this post was submitted on 22 Aug 2023
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If the main cause is increased monetary supply, it's going to get far worse as the world de-dollarizes.
The USD enjoys an exorbitant privilege because its the world's premier reserve and trading currency. Under the old rules, if the Fed printed more money, other countries would buy it to settle their international trade and as a safe harbor for their wealth.
The extraordinary sanctions against Russia have caused countries to shift to other currencies to settle trade since they still want/need to buy oil, gas, and food from Russia. That means that there's going to be a lot more USD with no foreign escape valve.
I think it's telling that even during the worst period of US-Chinese relations in recent memory, the US sent Yellen over to Beijing to beg China to buy more dollar bonds.
There's a faction in Washington that knows the US economy is on the ropes but their appeals for cooperation are being drowned out by the other faction just chanting "WAR! WAR! WAR!"
I don’t think the US knows any other economic recovery options besides war.
We haven’t really changed it up since WW2.
I don't think WW3 would actually help the US economy. WW2 pulled the US out of the Depression because the manufacturing capacity was there but there wad a crisis of confidence and liquidity. The government pumping tons of money into military spending solved both of those problems.
Nowadays, the US doesn't have enough manufacturing. Even the weapons America supposedly builds are riddled with imported Chinese parts. Go to war with China or any major power and the US Government will flood weapons makers with money but that money has nowhere to go so it'll just drive up inflation even more.
I agree that WW3 won’t save the economy this time, I just think the US doesn’t have another answer.
Although I’m sure they’ll keep throwing money at consulting companies to research the issue and give them the same answer back.
Nothing really changed, business have been jacking up prices while suppressing wages this whole time. It's not really a new phenomenon. The fed printing money created more liquidity, but that doesn't directly create inflation which is the rise in prices of goods and service. That's done by people who control pricing which are the business owners.
It absolutely affects inflation because there's more money chasing the same number of goods/services.
If business owners don't raise their prices at all, the real price of those goods would drop, because each dollar is worth less when you pump up the money supply.
Since the money is going predominatly to the wealthy then there isn't more money chasing goods and services. The average consumer is not benefiting from QE as you yourself pointed out.
Business owners are raising prices in way that's increasing their profits, they're not doing it to keep up their rate of profit steady. https://thehill.com/business/3756457-corporate-profits-hit-record-high-in-third-quarter-amid-40-year-high-inflation/
The wealthy don't just put it under the mattress.
If they do some big ego projects, the people they hire take that money and increase their own consumption.
If they park it in investments, some company takes the capital injection and increases their spending.
All that money chases labor, and labor can be reapportioned to meet different needs. A billionaire can buy a slightly bigger yacht with their share of the Fed printing. That bigger yacht needs a little more labor, and someone ends up building more cabinets for the interior rather than building housing for the poor.
The billionaire doesn't blame themselves for inflation, and someone at the bottom can't figure out why suddenly a full time job doesn't pay for housing. But that Fed decision moved labor from benefiting the poor, to benefiting the 1%.
They don't put it under their mattress, but the projects they invest into aren't resulting into wealth being generated by the working class. When these people create a new business ventures, they still pay subsistence wages. So, you get more employment, but it's low quality employment. Any actual wealth produced ends up going to the capital owning class.
So again, people who own capital are the ones who decide the prices and the wages. These are the people in control of what we call inflation.
Irrelevant, because I never claimed it did. I only said that money ends up competing for labor and other resources.
If they could just raise prices, they would have done it before. So why didn't they?
Because what actually changed was an increase to the money supply.
Again, they have raised prices before. Inflation didn't just start yesterday. I'm really not following the argument you're trying to make here. You still haven't actually explained the causal chain between the increase in money supply and inflation, nor have you provided any counter argument to my point which provides a clear and direct explanation of what's happening.
Ah yes econ101, taking a complex and interconnected system that we don't fully understand, boiling it down to its simplest and most incorrect model.
This is a global issue, the fed pumping money shouldn't have had a big an effect. My best guess would be a mix of covid money from many countries going to the rich increasing the wealth gap, gas and oil companies hiking prices because of Russia even though a lot of them have no link to Russian oil or gas and causing a knock on effect. You've also got a number of bubbles around the world such as housing and car loans, these are definitely caused by greed.
My issue was with using econ101 as part of an argument, I'm sure you've heard of the saying about economics is that you spend most of the course learning why econ101 doesn't actually work when applied to most real world scenarios.
Money supply is a specific term and it will not always result in inflation. You've acknowledged that several times but still repeat it. It will depend how that increase in money supply is used, if at all.
If I got a trillion dollars printed and did nothing with it, no change in inflation. If I deposit it at banks, there would probably be some knock on effects on interest rates that make their way to the broader system.
If I go on a coordinated buying spree of oranges with the explicit goal of owning every last orange and orange producing land possible, inflation in oranges and substitute goods of oranges will occur. Easy conclusion.
You can argue that: When the capital owners get free money in bailouts, while workers get crumbs, there is an obvious disparity. Capitalists see less value in currency and will want more of it in exchange for their contributions (leeching) to society. So they raise prices because selling an orange for $1 doesn't feel as good as before.
If workers got more money while capitalists got nothing, that disparity is reversed. Capitalists want to compete for a supply of cash that they didn't have access to before. Prices will rise in inelastic markets because the opportunity to exploit presents itself, but in competitive markets there is a real drive to entice more purchasing. That's not to say that prices will go down (they can!) But raising your prices on food because everyone got $1000 could mean missed sales if the price raise isn't coordinated across the industry.
You saying that inflation is driven by money supply is not the direct reason for prices rising.
If a rich person gets money, what evidence do you have that they would spend it or invest it? It is not a factual assumption and depends on many factors, and not just in a pedantic way. If market conditions are sour, a rich person would avoid investing it for fear of losing it.
Capitalists are middle men who sell our labor + a product back to us at a higher price. If they don't need cash right now, they will raise prices and sell fewer units at a higher rate to maximize the margin (on durable goods). If they do want cash, they will lower prices and trade margins for volume. Take oil as an example - if you can sell a barrel now for X or tomorrow for more, you would price the oil higher as long as opportunity cost < selling it lower now. How does other people having more money affect this?
Consider your labor and pretend you are fairly compensated right now. If the money supply increases, do you demand, or at least deserve, higher wages? If so, why?
Since the financial crisis banks have taken deposits and reinvested them at the Fed or other banks. Purchases of stock do not necessarily raise prices either. Prices can fall on heavy volume and rise in light volume.
Only if prices rise. Consider that this island only sells widgets in this currency. Will they raise prices because the money supply has increased? They were "maximizing" profit before, but now the money supply is different and the employee on the island still makes 20 coins. Will selling widgets at a new price point get them more money?
A transaction for stock is the same as any other transaction. It terminates once money is exchanged. You do not extrapolate what happens after. When I pay my check at a restaurant does the cook run out the door to spend my money or does it go in the register?
I saw your other posts and wanted to point out a few key points.
Have you read Capital? It goes through money and velocity pretty thoroughly early on and I think addresses some pretty big assumptions econ classes tend to present.
The intrinsic value of fiat currency is 0. Double, halve, quadruple 0 all you want makes no difference. It's function and value is as a medium of exchange.
Imagine a copper based currency. If supplies of copper increase, the intrinsic value of copper falls, so the total value of the currency falls. The extrinsic value is not affected.
If I buy a widget for $1 and my labor is $2, I can be paid in 2 widgets. The money supply doesn't change that my labor is 2 widgets. If prices are increased on widgets by a capitalist, then I would expect an increase in my labor price (in dollars), regardless of the money supply, because money has no intrinsic value.
I'll state again that this difference (capitalists choosing to raise prices vs blaming external factors like "money supply") is not just pedantic. Capital mentions it few times, the fetishization of money and capital accumulation/hoarding cause this belief that money has a function outside of exchange.
There was a brief period when people got direct cash during the pandemic which businesses used as an excuse to hike up prices. However, once again, it was the choice of the business owners to raise the prices.
Only if that money goes to the working people who can in turn spend it. If the money stays at the top then it does not result in increased spending power. Most of the money that was created did not end up in the hands of the people who are spending it day to day. Bulk of the money went to the oligarchs, you get that right?
I think they saw an opportunity to jack up prices. In fact, we see this happen any time there's a disaster, no money printing is needed here. There's even a term for this: disaster capitalism.
You still haven't explained what your thesis here is exactly. If capitalists aren't raising wages then people don't have more spending power no matter how much money is printed. What you still haven't established here is how there's more money circulating in the economy when wages have remained stagnant. Nobody is arguing that the oligarchs aren't benefiting from the QE, but it's not a direct cause of inflation.
Ok, but capitalists aren't the ones primarily consuming basic goods they raise the prices on. We're talking about consumer inflation here. An oligarch getting a big cash infusion and buying up land or hiring servers isn't affecting the prices of consumer goods.
That still doesn't change the formula for inflation which is the relative cost of goods and services to salaries.
And who decides that it's now circulating for $10? The business owner decides that, which was my original point all along!
Meanwhile, your example is too simplistic because there isn't $10 circulating since economy isn't homogeneous. People consuming regular goods who are affected by inflation didn't get a chunk of the new money printed, so they have exact same spending power they did when there was $5 circulating.
They don't have to increase, people who own businesses make a conscious decision to increase them. You're also conflating the amount of money in circulation with purchasing power here.
We're in complete agreement here.
This doesn't apply to vast majority of the population who don't actually own any land.
Are you saying companies wouldn't want to produce and sell more goods if there was demand for them?
More money in circulation does not magically make prices increase, people who own businesses choose on what they charge. Increase in money supply also doesn't translate into decreased purchasing power all on its own.
Again, the types of goods that oligarchs consume are not the same goods that regular people consume.
That's nonsensical, if you're buying up all the oranges in town and I eat apples, the scarcity of oranges has no effect on me.
No, it's not.
LMAO, financial economy isn't some money pit that people dive into and grab as much as they can. Working people get money from their wages, and their wages don't magically increase when the money supply is increased.
Yeah this is not really what’s happening. QE went on for a long time before inflation really took off and mostly served to inflate asset prices without any meaningful effect on the price of consumer goods. As has been said, this is because that’s where the lion’s share of rich people’s money goes.
I think the key data point here is the increase in profits recently. Which would not be happening if this was all down to bog standard supply and demand throughout supply chains. Parking money in assets like stocks and real estate doesn’t cause consumer price inflation. But if businesses all realized that the talk of supply chain disruptions and COVID causing prices to go up was a good excuse to raise prices further together, that would exacerbate an otherwise minor bout of consumer price inflation. Which is exactly what happened.
And although it’s pretty damn close to collusion/price fixing in many cases, there is no real enforcement against that sort of thing. There is software that is used throughout industries that basically does the price fixing for you using data from other users/firms. Makes it easy and plausibly deniable because it was just an algorithm that told you to do it. Big part of rent inflation in particular. If there’s no competitor willing to undercut you, even though they could, the Econ 101 bullshit doesn’t really apply. It’s basically just class solidarity among capitalists. Circling the wagons because unusual circumstances temporarily drove wages up, and they weren’t having it.
Anyway, the main point is, if profit rates are going up, it’s not money supply causing the inflation.
I feel like we're just going in circles here. Unless workers get higher wages, their capacity to pay rent does not change.
And that doesn't change the situation for the workers in any way because their wages are not rising.
Currency does not represent wealth, and if anything currency only impacts financial wealth. When currency starts depreciating in value then people who own significant portion of financial wealth simply transfer it into physical assets or move it to other currencies. All this has little to do with internal inflation mechanics of the country.
I didn't ignore this, I've addressed this multiple times in my replies. I'll address it for the 4th time I guess. Capitalists spending more on land/labor/raw materials does not translate into increased wages or increased spending power of the workers. Let me know if you need me to clarify that further for you.
You evidently missed the point being made.
How many people agree with an idea says nothing about the merit of the idea. Plenty of western economists agree that neoliberal economics work and that you can do QE indefinitely.
Once again, prices go up as a result of people who own businesses choosing to raise them. It's incredible that you continue to refuse to acknowledge this simple fact.
Finally, since you clearly just ignore what I say, maybe you can listen to an economist explain this instead https://www.youtube.com/watch?v=RH1tT4NW8NI
We really are going in circles here. However, one thing I will point out is that billionaires didn't lack liquid assets to buy up things like housing before money printing started. What facilitated that was the fact that lots of people ended up becoming insolvent during the pandemic. Businesses went under, people weren't able to afford their mortgages, and so on. This forced people to put their assets up on the market at which point the billionaires started buying them up.
For money printing to affect general spending, the money has to go to regular people. There was a brief period during the start of the pandemic when that happened, and that did end up heating up the economy briefly. That's when a lot of the inflation happened because businesses realized they could now jack up prices since people had cash to spend.