4 ms·

> Not enough Housing (where people want and NEED it) Not a new problem. Wouldn't have caused a spike. > Global politics exacerbating energy shortages Energy

by kypro 4y ago

> Not enough Housing (where people want and NEED it) Not a new problem. Wouldn't have caused a spike. > Global politics exacerbating energy shortages Energy prices have contributed a little to US inflation, but it's not the main factor. Inflation was also an issue in 2021 before the Ukraine war, but it's a fair point as it hasn't helped in 2022. > Insufficient supply (generally) for demand This is an issue, but in recessions it's not uncommon for supply to drop. What's uncommon is for demand not to fall inline (or more than) supply, but instead skyrocket. Call me crazy, but I have a simpler explanation for the spike in inflation we saw in 2021: https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me.

bamboozled 4y ago
I feel similar, from everything I've read, historically creating money causes inflation. We created money and we got inflation. What am I missing?
- randomdata 4y ago
  Creating money causes inflation if it ends up in the hands of people ready to spend it. But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation. And by all accounts the people don't have any more money. In fact, governments around the world have been creating support packages to deal with the people not having more money to support the rising prices. This suggests that it is supply-side driven, and I'm going to suggest food in particular. The farm price for food started rising at the beginning of the pandemic when labour was difficult to secure amid illness. Then came the big fertilizer crunch which remains ongoing. Then the war in Ukraine, Europe's bread basket. And now there are looming fears over diesel availability. A quadruple whammy in short succession for something that everyone has to buy. Saving rates are crashing to support this temporary blip, but with very little income growth it doesn't look sustainable. You can't have inflation if people don't have money to spend. As we start to solve some of our food issues, fertilizer in particular, a massive deflationary event seems quite likely.
  - ephbit 4y ago
    > But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation. The connection isn't all that obvious, but there is indeed a connection between fresh money being invested in financial asset XY and price for bread rising. Even though the investor did not buy up piles of bread, they created pressure on some scarce resources in the value chain on the way to bread. Those are energy, base materials, labour force, ... Whenever an institution (central bank, commercial bank, ..) creates fresh money and this money gets invested in something, a portion of total global resource allocation (towards different end products) gets shifted. Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices. Example: commercial banks in some country xy are allowed to lend more due to some changes in the rules for fractional reserve banking. The banks currently have some kind of skew in their allocation of lending, meaning they don't just lend exactly proportional to current total allocation of credit. Let's say they lend more (in respect to current allocation) to real estate development businesses than to bakeries. This means that the real estate sector now has more bidding power for all the scarce resources (energy, raw materials, ...) than the bread sector. So there's new demand for energy from the real estate sector which makes energy prices rise. Voilà, bakeries spend more on energy, bread prices rise as well. And all that without "someone buying up all the bread". Injecting fresh money in the financial sector will lead to real world resource reallocation, which will put pressure on sectors that don't even seem to be involved.
    - randomdata 4y ago
      > Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices. In the long run, but it is not uncommon to see production lose money when their input costs are higher than the consumer price. A vendor is still beholden to what someone will pay and when you have to pay for your inputs before proving what the end consumer will pay, you can quickly be left holding the bag. This corrects eventually, but not usually within the span of days or even months. It can often take years to see things correct. You still can't have inflation if the people don't have money. A business can't magically charge more than someone is willing and able to pay. And they say the people don't have more money to pay with, currently subsisting on draining their savings, so inflation will be short lived – unless incomes start to rise. The FED is working tirelessly to try and prevent that from happening, but we'll see.
testfoobar 4y ago
It would be nice if Jerome Powell and the other Fed Governors owned up to it. They were printing dollars via QE and adding reserves into the banking system as recently as March of this year. Last year, they were adding $120 billion/month of QE into the banking system. They have just ramped up to removing $90 billion/month. They're not removing monetary accomodation at the same rate it was injected. No resignations for making such a massive sequence of errors.
- im-a-baby 4y ago
  The government was also injecting trillions of dollars in stimulus. This isn’t entirely the Fed’s fault.
guelo 4y ago
Your theory doesn't account for the fact that most economies worldwide are seeing high inflation (besides China and Japan).
- slaw 4y ago
  In most countries their Fed equivalent printed money like crazy. I know in European countries that was the case.
- yieldcrv 4y ago
  Central bank policies have been coordinated for a decade. Its a new phenomena. Think of it like this, the Weimar Republic is a textbook example of hyperinflation because we could compare its currency to neighboring currencies. Now we couldn't do that exact kind of comparison if we wanted to because the neighboring currencies are being created at a proportional rate to the size of their relative economies. (We have to look at prices of a basket of consumptive goods instead.)
TheOsiris 4y ago
> The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me. 100% this. I don't understand the motivation or the logic of the people who argue against something that's so obvious
- derelicta 4y ago
  Because its not universal. Lotsa European countries have decades-high lvl of inflation without having printed money.
  - bsaul 4y ago
    maybe not during covid, but the eu bank did follow the same kind of very generous monetary policies and super low interest rates for the decade prior, as the fed.
    - derelicta 4y ago
      oh yeah absolutely. but we didnt get to try the whole direct-transfert that happened in the US during the covid crisis. Depending on the country, there were "technical unemployement" measures that have been applied. Basically companies reduce your working hours temporarly, and thus your salary, and your unemployment insurance fills the gap.
    - UncleMeat 4y ago
      Okay. So why did inflation show up globally all at once rather than when these policies were in place?
      - bsaul 4y ago
        i believe all government played the same game ( at least us, eu and china did), which is probably enough to impact the whole world. A few currrency which didn't play that game such as swiss franc saw their value raised tremendously, which probably means inflation is much less an issue there.
atoav 4y ago
As someone who deals with hardware down to the single component level supply chain issues are definitely still a thing. So you will find random products that see themselves without that one IC needed to manufacture it. I myself had to re-design a whole PCB because a (during normal times standard) part was not available even in the timiest quantity anywhere. And because of the efficiency fetishism we have managed ourselves into the chip shortage still ripples back and forth (people stockpiling parts themselves will lead to local shortages etc). So there certainly is an element of "you cannot get the thing you want to get, even if you have money"
sofixa 4y ago
> Call me crazy, but I have a simpler explanation for the spike in inflation we saw in 2021 > The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me. You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%. The pandemic (distributions to the economies and global supply lines) and a war disrupting critical raw materials (foodstuffs and energy) have contributed to the inflation, a lot. Nobody can say how much exactly, but blaming any single factor is willful narrow-mindedness.
- kypro 4y ago
  > You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%. Energy and the USD, mainly. In Europe inflation is high primarily because of energy costs. Local currencies are also down 10-20% vs the USD and Europe imports a lot of stuff in dollars. That said, I'm not sure about the exact breakdown of inflation in Sweden specifically so I can only comment generally. I also add that domestic stimulus measures in the US (both monetary and fiscal) have a significant global impact today. If demand for oil or other commodities rise in the US then they do in markets around the world too. Excessively reckless monetary and fiscal stimulus in the US combined with today's reckless tightening is causing havoc in developing markets around the world.

by kypro 4y ago

bamboozled 4y ago

I feel similar, from everything I've read, historically creating money causes inflation. We created money and we got inflation. What am I missing?

randomdata 4y ago
Creating money causes inflation if it ends up in the hands of people ready to spend it. But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation. And by all accounts the people don't have any more money. In fact, governments around the world have been creating support packages to deal with the people not having more money to support the rising prices. This suggests that it is supply-side driven, and I'm going to suggest food in particular. The farm price for food started rising at the beginning of the pandemic when labour was difficult to secure amid illness. Then came the big fertilizer crunch which remains ongoing. Then the war in Ukraine, Europe's bread basket. And now there are looming fears over diesel availability. A quadruple whammy in short succession for something that everyone has to buy. Saving rates are crashing to support this temporary blip, but with very little income growth it doesn't look sustainable. You can't have inflation if people don't have money to spend. As we start to solve some of our food issues, fertilizer in particular, a massive deflationary event seems quite likely.
- ephbit 4y ago
  > But if you printed money endlessly and gave it all to Jeff Bezos, there would be no competitive pressure to see prices rise in the general economy. He might try to buy up all the real estate or stocks, driving asset inflation, but there is little reason for him to buy up all the bread to see it appear in CPI where we measure general inflation. The connection isn't all that obvious, but there is indeed a connection between fresh money being invested in financial asset XY and price for bread rising. Even though the investor did not buy up piles of bread, they created pressure on some scarce resources in the value chain on the way to bread. Those are energy, base materials, labour force, ... Whenever an institution (central bank, commercial bank, ..) creates fresh money and this money gets invested in something, a portion of total global resource allocation (towards different end products) gets shifted. Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices. Example: commercial banks in some country xy are allowed to lend more due to some changes in the rules for fractional reserve banking. The banks currently have some kind of skew in their allocation of lending, meaning they don't just lend exactly proportional to current total allocation of credit. Let's say they lend more (in respect to current allocation) to real estate development businesses than to bakeries. This means that the real estate sector now has more bidding power for all the scarce resources (energy, raw materials, ...) than the bread sector. So there's new demand for energy from the real estate sector which makes energy prices rise. Voilà, bakeries spend more on energy, bread prices rise as well. And all that without "someone buying up all the bread". Injecting fresh money in the financial sector will lead to real world resource reallocation, which will put pressure on sectors that don't even seem to be involved.
  - randomdata 4y ago
    > Shifted means that some end products see an increase of costs in their value chain, which leads to higher prices. In the long run, but it is not uncommon to see production lose money when their input costs are higher than the consumer price. A vendor is still beholden to what someone will pay and when you have to pay for your inputs before proving what the end consumer will pay, you can quickly be left holding the bag. This corrects eventually, but not usually within the span of days or even months. It can often take years to see things correct. You still can't have inflation if the people don't have money. A business can't magically charge more than someone is willing and able to pay. And they say the people don't have more money to pay with, currently subsisting on draining their savings, so inflation will be short lived – unless incomes start to rise. The FED is working tirelessly to try and prevent that from happening, but we'll see.

testfoobar 4y ago

It would be nice if Jerome Powell and the other Fed Governors owned up to it. They were printing dollars via QE and adding reserves into the banking system as recently as March of this year. Last year, they were adding $120 billion/month of QE into the banking system. They have just ramped up to removing $90 billion/month. They're not removing monetary accomodation at the same rate it was injected. No resignations for making such a massive sequence of errors.

im-a-baby 4y ago
The government was also injecting trillions of dollars in stimulus. This isn’t entirely the Fed’s fault.

guelo 4y ago

Your theory doesn't account for the fact that most economies worldwide are seeing high inflation (besides China and Japan).

slaw 4y ago
In most countries their Fed equivalent printed money like crazy. I know in European countries that was the case.
yieldcrv 4y ago
Central bank policies have been coordinated for a decade. Its a new phenomena. Think of it like this, the Weimar Republic is a textbook example of hyperinflation because we could compare its currency to neighboring currencies. Now we couldn't do that exact kind of comparison if we wanted to because the neighboring currencies are being created at a proportional rate to the size of their relative economies. (We have to look at prices of a basket of consumptive goods instead.)

TheOsiris 4y ago

> The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me. 100% this. I don't understand the motivation or the logic of the people who argue against something that's so obvious

derelicta 4y ago
Because its not universal. Lotsa European countries have decades-high lvl of inflation without having printed money.
- bsaul 4y ago
  maybe not during covid, but the eu bank did follow the same kind of very generous monetary policies and super low interest rates for the decade prior, as the fed.
  - derelicta 4y ago
    oh yeah absolutely. but we didnt get to try the whole direct-transfert that happened in the US during the covid crisis. Depending on the country, there were "technical unemployement" measures that have been applied. Basically companies reduce your working hours temporarly, and thus your salary, and your unemployment insurance fills the gap.
  - UncleMeat 4y ago
    Okay. So why did inflation show up globally all at once rather than when these policies were in place?
    - bsaul 4y ago
      i believe all government played the same game ( at least us, eu and china did), which is probably enough to impact the whole world. A few currrency which didn't play that game such as swiss franc saw their value raised tremendously, which probably means inflation is much less an issue there.

atoav 4y ago

As someone who deals with hardware down to the single component level supply chain issues are definitely still a thing. So you will find random products that see themselves without that one IC needed to manufacture it. I myself had to re-design a whole PCB because a (during normal times standard) part was not available even in the timiest quantity anywhere. And because of the efficiency fetishism we have managed ourselves into the chip shortage still ripples back and forth (people stockpiling parts themselves will lead to local shortages etc). So there certainly is an element of "you cannot get the thing you want to get, even if you have money"

sofixa 4y ago

> Call me crazy, but I have a simpler explanation for the spike in inflation we saw in 2021 > The Fed has been funding extremely reckless fiscal policy for two years. We literally shut the economy down and gave people checks for doing nothing. I don't think we need to reach for fancy explanations. The reason for inflation seems plainly obvious to me. You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%. The pandemic (distributions to the economies and global supply lines) and a war disrupting critical raw materials (foodstuffs and energy) have contributed to the inflation, a lot. Nobody can say how much exactly, but blaming any single factor is willful narrow-mindedness.

kypro 4y ago
> You're not crazy, just willfully narrow-minded. How does your theory explain the inflation seen all around the world, including in countries with vastly different Covid policies? Take Sweden, no lockdowns at all, but the economy still slowed down due to people making different choices. However there were no mass layoffs and no "checks for doing nothing". Still, inflation is at 10%. Energy and the USD, mainly. In Europe inflation is high primarily because of energy costs. Local currencies are also down 10-20% vs the USD and Europe imports a lot of stuff in dollars. That said, I'm not sure about the exact breakdown of inflation in Sweden specifically so I can only comment generally. I also add that domestic stimulus measures in the US (both monetary and fiscal) have a significant global impact today. If demand for oil or other commodities rise in the US then they do in markets around the world too. Excessively reckless monetary and fiscal stimulus in the US combined with today's reckless tightening is causing havoc in developing markets around the world.