Why did inflation spiral out of control: a retrospective(greyenlightenment.com)
greyenlightenment.com
Why did inflation spiral out of control: a retrospective
https://greyenlightenment.com/2022/06/19/why-did-inflation-spiral-out-of-control-a-retrospective/
20 comments
There's a desperate desire amongst some people to believe that money needs to be scarce, much as there is a desire that jobs have to be scarce so that the unemployed are 'disciplined'.
Currently the market is reallocating scarce resources from those without pricing power to those with pricing power. There has been a shift in the terms of trade, but it will settle down because wages simply aren't keeping up with price rises - which means eventually people won't be able to confirm the higher requested prices.
Changing short term interest rates can't address terms of trade shifts - which are productivity losses.
"Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation."
Did it? Remember that 'expensive money' is an artificial market intervention - some wonk is artificially setting a base interest rate. Since liquidity is free to produce yet limited by available collateral 'full liquidity' is a stablish state, and the 'natural' base rate of that liquidity is zero. The market then sets the base to retail markup based upon the collateral risk.
If the price of assets goes up due to that, then that is a market signal to produce more of those assets. Build more houses, create more crypto startups, etc.
It's never been clear to me why we don't just let the market move to full liquidity and then just brake that with taxes if need be.
Currently the market is reallocating scarce resources from those without pricing power to those with pricing power. There has been a shift in the terms of trade, but it will settle down because wages simply aren't keeping up with price rises - which means eventually people won't be able to confirm the higher requested prices.
Changing short term interest rates can't address terms of trade shifts - which are productivity losses.
"Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation."
Did it? Remember that 'expensive money' is an artificial market intervention - some wonk is artificially setting a base interest rate. Since liquidity is free to produce yet limited by available collateral 'full liquidity' is a stablish state, and the 'natural' base rate of that liquidity is zero. The market then sets the base to retail markup based upon the collateral risk.
If the price of assets goes up due to that, then that is a market signal to produce more of those assets. Build more houses, create more crypto startups, etc.
It's never been clear to me why we don't just let the market move to full liquidity and then just brake that with taxes if need be.
The problem is rent seeking. There are some industries that get stuck at a positive return on capital because they are based around a monopoly. Real estate sits on land and land is the original monopoly.
So everyone starts buying up the monopoly and blames the interest rate for the increase in price even though it should be obvious that a monopoly that fulfills a basic human need has almost infinite pricing power and therefore can always demand everything you have plus some. Raising the interest rate means you can afford less but they are still going to take everything you have.
Singapore solved the problem with public land ownership.
There are more examples of rent seeking but housing is the worst one I am aware of.
So everyone starts buying up the monopoly and blames the interest rate for the increase in price even though it should be obvious that a monopoly that fulfills a basic human need has almost infinite pricing power and therefore can always demand everything you have plus some. Raising the interest rate means you can afford less but they are still going to take everything you have.
Singapore solved the problem with public land ownership.
There are more examples of rent seeking but housing is the worst one I am aware of.
Drive interest rates to zero.
Inflate assets with quantitative easing.
Handout stimulus money.
Provide companies with forgivable loans with little over sight.
Who would have thought we would have inflation?
Inflate assets with quantitative easing.
Handout stimulus money.
Provide companies with forgivable loans with little over sight.
Who would have thought we would have inflation?
In 2020 businesses were expecting a collapse in demand and possibly years before a working vaccine. The current administration chose to “go big” on stimulus in 2021 and accept the risk of inflation rather than under react like 2008-2009 and have the country slog through years of high unemployment.
I don't disagree that some of those measures were needed, but they went to far. You can look at the broad stock market and see when the stock market started falling and the fed stepped in. They over corrected and stocks went way above trend line during a period when nobody was going anywhere.
They handed out money to people who turned around and yoloed it on crypto and meme stocks.
The time to turn off the money was last year when vaccines became available.
The consequence of that inaction is now years of stagflation.
They handed out money to people who turned around and yoloed it on crypto and meme stocks.
The time to turn off the money was last year when vaccines became available.
The consequence of that inaction is now years of stagflation.
Why would zero interest rates imply inflation? Prices are driven by supply and demand. If the supply of physical capital exceeds the demand for physical capital it is only natural that the interest rate is 0%. If capital depreciates and needs replacement over time then it is even logical for the interest rate to be negative if people produce too much. The interest rate is no longer at zero so we are already past that.
Because its free money. If you can borrow money at less than the rate of inflation its free.
Free money drives up prices because you have more dollars chasing the same assets.
See the housing market.
Free money drives up prices because you have more dollars chasing the same assets.
See the housing market.
So I heard that 80% of the money supply in circulation was printed over the last 18 months. I suspect that 'might' have something to do with inflation.
That sounds implausible. It looks to be somewhere around 21%.
https://fred.stlouisfed.org/series/CURRCIR
https://fred.stlouisfed.org/series/CURRCIR
The Federal Reserve took strong measures to make sure another credit crunch did not happen. They let banks exchange their illiquid treasury bond holdings for cash. This increases what gets counted in the currency base. They cut the reserve ratio requirement to 0%. They did QE. They even proposed buying corporate bond ETFs and just this announcement eased the market stress in the bond market. They did swap lines with other central banks. They pulled out every stop short of negative interest rates in order to ensure businesses in peril could draw upon existing lines of credit and then tap the capital markets to raise cash.
Seeing a small snickers bar cost $2.00 made me realize I don’t know how to know how much things should cost anymore.
I’m seeing them for $1 online at target and Walmart in a HCOL city.
“Quantitative Easing”, we were due.
Is this Curtis Yarvin’s new blog? The About page says
“The Grey Enlightenment is a midpoint between the ‘Dark Enlightenment’ and ‘The Enlightenment’, in rejecting egalitarianism and liberalism but supporting capitalism, technology, and the study of human biodiversity (HBD).”
“The Grey Enlightenment is a midpoint between the ‘Dark Enlightenment’ and ‘The Enlightenment’, in rejecting egalitarianism and liberalism but supporting capitalism, technology, and the study of human biodiversity (HBD).”
Don't know who the author is but the blog is not new - the post archive goes back to 2014 - and the link for its predecessor blog (the "Old Site") points to a page written by someone under the nom de blog Stockcreeper ("Stockcreeper is a certified economic & stock market expert, a professional stock picker and the presiding president of the Institute of Economic Understanding.") So despite the shared themes, I guess it is not Mencius Moldbug/C Yarvin.
https://greyenlightenment.com/full-archives/
https://greyenlightenment.com/full-archives/
[deleted]
He’s on Substack.
The essay states "hmm all these things happened before and didn't cause inflation. It's so odd that we got inflation now".
How about the thing that hasn't happened before: sudden drop on the supply side across the board. Suppy of labor, which led to supply of goods and global lack of supply. Then increased demand from all companies simultaneously moving from a Just-in-Time model to having large stocks on hand.
The only other item that has the same global impact is energy.
Cheap money yes messed up any assets (houses, startups, crypto) but that isn't want caused day to day inflation.
Shortage of goods did.