For example, I used to assume that monetary inflation was instant and automatic. Double the money supply overnight, and everyone will double their prices and incomes overnight too, as though all that happened was a substitution of variables.

Later I understood that it's not that simple. First, the new money doesn't get distribution in proportion to how much people own, so savings get halved. Second, contracts denoted in dollars don't get adjusted, so debts and purchase orders get cheaper, accounts receivable become worth less, and so on.

And lastly, prices aren't updated automatically by some perfectly objective value calculation. They're held in place by a combination of supply and demand, competitive forces, price elasticity, psychology, and collective expectations.

So the inflation can apply instantly in some markets but it can also take years for those changes to propagate into various other markets.

And even once the money supply stops increasing, inflation can keep going all on its own accord, once expectations become fixed. This happened in Japan in the '60s and '70s where unions demanded 5% annual wage increases to keep up with the inflation caused by every industry getting 5% annual price increases caused by union wage increases...

Right now it seems like the new money is going straight into asset prices, and that will probably remain the case until either asset holders start selling their assets to consume an absurd amount of food and gasoline, or the high price of assets starts to weigh heavily on the cost of production.

The funny thing about inflation is that if it is high enough to "sting" (2-5%) then people notice the missing wealth in the real world and create it to the best of their ability.

The fact that the money isn't moving, that it isn't entering the real economy is one of the greatest mistakes made by the central bank which is prevented from doing so and the government which refuses to do it for petty ideological reasons.

As a gov contractor, I'm seeing this first-hand. Inflation has been tame my whole career in this industry - 2% or 3% / year; therefore, contracts of fixed length have built-in rate increases of similar percentages, and raises trickle down from there.

Most companies will give you raises a bit less than what they're getting each year in increased rates themselves - it's how they increase their own growth and executive bonuses. This can go on for a long time - 5-10 years before the employee will really notice they're falling behind peers who've just been hired or general market rates if they were to jump shit.

But when real inflation is running 7%-10%, the wage disparities between new hires & contracts and existing employees & contracts become evident quickly. For example, I'm discovering that new engineers with far less experience and talent are being hired on for $20K - $40K more than I make, all else equal.

Which forces me to start looking for new employment or ask management for a raise, neither of which is desirable.

/s?

Since the people who can take out new debt are wealthy, the things that the wealthy buy go up. They don't need more apples, so the demand for apples stays the same, and the prices of apples stays the same. Instead they take that debt and pour it into the market(mostly buybacks) and other savings. So we don't end up seeing consumer prices change much.

Each person is attempting to maximize their long-term utility, and so long as inflation stays in check their best option is to keep it in the market growing ever more. Money is useless if you can't eventually spend it for utility. Each billionaire/company is planning what to do with their wealth. Some will create rockets, others will fund disease research hoping to get their name into the history books. It's always and will always be about the utility.

Like the Martingale Betting System has shown, you can not remove the risk by shifting the betting sizes around. As the money supply increase more "energy" is added to the system. It becomes harder and harder to control it. As it increases, the power of each individual to effect the entire system increases. In the 1970's the richest person had $6B, now the richest person has $177B, an increase of 30 times. By 2170 the richest person could have 30x that.

If there is a reason to believe that selling their stocks will yield greater utility, then the wealthy would figure it out, and the first person who acts would win(like what happened with the banks handling Archegos), second would do worse, most would get wiped out, including all the non-wealthy. It would be like a dam collapsing all at once. Sometimes all it takes for the dam to burst is a small trickle. But all that energy was always being stored in the reservoir.

But you better believe that the Fed understands this, and is doing everything in their power to keep the system under control. The problem is though, they need for investments to be the biggest long-term utility creator, but that only increases the energy. The more they keep it going, the more unstable it becomes.

And borrowing money to spend on consumables like apples is clearly risky borrowing. How will you pay it back once you've eaten the apples? So the lender is very strict and the rates are high.

When you borrow money for an asset, it looks safe. You aren't spending money you don't have. You haven't really spent anything; you can always sell the asset to repay your debt! And in the meantime, you reap the gains as the asset goes up. So mortgages are cheap and the lender works hard to help you qualify.

But like you say the risk can only be shuffled into bigger gambles, not removed. You can't make risk-free money by borrowing money cheaply to buy growing assets forever. If the assets are increasingly bought with debt, then their price will correlate inversely with the cost of borrowing.

So right when borrowing gets expensive and you want to sell your assets to pay back your debts, the asset price also drops because everyone else is doing the same thing. It's very hard to de-risk because almost every asset ends up correlated to the same thing: the debt that people are buying those assets with.

I do believe the Fed understands this (and more relevant to me, the Bank of Canada). They know the game they're playing, and I think they're very good at it. And they know the psychology.

They believe the economy will be better off with a period of transient inflation that levels off, because it will get oversized debts down. They're hoping they can hold off on rate increases before that happens, so that rates don't go up until debts are under control. And they're hoping the lenders will go along with it.

Here in Canada we're seeing pseudo interest rate increases via the "stress test", where you have to prove you can afford a 5.8% mortgage in order to get a 2% mortgage, because the government needs to keep debt servicing costs low as they inflate them away without incentivizing everyone to load up on even more of them. That net doesn't catch everybody, but it should protect the most vulnerable. It's a very delicate balancing act. I don't know if it will work.

I think we'll find out soon.

Akhem, there are places outside America. I still have the postage stamps for 100,000 monetary units from the late 1980’s and early 1990’s Yugoslavia in my mom’s basement somewhere.

My parents’ tales of ridiculous mass inflation have been etched into my brain. I was too young to remember, but the spectre loomed large. Especially in the mid 1990’s when the rest of Yugoslavia set the world record for monthly inflation that still stands today. Luckily we were our own country with our own money by then.

At one point hyperinflation reached 2% per hour.

https://en.wikipedia.org/wiki/Hyperinflation_in_Yugoslavia

I believe many parts of South America are going through high levels of inflation right now.

Imagine if the president of the USA decided to solve the homeless problem of the black population by pointing guns at white homeowners and forcibly dragging them out of town. It's clearly unsustainable.

There might be truly disgusting capitalists like martin shkreli on this planet but they don't attack you directly, they merely deny you your fair share of the wealth you have created.

What's the difference between Marxism and "anti-colonial Marxism"?

Last year a dozen donuts at the local family run shop was $9, this year it is $12. My daughter's specialist doctor raised the cost of an office visit by 30% this year. The cost of a burrito at my favorite spot is up 25% in two years. I could go on. I care about inflation, and it is real.

Lower rates mean a lower payment, maybe affording the ability to outbid someone for a home you want. When rates go up buyers have higher payments.

The existing owner will have to pay taxes on the profits or reinvest in the same crazy market (perhaps losing a tax advantage).

I don't reckon any monetary distortions benefit the common people. Society benefits from money being a reflection of labor as much as possible. Everything else is extraction of value.

Mortgage payments are typically almost constant with respect to interest rates, because the monthly payment is what tends to climb to whatever value the market will bear. Instead, the home value itself goes up and down inversely with rates, such that the monthly payment remains approximately unaffected by a rate cut.

Also, despite what the Fed probably wants you to think, QE is not money printing, it is a duration swap between different forms of existing money.

Much of my knowledge on the matter comes from fedguy.com.

I would also like to mention that the fiscal stimulus by the Biden administration had the intended/usual effect. You know, the thing that QE couldn't create: inflation. If there is an effective tool then the defective tool that distorts the economy can be thrown away.

I wish the fed would raise interest rates.

These low rates only seem to help the wealthy, and prop up an overvalued stock market.

While the wealthy see their stocks skyrocketing, the poor and middle class just see higher living costs. I guess if you can afford a house the low interest rates are nice?

In the 90's I used to get $400 a year on my sweaty cd wad. (I can't afford to gamble with stocks.)

The other day I took out a few thousand from my cd, and was concerned about the early withdrawal which is tied to current interest accumulation. The fee was 49 cents.

Personally, I feel the reason the fed tax rate is so low is because Powell knows this stock market is truly a house of cards. Most business are way overvalued. He's scared to death it will crash on a scale that won't be as bad as '29, but the wealthy will lose most of their cash.

I have never seen a bull market go on for this long.

Almost in every other I have watched the professional stock boys wait until the last retail investor put in his last dime, and they pull all their money out.

I felt it was doing to implode a few moths ago with all the NFT's, and glamour puss celebrity SPAC's being pimped, but no.

I feel if that hastily put together, nebulous, pork filled 2700 pages, infrastructure bill, which seems like it will basically be a gift to contractors (like Ghilotti Family syndicate types). It will produce very few union blue collar jobs that will not last. If it does pass we might not see a big stock market crash for a bit longer, but it's coming.

Instead of the Infrastructure bill, I would rather see a Basic Income. Poor people who didn't work got nothing out of the pandemic money. Homeless got nothing out of the handout.

Let's do the infrastructure spending when we have a clue to where the money is going?

Ok--to those who can't afford to lose money, get your money out of those overvalued stocks.

The crash is coming.

(Sorry about the rant. I have watched the stock market decimate the little guys over the years. The wealthy slowly pull out, but the retail investor gets whacked.)

  > I wish the fed would raise interest rates
  ...
  > The crash is coming.

reason being that for the last 10 years or so, companies all over have been soaking up "cheap" capital from what is basically basically zero interest loans

these debts are what is keeping those companies floating/alive, and if rates were increased even a bit, it could be devastating by causing a quick succession of bankruptcies (supposedly this was why trump was so angry at the fed for pondering raising the rate)

anyways, im not an expert, but it seemed plausible...

Most folks are in mortgage and consumer debt and have little wealth. Higher inflation mostly impacts people with wealth.

Look at what’s happening now. Lower income folks are getting life changing payments of just a few thousand dollars in the US that is causing increase in services costs.

For example, inflation typically triggers interest rate increases. If your debt is fixed rate that's fine, but if it's not, it might get more expensive more quickly than you expected, and your wage increase might not cover it.

I had a car loan in the early 21st century, and the rate was about 6%. It didn't seem that bad at the time. I think I remember when the bank paid 4% on savings accounts in the 80s or 90s.

That's not to say inflation was very high in my lifetime, but it took a long time for people to get really complacent that it wasn't coming back, and super low (or negative) interest rates are quite recent.

It's only been about 40 years since 30-year mortgage rates were over 18%. Someone in their 40s may not remember it first hand, but they probably have a sense from the older generation that is a thing that happened.

With that cycle now concluding it's likely that inflation concerns will soon be making a major comeback, already some observable echos of the stagflationary 70's: https://www.nytimes.com/1978/06/18/archives/how-carter-can-s...

Now... doing so might totally ruin the economy and eat all GDP growth, but that's the next generations problem.

The inflation rates aren't too bad, but $10k can't get you a (very lowend) new car anymore, like it did when I graduated. Speaking of graduation, looking ahead to college prices for my kid, sticker prices are easily the price of a whole 4 year degree when I went for every year.

If we include my childhood, arcade games used to be a quarter; the last arcade I was in, even Pac-Man was 50 cents, let alone the dollar or two dollar games that were more modern.

Now that the harm is done and the money circulating, the media is slowly starting to shine some light on the topic.

Although that could push one toward conspiracy theories, as per Hanlon's razor we shall not attribute to malice that which can be adequately explained by stupidity. The media probably just got distracted as we all were.

And I suspect economists are manipulating how they calculate inflation, since I am creature of habit and mostly buy and consume same things for the past 15 years.

Prices are going up significantly. Some of it might be due to global shipping increase, but over all my total spending on consumables has increased to between 15% and 20% in the past 2 years.

Then all that nonsense about lumber earlier in the year, blaming QE for supply problems. Lumber prices now 1/3rd what they were a few months ago.

Neither of these are true anymore and inflation now will be a reflection of true scarcity of a good / service (e.g., housing) as opposed to the transaction costs associated with procuring it...

Furthermore it's also more accessible proportionally to existing wealth, which means inflation is in effect an inequality amplifier.