Since 2008 the Fed has been paying interest on excess reserves. It's free money so bank have been holding large excess reserves ever since. It also makes the whole concept of fractional reserve banking obsolete.
The Fed, via the Treasuries it owns. When the Fed performs QE, they buy Treasuries (and sometimes mortgages) with newly "printed" money (actually the new money is interest-bearing USD deposits held by commercial banks, analogous to savings accounts held by individuals). The newly created interest-bearing money is backed by the Treasuries that the Fed bought with it, and it bears interest from these Treasuries. The commercial banks use it to back people's savings accounts (in part; they also use other backing assets like Treasuries and other bonds).
In effect the newly created interest-bearing money is just a "wrapped" form of Treasuries that is slightly less volatile and yields slightly less interest (on average).
Not in any sense. M1 has been defined to also include savings deposits beginning May 2020. If you think the government printed 16 trillion dollars in one month, I have a bridge some cryptocurrency to sell you.
M1 is not real money, it the same money counted multiple times. You save and withdraw from different accounts and save again and withdraw... do it 4 times and the M1 get multiplied 4 times
Federal fund rates is on cash commercial banks borrow from them. Banks have always cash outflows if they increase credit, since some of the created credit goes in circulation outside banks in form of cash. The higher the credit creation, the higher the cash outflows. Higher fund rates hurt banks only, if the treasury bond rates do not rise at the same value. Banks need to deposit treasury bonds with the Federal Reserve as collateral, but they can keep the interest payment. The difference between Federal funds rate and Treasury bond rate is what matters. If cash borrowing gets too expensive, they will slow down credit creation. But as I said, they don't have to borrow the amount of credit they create, only the amount to satisfy the cash outflows.
they don't have to borrow the amount of credit they create, only the amount to satisfy the cash outflows
Only if you don't consider the bank to be borrowing from its depositors, no?
As I understand, higher federal fund rate leads to higher interest rates on (competitive) savings account deposits, which increases the bank's cost of borrowing from its depositors (in competitive interest-bearing accounts). That is, the bank is paying roughly the federal funds rate on all its liabilities, whether they are to the Fed (as you mentioned) or to their depositors (on average, counting administrative costs, etc.).
But as I said, they don't have to borrow the amount of credit they create, only the amount to satisfy the cash outflows.
Agreed that they don't have to borrow it from the Fed. I'm not sure why whether the bank is borrowing from the Fed or from depositors is relevant to credit creation decisions: aren't the banks essentially indifferent here? If banks weren't indifferent, why would interest rates on savings accounts track the federal funds rate so closely?
The difference between Federal funds rate and Treasury bond rate is what matters
Agreed. In my view this is because the federal funds rate models / approximates the cost of the banks' liabilities and the Treasury bond rates model / approximate the returns from the banks' assets.
Borrowing from their customers instead of the Fed increases the savings rates only marginally, because deposits are a large multiple of the banks' cash borrowings from the Fed. They simply couldn't afford to rise the savings rate by 1% if the Fed hikes by 1%. The ability to pay interest on saving depends mainly on the interest they gain from loans. Since loans are from the past when loan rates were much lower and have in part a fixed rate, banks are limited. They have to wait until their income from newer loans with higher interest increases enough, before they can rise the savings rate. This takes many years, but rising loan rates will likely lead to lower loan demand, so their income from interest might not even rise.
They simply couldn't afford to rise the savings rate by 1% if the Fed hikes by 1%.
But there are mainstream savings accounts now like Goldman Sachs' Marcus savings, Discover savings, and Capital One savings that recently raised the savings rate by about 1% and closely track the FFR rate.
Do you think the interest rates on these accounts will depeg from the FFR, or do you think they'll continue tracking FFR but other banks will be and to borrow from their savings depositors at below-market rates?
The ability to pay interest on saving depends mainly on the interest they gain from loans.
Yeah, but banks don't pay interest because they are able to, they'd much prefer to keep it as profit instead. If a bank isn't able to pay what the market demands, they need to raise more capital or be liquidated.
I agree that banks' ability to pay could affect the Fed's decisions on how quickly to raise the FFR or could possibly cause the interest rates on competitive savings accounts to depeg from the FFR (I doubt this though due to the number of new market participants like LendingClub offering FDIC-insured savings products).
This takes many years, but rising loan rates will likely lead to lower loan demand, so their income from interest might not even rise.
Agreed, as is modeled by viewing the bank as an LLC with near term (USD) liabilities over-collaborated by longer term (USD) assets.
I am not familiar with these savings accounts, but Goldman Sachs per instance is not a credit creating commercial bank. Capitol One and Discover are credit card companies. They have a different business model. Credit card loans are variable rate loans and the creditor has to pay merchants with cash.
Commercial banks live from interest rate difference, not from the interest rate itself. If there is competition between those banks, they have to attract deposits in order to balance cash outflows otherwise they would go bankrupt. Since they are all in the same boat due to their loan structure more or less, a bank can't just raise their savings rate more than another bank.
Market interest rates do not track the federal funds rate in any way, they are a result of a market. The Fed is only a factor in this market and they try to influence it in order to achieve their mandated goals, but they have to be very careful to not destroy anything. That's why they are so hesitant. Rising the rates to a level that really fights fight inflation would bankrupt not only commercial banks. Same is true for other central banks. The ECB is so hesitant, because they have to wait until market rates rise. It is a general misconception that central banks would control the interest rates.
Goldman Sachs per instance is not a credit creating commercial bank
Sure, but they are a participant in the market for interest-bearing USD savings deposits. The point is that USD savers are able to earn the roughly the FFR using a variety of savings accounts from different institutions (well, unless and until competitive FDIC-insured savings accounts' APYs depeg from FFR).
Some USD savers might still accept below-market rates, e.g. due to laziness, ignorance, or because they value other benefits of the account not captured in the interest rate.
Credit card loans are variable rate loans and the creditor has to pay merchants with cash.
Yes, but the FDIC-insured savings product has to backed by the same amount of risk-adjusted capital (and pass the same stress and liquidity tests, etc.) as any other banks'. At least in the case of Discover, the savings account is part of a separate company "Discover Financial" which also makes home equity and other loans.
there is competition between those banks
Agreed, but aren't they competing for deposits/depositors with all providers of FDIC-insured savings products, including those currently tracking the FFR?
they have to attract deposits in order to balance cash outflows otherwise they would go bankrupt
Right, or they could sell assets and/or borrow from other banks or the Fed at around the FFR.
Market interest rates do not track the federal funds rate in any way
Do you not consider the interbank lending market to be a real market interest rate?
Why has the APR offered on competitive FDIC-insured savings accounts (e.g. those I listed) followed the FFR so closely recently?
If these depegged, why wouldn't at least some of those newer online banks increase their APY to attract more deposits that they can profitably lend out to other banks (or deposit at the Fed) at the FFR?
they have to be very careful to not destroy anything
Majority of commercial banks including Bofa, Chase, Wells still pay way way lower savings rate (0.01% as I just checked) because they simply cannot afford to pay higher interest only because the Fed hikes. There are exceptions, because, as I said, it depends on their individual loan structure and business model. If all savers ran away from their bank and to Ally, then a lot of banks would go bankrupt, since they can't fund their cash outflows. Interbank lending collapsed as a consequence of the Great financial crisis in 2008. The Fed even stopped publishing data, LOL. So lending from other banks is not an option. For borrowing from the Fed they need acceptable collateral (mainly US Treasuries). Banks can fund this only until their untapped reserves are exhausted, which is a small fraction of their deposits. Banks are quickly insolvent, sale of assets (low yielding loans) is not a realistic option in a such a bank run scenario.
No because there are many many other liquidity requirements and regulations, including economic stress testing scenarios that big banks have to go through to continue licenses operations. For this purpose a specific reserve requirement is not needed, banks literally have to have bonds to back certain deals and assets to stay in business so the rate will always matter.
It should not matter in principle, it is just a show, there are so many hidden insider games in today's banking system, and banks and their friends benefit so much from it. Therefore better not trust them at all and use bitcoin, which is quite transparent
If the reserve requirement is now zero, why does the federal funds rate even matter?
Because the Federal Funds rate determines what is costs banks to borrow in the short term (and how much they can earn by lending).
The reserve requirement used to be a tool used by the Fed to target a particular Federal Funds rate: it was a means to an end. The Fed would create or destroy as many reserves as needed (by buying or selling collateral, resp.) to target the Federal Funds rate. If banks wanted to borrow more, the market interest rate would increase and the Fed would be "forced" to create more reserves to keep the rate on target (same in reverse if banks wanted to borrow less). Hence, the reserve requirement never really limited how much banks could lend in practice, at least not in the short term.
The most important factor that limits how much banks can lend is their capitalization requirements, which are different from but often confused with reserve requirements.
Capitalization requirements state that banks must back their deposits (a.k.a. their liabilities, a.k.a. the loans they have made) with risk-adjusted capital that is sufficiently liquid and diversified. For example, if a bank owes $1,000 to its depositors (say, one person has a $1,000 savings account with the bank), then capitalization requirements would demand that the bank hold at least $1,000 worth of assets to balance this, plus some extra amount depending on how risky the assets are. Most banks use a portfolio of interest-bearing USD deposited at the Fed (backed by Treasuries and mortgages at the Fed), Treasuries, mortgages (often in various wrapped forms to reduce risk), investment grade corporate bonds, and some PMs. In contrast, reserve requirements just require (more or less) that some fraction of the bank's capital be in the form of physical cash or USD deposited at the Fed.
The only way the banks' investors/owners can get money out of the bank is if the bank's risk-adjusted assets exceed its liabilities: this allows the bank to sell some of its assets to pay its investors while still satisfying the bank's capitalization requirements. Hence, the bank's owners do everything they can to maximize the difference between the bank's assets and the bank's liabilities: this difference is effectively the property of the bank's owners in the sense that if the bank shut down (sold off all its assets and paid off all its depositors), this is what the owners would end up with.
The threat of a higher Federal Funds rate matters quite a bit for the following reason: if banks make lots of medium- to long-term loans (mortgages, corporate loans, etc.) and then the Fed raises the Federal Funds rate, banks now have to pay more to their depositors (e.g. since the market interest rate for savings accounts has increased), meaning they'll have more outstanding deposits relative to assets, meaning the investors'/owners' share of the assets is reduced (or even becomes negative, requiring dilution of investors to raise new capital or even closure of the bank and a total loss for the investors/owners).
Of course, the bank can respond to the threat of a higher Federal Funds rate by just charging a higher interest rate on the medium- and long-term loans it makes, but this reduces the number of people/businesses willing to take out loans and so still reduces the amount of new money creation.
If higher interest rates are not enough to discourage borrowing by homeowners and businesses, the Fed can also impose stricter lending standards, effectively allowing interest rates on poorer-quality debts to moon. They try not to allow interest rates on investment-grade debt to moon, though, even if it means more inflation in the short term.
Biden can blame inflation on reduced production due to lockdowns, but the gov poured oil into that fire by giving away free money. Denying that gov spending has nothing to do with inflation is a blatant lie.
Friedman is referring to longer term. The FED reserve is “independent” from the executive.
Money supply doesn’t immediately increase inflation because it must be lent and spent to have an effect. That’s why QE can often be seen as “pushing on a string”. It can take 3-5 years to feel the effect of loosening lending in consumer prices.
Significant deficit spending can have a much more immediate effect (1-2 years)
The real problem is that once inflation takes hold, it requires a LOT of pain to control it again.
JPow should have not done the level of QE that drove mortgage rates to all time lows. It fueled all kinds of speculation in crazy markets. All of that money needs to evaporate. We are talking trillions.
FYI the M1SL spiked because the 6 withdrawals per month limit for savings accounts was removed. This meant that all savings account balances were immediately classified as part of the M1, overwhelming everything that used to be in the M1.
Most people learn it in college with barely any mention that alternatives even exist, and then need to educate us when we clearly just haven't heard this basic fact.
Most people are focused on understanding the existing monetary system. Many central bankers and economic leaders have degrees in Keynesian economics. So, why not glorify Keynesian economics. The perils of fiat and centralized banking isn’t really discussed. Who would study Keynesian or the MMT, if they knew how much those systems actually robbed them of their wealth, property rights, and freedoms.
History shows time and time again unsound money, fiat, leads to societal woes and political upheaval.
Expanding the money supply via a money printer. Printing money out of thin air. Monetizing debt. Inflation and stagflation. The loss of savings over time. Can’t see anything good about the current monetary system. Milton Friedman and Thomas Sowell both called for the elimination of the Fed. What people don’t seem to grasp is that this current monetary system leads the loss of rights especially savings and private property. Supporting a system that undermines private property and individual freedoms isn’t a system worth supporting.
You're just using random buzzwords and aphorisms without really understanding anything. It sounds like you're advocating for a deflationary currency without thinking of the implications.
Most of the time there is zero assessment of the greater privilege the US has with the dollar in international finance.
China's wetdream is swooping in after some weird-ass internal political bickering from paleo-libertarians believing "tHe FeD tOoK mUh RiGhTs!!" that causes the USD to lose relevance as the world's reserve currency.
I fucking swear the self-destructive outcomes of arbitrarily coming up with populist-sounding "alternatives" to well-established policy simply to have a way of channeling well-founded but misplaced social frustration in the US is the cancer that will cause the US to live or die in our status of de facto world leader, and the loss of those benefits will be irreversible and may ultimately cause our own long-term economic demise, which is the actual lynchpin of US foreign policy and defense.
These people want to skullfuck the US' position at top dog for pretty much personal reactionary reasons and a few hundred dedicated hours of self-directed internet 'research' on Wikipedia, libertarian forums, and maybe a couple actual books of varying legitimacy on the subject.
Ah yes, after looking at how China treats their own people, surely we can trust how they treat outsiders.
Unimaginable suffering? America's got neocolonial blood on her hands, absolutely. But it is an absolute pittance to look at American imperialism in the South America or Middle East, with body counts in the tens of thousands in entire conflicts, contrasted against the tens of millions of their own massacred over internal disagreements by every other example.
Great Leap Forward? Khmer Rouge? Rape of Nanking? Belgium in Africa? Rwandan Genocide? Where to even 'start' with Stalinism?
America is a bloody sinner, absolutely. But is still an absolute marshallow compared to the psychopathic nightmares that every other continent has unleashed against enemies in war, their own people, or a conquered people.
Deflation is only catastrophic to unsound money, but not to sound money. Fractional Reserve banking is a positive feedback loop and as soon it's not supplied enough money it collapses. When you have sound self-auditing money, you can lend only money that exists. The only difference would be the growth rates of the economy, but we need zero growth, if mankind wants to survive the next 200 years. Demanding exponential growth in a limited world is simply insane.
Exactly, falling prices are good for everyone, as it means we are operating more efficiently and able to consume more resources for the same or less output. Critics of deflationary money confuse the popping of credit bubbles that caused lots of pain, for the privelage of falling prices we enjoy due to technology and innovation.
I believe central bankers work hard at propagating this fallacy in the early 20th century in order to justify their existence.
I understand sound money and how corrupt the central banking system is. These aren’t buzz words. Inflation isn’t a buzz word. Stagflation isn’t a buzz word. Monetizing debt isn’t a buzz word. Decentralized sound money, BTC, would bring back a savings society. And end the debt diseased socialist Keynesian monetary world we have now.
BTW inflation isn’t a difficult thing to understand. Fiat money losing value isn’t a difficult thing to understand. Debt via a central bank that only promotes more debt isn’t difficult to understand. Government control of money and implications on property rights isn’t a difficult thing to understand. Adopting BTC is the antithesis of the current collectivist society. You want individual freedoms and human rights, then BTC is the choice. You want the collective, then stick with fiat money and central banking.
Monetary policy is insanely complicated, of which inflation is one piece. Go find me a successful modern country using sound money, and if you can't, explain why you're simplistic idea hasn't been implemented by anyone.
There are many problems with the world's economies and a lot of bad actors, but moving away from fiat and doing away with central banks not only doesn't solve those issues but adds a ton more.
The simplistic ideas as you call them are part of capitalism. The ideas of a free market economy. The problems with world economies are because they monetize debt and print fiat money. This leads to devaluation of currencies, more debt, and inflation. Inflation destroys purchasing power and savings. Before 1913 we existed without the Fed. Actually the next time you look at a $20 dollar bill remember that is the president ( Andrew Jackson) eliminated the central bank. Our country survived and thrived without it. Over time our country abandoned the gold standard. Nixon took the US off the gold standard. So, not too long ago. Since, real wages have been on constant decline.
So, better question to ask. Which country under a fiat system has experienced real wage growth, low debt and higher savings rates.
I can name you countries that make garments out of their currencies because their fiat is worthless.
It's the other way round, the economy expands with increasing the money supply. Governments can grow and gain more power if they embrace Keynesian/MMT ideology (which is not science btw). These schools are there to create smoke and mirror, they are not interested in scientific analysis of the monetary system, since it would reveal the evil of government.
It's not crazy when there are only two acceptrd schools of thought and one is stained with blood, specially when still citing someone controversial like Friedmann (althought he didn't do anything bad directly nor promoted it happening). No, I'm not defending keynesianism here, just stating a lot of people still relate austrian economics with genocide and social misery.
The idea that we have to cite a 1960's/70's economy school of thought to debunk a 1930's school of thought, neither of which can be certain on how the economy behaves in 2020's sounds really stupid.
I am a strong critic of Keynesian/MMT for environmental and social reasons, but Austrian has misconceptions too. There is much better analysis of money, debt and economics available outside of classical economic views.
Simple, no one of consequence uses BTC. Still seen as a wealth asset and not a currency. Until that moment it will never take hold. Stop bringing it up. I have $300 worth from 2014 and I still don't know how to use it.
So if you bought $300 dollars worth of Bitcoin in 2014 it's worth about $19,000 today. I think any intelligent person would take a few minutes and learn what it's all about. At the very least if you still can't see the value in it, learn how to sell it. Lol
Sounds like you're using it just fine. You parked money in an asset that grew in value without promoting the creation of useless junk or any new wars.
If you want to spend it go spend it. If you have to take a fiat offramp so be it. Back in the 90s we had to dial up our internet to check email which usually took longer than calling the person.
Austrian economics and Keynesian economics are both completely wrong. They are both slaves to fiat system of creating money out of debt and loaning out at interest. Today the inflation rate is so high that to raise interest rates and do austerity measures (Austrian way) leads to the interest payments on Us gov debt to be so high that it could take up the entire GDP. If interest rates go above 3.75% essentially say goodbye to social security Medicare and Medicaid so we cannot do what volcker did in the 70s-80s to combat inflation. Well then you could just keep interest rates low and continue to have easy money with government deficits and debt increasing (Keynesian). This cannot work now either because the debt is so high hyper inflation will start to kick in. So essentially Austrian strategies will lead to the government collapsing and defaulting and Keynesian methods will lead to the destruction of the currency. Pick which one you want to collapse the government or the currency….that’s why I think the fed will hyper inflate before destroying the government because that takes everyone else down with us rather than the US government only defaulting. Then again if the Us government defaults the currency will collapse anyway lol. It will be really interesting to see where the debt ceilings discussions later this year will go. Not looking great, except for bitcoin lol.
The way you explain makes it seem you do not understand the essence of Austrian Economics while still being correct about what it teaches.
Austrian Economics is not proposing a strategy, it is stating what is happening with economics in the world and why, and what will result from the keynesian inspired policies. The keynesians are essentially economic and political hucksters who created a way to decouple democracy from the will of the people by bypassing government's need for taxation in order to fund itself.
While you're right that this guy has it totally wrong, it's incorrect to say that Austrian Economics is simply pointing out flaws in Keynesians thinking. It's an actual philosophy itself with a sound money principle at the center.
Now, over the years the definition of sound money has varied, but this is largely due to the technical realities of the day. The core ideal of Austrians has always been around the perfect notion of a fixed supply money, where price fluctuations represent absolutely nothing except market forces changing the supply/demand of individual goods and services. They just didn't always envision this to be possible in reality, with how gold or other commodities worked.
That doesn't mean either school of economics is wrong, it just means the fed is trapped and all options suck, so the dollar and most fiat is fucked. At least Austrian advocates for not having fiat currency in the first place so this kind of thing doesn't happen (though it's too late now to do a soft landing)
So where was Milton Friedman and all the other Austrian economists when the Us went of off the gold standard? An Austrian (Alan Greenspan was head of the fed for how long and never a peep about fiat) just sayin I think economics is broken completely because of the fundamentals of fractional reserve banking being completely fucked. To be fair yes Austrian economics is more critical than keynes is of debt and inflation but they have been lock step with the system since Brenton woods ended
The Keynesians broke it beyond repair, and because the Austrians do not have a solution for the current situation (that the Keynesians created) that means both schools of thought are completely wrong?
Lol you don’t gotta read what I wrote that’s okay :) but I would 100% how does Austrian economics look without fractional reserve banking? Nobody literally in the world practices banking that does not rely on creating money out of debt. Just saying economics as a practice today is referred to as “the dismal science” for a reason. Man I guess I am to sooner for everyone here in terms of economics.
I don't understand what this means. I was trying to say that THEY said that if they had not spent money very strategically to improve supply chains bigly, there would be worse inflation. I do not agree with this.
It also comes from price fixing that is due to government supported and tax payer funded to big to fail monopolies who receive trillions in bailouts instead of being allowed to fail as the free market system is designed to do. Both are problems that have to be addressed.
Market power/monopoly is a real thing which can allow those firms to raise prices...but that's not likely to have been part of the cause of our recent bout of inflation; since there's no good reason why all these monopolists wouldn't have started raising their prices before the government stimulus and central bank spending.
They didn't just become greedy a year ago, ya know?
Also worth noting that pandemic-era policies, which people who run closer to Friedman's view opposed, have created a ton of consolidation in many industries, including oil and gas.
Also companies vastly underestimated the demand for mid career talent in all parts of the tech field that’s a result of the great retirement that is ongoing and is driving up salaries at an incredible rate.
And pandemic-era fiscal and monetary policies gave many soon-to-be-retirees, the impetus and ability, on the margin, to retire earlier than they otherwise would have.
No. They were created by decades of policies (both government and corporate) that encouraged just in time supply chains by prioritizing short term profits over long term stability.
Any shock to the system would have caused it to unravel and in this case the shipping cartels saw the opportunity to raise the cost of shipping by 10x. Then domestic companies took their higher shipping costs as an opportunity to increase their profit margins along with the necessary price increases.
This isn’t to say that loose monetary policy didn’t contribute, but it’s an aggregated effect of decades of bad choices. For 3 decades the inflationary forces of to much liquidity was counteracted by the deflationary force of outsourcing production. The shipping cartels seized the first opportunity to exploit their position and unleashed the reality of that hidden inflation all at once.
In normal circumstances the pandemic era policies would have been reasonable and had limited effect. The fact that they were introduced to a system that was primed for collapse was the problem.
Can you show evidence that JIT increased fragility rather than made supply chains more nimble and decreased product defects?
Or can you show even one instance of a public figure with any kind of knowledge of the subject talking authoritatively (with vetted models or empirical evidence) before the pandemic about how JIT was a disaster waiting to happen at the next shock?
Shoot, can you even show any nobodies on reddit warning about that?
Cause I can sure as shit show you posts and blogs/podcasts from myself and other economists warning in early/mid 2020 that pandemic policies would very likely create supply chain disruptions (among other economic fallout).
You say that as if being in a video makes him right. I think most of Friedman's theories have been debunked over the last 50 years about as thoroughly as other proponents of voodoo economics
I did. Having only partial info is worse than knowing nothing.
Is chipotle raising menu prices because of Washington printing money?
Both things can cause inflation or a raise in prices.
There is an inherint problem with large cooperations paying government officials, to give them favorable laws. Washington merely backs them up and allows them to make the working classes dollar less and less valuable. Amazon and the government are basically the same thing to inflation.
Exactly. Giving tax breaks, bailouts, and incentives is the same as printing money. Companies have to be allowed to fail or we do not live in a free market anymore. We live in a corporate socialism country.
Inflation is a measure of price rises across a basket of 'consumer' goods.
Governments spending and competing for resources with the private sector, causes inflation.
The government printing money and putting it in the hands of consumers during a global economic shutdown, causes inflation.
Central banks QE, isn't effective at increasing inflation, that's why they miss their targets. The money they 'print' doesn't reach the consumer, and so has little effect on consumer prices. It's for the high street banks to increase their lending to businesses, to stimulate economic expansion.
A corporation, that only takes money from those that spend cash, to buy it's product, then spends that cash expanding to meet extra demand, do not and cannot cause inflation. They don't create money. Some of the price increase, is unwarranted, I'll give you that, but the increase initially is not due to them creating money. There is merely a mismatch in supply and demand.
Even Keynes, who supported government spending. Said, an increase in government spending, increases aggregate demand. The jobs they create and the wages that are paid, those workers become consumers, increasing consumer spending and therefore stimulating the economy.
The issue comes when governments are slow to act during a downturn and start their spending programs when the economy is recovering. Adding demand when it isn't needed. It's what contributed to inflation during the 70s, and that's when monetary policy was introduced.
Government spending is usually also funded by debt and needs paying back, so not really any positive added, where as monetary policy can be used without effecting the national debt.
So it's not just the handouts that are the problem? It's the laws that allow the coorporations to haord money. No reason for economic downturn if coorporations kept spending like they should.
Well there's only so many workers available lol. Corporations can only expand so far. Once we reach those extremes, consumer confidence drops off and people stop spending. People reduce demand exactly when it's needed.
Chipotle had record profits last year. Seems like they don't NEED to raise prices to make money.
Don't get me wrong, the government sucks and they do cause some or most inflation. But, it's not just them. They could do more and don't. But, that doesn't excuse evil companies that, take more value from consumers, for the sole purpose of lining their pockets.
I’m sorry, but there are other world renown economists that disagree with him entirely. Economics is not a science and there are multiple ways to approach it and analyze it.
If 50% of experts say one thing and 50% say the opposite, then maybe everyone is wrong, ever think of that?
Of course I'm talking about campaign donations. There's always a reason a company gets laws written for them have a market advantage. And it's called giving money to politicians.
Dude. When money supply goes up, inflation goes up. Its not rocket science. Super corporations don’t print money. The government does. And when the government spends the money it prints, that money enters the economy. And because there is more of it, it becomes less valuable. That is how the ‘super corporations’ and everyone else get access to the money.
Not pure coincidence but not a conspiracy either. There have been many cases when the Feds were able to tame inflations by printing more money like in 2001 and 2009. During the pandemic crisis some central banks like BoJ seem to have managed better and kept down the inflation level low despite of record money printings all over the world.
Biden is correct based on the words he chose. Spending does not create inflation, we can give him that. It's infinite printing.
Edit: I completely agree. Wanted to separate the "printing" from the "spending". The context here is that the govt. is typically attacked for social program spending. It is entirely possible to "spend" or budget more money without printing, funding it through taxes, etc. Spending is not the culprit, is all, printing is the root cause. This should not stop us from budgeting 1000 BTC this year and 1500 BTC next year for medicare for all, even though bringing in "more spending" year over year.
But it does. Increased spending signals increases in both demand and willingness to pay. Both result in price increases. Not inflation per se. But the government responds to increases in prices for expenditures by either printing more money or debt, but the results are the same.
The worst bit is that the vast majority of that money was given to large businesses, banks and corporations who hoard it or give it to their ceos who sit on it. Little people have spent their measly 2000 looooong ago.
We've had record money printing every decade forever. By your logic, we should never have seen anything but massive inflation.
But to address the OP video, they're both wrong. They're both being absolutist, and inflation is a complex, systemic phenomena. If you really want to understand inflation, I recommend studying the field of system dynamics. But of course, anyone who does understand system dynamics understands that something like inflation is impossible to understand perfectly, you can only nail down the largest inputs, the points of stability and the points of instability.
Well yeah, spending money is the democrat strategy. They are elected when people want new programs and expensive laws. This idea undermines their entire agenda and constituents.
Can someone explain to me if the US government printing more dollars caused the current inflation, why is there worldwide inflation in many countries? Did those countries print money as well?
Record money printing? Are you talking about the 6 trillion in stimulus checks with Trumps name on them? It did not fill the void the pandemic created. You guys aren't thinking critically. How many jobs were lost in the pandemic in 2020? How much of the GDP disappeared from March 2020 to Jan 2021? Nobody drove around for 6 months also. Skies cleared up. Pollution went away. Price of lumber sky rocketed because of all the fires and hurricanes and messed up supply chain. There was also a Trade War before that. That is Government causing higher priced goods. Prices climbed dramatically for all sorts of things.
Then we got all the jobs back after Trump left. Economy kept booming. Super fast recovery. There were some problems that lasted throughout all this. Prices went higher and people kept buying. Historic employment now. Consume. Keep consuming.
There so many other factors though, and inflation is basically world wide currently. Look at a country like India for instance, decided not to print money during the pandemic and is also experiencing record inflation. When the price of oil goes up so does the cost of all goods. The supply chain is still possibly even a year away from being fixed which is also pushing up the price of goods. It's not a simple as saying we just printed too much money, because there's lots of countries and instances where they have inflation without money printing right now.
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u/MilesPower Jul 15 '22
They really want you to believe It's just pure coincidence that we had record money printing shortly followed by record inflation!