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Old 08-26-2019, 12:21 PM
 
774 posts, read 398,097 times
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I have a question about inflation, I think I am right on this but I want to see what others here think.

Obviously, inflation refers to an increase in the money supply which has the impact of devaluing currency when excessive.

In the earlier part of this decade, the Federal Reserve injected $30 trillion into the economy through Quantitative Easing. Yet, the Fed now is concerned about inflation being too low. During tough economic times, money is often hoarded. But now we have a new phenomenon, which is credit. Would I be correct in saying that the reason the money supply hasn't expanded is because people are spending on credit instead, so while their cash isn't in circulation, there is in fact inflation in the form of loans and credit card debt?
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Old 08-26-2019, 01:11 PM
 
73,174 posts, read 72,988,974 times
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Quote:
Originally Posted by njforlife92 View Post
I have a question about inflation, I think I am right on this but I want to see what others here think.

Obviously, inflation refers to an increase in the money supply which has the impact of devaluing currency when excessive.

In the earlier part of this decade, the Federal Reserve injected $30 trillion into the economy through Quantitative Easing. Yet, the Fed now is concerned about inflation being too low. During tough economic times, money is often hoarded. But now we have a new phenomenon, which is credit. Would I be correct in saying that the reason the money supply hasn't expanded is because people are spending on credit instead, so while their cash isn't in circulation, there is in fact inflation in the form of loans and credit card debt?
The trillions went in to re- inflating the banking system ...read up on how banks create money for loans and you will see where it went .

Also there are many kinds of inflation..most of what we see is not monetary inflation ..it is increases in prices from over demand and under supply of things
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Old 08-26-2019, 02:29 PM
 
2,565 posts, read 1,482,638 times
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So inflation comes mostly from:

Demand > Supply, causes prices to rise. This can be the result of supply imbalance, monetary policy, higher wages etc. Anything that impacts demand.

Cost push, which means input costs rise. Say when oil was upwards of $150 a barrel and this translates to higher costs throughout the economy. Tariffs, VAT and any policy that might increase costs falls under this as well.


Why are we not seeing inflation now? Well that is actually easier to explain than you would think.

We have deflation on the cost side which is keeping prices down. This is due to commodity weakness and supply costs on just about everything dropping, with some exceptions. This also plays into the next point.

We also have virtually no population growth especially without immigration, which in a demand based economy creates some serious issues. When you are growing population 2% through the 60s and 70's and now more or less even or negative without immigration that presses the brake pedal economically.

When you consider that just about everything in our economy is based on demand growth and scarcity, you remove those components and you start running into some serious issues. Like negative yielding debt and deflation. We don't have the body growth to increase demand and on top of that we are seeing deflation potential continue to rise. Very dangerous situation because if we see any further demand shocks, say due to recession, it will be VERY difficult to climb out of it when the natural growth rate is already hovering around 0% and we have utilized all our stimulus options.

Last edited by aridon; 08-26-2019 at 02:41 PM..
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Old 08-26-2019, 02:38 PM
 
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Yes you are correct. Our whole economy is based on people buying stuff. Our government and banking system will do everything in their power to make sure that continues.
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Old 08-26-2019, 03:54 PM
 
Location: The Triad (NC)
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The Demand > Supply can work the other way as well. Like what we have with labor and wages now.
With the Labor Supply > Demand ww have most wages being kept down.
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Old 08-27-2019, 08:44 AM
 
774 posts, read 398,097 times
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Quote:
Originally Posted by mathjak107 View Post
The trillions went in to re- inflating the banking system ...read up on how banks create money for loans and you will see where it went .

Also there are many kinds of inflation..most of what we see is not monetary inflation ..it is increases in prices from over demand and under supply of things
I absolutely agree that most of the $30 trillion went to inflating assets.

Quote:
Originally Posted by aridon View Post
So inflation comes mostly from:

Demand > Supply, causes prices to rise. This can be the result of supply imbalance, monetary policy, higher wages etc. Anything that impacts demand.

Cost push, which means input costs rise. Say when oil was upwards of $150 a barrel and this translates to higher costs throughout the economy. Tariffs, VAT and any policy that might increase costs falls under this as well.


Why are we not seeing inflation now? Well that is actually easier to explain than you would think.

We have deflation on the cost side which is keeping prices down. This is due to commodity weakness and supply costs on just about everything dropping, with some exceptions. This also plays into the next point.

We also have virtually no population growth especially without immigration, which in a demand based economy creates some serious issues. When you are growing population 2% through the 60s and 70's and now more or less even or negative without immigration that presses the brake pedal economically.

When you consider that just about everything in our economy is based on demand growth and scarcity, you remove those components and you start running into some serious issues. Like negative yielding debt and deflation. We don't have the body growth to increase demand and on top of that we are seeing deflation potential continue to rise. Very dangerous situation because if we see any further demand shocks, say due to recession, it will be VERY difficult to climb out of it when the natural growth rate is already hovering around 0% and we have utilized all our stimulus options.
So much of this makes sense, the only thing I would say is that even though the cost of goods may be relatively flat or in some cases down, the cost of services such as health care, education, and housing have not gone down and are in fact increasing. Health care inflation is above 7% as an example. Even some food costs, particularly seafood, are rising relatively quickly. But isn't it a mistake to consider a rise in prices inflation? Doesn't inflation refer solely to the amount of money in circulation?

Quote:
Originally Posted by homelessinseattle View Post
Yes you are correct. Our whole economy is based on people buying stuff. Our government and banking system will do everything in their power to make sure that continues.
I agree, this is why we have so much consumer, business, and government debt.

Quote:
Originally Posted by MrRational View Post
The Demand > Supply can work the other way as well. Like what we have with labor and wages now.
With the Labor Supply > Demand ww have most wages being kept down.
True.
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Old 08-27-2019, 12:57 PM
 
Location: On the road
6,199 posts, read 3,021,926 times
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I've learned from this forum that inflation is when someone decides, without actually tracking anything, that their grocery prices have doubled in whatever years. They then extrapolate that haphazard guess to be their entire cost of living, then take it farther and decide the entire country is suffering the same ruinous inflation and all the statistics on inflation are fake and generated by nefarious government entities.
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Old 08-27-2019, 07:18 PM
 
Location: Ohio
20,288 posts, read 14,439,814 times
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Quote:
Originally Posted by njforlife92 View Post
I have a question about inflation, I think I am right on this but I want to see what others here think.

Obviously, inflation refers to an increase in the money supply which has the impact of devaluing currency when excessive.
That would be the definition of Monetary Inflation, but not Wage Inflation, Cost-push Inflation or Demand-pull Inflation.

Quote:
Originally Posted by njforlife92 View Post
In the earlier part of this decade, the Federal Reserve injected $30 trillion into the economy...
Stop right there. That's your error. The money did not go into the economy.

Quote:
Originally Posted by njforlife92 View Post
Yet, the Fed now is concerned about inflation being too low.
Unfortunately, the government makes no attempt to differentiate between the various forms of Inflation.

For example, from January 1990 to June 2019 the government reported rate of Inflation is 98%.

Is that Monetary Inflation? Nope. It breaks down like this:

11% Monetary Inflation
19% Cost-push Inflation
68% Demand-pull Inflation
------------------------------
98% Inflation

The Federal Reserve actually caused the 1952-53 Recession.

You have to understand that rationing had just ended in 1946 and not even 4 years later the Korean War breaks out in June 1950.

Americans -- meaning households and businesses -- were in total tizzy because they thought the government would start rationing again.

Flour, sugar, coffee, tea, cheese, alcohol, and a host of other things are flying off grocery store shelves, because housewives are scarfing it up thinking the government is going to start rationing again. Businesses are buying and hoarding rubber, steel and many other items, even paper, because they fear rationing.

Within 6 months Inflation had jumped 10% and rising but it was 1% Cost-push and Monetary Inflation and 9% Demand-pull Inflation.

When Demand exceeds Supply prices rise.

You can't touch it. Doesn't matter if you increase/decrease the money supply or increase/decrease interest rates.

You can't touch it.

The only way to stop Demand-pull Inflation is increase Supply to match Demand or hope consumer demand ceases or subsides.

The Federal Reserve stupidly raised interest rates which had no effect, except to crash your economy and that's the 1952-53 Recession.

Monetary Inflation increases the price of everything as in every thing as in every single thing and that includes wages.

When you look at the CPI and you see the prices of everything rising, that's a clue you have Monetary Inflation.

But, when you look at the CPI and you see some prices rise while others remain unchanged and still others decrease in price, that's your first clue Monetary Inflation is either non-existent or so negligible as to have no impact.
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Old 08-27-2019, 08:27 PM
 
9,045 posts, read 4,027,945 times
Reputation: 1772
Quote:
Originally Posted by njforlife92 View Post
I have a question about inflation, I think I am right on this but I want to see what others here think.

Obviously, inflation refers to an increase in the money supply which has the impact of devaluing currency when excessive.

In the earlier part of this decade, the Federal Reserve injected $30 trillion into the economy through Quantitative Easing. Yet, the Fed now is concerned about inflation being too low. During tough economic times, money is often hoarded. But now we have a new phenomenon, which is credit. Would I be correct in saying that the reason the money supply hasn't expanded is because people are spending on credit instead, so while their cash isn't in circulation, there is in fact inflation in the form of loans and credit card debt?
Adding in new money into an economy can create inflation. But not necessarily. Much of that depends are where and when the new money goes.

QE which was $4T did not cause significant inflation because most of the money stayed in banks as excess reserves. It was not loaned out much into the economy, and thus weak sauce for the recession. QE was mainly used to keep interest rates down.

More credit means more money is being created and most likely will be spent, so it tends to be inflationary.

Cash or credit doesn't matter dollar for dollar as far as I know, as long as the money is spent.
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Old 08-28-2019, 09:21 AM
 
8,513 posts, read 9,263,285 times
Reputation: 6898
Quote:
Originally Posted by homelessinseattle View Post
Yes you are correct. Our whole economy is based on people buying stuff. Our government and banking system will do everything in their power to make sure that continues.
Is your point that other economies function in ways besides people buying stuff?

I'd like to learn more about how your ideal economy would work.
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