7 ms·

Fed leaves rates unchanged, drops reference to inflation 'progress'

45 points by kaycebasques 2y ago

paulpauper 2y ago
so basically what was expected, market flat
WalterBright 2y ago
There won't be progress on inflation until after the deficit comes down. Edit: The deficit has come down, and then the inflation came down. Figures 1A and 2. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu... Edit2: The reason for it is the Law of Supply & Demand. When more money chases the same basket of goods and services, the money loses value (which is what inflation is). Federal deficit spending is just that - more money dumped into the economy devalues the rest of the money.
- fourteenfour 2y ago
  The inflation rate has come down significantly from a huge spike in 2022. Seems like we are making progress.
  - fourside 2y ago
    Also, what’s the end game? Current rates are not that bad relative to historical rates.
    - jldugger 2y ago
      The end game is the fed delivering on their sub 2% promise. Anything less would cede their credibility, which they will need in future crises.
      - doctoboggan 2y ago
        I believe its no longer "sub" and now their mandate is just maintaining close to 2%
        jldugger 2y ago
        I know that the fed (Powell?) has been suggesting that 2% should be a long term average, but I took that largely to forgive their performance thus far. If they want credibility in the market long-term, they'll have to demonstrate they can return below 2% before lowering rates.
      - baq 2y ago
        Not happening without a recession.
        bediger4000 2y ago
        We heard that all through 2021-22 (or thereabouts) and it didn't happen. Why would it happen now?
        baq 2y ago
        Exactly my point! :) ...but if it does happen, inflation will come down, too.
      - mindslight 2y ago
        Going right back to ZIRP will cede the Fed's credibility. Primary monetary creation needs to be done by the Treasury spending money for deliberate productive purposes, rather than given away as cheap undirected loans to banks so they can continue pumping up leveraged asset bubbles.
        jldugger 2y ago
        > Going right back to ZIRP Sub 2 percent inflation, not sub 2 percent real interest rates.
    - wakawaka28 2y ago
      The way inflation is measured has radically changed over time. You can't realistically compare current numbers to those in the 70s. The same redefinition issue affects unemployment data. The only people I know trying to do apples-to-apples comparisons are the guys running https://www.shadowstats.com https://www.shadowstats.com
  - DidYaWipe 2y ago
    By what measure? Not to mention that reducing inflation isn't going to roll back the massive price increases that have hurt consumers on staple items. This is what happens when you have monopolies and oligopolies doing what they please (after getting massive handouts in the form of tax cuts from Trump... surely with more on the way). The interest-rate hikes have failed; and yet here we are, waving our hands as if helpless.
    - skywhopper 2y ago
      The measure is the inflation rate. Prices are not going to drop much or at all but income has also risen.
      - DidYaWipe 2y ago
        Inflation rate of what? Inflation can be measured against different "market baskets." Consider this huge defect in the commonly-cited one: "Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors. Food and energy prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly." - https://www.investopedia.com/terms/c/coreinflation.asp https://www.investopedia.com/terms/c/coreinflation.asp And yet the cost of food is probably the most often-cited one in any news story about inflation... unless the winner is the other statistically-omitted one, fuel.
        throw0101d 2y ago
        > Consider this huge defect in the commonly-cited one: There are multiple types of CPI because they measure different things, and they each have pluses and minuses. The reason why Core CPI is useful is illustrated by the orange and blue lines in the first graph: * https://www.economicshelp.org/blog/2587/inflation/difference-between-cpi-and-core-cpi/ https://www.economicshelp.org/blog/2587/inflation/difference... Good luck trying to policy with the orange (non-Core, which has food and energy) line. Or the red line in Chart 1 of: * https://www.frbsf.org/research-and-insights/publications/doctor-econ/2004/10/core-inflation-headline/ https://www.frbsf.org/research-and-insights/publications/doc... Food and energy are heavily dependent on commodity prices, which can swing widely: one month the Fed would be cutting by 3% and the very next month raising by 4% if they followed non-Core CPI (versus PCE). The Bank of Canada, who sets rates in Canada based on StatCan data, looks are three different CPI measures: * https://www.bankofcanada.ca/rates/indicators/capacity-and-inflation-pressures/inflation/ https://www.bankofcanada.ca/rates/indicators/capacity-and-in... * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D63_T9_V2 https://www.statcan.gc.ca/en/statistical-programs/document/2...
  - WalterBright 2y ago
    The deficit has come down, too. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu...
    - kasey_junk 2y ago
      Can you state your hypothesis more explicitly? Because a trivial reading of the numbers show the inflation rate coming down (a lot) while the deficit has gone up.
      - WalterBright 2y ago
        See the link. The deficit has come down, and then the inflation came down. Figures 1A and 2. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu...
        kasey_junk 2y ago
        If you graph economic progress on top of all this isn't it just saying that governments spend more when economic shocks happen? Other countries are pretty instructive as well. For instance Germany had inflation during a period when they had a budget surplus (for over a decade prior to 2019).
        Jtsummers 2y ago
        > isn't it just saying that governments spend more when economic shocks happen? And that the revenue may be lower. Look at 2008 and 2009. Major increases in unemployment which also resulted in reduced revenue. Which created a double whammy, spending increased because the social safety net did what it was supposed to do (carry people through tougher times) and revenue dropped because there were fewer people paying taxes and many people reduced spending (beyond just those who lost their jobs). Then the deficit drops while the employment rate increases and revenues increases while spending again decreases commensurately.
- kennywinker 2y ago
  Meanwhile other nations, regardless of their debt load, have also experienced high inflation... hmm...
  - WalterBright 2y ago
    It's not the debt load, it's the deficit.
    - kennywinker 2y ago
      So we would expect to find a strong correlation between how much of deficit a country runs vs how much inflation it’s seen over recent years, right? Now I’m not an economist, but that doesn’t seem to be there. Not that I’ve come across anyway. As i understand it, gov spending CAN trigger inflation, but it doesn’t automatically. If gov buys something that scales up easily, then their demand is easily absorbed without inflation. If gov buys up stuff that’s in short supply, some inflation might happen.
      - WalterBright 2y ago
        I twice posted links to the graphs showing the strong correlation.
        kennywinker 2y ago
        I see you posting about a correlation between deficit and inflation in the US. Not a comparison of deficits vs inflation between countries. The US economy being correlated to the US economy doesn’t prove much.
        WalterBright 2y ago
        There's plenty of historical evidence for this, too, in country after country. Even in Roman times.
- DrillShopper 2y ago
  Get started then https://www.treasurydirect.gov/government/public-debt-reports/gifts/ https://www.treasurydirect.gov/government/public-debt-report... Don't just put other people's money where your mouth is
- tclancy 2y ago
  Paul Krugman just wrote about this today: https://paulkrugman.substack.com/p/revenge-of-the-black-zero https://paulkrugman.substack.com/p/revenge-of-the-black-zero
  - indoordin0saur 2y ago
    Krugman has repeatedly been very bad at predicting inflation in recent years. https://www.businessinsider.com/paul-krugman-inflation-chart-food-energy-gas-housing-prices-economy-2023-10 https://www.businessinsider.com/paul-krugman-inflation-chart... https://www.nytimes.com/2022/07/21/opinion/paul-krugman-inflation.html https://www.nytimes.com/2022/07/21/opinion/paul-krugman-infl...
    - tclancy 2y ago
      Which is fine, just look at the relevant charts that discuss inflation vs trade/ manufacturing deficits.
      - layoric 2y ago
        It baffles me why an economist constantly making wrong predictions “is fine”. If their analysis leads to incorrect outcomes, what use is it? I think if you are good, you’re a trader and told to keep your mouth shut and make money. If you’re bad but well connected, it seems you become a professor or public figure/speaker. The charts are handy all in one place, but if regularly incorrect, likely means looking at wrong data, or just using it wrong. I’m sure he’s a nice guy and all, and this isn’t meant to be an attack on anyone, just an observation that I find frustrating. Seems to be very little to no negative feedback for some economists making bad predictions or analysis.
        taeric 2y ago
        Well, for one, you have to establish that he is constantly wrong without any reflection on his decisions? Do you have numbers showing how often he is wrong? For two, if you are punishing people for being willing to put thoughts out there, all you will succeed at is getting fewer people putting thoughts out there. Your observation here, though, is largely that public figures have public records of failures. You jump from there to the idea that they only have failures. This is as useful as thinking they only have public success. Which is clearly false.
- WalterBright 2y ago
  There was zero net inflation in the century prior to 1914. But persistent inflation ever since. What changed in 1914? Persistent deficits.
  - baq 2y ago
    Now analyze periods of deflation during those hundred years. Spoiler alert: they were bad.
    - WalterBright 2y ago
      No net inflation.
  - rabid_turtle 2y ago
    The creation of the federal reserve December 23, 1913
  - throw0101d 2y ago
    > There was zero net inflation in the century prior to 1914. But persistent inflation ever since. There was deflation for many periods of time before 1914: > There have been several deflationary periods in U.S. history including from 1815 and 1860 and again between 1865 to 1900. One of the most dramatic deflationary periods in U.S. history took place between 1930 and 1933 during the Great Depression. Deflation rarely occurred in the second half of the 20th century. The dramatic and consistent price increases from 1950 to 2000 have been unparalleled since the founding of the country. * https://www.investopedia.com/ask/answers/040715/were-there-any-periods-major-deflation-us-history.asp https://www.investopedia.com/ask/answers/040715/were-there-a... * https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation Before the 1930s was called the Great Depression, that label was applied to another event by people: * https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression In 1937 when FDR tried to balance the budget due to political pressure and the then-orthodoxy that "deficits bad": * https://en.wikipedia.org/wiki/Recession_of_1937–1938 https://en.wikipedia.org/wiki/Recession_of_1937–1938 Deficit spending has led to more more stable and predictable prices, as has getting off the gold standard: * https://archive.is/https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://archive.is/https://www.theatlantic.com/business/arch... The last few decades have probably been the most stable level of prices that people have seen: * https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation COVID (and the energy price spike because of Russia) has been the main anomaly since the 1980s (the inflation of which was caused by OPEC-related energy spike). Given a choice between deflation and <4% inflation, I'll take the inflation.
- wing-_-nuts 2y ago
  'the deficit' isn't really driving inflation, as evidenced by japan's huge deficit and relatively low inflation. If you want to talk about what's going to cause inflation in the future? It will almost certainly be some combination of tariffs and a lack of workers due to deportation. I'm not supporting industries that thrive off exploiting the undocumented, I'm merely stating the fact that deporting them will raise inflation.
  - rayiner 2y ago
    What if I told you that we exploit cheap immigrant labor in order to avoid inflation while continuing to print money? It’s an equation.
  - normalaccess 2y ago
    The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's face value. This is the original and primary source of inflation. All debt biassed currencies have this, not as a defect, but as a feature. If you own the bank you can do some money magic and get filthy rich. The Federal reserve Over the last 100 years the dollar has lost something like 96% of it's value. It's old and quite corny but this video gives the cliff notes on how the FED works https://youtu.be/mII9NZ8MMVM https://youtu.be/mII9NZ8MMVM
    - somewhereoutth 2y ago
      Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'. The reason for this expanding money supply is to facilitate an expanding economy.
      - normalaccess 2y ago
        You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost. Our FED operates the same way, the government must pay back the FED's loans, and these loans have interest. When the US was printing greenbacks without the FED there was no one to "pay them back to". This is how the USA operated before 1913.
- pjc50 2y ago
  Walter getting down votes but this is orthodox economics; fiscal expansion is inflationary, contraction is deflationary. What will actually happen to the deficit is anyone's guess.
  - WalterBright 2y ago
    It's also strongly backed up by the historical record of deficits and inflation. Even the Romans had inflation when they debased their coinage.
    - pjc50 2y ago
      Fiscal expansion and monetary expansion are different things, though. As are "real shocks" like COVID and the Ukraine war.
- throw0101d 2y ago
  > * When more money chases the same basket of goods and services, the money loses value (which is what inflation is).* Now do Japan: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i Increasing money supply, low inflation (and more than on period of deflation). The problem with looking at money supply is that you don't bother looking at what the money is doing: > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. > Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that. * https://www.pragcap.com/three-things-i-think-i-think-i-see-dead-mutual-funds/ https://www.pragcap.com/three-things-i-think-i-think-i-see-d... The problem with Monetarists is that they ignore the velocity of money.
  - WalterBright 2y ago
    > Japan I don't know much of anything about Japan's economy. But I have read that the Japanese have an unusually high savings rate. I hypothesize that may have an effect of withdrawing money from the economy, which counteracts the deficit money printing by the government.
- throw0101d 2y ago
  > https://epicforamerica.org https://epicforamerica.org Did a bit of digging, and this place is run by Paul Winfree: > Winfree’s former employer has arguably made that shift. One of the last things Winfree did at Heritage was help pen a section of its controversial Project 2025 policy roadmap for the next GOP administration. That section raised the idea of effectively eliminating the Federal Reserve. * https://rollcall.com/2024/10/31/with-an-epic-name-this-conservative-think-tank-sees-opening/ https://rollcall.com/2024/10/31/with-an-epic-name-this-conse... Who was previously with the Heritage Foundation: * https://en.wikipedia.org/wiki/The_Heritage_Foundation https://en.wikipedia.org/wiki/The_Heritage_Foundation Heritage are the folks that published Trump's Project 2025: * https://en.wikipedia.org/wiki/Project_2025 https://en.wikipedia.org/wiki/Project_2025
- throw0101d 2y ago
  > There won't be progress on inflation until after the deficit comes down. > […] https://epicforamerica.org https://epicforamerica.org If these guys are so worried about deficits, why are they pushing for expanding tax cuts that make the deficits worse with articles like "Lawmakers Must Preserve and Expand the 2017 Tax Cuts": * https://epicforamerica.org/federal-budget/lawmakers-must-preserve-and-expand-the-2017-tax-cuts/ https://epicforamerica.org/federal-budget/lawmakers-must-pre... US outflows ("spending") relative to GDP is coming down to historical levels (~20%): * https://fred.stlouisfed.org/series/FYONGDA188S https://fred.stlouisfed.org/series/FYONGDA188S And yet the deficit relative to GDP is getting worse: * https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S It's inflows (income) that's the problem, i.e., not enough tax revenue.
- wakawaka28 2y ago
  You are 100% right of course. Inflation is a monetary phenomenon. The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. There's no easy solution to the problem, and it is very hard to get the indoctrinated to understand where the problem truly lies.
  - WalterBright 2y ago
    > it is very hard to get the indoctrinated to understand where the problem truly lies There are an awful lot of people that benefit from the deficit spending, so they have a major incentive to blame inflation on something (anything) else. The usual suspects are: 1. corporate greed 2. union greed 3. oligarchs 4. supply chain disruption 5. oil companies 6. Arab countries 7. Putin's price hike
  - mindslight 2y ago
    > The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. And you're serving more Kool-Aid. Deficit spending is merely one form of monetary creation. The bigger one is cheap loans from the Federal Reserve to banks, which is responsible for the ongoing housing, stock, and other asset bubbles. The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders.
    - wakawaka28 2y ago
      >Deficit spending is merely one form of monetary creation. The bigger one is cheap loans from the Federal Reserve to banks, which is responsible for the ongoing housing, stock, and other asset bubbles. Yes you are technically right, the Federal Reserve (a part of the government) issues credit and puts money into the economy. >The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders. You're putting a spin on it that I can't stand. Are there other modes of money creation? Yes, and all tie back to the government itself. The government is the primary beneficiary of money creation because it has the largest debt and it creates the money, and forces everyone to accept it at gunpoint.
readthenotes1 2y ago
No paywall https://www.investopedia.com/fed-meeting-today-live-federal-reserve-january-meeting-8782546 https://www.investopedia.com/fed-meeting-today-live-federal-...
lenerdenator 2y ago
There's a feedback loop on deficits.
rabid_turtle 2y ago
The federal reserve creates inflation through printing fiat currency

45 points by kaycebasques 2y ago

so basically what was expected, market flat

There won't be progress on inflation until after the deficit comes down. Edit: The deficit has come down, and then the inflation came down. Figures 1A and 2. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu... Edit2: The reason for it is the Law of Supply & Demand. When more money chases the same basket of goods and services, the money loses value (which is what inflation is). Federal deficit spending is just that - more money dumped into the economy devalues the rest of the money.

fourteenfour 2y ago
The inflation rate has come down significantly from a huge spike in 2022. Seems like we are making progress.
- fourside 2y ago
  Also, what’s the end game? Current rates are not that bad relative to historical rates.
  - jldugger 2y ago
    The end game is the fed delivering on their sub 2% promise. Anything less would cede their credibility, which they will need in future crises.
    - doctoboggan 2y ago
      I believe its no longer "sub" and now their mandate is just maintaining close to 2%
      - jldugger 2y ago
        I know that the fed (Powell?) has been suggesting that 2% should be a long term average, but I took that largely to forgive their performance thus far. If they want credibility in the market long-term, they'll have to demonstrate they can return below 2% before lowering rates.
    - baq 2y ago
      Not happening without a recession.
      - bediger4000 2y ago
        We heard that all through 2021-22 (or thereabouts) and it didn't happen. Why would it happen now?
        baq 2y ago
        Exactly my point! :) ...but if it does happen, inflation will come down, too.
    - mindslight 2y ago
      Going right back to ZIRP will cede the Fed's credibility. Primary monetary creation needs to be done by the Treasury spending money for deliberate productive purposes, rather than given away as cheap undirected loans to banks so they can continue pumping up leveraged asset bubbles.
      - jldugger 2y ago
        > Going right back to ZIRP Sub 2 percent inflation, not sub 2 percent real interest rates.
  - wakawaka28 2y ago
    The way inflation is measured has radically changed over time. You can't realistically compare current numbers to those in the 70s. The same redefinition issue affects unemployment data. The only people I know trying to do apples-to-apples comparisons are the guys running https://www.shadowstats.com https://www.shadowstats.com
- DidYaWipe 2y ago
  By what measure? Not to mention that reducing inflation isn't going to roll back the massive price increases that have hurt consumers on staple items. This is what happens when you have monopolies and oligopolies doing what they please (after getting massive handouts in the form of tax cuts from Trump... surely with more on the way). The interest-rate hikes have failed; and yet here we are, waving our hands as if helpless.
  - skywhopper 2y ago
    The measure is the inflation rate. Prices are not going to drop much or at all but income has also risen.
    - DidYaWipe 2y ago
      Inflation rate of what? Inflation can be measured against different "market baskets." Consider this huge defect in the commonly-cited one: "Core inflation is the change in the costs of goods and services but does not include those from the food and energy sectors. Food and energy prices are exempt from this calculation because their prices can be too volatile or fluctuate wildly." - https://www.investopedia.com/terms/c/coreinflation.asp https://www.investopedia.com/terms/c/coreinflation.asp And yet the cost of food is probably the most often-cited one in any news story about inflation... unless the winner is the other statistically-omitted one, fuel.
      - throw0101d 2y ago
        > Consider this huge defect in the commonly-cited one: There are multiple types of CPI because they measure different things, and they each have pluses and minuses. The reason why Core CPI is useful is illustrated by the orange and blue lines in the first graph: * https://www.economicshelp.org/blog/2587/inflation/difference-between-cpi-and-core-cpi/ https://www.economicshelp.org/blog/2587/inflation/difference... Good luck trying to policy with the orange (non-Core, which has food and energy) line. Or the red line in Chart 1 of: * https://www.frbsf.org/research-and-insights/publications/doctor-econ/2004/10/core-inflation-headline/ https://www.frbsf.org/research-and-insights/publications/doc... Food and energy are heavily dependent on commodity prices, which can swing widely: one month the Fed would be cutting by 3% and the very next month raising by 4% if they followed non-Core CPI (versus PCE). The Bank of Canada, who sets rates in Canada based on StatCan data, looks are three different CPI measures: * https://www.bankofcanada.ca/rates/indicators/capacity-and-inflation-pressures/inflation/ https://www.bankofcanada.ca/rates/indicators/capacity-and-in... * https://www.statcan.gc.ca/en/statistical-programs/document/2301_D63_T9_V2 https://www.statcan.gc.ca/en/statistical-programs/document/2...
- WalterBright 2y ago
  The deficit has come down, too. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu...
  - kasey_junk 2y ago
    Can you state your hypothesis more explicitly? Because a trivial reading of the numbers show the inflation rate coming down (a lot) while the deficit has gone up.
    - WalterBright 2y ago
      See the link. The deficit has come down, and then the inflation came down. Figures 1A and 2. https://epicforamerica.org/the-economy/is-inflation-the-result-of-excessive-deficit-spending/ https://epicforamerica.org/the-economy/is-inflation-the-resu...
      - kasey_junk 2y ago
        If you graph economic progress on top of all this isn't it just saying that governments spend more when economic shocks happen? Other countries are pretty instructive as well. For instance Germany had inflation during a period when they had a budget surplus (for over a decade prior to 2019).
        Jtsummers 2y ago
        > isn't it just saying that governments spend more when economic shocks happen? And that the revenue may be lower. Look at 2008 and 2009. Major increases in unemployment which also resulted in reduced revenue. Which created a double whammy, spending increased because the social safety net did what it was supposed to do (carry people through tougher times) and revenue dropped because there were fewer people paying taxes and many people reduced spending (beyond just those who lost their jobs). Then the deficit drops while the employment rate increases and revenues increases while spending again decreases commensurately.
kennywinker 2y ago
Meanwhile other nations, regardless of their debt load, have also experienced high inflation... hmm...
- WalterBright 2y ago
  It's not the debt load, it's the deficit.
  - kennywinker 2y ago
    So we would expect to find a strong correlation between how much of deficit a country runs vs how much inflation it’s seen over recent years, right? Now I’m not an economist, but that doesn’t seem to be there. Not that I’ve come across anyway. As i understand it, gov spending CAN trigger inflation, but it doesn’t automatically. If gov buys something that scales up easily, then their demand is easily absorbed without inflation. If gov buys up stuff that’s in short supply, some inflation might happen.
    - WalterBright 2y ago
      I twice posted links to the graphs showing the strong correlation.
      - kennywinker 2y ago
        I see you posting about a correlation between deficit and inflation in the US. Not a comparison of deficits vs inflation between countries. The US economy being correlated to the US economy doesn’t prove much.
        WalterBright 2y ago
        There's plenty of historical evidence for this, too, in country after country. Even in Roman times.
DrillShopper 2y ago
Get started then https://www.treasurydirect.gov/government/public-debt-reports/gifts/ https://www.treasurydirect.gov/government/public-debt-report... Don't just put other people's money where your mouth is
tclancy 2y ago
Paul Krugman just wrote about this today: https://paulkrugman.substack.com/p/revenge-of-the-black-zero https://paulkrugman.substack.com/p/revenge-of-the-black-zero
- indoordin0saur 2y ago
  Krugman has repeatedly been very bad at predicting inflation in recent years. https://www.businessinsider.com/paul-krugman-inflation-chart-food-energy-gas-housing-prices-economy-2023-10 https://www.businessinsider.com/paul-krugman-inflation-chart... https://www.nytimes.com/2022/07/21/opinion/paul-krugman-inflation.html https://www.nytimes.com/2022/07/21/opinion/paul-krugman-infl...
  - tclancy 2y ago
    Which is fine, just look at the relevant charts that discuss inflation vs trade/ manufacturing deficits.
    - layoric 2y ago
      It baffles me why an economist constantly making wrong predictions “is fine”. If their analysis leads to incorrect outcomes, what use is it? I think if you are good, you’re a trader and told to keep your mouth shut and make money. If you’re bad but well connected, it seems you become a professor or public figure/speaker. The charts are handy all in one place, but if regularly incorrect, likely means looking at wrong data, or just using it wrong. I’m sure he’s a nice guy and all, and this isn’t meant to be an attack on anyone, just an observation that I find frustrating. Seems to be very little to no negative feedback for some economists making bad predictions or analysis.
      - taeric 2y ago
        Well, for one, you have to establish that he is constantly wrong without any reflection on his decisions? Do you have numbers showing how often he is wrong? For two, if you are punishing people for being willing to put thoughts out there, all you will succeed at is getting fewer people putting thoughts out there. Your observation here, though, is largely that public figures have public records of failures. You jump from there to the idea that they only have failures. This is as useful as thinking they only have public success. Which is clearly false.
WalterBright 2y ago
There was zero net inflation in the century prior to 1914. But persistent inflation ever since. What changed in 1914? Persistent deficits.
- baq 2y ago
  Now analyze periods of deflation during those hundred years. Spoiler alert: they were bad.
  - WalterBright 2y ago
    No net inflation.
- rabid_turtle 2y ago
  The creation of the federal reserve December 23, 1913
- throw0101d 2y ago
  > There was zero net inflation in the century prior to 1914. But persistent inflation ever since. There was deflation for many periods of time before 1914: > There have been several deflationary periods in U.S. history including from 1815 and 1860 and again between 1865 to 1900. One of the most dramatic deflationary periods in U.S. history took place between 1930 and 1933 during the Great Depression. Deflation rarely occurred in the second half of the 20th century. The dramatic and consistent price increases from 1950 to 2000 have been unparalleled since the founding of the country. * https://www.investopedia.com/ask/answers/040715/were-there-any-periods-major-deflation-us-history.asp https://www.investopedia.com/ask/answers/040715/were-there-a... * https://en.wikipedia.org/wiki/The_Great_Deflation https://en.wikipedia.org/wiki/The_Great_Deflation Before the 1930s was called the Great Depression, that label was applied to another event by people: * https://en.wikipedia.org/wiki/Long_Depression https://en.wikipedia.org/wiki/Long_Depression In 1937 when FDR tried to balance the budget due to political pressure and the then-orthodoxy that "deficits bad": * https://en.wikipedia.org/wiki/Recession_of_1937–1938 https://en.wikipedia.org/wiki/Recession_of_1937–1938 Deficit spending has led to more more stable and predictable prices, as has getting off the gold standard: * https://archive.is/https://www.theatlantic.com/business/archive/2012/08/why-the-gold-standard-is-the-worlds-worst-economic-idea-in-2-charts/261552/ https://archive.is/https://www.theatlantic.com/business/arch... The last few decades have probably been the most stable level of prices that people have seen: * https://en.wikipedia.org/wiki/Great_Moderation https://en.wikipedia.org/wiki/Great_Moderation COVID (and the energy price spike because of Russia) has been the main anomaly since the 1980s (the inflation of which was caused by OPEC-related energy spike). Given a choice between deflation and <4% inflation, I'll take the inflation.
wing-_-nuts 2y ago
'the deficit' isn't really driving inflation, as evidenced by japan's huge deficit and relatively low inflation. If you want to talk about what's going to cause inflation in the future? It will almost certainly be some combination of tariffs and a lack of workers due to deportation. I'm not supporting industries that thrive off exploiting the undocumented, I'm merely stating the fact that deporting them will raise inflation.
- rayiner 2y ago
  What if I told you that we exploit cheap immigrant labor in order to avoid inflation while continuing to print money? It’s an equation.
- normalaccess 2y ago
  The fact that every dollar that is printed MUST be paid back to the Federal Reserve Bank with interest means that every dollar printed is worth less than it's face value. This is the original and primary source of inflation. All debt biassed currencies have this, not as a defect, but as a feature. If you own the bank you can do some money magic and get filthy rich. The Federal reserve Over the last 100 years the dollar has lost something like 96% of it's value. It's old and quite corny but this video gives the cliff notes on how the FED works https://youtu.be/mII9NZ8MMVM https://youtu.be/mII9NZ8MMVM
  - somewhereoutth 2y ago
    Modern banking systems allow the banks themselves to 'print' dollars - by originating loans. The Fed (and central banks elsewhere) steer this money creation process through various mechanisms. However it is NOT the case that 'every dollar must be paid back to the Fed'. The reason for this expanding money supply is to facilitate an expanding economy.
    - normalaccess 2y ago
      You are right, part of every dollar must be paid back. If there is any interest on a loan then you need to pay back more than 100% the original cost. Our FED operates the same way, the government must pay back the FED's loans, and these loans have interest. When the US was printing greenbacks without the FED there was no one to "pay them back to". This is how the USA operated before 1913.
pjc50 2y ago
Walter getting down votes but this is orthodox economics; fiscal expansion is inflationary, contraction is deflationary. What will actually happen to the deficit is anyone's guess.
- WalterBright 2y ago
  It's also strongly backed up by the historical record of deficits and inflation. Even the Romans had inflation when they debased their coinage.
  - pjc50 2y ago
    Fiscal expansion and monetary expansion are different things, though. As are "real shocks" like COVID and the Ukraine war.
throw0101d 2y ago
> * When more money chases the same basket of goods and services, the money loses value (which is what inflation is).* Now do Japan: * https://fred.stlouisfed.org/graph/?g=1680i https://fred.stlouisfed.org/graph/?g=1680i Increasing money supply, low inflation (and more than on period of deflation). The problem with looking at money supply is that you don't bother looking at what the money is doing: > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. > Sometimes I feel like people read some econ 101 and the admittedly intuitive idea that inflation is “always and everywhere a monetary phenomenon”, but didn’t stop to think that it might be a lot more complex than that. * https://www.pragcap.com/three-things-i-think-i-think-i-see-dead-mutual-funds/ https://www.pragcap.com/three-things-i-think-i-think-i-see-d... The problem with Monetarists is that they ignore the velocity of money.
- WalterBright 2y ago
  > Japan I don't know much of anything about Japan's economy. But I have read that the Japanese have an unusually high savings rate. I hypothesize that may have an effect of withdrawing money from the economy, which counteracts the deficit money printing by the government.
throw0101d 2y ago
> https://epicforamerica.org https://epicforamerica.org Did a bit of digging, and this place is run by Paul Winfree: > Winfree’s former employer has arguably made that shift. One of the last things Winfree did at Heritage was help pen a section of its controversial Project 2025 policy roadmap for the next GOP administration. That section raised the idea of effectively eliminating the Federal Reserve. * https://rollcall.com/2024/10/31/with-an-epic-name-this-conservative-think-tank-sees-opening/ https://rollcall.com/2024/10/31/with-an-epic-name-this-conse... Who was previously with the Heritage Foundation: * https://en.wikipedia.org/wiki/The_Heritage_Foundation https://en.wikipedia.org/wiki/The_Heritage_Foundation Heritage are the folks that published Trump's Project 2025: * https://en.wikipedia.org/wiki/Project_2025 https://en.wikipedia.org/wiki/Project_2025
throw0101d 2y ago
> There won't be progress on inflation until after the deficit comes down. > […] https://epicforamerica.org https://epicforamerica.org If these guys are so worried about deficits, why are they pushing for expanding tax cuts that make the deficits worse with articles like "Lawmakers Must Preserve and Expand the 2017 Tax Cuts": * https://epicforamerica.org/federal-budget/lawmakers-must-preserve-and-expand-the-2017-tax-cuts/ https://epicforamerica.org/federal-budget/lawmakers-must-pre... US outflows ("spending") relative to GDP is coming down to historical levels (~20%): * https://fred.stlouisfed.org/series/FYONGDA188S https://fred.stlouisfed.org/series/FYONGDA188S And yet the deficit relative to GDP is getting worse: * https://fred.stlouisfed.org/series/FYFSGDA188S https://fred.stlouisfed.org/series/FYFSGDA188S It's inflows (income) that's the problem, i.e., not enough tax revenue.
wakawaka28 2y ago
You are 100% right of course. Inflation is a monetary phenomenon. The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. There's no easy solution to the problem, and it is very hard to get the indoctrinated to understand where the problem truly lies.
- WalterBright 2y ago
  > it is very hard to get the indoctrinated to understand where the problem truly lies There are an awful lot of people that benefit from the deficit spending, so they have a major incentive to blame inflation on something (anything) else. The usual suspects are: 1. corporate greed 2. union greed 3. oligarchs 4. supply chain disruption 5. oil companies 6. Arab countries 7. Putin's price hike
- mindslight 2y ago
  > The money comes from our government spending on credit. There are lots of people on here drinking the Kool-Aid on this topic. And you're serving more Kool-Aid. Deficit spending is merely one form of monetary creation. The bigger one is cheap loans from the Federal Reserve to banks, which is responsible for the ongoing housing, stock, and other asset bubbles. The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders.
  - wakawaka28 2y ago
    >Deficit spending is merely one form of monetary creation. The bigger one is cheap loans from the Federal Reserve to banks, which is responsible for the ongoing housing, stock, and other asset bubbles. Yes you are technically right, the Federal Reserve (a part of the government) issues credit and puts money into the economy. >The Fed's technocratic mandate declares that price inflation must happen regardless. Myopically focusing on "deficit spending" merely hamstrings the Legislative/Executive's ability to spend money for directed deliberate purposes, leaving more for the Reserve to hand out to the financial industry and existing asset holders. You're putting a spin on it that I can't stand. Are there other modes of money creation? Yes, and all tie back to the government itself. The government is the primary beneficiary of money creation because it has the largest debt and it creates the money, and forces everyone to accept it at gunpoint.

readthenotes1 2y ago

No paywall https://www.investopedia.com/fed-meeting-today-live-federal-reserve-january-meeting-8782546 https://www.investopedia.com/fed-meeting-today-live-federal-...

lenerdenator 2y ago

There's a feedback loop on deficits.

rabid_turtle 2y ago

The federal reserve creates inflation through printing fiat currency