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When the government decides to print trillions and trillions out of thin air, if the economy isn't forced into an artificial suppression by the same government

When the government decides to print trillions and trillions out of thin air, if the economy isn't forced into an artificial suppression by the same government - then prices reflect the diluted value of the money supply. An item that costs $1, costs $2 when you double the amount money for the same amount of assets.

refurb 4y ago
It's pretty impressive how the headlines are always about supply chain constraints and corporate profits but never about money supply.
- Xeoncross 4y ago
  It's easier for the readership to understand corporate greed as the negative draw of the article than the more complex system that led to it. Headlines are crafted for maximum consumer reach.
- ClumsyPilot 4y ago
  its pretty impressive how role of private banks in managing the money supply is never examined. When government is creating new money its always wrong, and when banks create new money its always okay. Nor is there ever a proposed formula for what the 'correct' money supply should be. The big critics seem to only be able to come up with Gold standard/bitcoin. They do not propose how money supply should expand when GDP grows. They also never talk about relationship between velocity of money and interest rate, and the fact that if velocity of money is low, then the debt of everyone in the economy pile up to infinity, and cause collapse. They do not address the perverse incentives we have to park vast amounts of money unproductively, instead of investment in the real economy.
  - refurb 4y ago
    its pretty impressive how role of private banks in managing the money supply The private banks ability to create money is limited by government regulations.
krferriter 4y ago
Prices reflect the maximum businesses think they can charge consumers without excessively reducing the demand, in order to maximize profits. If you give everyone money, they create stronger demand for products, and if the supply of those isn't increased (or even worse, is decreased), businesses can charge higher prices because the market will bear those higher prices because there is sufficiently high demand relative to supply. Inflation happens when businesses broadly raise prices. Broadly giving people more money can contribute to businesses finding that the market will bear higher prices because people now have more money.
- Xeoncross 4y ago
  > Inflation happens when businesses broadly raise prices. Unless you are proposing that every company in the world is secretly conspiring together to raise prices, I assume you agree with me that the actual source of the increase is the huge influx of money supply that governments created and injected into the economy. Businesses will absolutely adjust their prices to whatever the market will pay. However, they are dependent on (or follow) inflation for the actual pricing numbers. One of the major US issues was that the vast majority of the $6,100,000,000,000 in funding the last couple years that was added to the money supply was given to the wealthy via ownership in companies. They used it to purchase commodities, houses, stocks, and many other assets causing the producers of those assets to raise prices to adjust for the inflated money supply. This means we see houses doubling when really, money supply doubled and our purchasing power halved.
  - ClumsyPilot 4y ago
    givernment injected money into banks, how does that increase money supply among buyers of potatoes? it affect prices of assets, houses, but this does not, in any way, affect prices of food. The entire argument is fictitious.
    - Xeoncross 4y ago
      The stimulus packages provided for far more than just bank lending. Read some of the bills, there were a lot of projects and spending programs. Regardless, even it if had only been for banks. Anyone was able to borrow nearly interest free money to turn around and spend. This means anyone (that was wealthy enough) could take their $100k and borrow an additional $X00k they used to purchase assets. When half the purchasing power of the country does that you suddenly have 2x inflation as there are 2x more purchasers (or 2x more money).
dennis_jeeves1 4y ago
[dead]
NickM 4y ago
An item that costs $1, costs $2 when you double the amount money for the same amount of assets. This is a common misconception. One big reason it's not true is because the vast majority of the wealth in the economy is stored in assets other than money (real property, stock, bonds, etc.), so doubling the money supply is very different from doubling the amount of wealth everyone has. Now I imagine some might still be skeptical, but luckily this has been studied, and there are metrics like M2 that represent money supply. If you look at a graph of M2 vs inflation, they look pretty independent, and indeed studies have failed to find any statistically significant correlation between the two.
- symlinkk 4y ago
  So what if the money is stored in assets? I don’t think anyone believes arguments like “your basic intuition is wrong, studies have been done, I can’t explain it to you but trust the experts” anymore since COVID.
- jokethrowaway 4y ago
  This is BS to sell you inflation as "not being that bad". Inflation is just a tax, a way to tax the poor. Real Estate, stock, bonds and goods will, in aggregate, go up. Sure, the distribution is going to be uneven but I wouldn't say "prices of goods are not going up" and then complain you can't afford a house.
- UncleEntity 4y ago
  First of all, studies by who? Cui bono is definitely at play here. Secondly, it doesn’t matter where the “wealth” is stored unless it’s sitting in someone’s basement like Scrooge McDuck[0]. The money gets out into the economy through loans and businesses doing business causing prices to rise because there’s more money chasing the same amount of goods. [0] though, apparently, this is a Silicon Valley thing as was seen by SVB.
- vorpalhex 4y ago
  You are responding to an off the cuff (and basically correct) remark with a deeply technical disagreement (that isn't incorrect either). Total money supply means that eg doubling the amount of liquidity does not double the price of items, but printing money can cause inflation on goods depending on where that printed money is absorbed. Making free money for building houses is different then sending a check to every American.. but in practice the Gov did the latter and now eggs are more expensive! Where you add the money makes a big difference!

refurb 4y ago

It's pretty impressive how the headlines are always about supply chain constraints and corporate profits but never about money supply.

Xeoncross 4y ago
It's easier for the readership to understand corporate greed as the negative draw of the article than the more complex system that led to it. Headlines are crafted for maximum consumer reach.
ClumsyPilot 4y ago
its pretty impressive how role of private banks in managing the money supply is never examined. When government is creating new money its always wrong, and when banks create new money its always okay. Nor is there ever a proposed formula for what the 'correct' money supply should be. The big critics seem to only be able to come up with Gold standard/bitcoin. They do not propose how money supply should expand when GDP grows. They also never talk about relationship between velocity of money and interest rate, and the fact that if velocity of money is low, then the debt of everyone in the economy pile up to infinity, and cause collapse. They do not address the perverse incentives we have to park vast amounts of money unproductively, instead of investment in the real economy.
- refurb 4y ago
  its pretty impressive how role of private banks in managing the money supply The private banks ability to create money is limited by government regulations.

krferriter 4y ago

Prices reflect the maximum businesses think they can charge consumers without excessively reducing the demand, in order to maximize profits. If you give everyone money, they create stronger demand for products, and if the supply of those isn't increased (or even worse, is decreased), businesses can charge higher prices because the market will bear those higher prices because there is sufficiently high demand relative to supply. Inflation happens when businesses broadly raise prices. Broadly giving people more money can contribute to businesses finding that the market will bear higher prices because people now have more money.

Xeoncross 4y ago
> Inflation happens when businesses broadly raise prices. Unless you are proposing that every company in the world is secretly conspiring together to raise prices, I assume you agree with me that the actual source of the increase is the huge influx of money supply that governments created and injected into the economy. Businesses will absolutely adjust their prices to whatever the market will pay. However, they are dependent on (or follow) inflation for the actual pricing numbers. One of the major US issues was that the vast majority of the $6,100,000,000,000 in funding the last couple years that was added to the money supply was given to the wealthy via ownership in companies. They used it to purchase commodities, houses, stocks, and many other assets causing the producers of those assets to raise prices to adjust for the inflated money supply. This means we see houses doubling when really, money supply doubled and our purchasing power halved.
- ClumsyPilot 4y ago
  givernment injected money into banks, how does that increase money supply among buyers of potatoes? it affect prices of assets, houses, but this does not, in any way, affect prices of food. The entire argument is fictitious.
  - Xeoncross 4y ago
    The stimulus packages provided for far more than just bank lending. Read some of the bills, there were a lot of projects and spending programs. Regardless, even it if had only been for banks. Anyone was able to borrow nearly interest free money to turn around and spend. This means anyone (that was wealthy enough) could take their $100k and borrow an additional $X00k they used to purchase assets. When half the purchasing power of the country does that you suddenly have 2x inflation as there are 2x more purchasers (or 2x more money).

dennis_jeeves1 4y ago

[dead]

NickM 4y ago

An item that costs $1, costs $2 when you double the amount money for the same amount of assets. This is a common misconception. One big reason it's not true is because the vast majority of the wealth in the economy is stored in assets other than money (real property, stock, bonds, etc.), so doubling the money supply is very different from doubling the amount of wealth everyone has. Now I imagine some might still be skeptical, but luckily this has been studied, and there are metrics like M2 that represent money supply. If you look at a graph of M2 vs inflation, they look pretty independent, and indeed studies have failed to find any statistically significant correlation between the two.

symlinkk 4y ago
So what if the money is stored in assets? I don’t think anyone believes arguments like “your basic intuition is wrong, studies have been done, I can’t explain it to you but trust the experts” anymore since COVID.
jokethrowaway 4y ago
This is BS to sell you inflation as "not being that bad". Inflation is just a tax, a way to tax the poor. Real Estate, stock, bonds and goods will, in aggregate, go up. Sure, the distribution is going to be uneven but I wouldn't say "prices of goods are not going up" and then complain you can't afford a house.
UncleEntity 4y ago
First of all, studies by who? Cui bono is definitely at play here. Secondly, it doesn’t matter where the “wealth” is stored unless it’s sitting in someone’s basement like Scrooge McDuck[0]. The money gets out into the economy through loans and businesses doing business causing prices to rise because there’s more money chasing the same amount of goods. [0] though, apparently, this is a Silicon Valley thing as was seen by SVB.
vorpalhex 4y ago
You are responding to an off the cuff (and basically correct) remark with a deeply technical disagreement (that isn't incorrect either). Total money supply means that eg doubling the amount of liquidity does not double the price of items, but printing money can cause inflation on goods depending on where that printed money is absorbed. Making free money for building houses is different then sending a check to every American.. but in practice the Gov did the latter and now eggs are more expensive! Where you add the money makes a big difference!