Argh! I managed to predict and come out on top of 2008, the Iraq War economic issues and many others. But I read too many plague novels in college and got totally caught up in the COVID panic, and now earn half as much with higher bills.
(Look, a 1% fatality rate for a disease that can’t have a sterilizing vaccine that re-infects pretty much everyone 2-3x per year would destroy the economy in just a few years. Turns out it just took a 0.1% fatality rate and terrible leadership.)
We might, on the other hand, think about nuking the Fed. The Governors of the Federal Reserve made all of the stupid decisions regarding “quantitative easing” - shorthand for “Let’s imitate 1920’s Germany.” I know Germany’s problems weren’t that simple; there were a lot of factors at play. But both countries made equally bad choices about how to muck about with the money supply. If anyone wants to put some Deep State actors against a wall, I’d have to nominate that crowd as early adopters.
Instead of literally nuking the Fed, you could get it to agree - or change its Congressionally-approved mandate - to follow the Taylor rule or 5% annual NGDP growth targeting or something similar, rather than its current purely discretionary basis as now, and you could have 90% of your cake and eat 90% of it, too, without anything like a civil war.
It's thesis is we completely destroyed the powerhouse japanese economy by convincing them to implement incredible QE bc they got too big for our comfort,then we waited approximately 15 years and implemented the exact same policy ourselves
Corporate gouging
Sanctions made it harder to export inflation
Incredible QE
Are the 3 phenomena that explain the incredible inflation we saw
Also since Nixon completely closed the gold window in 1971, the bottom 90% of Americans have gotten steadily poorer aka " WTF happened in 1971 "
The Fed for some reason (stupidity?) failed to do enough QE even to maintain inflation on target when it needed to do temporary over-target inflation as it did on 2020 -2021.
Well, I actually agree with every word in that comment except the final one (”2021): it did NOT need to “over-target” inflation in 2021; that was its own bad decision that helped create the high inflation we got.
I can't say I agree with much here. You say that those who claim "grocery prices are up 100%" are exaggerating, then claim inflation was caused because "people tried to buy 2 years worth of stuff in 1 year." That's also exaggeration.
It wasn't just the CDC (and local bureaucrats) that locked everyone down. It was also China and nearly every other government. That's going to leave a mark. And it did. When you can't get cable in 2021, it wasn't because demand suddenly doubled. It was because there was little to be had the year before that. Demand didn't suddenly double. Supply shrank (lockdowns).
I was hiring in 2021 and 2022. Labor wasn't hard to get because there suddenly was excess demand. I work in a sector where demand doesn't fluctuate much. Labor was hard to get for a variety of reasons. At first, people were making more from unemployment than they could make at a $25/hour job. Why work when you can sit on the couch and get paid? Made total sense. As unemployment benefits started to get scaled back, stimulus continued. The personal savings rate skyrocketed from 2020 - 2022. https://fred.stlouisfed.org/series/PSAVERT Why work when you've got plenty of cushion? Made sense. Among other things, that's why labor was in short supply. I saw this first hand for 2 years.
The CDC bore some blame, yes, but there's plenty of blame to go around. I would just broaden it to 'politicians and bureaucrats,' who all consistently made stupid decisions.
"two years worth of shit in one year" is indeed an exaggeration. It was 1.X years worth of shit in one year, where X is a larger number than we've ever tried to buy before. I obviously don't know exactly how big X is, but the Dept of Labor report states explicitly that the source of the inflation was largely "backlog" and "labor tightening." The labor tightening was due to the backlog, and backlog literally means "1.X years worth of shit in one year."
“…but the Dept of Labor report states explicitly that the source of the inflation was largely ‘backlog’ and ‘labor tightening.’”
But as the poster explained so well, “labor tightening” was primarily caused by the government unemployment benefit policy that made it more remunerative to not work than to work!
I think I always understood the Keynesian argument that you can keep monetary expansion-driven inflation down so long as you have expanding productivity, it is just that -
- black swan events like Covid happen that will royally fuck up the economy as you outline.
- this expansion is not universal; certain parts of the economy get this monetary expansion while others don’t.
- Aside from inflationary issues, the previous point also begs for malinvestment of that new capital and triggering the business cycle. Entire sectors of the economy getting flushed with cash by easy money policies will chase countless bad projects.
- This promise of “higher productivity” is necessary to avoid the inflation, but a great deal of this monetary expansion ultimately gets pumped into international reserves to tamper down the inflation instead. If something like, I dunno, foreign nations deciding to diversify their reserves due to certain global conflicts and dump that money back into the US systems, that would perpetuate monetary expansion outside of central bankers control.
- the Keynesian promise is appealing to a particular political class. It can be and has been effectively used to give large political Allies and insiders incredible benefits while also upholding the ability of the US government to offload its managerial and bureaucratic burdens on politically connected industries. You can support things like a military industrial complex without this. Much of that “expanded productivity” that is being chased is going into reputable firms like Boeing.
What the Ron Paulites get wrong is that mere quantity of money is not the metric which drives inflation. Money created through fractional reserve banking is BACKED by the long term asset that the banks are financing with short term money. There are still some inflationary implications from such money creation, but it is sublinear.
But when the Fed buys US Treasury debt, that is the equivalent of simply printing money, since the Fed is owned by the Treasury.
Milton Friedman said “inflation is always and everywhere a monetary phenomenon”. While perhaps somewhat of a simplification, this is essentially exactly what you described happened: too much money chasing too few goods.
Milton Friedman was not a Keynesian (at least not for most of his life). How can you claim that the Keynesians got this right, not the monetarists?
Freidman didn't consider that the government would ever have the ability to reduce supply of goods on purpose. If he ever thought the government would do anything that crazy he would have revised his statement to say "inflation is always and everywhere a monetary phenomenon unless the government decides to ban large swaths of people from participating in the economy thereby nuking supply."
“Freidman didn't consider that the government would ever have the ability to reduce supply of goods on purpose.”
Uh, sorry, that dog don’t hunt.
Friedman surely “considered” that recessions - both government created and otherwise - had the ability to reduce the supply of goods. Government also has the ability to expand or contract the money supply and have appropriate fiscal policy (contractionary or expansionary) at a proper rate for what is going on in the economy. So you really are simply stating the basic monetarist position.
Volcker engineered a recession to break the inflationary pressures created by Nixon/Ford/Carter terrible policies in the 1970s, and that certainly is an identical case of government having “the ability to reduce supply of goods on purpose.”
Now I’m neither a macroeconomist nor an expert on monetary policy. Having said that, I don’t know that this bout of inflation is in fact a perfect example of the monetarist position that you cite re: inflation purely being about too much money chasing too few goods [though to be crystal clear, that is *obviously* a major component of it].
Just as Volcker and Reagan engineered a recession in ‘81-82 to break the back of inflation by breaking *inflation expectations*, it seems pretty clear that this round of inflation was set off / made worse not solely by the expansionary monetary and fiscal policy implemented, but *also* by the Fed and the Treasury Secretary actually SAYING that they WANTED more inflation.
So they literally set inflation expectations HIGHER. Surprise, surprise, they got what they wanted, but they weren’t able to control the genie they let out of the bottle - neither the amount of monthly/annual inflation, nor the duration of the higher inflation.
So this is pretty good evidence that inflation expectations are also a factor in inflation, as opposed to your/Friedman’s more pure “too much money chasing too few goods” as the sole explanation, even as it clearly is by far the largest component.
To be honest I'm pretty amazed that Bitcoin hasn't done any better than it has during the inflation spike. I would have thought it was the perfect inflation hedge, but instead it's been pretty volatile.
“I would have thought it was the perfect inflation hedge, but instead it's been pretty volatile.”
Because whatever may or may not happen to Bitcoin in the long run, in the short run it trades roughly like a leveraged tech fund, and has for several years now.
Bitcoin will always be volatile in the short term, but long term is where all the action is.
Bitcoin is an inflation hedge against the amount of units of currency that exist. As in, when governments create new units of currency every year, with Bitcoin's fixed issuance and 21 million unit hard cap, Bitcoin retains monetary energy as a superior store of value compared to the dollar.
What Bitcoin is NOT, is it is NOT an inflation hedge against consumer goods aka the Consumer Price Index (CPI); nor a hedge against a recession. People see it crash during a recession and shrug and say "it doesn't work". Guess it failed!
If you spend some time and try to honestly debunk Bitcoin, it would be well worth your time. No one has been able to debunk Bitcoin yet - I would love to see your take if you can!
Anyway this is probably the best movie if you are curious for a solid starting place to learn more:
It sounds like you're conflating the properties of money "medium of exchange" with "store of value". Right now Bitcoin is a good store of value, but it is currently not a very good medium of exchange, because it is not accepted everywhere yet. (I mean it's only 14 years old, this is like the internet back in 1994. "don't expect to be able to use the internet easily for much legitimate business!")
The dollar is a better medium of exchange and probably will be for the foreseeable future, but the dollar is a horrible store of value because of it's unpredictable inflation rate.
Money technologies throughout history always follow the evolution path of "Store of Value" first, then much later "Medium of Exchange", then finally eventually as a "Unit of Account" once they become universally adopted.
“The dollar is a better medium of exchange and probably will be for the foreseeable future, but the dollar is a horrible store of value because of it's unpredictable inflation rate.”
Methinks thou does not understand what “store of value” means when you claim that the dollar is horrible at it.
In fact, the dollar is a MUCH better store of value than Bitcoin today. The value of a dollar is MUCH MUCH MUCH more stable than the value of a Bitcoin - and that LITERALLY is what “store of value” means!
The dollar is surely not a perfect store of value, and I have no issue with people wanting to hedge against the value of the dollar by keeping some assets in other instruments - including gold and Bitcoin. But the dollar is a much less imperfect store of value than is Bitcoin!
So to suggest that the dollar is a “horrible” store of value, and imply/state that Bitcoin is a better one, is simply absurd.
We're talking on different time horizons. On a day-to-day time horizon, you're completely right. Even on a quarter-to-quarter time horizon you probably are still right. Hell I'd probably give you that on a 6 month time scale that the dollar is a better store of value.
The difference becomes clear over a year-to-year time horizon. Year over year the dollar purchase less (as measured by CPI), but year over year Bitcoin accrues more purchasing power as it's price accumulates over time.
I suppose to clarify I should have just said that Bitcoin is a better Long-term* store of Value than the dollar.
I think the fact that Bitcoin wasn't used as an inflation hedge in this case is evidence that it's not a good inflation hedge. Maybe it will be one day, but currently to me it seems as if the best use case for Bitcoin is money laundering and transferring large sums across the borders of hostile states without banks.
People lump a lot into the term inflation, it depends on which type of inflation you're hedging against... Consumer price inflation vs monetary inflation (aka the amount of units of the money supply).
Bitcoin does NOT hedge against consumer price inflation. For one, it's too volatile in the short term.
Bitcoin IS a hedge against monetary inflation, aka currency debasement, aka printing new money. You buy Bitcoin as a superior store of value because it is the first asset to have absolute scarcity of only 21 million coins built right into it.
The bet you're making when you buy Bitcoin is that governments will continue to create new dollars to fund their operations. And that they cannot help but debase their currencies ever since the dollar stopped being backed by Gold in 1971.
The dollar is currently backed by America's perception, network effects, the world's largest army, and theoretically the world's most gold in Fort Knox - but nothing ties the dollar back to physical reality anymore... one major reason our values have floated away from reality!
The US dollar system is still head and shoulders the dominant king of money laundering system of criminals large and small. BTC is terrible for this as it's not anonymous like cash is (See: Breaking Bad). BTC for money laundering is only promoted as a thing by economically illiterate sour-smelling vinegar scolds like Elizabeth (Godzilla Halitosis) Warren.
If you "zoom out" (from it's inception), it's been a great investment and kind of a piss-poor inflation hedge. Day to day (year to year) it sucks, just like everything else. Even TIPS suck, and they're supposedly "inflation proof", and if you manage to store the things you need in quantity (food, energy, etc.) you're limited b/c then the storage starts to cost you. This is by design.
The problem is the system is engineered for pumps and dumps to fleece the muppets, in order to prevent the rise of a middle class that can threaten the "Power Elite". They also need to suppress the poors, so they make it extremely hard to predictably hedge inflation, and do what we used to call "save for the future".
Regardless, it's difficult to understand just how early anyone who owns any BTC actually is. In fact, it's so early it's still not assured BTC is going to even survive.
Also: Because BTC, gold, and to a certain extent, silver are gamed up the arse by TPTB, they are *political instability hedges*, not currency hedges. Until that currency experiences a "political event", then they all become perfect inflation hedges all at once.
I was at the grocery store not thirty minutes ago, and when I tried to pay in Bitcoin they looked at me like I was speaking Chinese.
I dunno. I can't tell. I've been part of the Cypherpunks for thirty years, have worked in the cryptocurrency field, and think it still has too many insurmountable on/offramp problems to replace the dollar in any meaningful sense. Particularly when the same government that is responsible for the debasement of that currency can level sanctions that tilt the playing field massively.
On the other hand, I'm also massively blackpilled these days, so maybe I'm just a superturbopessimist and nobody should listen to anything I say. That's also a possibility I can't rule out entirely. *sigh*
The dollar will probably always remain the preferred medium of exchange, most people won't accept or pay in Bitcoin as it's too cumbersome/confusing for most people as a method of payment.
Like I wrote above, it sounds like you're conflating the properties of money "medium of exchange" with "store of value". Right now Bitcoin is a good store of value, but it is currently not a very good medium of exchange, because it is not accepted everywhere yet.
If you break down "What is Money?" and learn the properties of what makes a good money, it becomes a little more obvious. This articles has a graph listing out the ~7-8 agreed upon properties of what makes a sound money:
Money technologies throughout history always follow the evolution path of "Store of Value" first, then much later become a "Medium of Exchange", then finally eventually as a "Unit of Account" once they become universally adopted.
The beauty is that even if the dollar always remains the preferred global medium of exchange, Bitcoin is extremely liquid and can be converted back to dollars (or any other currency) within ~10 minutes. Over time this will make it the global reserve asset that all nations will prefer to have in reserves.
The "thing-that-can-be-traded-for-All-OTHER-things" BECOMES a money, by default. Like cigarettes in prison.
I think the "killer app" here would be the capability to directly convert Bitcoin (or whatever crypto, and yes, of course I understand the arguments against other cryptos ;) ) into "payments against my credit card" or "payments into my ATM account". Shit, maybe I should suggest that to Wise.
Then it's "plan the evening, convert the funds, use the card to pay for things that night". Hrmmmm.
Perhaps that black pill is a tinge more grey, today...
Unless and until Bitcoin is accepted by producers as currency, its only value is tied to fiat currency. And yes, I know some accept it, but not many. If the SHTF, you better have tangible assets to trade.
Centers for Disease Control, which although technically didn't directly "lock down" anything, they were responsible for the "2 weeks to flatten the curve" guidance, and also responsible for issuing guidance to extend that indefinitely that most governors were scared to challenge. When they did challenge it, such as Brian Kemp in Georgia, they were lambasted and attacked for EXPERIMENTING IN HUMAN SACRIFICE for reopening the economy.
There's a technical term you're missing for that period in 2020 where the money was printed but nobody could spend it because everything they might want is illegal thanks to lockdowns. Velocity of money.
To modify what you said: In summary, Keynesians think that the cost of goods is essentially the (amount of money in a system) multiplied by the (rate at which money changes hands) divided by (the amount of stuff to buy) in a system.
Also stated MV=PQ.
Inflation only occured once the increase in M hit V returning to normal.
How can you say *I'm* wrong about inflation?! I WANT DEFLATION!!1!. (a)
Deflate everything. Crash it. Margin call everything. Liquidate the world. Send the US dollar soaring. Tank all the financialized assets. Make all the rich into poors. Crush all the bullshit industry and jawbs into dust.
Let's have some actual price discovery for a change so we can have an actual economy instead of this phake phony bullshit one.
(a) I'm kidding here b/c obviously this isn't about anyone specifically least of all me, but I do want a massive deflation b/c this bullshit is so unbelievably bullshit it's beyond bullshit
Jason used to be God awful expensive,largely due to the incredible QE the US deep state talked them into implementing,see " Princes of the Yen " for the copious receipts
Now today you can eat extremely well in Japan for extremely reasonable prices
Governments hate deflation bc of their incredible debt
Only morons don't like the idea of things getting cheaper
Ntm the bottom 90% of Americans have gotten steadily poorer since 1971,aka the gold window was completely closed
Please seriously consider going back to coloring books
Why didn't all those long years of near zero interest rates-free money - plus stagnant or declining productivity across the west prior to covid, result in inflation?
Answer least in part is : all hrough those precovid years China was producing a shirtload of stuff (sometimes at or below true cost of production) and shipping it to consumers in the west .
Covid cutoff that supply from China and by now the true cost to China of its overproduction of just about everything is coming home to roost in China - their economy is in deep merde.
Mind when the dust settles China will still have miles of fast trains and other very modern gear whereas the west could find that it mostly only has shares in a ' Tulip' trader.
Your repeated use of the phrase, "Tried to buy two years worth of stuff in one year," is a tremendous over exaggeration. Real per capita GDP increased by about 5.6% from 2020 to 2021. That's about double the average annual increase over the past couple decades, but it's a far cry from validating your rhetoric.
If you compare the US with Japan, you will find that both countries experienced a similar economic rebound in 2021. Both countries' central banks began to hit the monetary brakes in the middle of 2021, but the Bank of Japan acted much more aggressively throughout 2021, and Japan experienced much less inflation as a result. Despite the disequilibrium dynamics of supply shocks and shifting expectations, inflation remains a monetary phenomenon in the long run.
I guess I more than halfway agree with you on this. And, in general, administrations are given way more credit or blame than they deserve. Blaming the CDC, though, is a little too facile and provincial. It was COVID, and world-wide. You could argue the CDC was incredibly inept, but better examples are few and far-between, and the supply-side constraint was felt worldwide. I'd rather live with the inflation than next time be too unprepared or lax about a novel pandemic.
The CDC had guidance to deal with a disease like Covid pre-pandemic, which weighed the economic impacts with the health impacts. That guidance said to lock down no more than two weeks due to economic impacts. They burned that guidance.
I'm sure that guidance wasn't black and white like that - it must have been a warning that more than two weeks would have economic impacts, so take into consideration the balance between health and the economy. FWIW, it looks like the Trump CDC put out guidelines for opening back up that were blocked by the House https://trumpwhitehouse.archives.gov/openingamerica/
Meanwhile, how does China's COVID Zero strategy compare to the CDC in terms of overall impact?
Aug 31·edited Aug 31Liked by Handwaving Freakoutery
I dunno what plan he read. The pre-Atrocities pandemic plan I read - pulled it off CDC's public website back when the first lockdown was perpetrated - briefly considered lockdown style restrictions, and explicitly recommended against them.
Let's stop pretending there was any "public health" justification whatsoever. The lockdowns were a heinous crime and nothing less.
You cannot compare the two. China is even more dishonest than the US government. They seem to have lied about their population by about 100M. Economic statistics are even more fraudulent.
Perhaps I misunderstood. You cannot quantify the impacts on China's own economy because none of their own economic statistics are reliable and their economy is highly manipulated.
The affect of their decreased exports on the world can be more easily measured.
I wouldn't trust an article with false information in the summary. If China had "closed its borders" in Jan 2020, there would have been no need to ban flights from China. According to the NY Times there were 1300 direct flights to 17 US cities in 2020 by April 5th.
Argh! I managed to predict and come out on top of 2008, the Iraq War economic issues and many others. But I read too many plague novels in college and got totally caught up in the COVID panic, and now earn half as much with higher bills.
(Look, a 1% fatality rate for a disease that can’t have a sterilizing vaccine that re-infects pretty much everyone 2-3x per year would destroy the economy in just a few years. Turns out it just took a 0.1% fatality rate and terrible leadership.)
We might, on the other hand, think about nuking the Fed. The Governors of the Federal Reserve made all of the stupid decisions regarding “quantitative easing” - shorthand for “Let’s imitate 1920’s Germany.” I know Germany’s problems weren’t that simple; there were a lot of factors at play. But both countries made equally bad choices about how to muck about with the money supply. If anyone wants to put some Deep State actors against a wall, I’d have to nominate that crowd as early adopters.
At this point I think nuking the Fed would necessarily involve civil war and a temporary return to the barter system for regions of the country.
Instead of literally nuking the Fed, you could get it to agree - or change its Congressionally-approved mandate - to follow the Taylor rule or 5% annual NGDP growth targeting or something similar, rather than its current purely discretionary basis as now, and you could have 90% of your cake and eat 90% of it, too, without anything like a civil war.
Consider checking out " Princes of the Yen "
It's thesis is we completely destroyed the powerhouse japanese economy by convincing them to implement incredible QE bc they got too big for our comfort,then we waited approximately 15 years and implemented the exact same policy ourselves
Corporate gouging
Sanctions made it harder to export inflation
Incredible QE
Are the 3 phenomena that explain the incredible inflation we saw
Also since Nixon completely closed the gold window in 1971, the bottom 90% of Americans have gotten steadily poorer aka " WTF happened in 1971 "
The Fed for some reason (stupidity?) failed to do enough QE even to maintain inflation on target when it needed to do temporary over-target inflation as it did on 2020 -2021.
Well, I actually agree with every word in that comment except the final one (”2021): it did NOT need to “over-target” inflation in 2021; that was its own bad decision that helped create the high inflation we got.
I can't say I agree with much here. You say that those who claim "grocery prices are up 100%" are exaggerating, then claim inflation was caused because "people tried to buy 2 years worth of stuff in 1 year." That's also exaggeration.
It wasn't just the CDC (and local bureaucrats) that locked everyone down. It was also China and nearly every other government. That's going to leave a mark. And it did. When you can't get cable in 2021, it wasn't because demand suddenly doubled. It was because there was little to be had the year before that. Demand didn't suddenly double. Supply shrank (lockdowns).
I was hiring in 2021 and 2022. Labor wasn't hard to get because there suddenly was excess demand. I work in a sector where demand doesn't fluctuate much. Labor was hard to get for a variety of reasons. At first, people were making more from unemployment than they could make at a $25/hour job. Why work when you can sit on the couch and get paid? Made total sense. As unemployment benefits started to get scaled back, stimulus continued. The personal savings rate skyrocketed from 2020 - 2022. https://fred.stlouisfed.org/series/PSAVERT Why work when you've got plenty of cushion? Made sense. Among other things, that's why labor was in short supply. I saw this first hand for 2 years.
The CDC bore some blame, yes, but there's plenty of blame to go around. I would just broaden it to 'politicians and bureaucrats,' who all consistently made stupid decisions.
"two years worth of shit in one year" is indeed an exaggeration. It was 1.X years worth of shit in one year, where X is a larger number than we've ever tried to buy before. I obviously don't know exactly how big X is, but the Dept of Labor report states explicitly that the source of the inflation was largely "backlog" and "labor tightening." The labor tightening was due to the backlog, and backlog literally means "1.X years worth of shit in one year."
“…but the Dept of Labor report states explicitly that the source of the inflation was largely ‘backlog’ and ‘labor tightening.’”
But as the poster explained so well, “labor tightening” was primarily caused by the government unemployment benefit policy that made it more remunerative to not work than to work!
I think I always understood the Keynesian argument that you can keep monetary expansion-driven inflation down so long as you have expanding productivity, it is just that -
- black swan events like Covid happen that will royally fuck up the economy as you outline.
- this expansion is not universal; certain parts of the economy get this monetary expansion while others don’t.
- Aside from inflationary issues, the previous point also begs for malinvestment of that new capital and triggering the business cycle. Entire sectors of the economy getting flushed with cash by easy money policies will chase countless bad projects.
- This promise of “higher productivity” is necessary to avoid the inflation, but a great deal of this monetary expansion ultimately gets pumped into international reserves to tamper down the inflation instead. If something like, I dunno, foreign nations deciding to diversify their reserves due to certain global conflicts and dump that money back into the US systems, that would perpetuate monetary expansion outside of central bankers control.
- the Keynesian promise is appealing to a particular political class. It can be and has been effectively used to give large political Allies and insiders incredible benefits while also upholding the ability of the US government to offload its managerial and bureaucratic burdens on politically connected industries. You can support things like a military industrial complex without this. Much of that “expanded productivity” that is being chased is going into reputable firms like Boeing.
Maybe it is just late at night and I have an allergy to Keynes, but it is a good article and I don’t really disagree with anything here
What the Ron Paulites get wrong is that mere quantity of money is not the metric which drives inflation. Money created through fractional reserve banking is BACKED by the long term asset that the banks are financing with short term money. There are still some inflationary implications from such money creation, but it is sublinear.
But when the Fed buys US Treasury debt, that is the equivalent of simply printing money, since the Fed is owned by the Treasury.
Your simplified description of "Keynesians" applies as well to Market Monetarism [not to be confused with MMT].
This is a legit criticism of the presentation in the article.
Milton Friedman said “inflation is always and everywhere a monetary phenomenon”. While perhaps somewhat of a simplification, this is essentially exactly what you described happened: too much money chasing too few goods.
Milton Friedman was not a Keynesian (at least not for most of his life). How can you claim that the Keynesians got this right, not the monetarists?
Freidman didn't consider that the government would ever have the ability to reduce supply of goods on purpose. If he ever thought the government would do anything that crazy he would have revised his statement to say "inflation is always and everywhere a monetary phenomenon unless the government decides to ban large swaths of people from participating in the economy thereby nuking supply."
“Freidman didn't consider that the government would ever have the ability to reduce supply of goods on purpose.”
Uh, sorry, that dog don’t hunt.
Friedman surely “considered” that recessions - both government created and otherwise - had the ability to reduce the supply of goods. Government also has the ability to expand or contract the money supply and have appropriate fiscal policy (contractionary or expansionary) at a proper rate for what is going on in the economy. So you really are simply stating the basic monetarist position.
Volcker engineered a recession to break the inflationary pressures created by Nixon/Ford/Carter terrible policies in the 1970s, and that certainly is an identical case of government having “the ability to reduce supply of goods on purpose.”
Now I’m neither a macroeconomist nor an expert on monetary policy. Having said that, I don’t know that this bout of inflation is in fact a perfect example of the monetarist position that you cite re: inflation purely being about too much money chasing too few goods [though to be crystal clear, that is *obviously* a major component of it].
Just as Volcker and Reagan engineered a recession in ‘81-82 to break the back of inflation by breaking *inflation expectations*, it seems pretty clear that this round of inflation was set off / made worse not solely by the expansionary monetary and fiscal policy implemented, but *also* by the Fed and the Treasury Secretary actually SAYING that they WANTED more inflation.
So they literally set inflation expectations HIGHER. Surprise, surprise, they got what they wanted, but they weren’t able to control the genie they let out of the bottle - neither the amount of monthly/annual inflation, nor the duration of the higher inflation.
So this is pretty good evidence that inflation expectations are also a factor in inflation, as opposed to your/Friedman’s more pure “too much money chasing too few goods” as the sole explanation, even as it clearly is by far the largest component.
Yes - you're so close to discovering Bitcoin. Opt out of currency debasement.
To be honest I'm pretty amazed that Bitcoin hasn't done any better than it has during the inflation spike. I would have thought it was the perfect inflation hedge, but instead it's been pretty volatile.
The real inflation hedge is ammunition
“I would have thought it was the perfect inflation hedge, but instead it's been pretty volatile.”
Because whatever may or may not happen to Bitcoin in the long run, in the short run it trades roughly like a leveraged tech fund, and has for several years now.
Bitcoin will always be volatile in the short term, but long term is where all the action is.
Bitcoin is an inflation hedge against the amount of units of currency that exist. As in, when governments create new units of currency every year, with Bitcoin's fixed issuance and 21 million unit hard cap, Bitcoin retains monetary energy as a superior store of value compared to the dollar.
What Bitcoin is NOT, is it is NOT an inflation hedge against consumer goods aka the Consumer Price Index (CPI); nor a hedge against a recession. People see it crash during a recession and shrug and say "it doesn't work". Guess it failed!
If you spend some time and try to honestly debunk Bitcoin, it would be well worth your time. No one has been able to debunk Bitcoin yet - I would love to see your take if you can!
Anyway this is probably the best movie if you are curious for a solid starting place to learn more:
https://www.godblessbitcoin.com/
Buy it if you like the risk reward profile more than other assets, but don't expect to be able to use is easily for much legitimate business.
It sounds like you're conflating the properties of money "medium of exchange" with "store of value". Right now Bitcoin is a good store of value, but it is currently not a very good medium of exchange, because it is not accepted everywhere yet. (I mean it's only 14 years old, this is like the internet back in 1994. "don't expect to be able to use the internet easily for much legitimate business!")
The dollar is a better medium of exchange and probably will be for the foreseeable future, but the dollar is a horrible store of value because of it's unpredictable inflation rate.
Money technologies throughout history always follow the evolution path of "Store of Value" first, then much later "Medium of Exchange", then finally eventually as a "Unit of Account" once they become universally adopted.
This is a pretty solid argument. I may have been thinking about the problem incorrectly.
“The dollar is a better medium of exchange and probably will be for the foreseeable future, but the dollar is a horrible store of value because of it's unpredictable inflation rate.”
Methinks thou does not understand what “store of value” means when you claim that the dollar is horrible at it.
In fact, the dollar is a MUCH better store of value than Bitcoin today. The value of a dollar is MUCH MUCH MUCH more stable than the value of a Bitcoin - and that LITERALLY is what “store of value” means!
The dollar is surely not a perfect store of value, and I have no issue with people wanting to hedge against the value of the dollar by keeping some assets in other instruments - including gold and Bitcoin. But the dollar is a much less imperfect store of value than is Bitcoin!
So to suggest that the dollar is a “horrible” store of value, and imply/state that Bitcoin is a better one, is simply absurd.
We're talking on different time horizons. On a day-to-day time horizon, you're completely right. Even on a quarter-to-quarter time horizon you probably are still right. Hell I'd probably give you that on a 6 month time scale that the dollar is a better store of value.
The difference becomes clear over a year-to-year time horizon. Year over year the dollar purchase less (as measured by CPI), but year over year Bitcoin accrues more purchasing power as it's price accumulates over time.
I suppose to clarify I should have just said that Bitcoin is a better Long-term* store of Value than the dollar.
Hello JT
Would you me so kind as to send me this comment about the three primary uses of money ,and the different time frames?
Thanks in advance
Be safe and be well
Unfortunately I can't just copy the comment
Have a great day
P Sansonetti 80@gmail.con
It's still waaaaay to new to be an inflation hedge IMO.
Maybe after it gets over $1M it'll calm down, b/c at that point it'll have more than 3% of the world population owning it.
Most people like to buy things after they've made their big move, not before.
That number was pulled out of the ass of the Internet, obviously. Gold and silver are held by 10% and 11% respectively (using the same method as BTC).
I think the fact that Bitcoin wasn't used as an inflation hedge in this case is evidence that it's not a good inflation hedge. Maybe it will be one day, but currently to me it seems as if the best use case for Bitcoin is money laundering and transferring large sums across the borders of hostile states without banks.
People lump a lot into the term inflation, it depends on which type of inflation you're hedging against... Consumer price inflation vs monetary inflation (aka the amount of units of the money supply).
Bitcoin does NOT hedge against consumer price inflation. For one, it's too volatile in the short term.
Bitcoin IS a hedge against monetary inflation, aka currency debasement, aka printing new money. You buy Bitcoin as a superior store of value because it is the first asset to have absolute scarcity of only 21 million coins built right into it.
The bet you're making when you buy Bitcoin is that governments will continue to create new dollars to fund their operations. And that they cannot help but debase their currencies ever since the dollar stopped being backed by Gold in 1971.
The dollar is currently backed by America's perception, network effects, the world's largest army, and theoretically the world's most gold in Fort Knox - but nothing ties the dollar back to physical reality anymore... one major reason our values have floated away from reality!
The US dollar system is still head and shoulders the dominant king of money laundering system of criminals large and small. BTC is terrible for this as it's not anonymous like cash is (See: Breaking Bad). BTC for money laundering is only promoted as a thing by economically illiterate sour-smelling vinegar scolds like Elizabeth (Godzilla Halitosis) Warren.
If you "zoom out" (from it's inception), it's been a great investment and kind of a piss-poor inflation hedge. Day to day (year to year) it sucks, just like everything else. Even TIPS suck, and they're supposedly "inflation proof", and if you manage to store the things you need in quantity (food, energy, etc.) you're limited b/c then the storage starts to cost you. This is by design.
The problem is the system is engineered for pumps and dumps to fleece the muppets, in order to prevent the rise of a middle class that can threaten the "Power Elite". They also need to suppress the poors, so they make it extremely hard to predictably hedge inflation, and do what we used to call "save for the future".
Harry Brown's "Permanent Portfolio" rebalancing strategy actually still works pretty well as an inflation hedge even though it's promoted as a way to improve/smooth returns https://www.lazyportfolioetf.com/allocation/harry-browne-permanent-rebalancing-strategy/ although you'd want to include some BTC, silver, and gold in there IMO.
Regardless, it's difficult to understand just how early anyone who owns any BTC actually is. In fact, it's so early it's still not assured BTC is going to even survive.
Also: Because BTC, gold, and to a certain extent, silver are gamed up the arse by TPTB, they are *political instability hedges*, not currency hedges. Until that currency experiences a "political event", then they all become perfect inflation hedges all at once.
Yo' pays yo' monies, takes yo' chances.
I was at the grocery store not thirty minutes ago, and when I tried to pay in Bitcoin they looked at me like I was speaking Chinese.
I dunno. I can't tell. I've been part of the Cypherpunks for thirty years, have worked in the cryptocurrency field, and think it still has too many insurmountable on/offramp problems to replace the dollar in any meaningful sense. Particularly when the same government that is responsible for the debasement of that currency can level sanctions that tilt the playing field massively.
On the other hand, I'm also massively blackpilled these days, so maybe I'm just a superturbopessimist and nobody should listen to anything I say. That's also a possibility I can't rule out entirely. *sigh*
The dollar will probably always remain the preferred medium of exchange, most people won't accept or pay in Bitcoin as it's too cumbersome/confusing for most people as a method of payment.
Like I wrote above, it sounds like you're conflating the properties of money "medium of exchange" with "store of value". Right now Bitcoin is a good store of value, but it is currently not a very good medium of exchange, because it is not accepted everywhere yet.
If you break down "What is Money?" and learn the properties of what makes a good money, it becomes a little more obvious. This articles has a graph listing out the ~7-8 agreed upon properties of what makes a sound money:
https://vijayboyapati.medium.com/the-bullish-case-for-bitcoin-6ecc8bdecc1
Money technologies throughout history always follow the evolution path of "Store of Value" first, then much later become a "Medium of Exchange", then finally eventually as a "Unit of Account" once they become universally adopted.
The beauty is that even if the dollar always remains the preferred global medium of exchange, Bitcoin is extremely liquid and can be converted back to dollars (or any other currency) within ~10 minutes. Over time this will make it the global reserve asset that all nations will prefer to have in reserves.
The "thing-that-can-be-traded-for-All-OTHER-things" BECOMES a money, by default. Like cigarettes in prison.
I think the "killer app" here would be the capability to directly convert Bitcoin (or whatever crypto, and yes, of course I understand the arguments against other cryptos ;) ) into "payments against my credit card" or "payments into my ATM account". Shit, maybe I should suggest that to Wise.
Then it's "plan the evening, convert the funds, use the card to pay for things that night". Hrmmmm.
Perhaps that black pill is a tinge more grey, today...
Unless and until Bitcoin is accepted by producers as currency, its only value is tied to fiat currency. And yes, I know some accept it, but not many. If the SHTF, you better have tangible assets to trade.
What is the acronym “CDC” ??
Centers for Disease Control, which although technically didn't directly "lock down" anything, they were responsible for the "2 weeks to flatten the curve" guidance, and also responsible for issuing guidance to extend that indefinitely that most governors were scared to challenge. When they did challenge it, such as Brian Kemp in Georgia, they were lambasted and attacked for EXPERIMENTING IN HUMAN SACRIFICE for reopening the economy.
https://www.theatlantic.com/health/archive/2020/04/why-georgia-reopening-coronavirus-pandemic/610882/
Thanks - I am the only in the US not immediately knowing that accronym
Centers for Disease & Control
The ampersand is key.
For any1 interested, here are my Aug CPI estimates with near-perfect track record:
https://open.substack.com/pub/arkominaresearch/p/aug-2024-cpi-estimate?r=1r1n6n&utm_campaign=post&utm_medium=web&showWelcomeOnShare=true
There's a technical term you're missing for that period in 2020 where the money was printed but nobody could spend it because everything they might want is illegal thanks to lockdowns. Velocity of money.
To modify what you said: In summary, Keynesians think that the cost of goods is essentially the (amount of money in a system) multiplied by the (rate at which money changes hands) divided by (the amount of stuff to buy) in a system.
Also stated MV=PQ.
Inflation only occured once the increase in M hit V returning to normal.
How can you say *I'm* wrong about inflation?! I WANT DEFLATION!!1!. (a)
Deflate everything. Crash it. Margin call everything. Liquidate the world. Send the US dollar soaring. Tank all the financialized assets. Make all the rich into poors. Crush all the bullshit industry and jawbs into dust.
Let's have some actual price discovery for a change so we can have an actual economy instead of this phake phony bullshit one.
(a) I'm kidding here b/c obviously this isn't about anyone specifically least of all me, but I do want a massive deflation b/c this bullshit is so unbelievably bullshit it's beyond bullshit
I think 2% PCE is a better target. Under target inflation not to mention deflation would be a big mistake.
You are a moron
Jason used to be God awful expensive,largely due to the incredible QE the US deep state talked them into implementing,see " Princes of the Yen " for the copious receipts
Now today you can eat extremely well in Japan for extremely reasonable prices
Governments hate deflation bc of their incredible debt
Only morons don't like the idea of things getting cheaper
Ntm the bottom 90% of Americans have gotten steadily poorer since 1971,aka the gold window was completely closed
Please seriously consider going back to coloring books
That's the status quo line. I no longer believe in it.
Yeah, I feel those two posts at the end. :-/
Feel a factor in a answer to:
Why didn't all those long years of near zero interest rates-free money - plus stagnant or declining productivity across the west prior to covid, result in inflation?
Answer least in part is : all hrough those precovid years China was producing a shirtload of stuff (sometimes at or below true cost of production) and shipping it to consumers in the west .
Covid cutoff that supply from China and by now the true cost to China of its overproduction of just about everything is coming home to roost in China - their economy is in deep merde.
Mind when the dust settles China will still have miles of fast trains and other very modern gear whereas the west could find that it mostly only has shares in a ' Tulip' trader.
Because central bank had inflation targets of around 2%-3% And sometimes failed to have policies even to meet them.
Your repeated use of the phrase, "Tried to buy two years worth of stuff in one year," is a tremendous over exaggeration. Real per capita GDP increased by about 5.6% from 2020 to 2021. That's about double the average annual increase over the past couple decades, but it's a far cry from validating your rhetoric.
If you compare the US with Japan, you will find that both countries experienced a similar economic rebound in 2021. Both countries' central banks began to hit the monetary brakes in the middle of 2021, but the Bank of Japan acted much more aggressively throughout 2021, and Japan experienced much less inflation as a result. Despite the disequilibrium dynamics of supply shocks and shifting expectations, inflation remains a monetary phenomenon in the long run.
I guess I more than halfway agree with you on this. And, in general, administrations are given way more credit or blame than they deserve. Blaming the CDC, though, is a little too facile and provincial. It was COVID, and world-wide. You could argue the CDC was incredibly inept, but better examples are few and far-between, and the supply-side constraint was felt worldwide. I'd rather live with the inflation than next time be too unprepared or lax about a novel pandemic.
The CDC had guidance to deal with a disease like Covid pre-pandemic, which weighed the economic impacts with the health impacts. That guidance said to lock down no more than two weeks due to economic impacts. They burned that guidance.
I'm sure that guidance wasn't black and white like that - it must have been a warning that more than two weeks would have economic impacts, so take into consideration the balance between health and the economy. FWIW, it looks like the Trump CDC put out guidelines for opening back up that were blocked by the House https://trumpwhitehouse.archives.gov/openingamerica/
Meanwhile, how does China's COVID Zero strategy compare to the CDC in terms of overall impact?
I dunno what plan he read. The pre-Atrocities pandemic plan I read - pulled it off CDC's public website back when the first lockdown was perpetrated - briefly considered lockdown style restrictions, and explicitly recommended against them.
Let's stop pretending there was any "public health" justification whatsoever. The lockdowns were a heinous crime and nothing less.
Can you find that on web archive for me? I'd love to read it.
Worse than a crime, a mistake! :)
You cannot compare the two. China is even more dishonest than the US government. They seem to have lied about their population by about 100M. Economic statistics are even more fraudulent.
Sure you can. It's an economic question, not a moral one. https://www.santander.com/en/press-room/insights/china-zero-covid-policy-could-have-a-greater-economic-impact-than-the-ukraine-war My guess is China outdid the CDC in terms of impact.
Perhaps I misunderstood. You cannot quantify the impacts on China's own economy because none of their own economic statistics are reliable and their economy is highly manipulated.
The affect of their decreased exports on the world can be more easily measured.
I wouldn't trust an article with false information in the summary. If China had "closed its borders" in Jan 2020, there would have been no need to ban flights from China. According to the NY Times there were 1300 direct flights to 17 US cities in 2020 by April 5th.
I put in in another comment, but I'll repeat a more complete criticism onf CDC/FDA here
https://thomaslhutcheson.substack.com/p/covid-policy-errors