The two schools of thought on inflation.

[Madison320]

The debate on inflation seems to be in two camps. The main camp is that while printing money in "some" countries causes price inflation, it doesn't cause it in the US because we would've seen it by now. The other minority camp is that for whatever reason the money printing in the US has only caused certain asset prices to rise and hasn't "yet" trickled down to consumer prices.

Here's how I look at it. Suppose that it's true that we can print money and not cause consumer prices to rise in the US. Using that logic you could ALWAYS concoct a scenario where we could all stay home and become wealthy while the Fed prints money. Since we know this is not true than I think it proves that the "deflation" camp is wrong.

Deflation Camp: Has to explain why we can't just stay home and print forever.

Inflation Camp: Has to explain why there's been a delay in consumer price inflation.

[acptulsa]

Deflation Camp: Has to explain why we can't just stay home and print forever.

Inflation Camp: Has to explain why there's been a delay in consumer price inflation.

Beef, $7/lb. TP, $2/roll.

If someone asks me why there hasn't been any inflation, I'm asking them where in the name of Aunt Matilda's Nash they've been shopping.

[Madison320]

Beef, $7/lb. TP, $2/roll.

If someone asks me why there hasn't been any inflation, I'm asking them where in the name of Aunt Matilda's Nash they've been shopping.

Yeah, I think the "inflation process" could already be underway based on the shortages we're seeing. I know it's mainly caused by panic but shortages are also caused by prices being to low.

[acptulsa]

Yeah, I think the "inflation process" could already be underway based on the shortages we're seeing. I know it's mainly caused by panic but shortages are also caused by prices being to low.

This economic shutdown proves one thing. They know how to slow currency velocity while they print a few gazillion in corporate welfare for Boeing.

[trey4sports]

Inflation has been occuring very rapidly over the last 6 to 7 years but the inflation has been seen in Assets more than consumer goods.

[Madison320]

Inflation has been occuring very rapidly over the last 6 to 7 years but the inflation has been seen in Assets more than consumer goods.

Yes but most people think this proves that printing money does not cause consumer price inflation.

My point is that it's a whole lot easier to explain a delay in consumer price inflation than to explain that we can print as much as we want and not cause consumer price inflation.

[swissaustrian]

I think there is a wrong assumption at the core of this deflation vs inflation argument.
It is that prices should be stable without central bank and government intervention.
Prices should be falling given the slave labor conditions in China and other countries and unprecedented information efficiency gains due to the digital revolution.
Central banks have employed the boiling frog tactic for a very long time: they counteracted natural price deflation due to productivity gains with money printing.
But now we have entered a phase in which this is not working anymore due to dimishing returns on money printing and a rapid speed collapse of the debt based system. The money supply expansion is no longer controlled at all (since 2008 really) and its entering the parabolic phase now. Once the population realizes that, money velocity will pick up rapidly and then the price shocks really will kick in, fueled by the shortages due to supply chain disruptions like others in this thread said already.

[Krugminator2]

The debate on inflation seems to be in two camps. The main camp is that while printing money in "some" countries causes price inflation, it doesn't cause it in the US because we would've seen it by now.


Inflation Camp: Has to explain why there's been a delay in consumer price inflation.

You had people and businesses saving money, going bankrupt, and rebuilding balance sheets which is deflationary and QE which is inflationary.

Also monetary policy was far too tight and the Fed was far too timid the first few years after the financial crisis. It was not loose. As far as why QE didn't cause inflation, the Fed paid enough interest on reserves that banks had sufficient incentive not to lend out at a rate that would case inflation.

Here's how I look at it. Suppose that it's true that we can print money and not cause consumer prices to rise in the US. Using that logic you could ALWAYS concoct a scenario where we could all stay home and become wealthy while the Fed prints money. Since we know this is not true than I think it proves that the "deflation" camp is wrong.

Deflation Camp: Has to explain why we can't just stay home and print forever.

No credible person thinks you can print infinite money and not have inflation or create wealth from a printing press. You would have inflation in the scenario you posed because you would have a supply shock. People not working and producing would cause shortages and cause prices to raise independent of inflationary monetary policy.

The scenario you would have deflation is if you had a bankruptcy spiral that isn't counteracted by monetary policy. Bankruptcies= falling prices=deflation

[Madison320]

No credible person thinks you can print infinite money and not have inflation or create wealth from a printing press. You would have inflation in the scenario you posed because you would have a supply shock. People not working and producing would cause shortages and cause prices to raise independent of inflationary monetary policy.

Pretty much everybody is saying that we can print with no price inflation except for places like this website.

Didn't you say the Fed should print at least 6 trillion?

[Krugminator2]

Pretty much everybody is saying that we can print with no price inflation except for places like this website.

I don't know if we will have inflation or deflation. I would guess inflation is more likely because I think the government will do whatever is necessary to avoid deflation but it isn't guaranteed. Printing money doesn't guarantee inflation when you are facing deflationary bankruptcies.

Didn't you say the Fed should print at least 6 trillion?

I said the Federal government should spend in the six trillion range if there is demand from businesses but most of those should be loans which wouldn't necessarily be inflationary. They have to get paid back which would take money out of circulation. Avoiding mass bankruptcy should be the number one policy goal now.

[acptulsa]

Printing money doesn't guarantee inflation when you are facing deflationary bankruptcies.

Where did I hear that before? Oh, yeah. They kept preaching it through the 1970s. It's the excuse they used for inventing stagflation.

[Madison320]

I don't know if we will have inflation or deflation. I would guess inflation is more likely because I think the government will do whatever is necessary to avoid deflation but it isn't guaranteed. Printing money doesn't guarantee inflation when you are facing deflationary bankruptcies.

Yes it does. Over the long run. It's a simple equation total dollars/total stuff.

I said the Federal government should spend in the six trillion range if there is demand from businesses but most of those should be loans which wouldn't necessarily be inflationary. They have to get paid back which would take money out of circulation. Avoiding mass bankruptcy should be the number one policy goal now.

Well of course if the Fed shrinks it's balance sheet back from what 10-15 trillion(?) back to less than a trillion we won't get price inflation.

[Krugminator2]

Where did I hear that before? Oh, yeah. They kept preaching it through the 1970s. It's the excuse they used for inventing stagflation.

Not sure exactly who you are referring to. Keynesian economists didn't think you could have high inflation and high unemployment. Milton Friedman debunked the Phillips Curve in the 60s Maybe that is what you are talking about?

We have a totally different set of problems right now. This is closer to the Great Depression than the 70s. If inflation becomes a problem then the Fed will tighten and that will end the inflation problem. But the maginary inflation of the last 12 years is one of the more ridiculous things people on this site babble about.

[acptulsa]

If inflation becomes a problem then the Fed will tighten.

Or they'll knuckle to pressure from the banks that are too spendthrift to survive and "too big to fail". Or there will be another war on. Or there won't be another war on, and the politicians will be screaming to bail out Lockheed. And the Fed will say--again--damn the inflation, full speed ahead.

There's all sorts of things politicians consider more important than whether or not we can afford to eat.

[Krugminator2]

Yes it does. Over the long run. It's a simple equation total dollars/total stuff.

Sure. But those dollars have to be in circulation. If they are just held on bank balance sheets like the last 12 years you wouldn't have inflation. And if inflation had picked up then the Fed could have just paid higher interest on reserves to entice banks to hold money or just raised reserve requirements to stop banks from lending too much.

To be clear, I am not smart enough to have any idea how this will play out. I am not sure anyone knows. It would seem like stopping production like we have now and all of the reduced production in the future from people and businesses that won't ever get back to work combined with printing infinite money would be a recipe for stagflation. But if you have a ton of businesses going into liquidation then you would have a deflationary depression. You can argue it both ways. Crazy experiment right now.

[Krugminator2]

Beef, $7/lb. TP, $2/roll.

If someone asks me why there hasn't been any inflation, I'm asking them where in the name of Aunt Matilda's Nash they've been shopping.

You get a dozen eggs for 57 cents at Wal-Mart. Gas is 1.30 dollars a gallon. It was five bucks in 2008. Clothing and shoes are cheaper.

I remember reading people here saying inflation was double digits even 20%. Rule of 72 says prices would double every seven years at 10% inflation so they should be closing in on quadruple 12 years later. Are prices that much higher? The insistence on super secret inflation undermined the liberty message because every person who wa alive and shopping in 2008 can see prices have barely budged.

[trey4sports]

You get a dozen eggs for 57 cents at Wal-Mart. Gas is 1.30 dollars a gallon. It was five bucks in 2008. Clothing and shoes are cheaper.

I remember reading people here saying inflation was double digits even 20%. Rule of 72 says prices would double every seven years at 10% inflation so they should be closing in on quadruple 12 years later. Are prices that much higher? The insistence on super secret inflation undermined the liberty message because every person who wa alive and shopping in 2008 can see prices have barely budged.

Yes, there has been very little inflation in consumer goods prices, however, asset prices have grown very quickly. QE Infinity has the markets in overdrive and the rich getting richer and those in the lower-middle class and the poor (with very little exposure to assets) losing out. I think this is part of the driver of the housing market as well.

While the Austrians who predicted massive inflation in consumer goods didn't exactly think through how the stimulus/QE would affect all sectors of the economy it is difficult to predict exactly where the inflation will arise without fully knowing where the new money will be allocated.

[Madison320]

Sure. But those dollars have to be in circulation. If they are just held on bank balance sheets like the last 12 years you wouldn't have inflation. And if inflation had picked up then the Fed could have just paid higher interest on reserves to entice banks to hold money or just raised reserve requirements to stop banks from lending too much.

To be clear, I am not smart enough to have any idea how this will play out. I am not sure anyone knows. It would seem like stopping production like we have now and all of the reduced production in the future from people and businesses that won't ever get back to work combined with printing infinite money would be a recipe for stagflation. But if you have a ton of businesses going into liquidation then you would have a deflationary depression. You can argue it both ways. Crazy experiment right now.

Ok, so you're saying that we can all stay home and print as long as the money stays in reserves? How do we do that?

I'm not smart enough to know how this plays out in the short run, but I know how it's going to play out in the long run. The math is simple. total dollars/total stuff=price. You keep overcomplicating it.

[Krugminator2]

Ok, so you're saying that we can all stay home and print as long as the money stays in reserves? How do we do that?

If it stayed in reserves, how would that push prices up?

I'm not smart enough to know how this plays out in the short run, but I know how it's going to play out in the long run. The math is simple. total dollars/total stuff=price. You keep overcomplicating it.

That's true if the Fed does nothing. But they go through periods of expansionary monetary policy to boost the economy and contractionary to slow inflation.

Inflation will only be more than gradual if the Fed intentionally chooses to make it more than gradual. If inflation picks up they can just boost reserve requirements to stop lending.

[RonZeplin]

End the FED
End the Orange Wealth Spread Socialist Donnell.

[trey4sports]

If it stayed in reserves, how would that push prices up?




That's true if the Fed does nothing. But they go through periods of expansionary monetary policy to boost the economy and contractionary to slow inflation.

Inflation will only be more than gradual if the Fed intentionally chooses to make it more than gradual. If inflation picks up they can just boost reserve requirements to stop lending.

They have multiple ways of taming inflation, but how can they correct for the malinvestment that came about because of the artificial interest rates in the first place? What happens to those who have invested in long-term capitol-intensive projects when rates were low?

There are a lot of ways that the Fed can influence inflation, however to think that the Fed has full control is giving them far too much credit. The whole system is based on confidence in the USD and international demand. If the world lost confidence in the dollar and international demand dried up there would be chaos - The Fed can only debase and inflate so much.