easier for a business to follow suit. That's the explanation I've gathered while trying to understand the question and it seems reasonable to me. It may be entirely wrong, however.
- sofixa 4y ago
  You're not entirely wrong, but you're missing a massive piece of the puzzle, a war that is impacting the global markets in multiple very important raw material segments (oil, foodstuffs, various metals, general instability due to war involving a nuclear power in Europe, not to mention the fact that the nuclear power is losing ans it's dictator is starting to sound desperate). When prices of many products go up due to raw materials price booms, you get inflation.
jollybean 4y ago
Because we just went through a massive existential shock with COVID, in which the Fed took on a staggering amount of assets i.e. liquidity - and - we've had material global problems which cause major increase in the cost of goods and fuel. In 2008 we had a 'banking crisis' but that was an 'accounting crisis' otherwise the economy was normal. We had to re-allocate. With COVID, we had a real shock to the system, and then lasting shocks due to increased prices. So both the money printing and regular higher prices are coming back to hit the economy.
marcosdumay 4y ago
Have you noticed that every investment instrument saw its price go up, and up, no stop, until it had no relation to how much return it would get you, or how much money the people that wanted it for using in a secondary market could spend, and then it kept going up the same way for 2 more decades? Yep, that's inflation too. But since the money was mostly circulating there, and the official measurements of inflation don't look at investment, it didn't make into the news. The really good question is why the money was contained there. I don't have a good answer for it.
- gizmo 4y ago
  Stocks/real estate are mostly owned by richer people (and 401ks). There was plenty of inflation in luxury goods. Watches, private jets, art. Prices went through the roof. Covid boom put money into the hands of regular people, and that -- combined with a supply shock -- made all the difference.
  - marcosdumay 4y ago
    Yes, but it's not easy to understand how wealth can be so concentrated on the hands of the rich that it doesn't impact the "regular people economy". Rich people buy services, and service providers are regular people. Some of the money always has to disperse, so the impact can only be neutral if there is something with similar intensity concentrating it back.

rnernento 4y ago

I don't think you realize just how much of the money has been printed in the last 2 years. See fed balance sheet over time: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... See M2 over time: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL

UncleMeat 4y ago
So? The argument is that inflation always happens when there is fiat printing. We printed a shitload of dollars between 2000-2020, yet inflation was low throughout that period. So the explanation is clearly insufficient.
- prottog 4y ago
  The government is sandbagging CPI figures in order to lower its obligations that are tied to the official inflation rate, like Social Security payments. This isn't some underworld conspiracy theory; look at some of the academic discussion around ShadowStats. If we take home prices, comparing 2000 to 2019 (before the pandemic-related craziness in the real estate market took place), they went up by 85% in that time period[0], compared to 48.5% in the CPI[1]. [0]: https://fred.stlouisfed.org/series/ASPUS https://fred.stlouisfed.org/series/ASPUS [1]: https://www.minneapolisfed.org/about-us/monetary-policy/inflation-calculator/consumer-price-index-1913- https://www.minneapolisfed.org/about-us/monetary-policy/infl...
- WalterBright 4y ago
  > The argument is that inflation always happens when there is fiat printing. The whole point of fiat money is to print excessive amounts of it. It's attractive for governments because they can then spend money buying votes without having to raise taxes (though inflation is a tax). Meanwhile, they blame "speculators" and "profiteers" as scapegoats for the inflation. > yet inflation was low throughout that period The cumulative was a lot, and note that there was never any deflation.
- vel0city 4y ago
  Compare 2000-2020 on that M2 graph compared to 2020-2022. Jan 2000 - 4,666.2 Jan 2020 - 15,401.8 An increase of 10,735.6 over 120 months, average monthly increase of 89.46. Aug 2022 - 21,711.4 An increase of 6,310 over 20 months, average monthly increase of 315.52 M2 grew 3.5x faster on average since 2020 than previously. I'm not directly stating this is the main or only reason for inflation, but I imagine the rate of increasing the money supply 3.5x faster than before could have some kind of effect.
- mixmastamyk 4y ago
  The price of my lunch went from ~$8 to ~$18 during this period, it is noticeable. Had a look at the stock or real-estate markets?
  - TexanFeller 4y ago
    That would make me brown bag a sandwich.

7speter 4y ago

No one wants to talk about the actual problem, and will blame government printing money. What’s different now from any point in the last 12 years is that we are at full employment. Going over that causes the economy to overheat. As a study partner for an economics course put it (he took more economics than I did): too many hands competing for goods, the prices go up.

chasd00 4y ago
Right, the thing the Fed is doing by raising rates is increasing unemployment but trying to not come right out and say it. Increasing unemployment decreases demand and therefore prices. A hard recession is how this is going to end IMO.
- andrekandre 4y ago
  > Increasing unemployment decreases demand and therefore prices. said differently (and maybe cynically): the only way to reduce prices is to make people jobless and potentially homeless, destroying families and potentially peoples lives in the process... maybe i am crazy, but this seems like a really bad way to run an economy?
  - chasd00 4y ago
    You’re not crazy and it is bad but that’s how it operates. At the macro scale, the people making these decisions are just looking at percentages on a spreadsheet and turning knobs to get them where they want them.
WalterBright 4y ago
> Going over that causes the economy to overheat The notion of an "overheating" economy always sounded like nonsense to me. > full employment Those figures are misleading because a great many people permanently left the work force during the pandemic and are not counted as unemployment.

joycian 4y ago

I like that you're asking for the mechanics. Many people just repeat their mantras. If QE led to inflation quickly and in a simple way, we could have known that long ago. We didn't even have to do it ourselves: Japan did the experiment long before we did. If you know, please explain it to me.

prottog 4y ago

The price of anything that can be converted to a monthly payment, which is most things in this highly financialized economy, inflates when the interest rate is artificially suppressed. The CPI understates that kind of inflation because it looks at the monthly payment, and not the final price. So there are plenty of things like houses or college degrees that have inflated a lot more than the CPI in that "quite a while". There is no reason to believe that the value of money is immune to the law of supply and demand. Besides, if you have an argument to make, you can make it without calling somebody an 8th grader.

BitwiseFool 4y ago

I have only a layman's understanding of financial markets, so keep that in mind. The explanation I've heard is that most of the QE in the 2010's was metered out in such a way that the average person wasn't receiving funds and the money wasn't quickly and directly going into the economy. The post 2008 QE purchased troubled assets and freed up institutions to lend money. It could be said that most of that QE money wound up in stocks and assets such as real estate, which is why valuations were going so crazy over the last decade while consumer goods stayed relatively flat. All of the Covid stimulus, loans, and bailouts were different because so much more of that money went directly into the consumer economy. Price increases were exacerbated because of supply chain disruptions, needing to recoup losses from lock-downs, and the price hikes due to raw materials shortages. There is also a self-fulfilling prophecy that inflation is both higher than reported, and that our officials are lying to us about how bad the problem is. When everyone else is raising prices, it is a lot easier for a business to follow suit. That's the explanation I've gathered while trying to understand the question and it seems reasonable to me. It may be entirely wrong, however.

sofixa 4y ago
You're not entirely wrong, but you're missing a massive piece of the puzzle, a war that is impacting the global markets in multiple very important raw material segments (oil, foodstuffs, various metals, general instability due to war involving a nuclear power in Europe, not to mention the fact that the nuclear power is losing ans it's dictator is starting to sound desperate). When prices of many products go up due to raw materials price booms, you get inflation.

jollybean 4y ago

Because we just went through a massive existential shock with COVID, in which the Fed took on a staggering amount of assets i.e. liquidity - and - we've had material global problems which cause major increase in the cost of goods and fuel. In 2008 we had a 'banking crisis' but that was an 'accounting crisis' otherwise the economy was normal. We had to re-allocate. With COVID, we had a real shock to the system, and then lasting shocks due to increased prices. So both the money printing and regular higher prices are coming back to hit the economy.

marcosdumay 4y ago

Have you noticed that every investment instrument saw its price go up, and up, no stop, until it had no relation to how much return it would get you, or how much money the people that wanted it for using in a secondary market could spend, and then it kept going up the same way for 2 more decades? Yep, that's inflation too. But since the money was mostly circulating there, and the official measurements of inflation don't look at investment, it didn't make into the news. The really good question is why the money was contained there. I don't have a good answer for it.

gizmo 4y ago
Stocks/real estate are mostly owned by richer people (and 401ks). There was plenty of inflation in luxury goods. Watches, private jets, art. Prices went through the roof. Covid boom put money into the hands of regular people, and that -- combined with a supply shock -- made all the difference.
- marcosdumay 4y ago
  Yes, but it's not easy to understand how wealth can be so concentrated on the hands of the rich that it doesn't impact the "regular people economy". Rich people buy services, and service providers are regular people. Some of the money always has to disperse, so the impact can only be neutral if there is something with similar intensity concentrating it back.