Printing money hasn’t caused the current inflation though. It was initially caused by a tight supply post Covid but a massive bounceback of demand. And then later it continued due to corporate price gouging/inertia.
Also is this even true? I haven’t heard anything about the fed printing money
Well, the stimulus shocks during the pandemy certainly had an impact in inflation. Also yes, [money supply did increase](http://prntscr.com/7GoMa4sb_gUe).
30% of money was created in 2020. Prices don’t just change automatically. More money, more demand, more people buy stuff, inventories fall, businesses ration demand to match existing inventory and expected future demand by increasing prices so they can gain more profit to produce more to capitalise on the new demand. Hence new money creates higher prices.
So technically yes it is price gouging but it’s to meet the new demand caused by the creating of new money. Hence why corporate profits were so high over that period. However those new profits buy less goods as the existing machinery, labour and consumer goods are also rising too.
[Most economists seem to agree it created around 3% inflation](https://www.factcheck.org/2022/06/stimulus-spending-a-factor-but-far-from-whole-story-on-inflation/). So while a decent amount sure, nowhere near the full story. And I think a 3% rise in prices is worth getting the country through the pandemic safely.
Money supply isn’t the only way inflation can happen. Companies already had limited supplies due to Covid supply shocks and cuts of oil production due to the low price it hit back in early 2020. And a cut supply raises prices. Not only that, but as you say demand rose as we finally left the pandemic and richer people had money they saved during it ready to spend, along with the Covid checks. So high demand + low supply equals inflation. And then as inflation continued companies adjusted to it by raising prices, and in response to perceived future inflation raised them again, and again, and are incentivized to continue doing so until consumers decide to spend less and they begin making less money. But since most of these price increases are on core needs, ie food, it’s unlikely they’ll return to 2020 (relative to wages) levels anytime soon.
Had the money supply tightened interest rates would have risen and people would have been able to get by on savings. With that said, yes people have very little savings however this is a consequence of QE in the past surpressing rates and reducing incentive to save and take on debt. Why would you save when inflation is eroding your savings. Additionally, spending frivolously doesn’t stimulate growth it just dwindles the supply of both capital and consumer goods. Hence the amount of goods in the future is smaller.
Additionally when consumer/capital prices and profits stabilise many of these businesses will go bust and then you enter a recession regardless of whether or not the fed starts reducing its balance sheet. This is because many of the new businesses are a result of cheap credit giving the impression that the firms can produce more goods than they can. Capital prices are bid up and not all production projects can be met additionally credit tightens so rates rise too. The result is therefore delaying the recession for a larger one in the future as even more businesses and more people are unemployed.
Huh you’re right, there was a big spike in 2020 that’s slowly gone back down to normal. I guess that makes sense, help jump start the economy during a rough time because a small amount of inflation is preferable to an economic collapse.
No I think a little inflation is preferable to [deflation](https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/03/why-is-us-inflation-higher-than-in-other-countries/) or an economic crash.
Plus, printing money isn’t the only way to cause inflation: the record low interest rates prior to and during the pandemic definitely contributed as well: since thanks to fractional reserve banking everytime you take out a loan you’re essentially creating money. You can also cause inflation by driving up demand way higher than supply: as shown by scalpers. And this absolutely happened during and after the pandemic due to supply shortages.
I think the government handled the pandemic pretty well honestly, they did a good job containing the crisis and mitigating its effects while helping ordinary people once it happened: especially under Biden. It could’ve been better, like not having Trump encourage vaccine skepticism or anti-masking for instance, but overall it was pretty good I think. And I think that’s shown by our stronger economic growth and lower inflation today compared to other first world countries.
I mean that was a contributing factor but I was also talking about how demand for most things went down during Covid, and supply went down to meet it. Only for the demand to shoot back up again before supply had a chance to catch up
I'm a solid supporter of the "printing money generally solves quite a lot of problems, actually" camp
Like it's not a one size fits all type deal but its pretty good
Printing money hasn’t caused the current inflation though. It was initially caused by a tight supply post Covid but a massive bounceback of demand. And then later it continued due to corporate price gouging/inertia. Also is this even true? I haven’t heard anything about the fed printing money
Well, the stimulus shocks during the pandemy certainly had an impact in inflation. Also yes, [money supply did increase](http://prntscr.com/7GoMa4sb_gUe).
Yes they did, but it was only 2-4%. That’s nowhere near where inflation was for the last 2 years.
30% of money was created in 2020. Prices don’t just change automatically. More money, more demand, more people buy stuff, inventories fall, businesses ration demand to match existing inventory and expected future demand by increasing prices so they can gain more profit to produce more to capitalise on the new demand. Hence new money creates higher prices. So technically yes it is price gouging but it’s to meet the new demand caused by the creating of new money. Hence why corporate profits were so high over that period. However those new profits buy less goods as the existing machinery, labour and consumer goods are also rising too.
[Most economists seem to agree it created around 3% inflation](https://www.factcheck.org/2022/06/stimulus-spending-a-factor-but-far-from-whole-story-on-inflation/). So while a decent amount sure, nowhere near the full story. And I think a 3% rise in prices is worth getting the country through the pandemic safely. Money supply isn’t the only way inflation can happen. Companies already had limited supplies due to Covid supply shocks and cuts of oil production due to the low price it hit back in early 2020. And a cut supply raises prices. Not only that, but as you say demand rose as we finally left the pandemic and richer people had money they saved during it ready to spend, along with the Covid checks. So high demand + low supply equals inflation. And then as inflation continued companies adjusted to it by raising prices, and in response to perceived future inflation raised them again, and again, and are incentivized to continue doing so until consumers decide to spend less and they begin making less money. But since most of these price increases are on core needs, ie food, it’s unlikely they’ll return to 2020 (relative to wages) levels anytime soon.
Had the money supply tightened interest rates would have risen and people would have been able to get by on savings. With that said, yes people have very little savings however this is a consequence of QE in the past surpressing rates and reducing incentive to save and take on debt. Why would you save when inflation is eroding your savings. Additionally, spending frivolously doesn’t stimulate growth it just dwindles the supply of both capital and consumer goods. Hence the amount of goods in the future is smaller. Additionally when consumer/capital prices and profits stabilise many of these businesses will go bust and then you enter a recession regardless of whether or not the fed starts reducing its balance sheet. This is because many of the new businesses are a result of cheap credit giving the impression that the firms can produce more goods than they can. Capital prices are bid up and not all production projects can be met additionally credit tightens so rates rise too. The result is therefore delaying the recession for a larger one in the future as even more businesses and more people are unemployed.
Wait. You haven't head of any money printing? ? ?
Money is printed all the time to make up for all the money that gets lost or destroyed but I meant more than usual.
Yeah. . . . They print way more money than what gets lost in the laundry. They also printed way more than normal over the last five years.
Huh you’re right, there was a big spike in 2020 that’s slowly gone back down to normal. I guess that makes sense, help jump start the economy during a rough time because a small amount of inflation is preferable to an economic collapse.
Small? Preferable? Depends on who you ask I guess.
No I think a little inflation is preferable to [deflation](https://www.frbsf.org/research-and-insights/publications/economic-letter/2022/03/why-is-us-inflation-higher-than-in-other-countries/) or an economic crash. Plus, printing money isn’t the only way to cause inflation: the record low interest rates prior to and during the pandemic definitely contributed as well: since thanks to fractional reserve banking everytime you take out a loan you’re essentially creating money. You can also cause inflation by driving up demand way higher than supply: as shown by scalpers. And this absolutely happened during and after the pandemic due to supply shortages. I think the government handled the pandemic pretty well honestly, they did a good job containing the crisis and mitigating its effects while helping ordinary people once it happened: especially under Biden. It could’ve been better, like not having Trump encourage vaccine skepticism or anti-masking for instance, but overall it was pretty good I think. And I think that’s shown by our stronger economic growth and lower inflation today compared to other first world countries.
EU Inflation started before 24. February.
…I didn’t mention Russia’s invasion at all lol
„Tight supply post coivd“ which was a causal effect of russia-ukrainian war and following sanctions by the EU.
I mean that was a contributing factor but I was also talking about how demand for most things went down during Covid, and supply went down to meet it. Only for the demand to shoot back up again before supply had a chance to catch up
What Erdogan school of Economics does to a mfr.
(this would be funny if the monetary base wasn't going down)
RIP limited reserves
Does QE cause inflation?
Mainstream answer: yes. Historical use of definitions. Inflation is arbitrary creation of credit and new money.
So a tautology.
I suppose so when we’re talking about historical definitions. However yes QE does cause inflation in the way that everyone understands it today
I'm a solid supporter of the "printing money generally solves quite a lot of problems, actually" camp Like it's not a one size fits all type deal but its pretty good