No, it is not. Inflation causes purchasing power to drop. An increased money supply is necessary, but not sufficient. You also need velocity:

The equation for inflation is: M x V = P x Q

Everyone talks about "printing money" (money supply: M) with the Fed, but no one seems to pay attention to velocity (V). Which has dropped off a cliff:

* https://fred.stlouisfed.org/series/M2V

What makes V increase? A new big investment opportunity? A savings tax? What starts money circulating?

Economic activity:

> The velocity of money (or the velocity of circulation of money) is a measure of the number of times that the average unit of currency is used to purchase goods and services within a given time period.[3]

* https://en.wikipedia.org/wiki/Velocity_of_money

Good video by a CFA trainer:

* https://www.youtube.com/watch?v=l0mh7cCjwDU

The first 10 minutes (maybe 20) probably has the most pertinent information to this discussion, but I've found the entire video to be interesting on inflation.

But what if you had an artificial cessation of economic activity which then suddenly resumed in the midst of a massive fiscal stimulus, unprecedented supply chain disruption and geopolitical manipulation of free trade?

We're about to find out.

The traditional thing to do is raise interest rates when things start getting hot.

But having "too much" economic activity is in some ways better than not enough with people being unemployed and such.

The big problem with too much economic activity is that there is too much economic activity in the wrong places. After WW1 that meant lots of basic needs could not be met because the economic focus was on war reparations. I don't think we are going to lack those basic needs this time around.

What's the logic behind economic activity leading to inflation? That seems very counterintuitive. From that equation, if you were to look at the extreme and print a ton of money and have zero usage there would no inflation. I would think the opposite would be true.

Inflation happens when demand outstrips supply. This not only applies to consumer goods but also to labor.

If there are more jobs than workers those workers will pick the highest paying jobs. That's inflation.

Here, I'll give you a simplified example. There is this game called prosperous universe. You can buy FE (Iron) to make BBH (construction material). People need BBH to build factories or farms or whatever. When everyone is producing BBH the demand for FE goes up. There is only a limited amount of FE on the market. You are buying the cheapest FE first. Eventually all the cheap FE is gone and only the expensive FE remains. The price of FE has risen. That's inflation. How do other players respond? They start investing into production of FE because there is a very clear profit motive.

Every factory you build in the game needs workers. By building factories you directly decrease unemployment.

I can also give you the opposite example. There is a high end facility that creates ES (Einsteinium) but there is very little demand for it. You run the factory for a month and start stockpiling a months worth of production. Then you demolish the factory because you don't need it anymore. Those workers are now unemployed.

You have to consider that unemployment has a greater impact on your finances than the inability to make money off of a checking/savings account. Actually, the interest rates are generally high enough that your returns cover inflation so in practice you are not losing anything.

One person's spending is another person's income. The more economic activity there is, the more people feel confident about their future, the more they spend.

They may at some point become "too confident" and start feeling that the 'party' may never end. So they go out and spend more and more: on new clothes, on renovations, or second (or third) houses, on new cars, boats, etc.

However, there's only so much capacity for (say) manufacturing: only so many cars can be built, and if you really want one, then you'll be will to pay $40K to get the new shiny instead of trying to haggle down to $37K. There's only so many housing builders and lumber that is available: and if you want more square footage, they'll be setting the price that you have to pay.

I'm not sure how old you are, but in the 2006-2007 timeframe there was a lot of "irrational exuberance" before people over-extended themselves.

The movie The Big Short is an entertaining and fairly accurate take.

> if you were to look at the extreme and print a ton of money and have zero usage there would no inflation

That sounds correct, under the assumptions of classical economics.

Inflation is the cost of things going up. Classically, price is considered an equilibrium of supply and demand. If I print money, but don't use it to demand goods, why would the price of goods change?

Reality is more complex than classical economics (and I should note, I'm not an economist). Expectations of inflation (due to say, seeing a giant pile of cash coming off the printing press) can trigger prices to rise.

But hopefully that helps to explain why it's generally accepted that velocity plays an important role in inflation, not simply supply of money.

Only if the purchasing power of a dollar goes down. I know MMT is controversial, but I think of it more as a focus on empiricism.

Sure, rationality suggests that printing dollars will reduce the value of dollars. But kickstarting inflation is in some ways the entire point, no? And it has remained consistently below FR targets for the past decade (I believe, I'm not an economist and I'm not looking at any charts)

If I run a bakery and you run, say, the Mint...

Ten years ago, I bake a loaf of bread, and sell it for a dollar. Then I invent an amazing machine that can produce the same bread more cheaply. I'm about to drop my bread prices, but you mint some new coins and add them into circulation. So I keep the price at a dollar per loaf.

I scrutinize my bread supply chain to the last detail. I optimize the flour, I optimize the temperature. I fire all the workers and replace them with machines. I'm saving every penny I can. Loaves get made faster! Loaves get made cheaper! Bread is flying off the conveyor belt!

You pull a lever and crank up the printing press. Dollars are being added in the millions, in the billions!

The price of bread stays at a dollar; has the currency been debased? I honestly don't know.

(Addendum: If your salary was a dollar ten years ago, and a dollar today, you can afford just as much bread as you used to, but your chance of buying a majority share in my bakery, or outbidding me on a house in a good school district, has gone way down.)

> The price of bread stays at a dollar; has the currency been debased? I honestly don't know.

i say no it hasn't. Imagine a third person, who mows lawn for $1 an hour. He has not improved his lawn mowing during this time period which the baker has made improvements to bread making. So the work of mowing the lawn for $1 should stay the same regardless of what the bakers did - and therefore, the lawn mower being able to buy bread for $1 is not unreasonable.

You are building pressure into the system. It's like letting a dam fill up. That water is not circulating (please bear with tiny mistakes in my analogies). It's staying somewhere and it is ready to be deployed at any given time. If there is a natural disaster or any other kind of pressure to empty the dam then there is a very real risk of a flood.

The currency has not been debased. However, the potential for it to debase in the future has grown massively.

One day politicians are going to discover sensible policy (maybe Biden will do it, I don't know) and somehow magically increase inflation. That same day will open all floodgates on all dams.

The correct strategy would be to increase taxes and interest rates and cut stimulus spending once that has happened and we'll be fine. Crying hyperinflation is not the right strategy.

Have you had to pay for medical care, child care, housing, care for elderly or disabled loved ones and/or education?? How on earth can you say that inflation has remained low??? All of those have become insanely expensive and people die all the time because they can't afford them!

Just because cheap, crappy electronics and egg McMuffins don't appreciate in cost and stay crappy and cheap does NOT mean inflation is low. Anyone can play stupid games where you say inflation is low if you only pick certain goods made by robots or poor people overseas.

But none of those things have risen at the same rate, or even comparable rates. The increase in childcare has kept up with the average wage increase, but education is hundreds of times more! I don't even know how you'd price medical care, as everyone is effectively charged differently, even for the same service. Housing doesn't track either of those -- purchasing follows literally nothing, renting follows local wage. So what's going on here?

(As a note, local wages have risen less than the government's calculation of inflation, which is primarily food and secondarily consumer goods)

> […] but education is hundreds of times more!

You're not wrong, but I ran into an interesting observation: yes the prices for many high-end institutions have gone up, but those are 'list' prices.

How many people pay list? How many people get bursaries and offsets from endowments?

I'd be interested in seeing those stats.

From what I can tell MMT is about carefully choosing the right place and strategy to print money.

By recognizing what the real limits to borrowing are you also gain an understanding of what to spend the borrowed money on.

This is incorrect. The value of money will change, and the amount of money will change, but they are not perfect mirrors of each other.