Unfortunate that the article mentions nothing about policymakers approving $12+ trillion in monetary and fiscal support to deal with covid. To put that to perspective, the US GDP is $21 trillion and Chinese GDP is $14 trillion
That shows the limits of a single number. It also shows up the "transmission mechanism" has been damaged; it doesn't affect wages or prices largely because so much effort has been expended over the last 40 years to prevent wages going up at all.
This is unfortunate since it's essentially helping relatively wealthy asset holders as opposed to those most likely to be affected negatively by covid.
[0] https://mleverything.substack.com/p/where-did-the-12-trillio...
It’s interesting to me that software developers don’t intrinsically realize this more than your average person. Nobody knows better than us that making changes to a complex system can have catastrophic downstream effects and has to be extensively tested first.
But in reality, economics is more akin a complex biological system. We have a very rudimentary understanding of how it actually works. Sure, we can create drugs that calm us down or excite us, but we have very limited understanding of the underlying biological system. For instance, we still can't agree what the optimal diet for humans is with wildly contradictory regiments.
Economists like to pretend it's a science, and there are certainly scientific and experimentally-valid findings, but the innermost terms and interactions will always be obsfuscated. Like psychology, except with higher stacks of layered complexity.
It's not as bad as steel deciding to change its tensile strength on a whim (because it heard other steel say so!), but it's not far off.
The average person doesn't understand what inflation is, why it happens, how it affects them and how the government uses inflation to reduce the significance of its debt. The average person also tends to believe government inflation numbers which, IMO, are manipulated and do not represent what is actually happening in the world. For instance, home prices (and thus rents) are rapidly increasing, and housing costs, for most people, are the biggest expense they have to think about, accounting for sometimes more than 50% of their take home pay.
From what I've seen, there are a lot of right-wing people in tech circles expressing a support for capitalism. However, very few of these people know or care how the economy works.
(A particular subgroup understands finance/trading pretty well, and mistakes understanding weather for understanding climate.)
Fair point. Most people don't know or care how the economy works, left or right. My main point was: it's to your advantage to know how the system works, and it's maybe even more important to understand how it works if you hope to change it.
If you don't understand what is inflation and its impact, or basic economics, then politicians can take advantage of your lack of knowledge, in the same way a shady car mechanic can take advantage of uninformed customers. They might pretend that certain policies will help lower-income people when what they are doing is most beneficial to the ultra-rich.
Sure, like, for instance, they might pretend that reducing fiscal stimulus that both redistributes wealth downward and fuels inflation (but does the former more than the latter) helps the lower-income by reducing inflation when it really lowers their real post-transfer income while raising it for those in the higher income classes that benefit less or not at all from the transfer but are still effected by price levels.
now this is just downright seductive. bravo
What if the stock market is up because revenue and growth are up?
Most people only think of real estate as local, so if you look for returns in nyc or SF, you’ll be disappointed. But if you are willing to invest in property across the US you can find areas with much lower prices and higher rents.
I doubt this comment will age well. Macroeconomic effects don't happen instantly.
(Because banks also control credit supply and only give it to creditworthy borrowers... The Fed can drop rates to zero and give banks limitless money and they still won't lend it out to deadbeats.)
Printing money and sending it to people does. Refer to the chart below.
https://www.federalreserve.gov/releases/h6/current/default.h...
Also in a lot of ways M2 on its own is meaningless (money sitting under a mattress not being used doesn’t affect the economy) - velocity of money is more useful. Of course, inflation is complex and multicausal so this isn’t the whole picture, but it’s more useful than raw M2 supply.
If I have $1k under the mattress I probably won't risk $100 on a share of CORP. If I have $100k under a mattress, I'm more willing to take a swing.
>Printing money and sending it to people does.
That money wasn't printed, it was borrowed because the Fed cannot do that. Only the US government can do that. The Fed may have bought treasury bonds but those still have to be paid back.
Do you mean that when securities owned by the Fed mature, the Fed will destroy the money that it had created to buy them?
In practice, I don't think that has really been happening. They have just been reinvesting proceeds in new securities (at least the principal; they send some (all?) interest to the Treasury).
This may change at some point, but so far the Fed has periodically increased its balance sheet while never substantially reducing it [1]. If that continues long term, the Fed's "temporary" money is effectively permanent.
That is new money. Trillions of it.
It's been maddening watching economists whom I respect making proclamations (one way or the other) with high degrees of confidence that inflation is or isn't a problem. They have no idea, because anyone who actually knows what they are doing knows that there isn't enough data yet.
It is way, way too early, based on my experience, to make any formal claims about why a given number is X instead of Y based on Z theory.
People who are claiming there is going to be runaway inflation don't have enough data to suggest this, and your assertion is equally lacking in data to justify it.
As always, economics gets contaminated by political biases, because so many prominent economists, including a hero of mine in college, Paul Krugman, have followed the profitable path of becoming full time political hacks. Likewise for Lafferty on the right and many others.
Inflationary pressures typically, in historical terms and yes, in the simulations I used to model, have a lag and then start to build upon each other. We haven't had nearly enough time to properly assess any of this.
Rest assured, if/when it does manifest, each side will have very firm talking points blaming the other, informing their sycophants exactly how to talk out of their rear ends about how it's the other team, and how their policies would have prevented it.
Yes, Pumping this much money into the economy it's hard to avoid inflation, but there's more factors to it than just that variable.
Looks like meat prices spiked in Q2, peaking around June/July, and have fallen again. They're still elevated from this time two years ago, but they did go down.
However beef prices can be somewhat regional. Where I am anything other than ground beef is mostly still at least $2/lb more than usual. Ground beef is it a little more than usual.
(This is not a rhetorical question meant to imply you're wrong, I genuinely am not sure. It seems crazy that we could run the money printer like we have and not cause dire problems, but it also seems like that's what's happening.)
Charts: [0] https://www.federalreserve.gov/releases/z1/dataviz/dfa/distr... https://fred.stlouisfed.org/series/WFRBST01134
And for bonus points, the follow-up question is: could we have done this anytime? Did the Covid economic downturn necessitate these drastic measures, or could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse?
See the other comment I posted on this article. Commodities have skyrocketed. But the price of the beef in your Big Mac was negotiated years ago, so consumer prices lag raw materials as multi-year supply chain contracts are updated.
> could we have adopted 2020 monetary policies in, say, 2018 or 2014 with the same results (skyrocketing stock market, skyrocketing inequality, but relatively stable inflation) and we never did it before because we never had a good excuse?
The economic shock of the pandemic no doubt slowed the velocity of money for a time, which further slowed the consumer inflationary effect. But that velocity has increased amongst lockdown fatigue and reopening in the US, while the money printed is still here. We're seeing it manifest in real estate, stocks, and commodities. "The everything bubble" is just a way of saying (wealth inequality x inflation).
What Congress does is bottom up. After the stimulus went out, the amount of retail sales skyrocketed[0]. The first round single-handedly rebounded us back to where we were before CO-VID, and the second pushed us single-handedly up ~4 years worth of gains. This has a large effect on CPI inflation, but it's limited to when Congress can pass their bills. However with interest rates at basically nothing, they can afford to keep writing them forever if they don't care about the consequences.
What the Fed does on the other hand when they lower the interest rate and buy bonds is top down. This money is funneled directly into the already wealthy. You see the more wealth inequality there is, the more goes to the wealthy, the less these top down has any effect on inflation. You're right, when you give money to the wealthy they save it, it's like pushing on a string, asset prices rise and this doesn't effect inflation, and they could have done it at any time.
So you need to ask yourself, why now? The Fed is deeply concerned with what they are seeing with housing. You see the more wealth inequality there is, the more they need to make sure that their money stays in the monopoly money that is stocks, and out of the real economy. Once the wealthy work out that steel and lumber and housing have a better overall return than stocks, that's exactly when things that the CPI tracks finally takes off.
Most of the time this is triggered by a supply shock. In the 1970s it was oil. If only 5% of the population can eat because of a famine, food is going to be priced such that only 5% can afford it. If the top 5% have billions, well, then food is priced in the billions.
So what the Fed is seeing with housing is the wealthy are buying excessively. That's a big problem because that pushes housing demand to unsustainable levels which ultimately leaves people homeless. They don't like that. They want stocks to be the best. So they respond by making asset prices run higher, which gets the wealthy to reconsider and keep their money in the stock market. So the Fed actually hates inequality, but exacerbating inequality is the easiest way to do their job.
You can’t say inflation or deflation is universally good or bad. They have many effects.
Rich people are (mostly) creditors. Poor people are (mostly) debtors. Inflation tends to hurt rich people (creditors) and help poor people (debtors). The people who run the economy are almost universally rich, and are (coincidentally, I'm sure /s) almost universally opposed to any increase in inflation.
Side note: assets (real estate, gold, ...) are mostly inflation-neutral since their prices go up at the same rate as the prices of everything else.
Where poor people do get hurt is when consumer prices go up and wages don't but that's not inflation - inflation is when the price of everything goes up, including labor i.e. wages.
All of these things can be true simultaneously.
But like I said about the no universally good or bad, inflation is good for effectively reducing debt.
I think my ad blocker doesn't jive with the site, as I can only see the first part that shows the three summary bars in the bar chart. Apologies if I'm missing something.
You also have to keep in mind a few things:
1. Liquidity - how much of this (probably most of federal reserve spending) has gone to maintaining liquidity in the global financial system? That's not going to contribute too much to inflation. If you have the reserve currency, and nobody is willing to lend because they're in fear of going bankrupt or running out of cash while the economies of the globe were shut down, then you wind up having to inject tons of cash into the global economy to keep it liquid. The alternative is armageddon.
2. Low interest rates. When the U.S. government borrows money it pays an interest rate. While the $6 trillion number (or $12 trillion for that matter) may seem very high, it matters how much the U.S. is paying in interest on these loans. Can the U.S. government meet it's debt obligations? Yes? Good to go then. GDP (which sucks anyway) will rise and past debt will be inflated away. Similar to everyone rushing to buy a house, low interest rates are an opportune time for the government to borrow money too. Republicans are hemming and hawing about it, but if Trump was president they'd be doing the same deal.
3. It also matters what ROI you get for spending. Nobody seems to be talking about that. If the government borrows $100 at 0.4% interest or maybe even 0% interest and then turns that into a larger investment in the broad American economy, that's almost surely a good use of money even if it increases the overall debt load if it's actually increasing GDP.
I wish I could find it again, and maybe some enterprising HN reader will have it available, but there was an blog post I found interesting regarding how much the U.S. could borrow. They argued it was probably an unlimited amount of money. If nothing else it's just an interesting take.
We should be sensitive to government spending and actions of the Federal Reserve, but we need to do so smartly. Everyone running around screaming inflation! inflation! are missing the mark. My default in the financial space is when everybody is saying something is true, it's likely not. There's a lot of money to be made convincing lots of people of the truth of something that isn't true and while they're distracted you take lots and lots of profits at the institutional scale (hedge funds, etc.).
I thank God for the Republicrats printing a third of the national debt and mailing checks directly to their cronies every time I open Zillow and realize I have effectively earned negative income for a lifetime of labor
>>trillions of dollars in government economic stimulus
> While Federal Reserve officials and economists acknowledge the temporary boost, it’s unclear whether a more durable pickup in inflationary pressures is underway against a backdrop of soaring commodities costs, trillions of dollars in government economic stimulus and incipient signs of higher labor costs.
I still have issue with the characterization. It's "against the backdrop of ... trillions of dollars" as though increased price levels and increasing the money supply by 25% are unrelated.
Many times these articles write about stimulus and people think its the $1600 checks some people received. But what doesn't get reported is what the lion share of the money actually went to, buying up financial assets from banks.
Fiscal stimulus is more powerful than the monetary kind. When the Fed buys a bond, at the end of the day, it’s buying up bonds. Someone must give up 80 to 99.99999¢ of wealth for $1 of liquidity. When Congress spends $1, it’s creating money. It may have to tax or borrow down the road, but that’s then, not now.
Also, not sure how one can say monetary policy isn’t reported. It receives nearly weekly attention on even non-financial forums like Hacker News, and features far more prominently in financial, economic and crackpot rags.
No, its explicitly providing relevant context, which is the polar opposite in every respect to implying that they are umrelated.