> since the inflation was largely caused by lockdown stimulus
This is a widely disproved myth.
This is a widely disproved myth.
But it is well understood that said willingness changes on what buyers believe[1]. If they believe that lockdown stimulus is causing inflation, it will cause inflation. The mere existence of lockdown stimulus won't cause inflation, but the emotional response to it very well could.
And given that this appears to be a widely held belief, something even some government officials trumpet as the cause of inflation, it seems unlikely that it isn't a significant contributing factor. How is this dispelled?
[1] https://www.brookings.edu/blog/up-front/2020/11/30/what-are-...
Housing has been hard to balk at for a decade for the same reason that nobody politically wants to address: a lack of supply in the market. Renters are now doubly stuck in renting, as home ownership as an alternative market is now rendered unaffordable by spiking mortgage rates. (I.e., the very "demand destruction" the fed desired. And my landlord knows it!)
Energy prices are spiking due to … a lack of supply in the market.
Still, the rate is allegedly +7% YoY, apparently, and my rent goes up +9.5% YoY "due to economic conditions", and my salary is -1% YoY.
Everyone got money for free. Things that are free, tend to have less value.
Note also that investors eventually get wise to inflation and start putting their money in gold or somesuch.
The Fed is trying to command the economy, but ultimately people must be more productive for a little less. QE easing and asset deflation have some part, but unemployment must increase, or we simply won't have the "strong labor market" that increased productivity requires. We don't have the sentiment or confidence, and that is going to be devastating if not quickly corralled - inflation can lead to hyperinflation exponentially.
Not for the USD - we have control of the world's economy - which is why the MIC complex and foreign policy is actually an investment in the largest scale.
That difference, between productivity gains and captured output, is the price our future generations pay (in inflation) for continuity _now_. But it isn't fair to push such a can down the road. Things need to pop sooner rather than later, and the Fed would like a "soft landing" - no pop, which may not be possible at this point.
You can print money endlessly, stuffing it into people's bank accounts limitlessly, and as long as they don't spend it you won't see inflation. But once they do start to spend it, the capacity to spend is magnified. Stocks, real estate, etc. provided essentially that bank account... until now.
That means all of my usual expenses during that period were paid for (unless I made nothing or too much that week), plus a lot of weeks it made sense for me to get new equipment.
In many states, people on the low end of the earning scale made more through unemployment than they did working. I have two friends with small businesses that had a hard time getting people to come back to work for that reason.
In a non-inflationary period increasing prices will be met with less demand.
If "more money makes each dollar worth less" was the story then we'd see all goods inflate at similar rates. Perhaps it'd be delayed from the money printing but we'd still see this consistency across industries.
But we don't.
Stimulus checks contributed $844 billion to the $1.7 trillion of excess savings we still had by mid-2022.
> We estimate that households in the lower half of the income distribution were still holding about $350 billion in excess savings as of mid-2022—mostly stemming from the boost to income induced by fiscal stimulus in 2020 and 2021.
Personal consumption expenditure went up especially for the bottom income quartile, driven by stimulus. As soon as the bottom of the income distribution had extra money, they drove up the prices of things that are in the CPI.
In contrast, when the top of the income distribution has excess savings, they drive the prices of Tesla stock, NFTs, and real estate. Since they are not in the CPI, nobody cared and money printing could continue. This is what we had in 2010–2020. Direct money transfers to the poor were the thing that broke the system.