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I would call it a simplified rather than a childish view. “Increased money supply causes inflation” is an accurate macro view of how money works, with macro mea

I would call it a simplified rather than a childish view. “Increased money supply causes inflation” is an accurate macro view of how money works, with macro meaning it’s a high-level model. The micro view is of course more complex. If you drill down on how extra dollars created by the fractional reserve banking system flow through our economy, you’ll see the money sometimes sits idle in bank reserves without causing immediate inflation, while other times it might flow into investments and pump up the stock market, and then spill over into well-funded startups that bid up engineer salaries and their local real estate market, and so on… The inflation can be uneven and proceed with delays, but the increased money supply does create an overall tidal pressure lifting prices up.

neilwilson 4y ago
"“Increased money supply causes inflation” is an accurate macro view of how money works" It isn't though is it. How does $100 in a drawer cause inflation? That is the correct analogy or you wouldn't see the $100 on the balance sheet. It has to be saved to show up. Otherwise it would pass by loan repayment and taxation points and disappear as balance sheets contract. Inflation is always, everywhere, a lack of supply capacity. Excess capacity to supply is what keeps prices down via market competition. "You’ll see the money sometimes sits idle in bank reserves without causing immediate inflation" Bank reserves are assets of banks that sit in Central bank accounts. You or I can't hold them because we can't have central bank accounts. They can only ever be passed to other banks. Your view of banking is completely wrong. Try this explanation from the Bank of England. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
- hndamien 4y ago
  It doesn't stay in the drawer though. The total supply is a constraint on all actors as they compete for resource allocation. By increasing the supply and relaxing the constraint, some participants can out compete (raise the price) of scarce resources. This is only possible to go to the levels in all areas simultaneously due to the increased supply. No increased supply to match the increased wealth from treade, you get deflation, which is desirable for savers.
  - neilwilson 4y ago
    It has to stay in the drawer or it would disappear as the flow passed tax and repayment points. If you can see it, it is in a drawer, and therefore not inflationary. Plus anything you replace it with has the same problem. There is no magic power in interest rates to keep it in the drawer. There isn't a one-to-one relationship between money and stuff. It's more of an inductive relationship that is more like the power triangle. There is 'reactive money' as there is 'reactive power'.
    - hndamien 4y ago
      Your monetary theory is that nobody spends any of the money that is created as a result of increasing the money supply? OK Paul Krugman, I'll see myself out. Bitcoin doesn't have the same problem. Monero doesn't have the same problem. The magic power of interest rates is to hide the theft of inflation by artificially increasing dollar demand from debt holders of the currency. With a hard currency, people tend to take less debt, and less risk with debt. Fortunately they also have less need to borrow because the currency appreciates in value.
      - neilwilson 4y ago
        Now that would be a straw man wouldn't it. If you have any money in your wallet or your bank account at any point in time you are not spending the money that is created as a result of the dynamic ebb and flow of the quantity of money in the system. The sum total of those people not instantly spending money when they get it is a deficit. It's just the accounting counterparty of people waiting before they spend their money. But then we're back to the famous Dijkstra quote "… our intellectual powers are rather gathered to master static relations and that our powers to visualize processes evolving in time are relatively poorly developed. For that reason we should do (as wise programmers aware of our limitations) our utmost best to shorten the conceptual gap between the static program and the dynamic process, to make the correspondence between the program (spread out in text space) and the process (spread out in time) as trivial as possible" The riff on that would be called "sound money beliefs considered harmful"

neilwilson 4y ago

"“Increased money supply causes inflation” is an accurate macro view of how money works" It isn't though is it. How does $100 in a drawer cause inflation? That is the correct analogy or you wouldn't see the $100 on the balance sheet. It has to be saved to show up. Otherwise it would pass by loan repayment and taxation points and disappear as balance sheets contract. Inflation is always, everywhere, a lack of supply capacity. Excess capacity to supply is what keeps prices down via market competition. "You’ll see the money sometimes sits idle in bank reserves without causing immediate inflation" Bank reserves are assets of banks that sit in Central bank accounts. You or I can't hold them because we can't have central bank accounts. They can only ever be passed to other banks. Your view of banking is completely wrong. Try this explanation from the Bank of England. https://www.bankofengland.co.uk/-/media/boe/files/quarterly-bulletin/2014/money-creation-in-the-modern-economy.pdf https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...

hndamien 4y ago
It doesn't stay in the drawer though. The total supply is a constraint on all actors as they compete for resource allocation. By increasing the supply and relaxing the constraint, some participants can out compete (raise the price) of scarce resources. This is only possible to go to the levels in all areas simultaneously due to the increased supply. No increased supply to match the increased wealth from treade, you get deflation, which is desirable for savers.
- neilwilson 4y ago
  It has to stay in the drawer or it would disappear as the flow passed tax and repayment points. If you can see it, it is in a drawer, and therefore not inflationary. Plus anything you replace it with has the same problem. There is no magic power in interest rates to keep it in the drawer. There isn't a one-to-one relationship between money and stuff. It's more of an inductive relationship that is more like the power triangle. There is 'reactive money' as there is 'reactive power'.
  - hndamien 4y ago
    Your monetary theory is that nobody spends any of the money that is created as a result of increasing the money supply? OK Paul Krugman, I'll see myself out. Bitcoin doesn't have the same problem. Monero doesn't have the same problem. The magic power of interest rates is to hide the theft of inflation by artificially increasing dollar demand from debt holders of the currency. With a hard currency, people tend to take less debt, and less risk with debt. Fortunately they also have less need to borrow because the currency appreciates in value.
    - neilwilson 4y ago
      Now that would be a straw man wouldn't it. If you have any money in your wallet or your bank account at any point in time you are not spending the money that is created as a result of the dynamic ebb and flow of the quantity of money in the system. The sum total of those people not instantly spending money when they get it is a deficit. It's just the accounting counterparty of people waiting before they spend their money. But then we're back to the famous Dijkstra quote "… our intellectual powers are rather gathered to master static relations and that our powers to visualize processes evolving in time are relatively poorly developed. For that reason we should do (as wise programmers aware of our limitations) our utmost best to shorten the conceptual gap between the static program and the dynamic process, to make the correspondence between the program (spread out in text space) and the process (spread out in time) as trivial as possible" The riff on that would be called "sound money beliefs considered harmful"