Its far more concerning to remember that the US Federal Reserve cannot combat this round of inflation using the prime interest rate, as it never fully abandoned QE or Quantitative Easing from 2008.

since the corporate lending market is now saturated with low or no interest loans, any attempt to raise interest rates at all will likely trigger a massive recession. this is called the corporate debt bubble

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

EDIT: this is due to the QE taper failure of 2012 as a point of evidence as it alone resulted in a 700 point market crash that forced the fed to reverse course immediately.

https://en.wikipedia.org/wiki/Quantitative_easing#United_Sta...

the fed is therefore stuck hammering news outlets and the government with hopeful rhetoric about "transient" inflation that will somehow clear up after Covid, despite rising unemployment, underemployment, lingering state debt from the covid crisis, and back-rent payments still due by millions of americans who will likely declare bankruptcy at some point.

EDIT: Generally, bankruptcy is a positive influence on the economy. It allows consumers to find a way out of massive debt so they can once again start engaging in the economy through buying goods, services and large-scale assets such as vehicles and real estate. unfortunately personal bankruptcy stokes a permanent US underclass that are denied rental housing in nearly every market. Bankruptcy is also prohibitively expensive for many americans to formally declare, and so the debt remains in an unserviceable limbo on books (eventually becoming an unseen toxic asset.) Bankruptcy can also factor into your employment screening.

and this doesnt even begin to touch supply chain constraints like the semiconductor shortage and the ongoing international shipping gridlock, ergo most of what we're seeing now is the Fed treading water until a major recession inevitably hits.

> any attempt to raise interest rates at all will likely trigger a massive recession. this is called the corporate debt bubble

It's a continua. If we raised rates 0.00001% it clearly wouldn't "trigger a recession", if we raised rates to 25%, it would.

Powell has shown himself to be an effective chairman, I doubt the fed will trigger a recession with rates.

You're correct, but I think missing part of the point.

The point was not "raising interest rates at any level will trigger a recession" but rather "raising interest levels an amount capable of combating inflation will trigger a recession".

A 0.00001% hike may not cause a recession, but it also wouldn't affect inflation.

Interesting, I don't actually think there's much ambiguity in the statement "any attempt to raise interest rates at all."

I'd defer to the OP to state what they really meant, but your response comes across more as a trivial semantic "gotcha" than an actual reasoned response.* If you actually think they meant raising rates by a trivial amount, even though history doesn't indicate that is a tack likely taken, then, yes, you are technically correct.

*Since you are a self-described consequentialist, it may be just that you feel what was stated is all that matters and not what was intended

Quoting the CBO: "Growth of Net Interest Outlays. In CBO’s most recent projections, the cumulative deficit from 2021 through 2030 totals nearly $13 trillion. Borrowing to finance that deficit—at a time when interest rates are expected to rise—would cause net interest payments as a percentage of GDP to increase over that period, from 1.4 percent to 2.2 percent, which is generally in line with the 50-year average of 2.0 percent. Over the long term, interest rates are projected to rise further, and the amount of debt issued is projected to grow, causing net outlays for interest to increase to about 8 percent of GDP by 2050."

I don't believe the current rate of increase is anything close to what was projected.

Also, the chart on debt held by the public is very interesting. Raising rates has some big impacts, even small changes.

source: https://www.cbo.gov/publication/56910

> Its far more concerning to remember that the US Federal Reserve cannot combat this round of inflation using the prime interest rate, as it never fully abandoned QE or Quantitative Easing from 2008.

The Fed stopped buying in 2014, held the assets for a few years, and they started going away in 2018:

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

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

> Its far more concerning to remember that the US Federal Reserve cannot combat this round of inflation using the prime interest rate, as it never fully abandoned QE or Quantitative Easing from 2008.

Not only can it, but more importantly it can fight it without interest rates by gradually unwinding the remaining QE (which it is likely to do, starting either next month or December, from current indications)

> since the corporate lending market is now saturated with low or no interest loans, any attempt to raise interest rates at all will likely trigger a massive recession

Well, no not “any attempt at all”, but its probably true that the effect of any interest rate hike on slowing the overall economy and demand will be greater than it otherwise would be, for any given size of rate hike.

But that's positive for ability to fight inflation with interest rates, as it means each quarter-point increase in the rate target will have more effect on slowing inflation than it otherwise would, and that fewer of them should be necessary, even before considering the effect of QE unwinding which will start before rate increases.

The big risk here is that the fed is going to keep treading water until we fall off the upcoming cliff into another depression.

Where if they would just be honest with people today, sure we will have a recession but that is preferred to depression or economic collapse which is where all of this is heading

> the fed is therefore stuck hammering news outlets and the government with hopeful rhetoric about "transient" inflation that will somehow clear up after Covid, despite rising unemployment, underemployment

These are demand side factors that would work against inflation (but also aren’t happening; unemployment and underemployment are dropping, though still above pre-pandemic levels.)

> and back-rent payments still due by millions of americans who will likely declare bankruptcy at some point.

What does this have to do with inflation?

>What does this have to do with inflation?

Part of the inflation rate is housing, in many regions there are still blocks on evictions, foreclosures, etc.

This reduces inventory and increases prices. Evictions and Forclosures are critical to the market, if a person can just stay put and not pay rent it is a double whammy for inflation as they will use their rent money on other things increasing demand where supply is restricted (aka inflation) and their housing unit is removed from the supply also increasing inflation

> Part of the inflation rate is housing, in many regions there are still blocks on evictions, foreclosures, etc.

That's...not what was cited.

I am asking about back rent payments due and bankruptcy potential which is what was cited upthread.

But the rent money not paid by the tenant, is not recieved by the landlord so while tenant will spend more the landlord will be spend less, the net change is zero, no?

That would only be the case if the LandLord spent it on the same things. They would not

The LandLord would use the money to pay Plumbers, landscapers, and/or invest some of the money, and/or build more housing units

The Tenant would use it to Paydown other debt, buy a Graphics card, or other things in the consumer market.

Can you go one level deeper- why would raising interest rates trigger a recession?

Imagine you're a business with 5 million dollars in revolving debt, at a 2% interest rate. You have $100k in debt service costs.

If interest rates go up to 5%, you have $250k in service costs. Most businesses operate close to break-even (in efficient markets), and many will immediately go under. If businesses go under, that triggers a recession cycle: Those businesses lay off employees, who stop buying, driving down revenue for everyone else. People anticipating layoffs/furloughs/etc. stop buying. Hiring goes down too, since businesses start planning for rough times.

People buying on credit (anyone with a credit card debt) also find purchasing much more expensive, together with higher bills on existing debt.

A whole bunch of business opportunities also disappear in a poof of smoke. If a business has even a 1% expected real return, and interest rates are zero, it makes sense to borrow money to start that business (especially if inflation is also high, giving effective negative interest rates). If a business has an expected 1% return and interest rates are 12%, then I'm bleeding money. For these kinds of opportunities, think less SV startup, and more just normal businesses (e.g. I buy something and sell it a month or two later).

All of this piles on to form a recession.

So commercial debt is mostly variable not fixed rate?

My understanding bonds are mostly fixed rate. Their price on market can vary though. But unlike let's say mortages they are more often refinanced. And when that happens the rates can change.

> Most businesses operate close to break-even (in efficient markets), and many will immediately go under.

Then they are not managing risk properly and actually need to go under.

I'm not even sure that its true to a meaningful degree - at least in the US, large businesses dominate economically and are quite profitable (much better than "break even"). Microsoft, Berkshire Hathaway, JP Morgan - they are not going to "go under" if interest rates go up 0.25%, even though they all use corporate debt.

I don’t fully understand why, but in general stocks tend to fall when interest rates rise.

Investopedia chalks much of it up to psychology and… higher rates means less lending means less spending means less earnings. https://www.investopedia.com/investing/how-interest-rates-af...

Look at the formula for discounted cash flow. It's a widely used valuation model and applies to lots of companies, especially those in the growth phase where current market cap is largely dependent on expected cash flow far into the future.

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

Notice the denominator in the series - (1+r)^n where r = interest rates and n = number of years out. The more r rises, the more terms at the end of the series drop out because they're so close to zero. So that effectively means a company that's getting its value from cash flow 10+ years from now loses a lot of its value if interest rates are rising.

Because investment in stocks competes with investment in government bonds. At just 1% increase in bond interest, trillions of investment dollar will flow from stocks to bonds. Many people, especially retired, would prefer a safe 2% return over 7% return with occasional 50% crash (as in 2000 and 2008).

> stocks tend to fall when interest rates rise.

unexpectedly*

stocks tend to fall when interest rates rise unexpectedly.

many actual interest rate increases are followed by stocks rallying because a larger rate increase was expected & priced in.

> many actual interest rate increases are followed by stocks rallying because a larger rate increase was expected & priced in.

Right, but that just means more than 100% of the fall due to the rate increase occurred earlier when it was anticipated, so the rate increase still caused the fall, in effect.

The expectation caused the fall. It's possible to even have an expectation of a rate increase and then not have any at all.

The US government and corporations borrow money at the prime interest rate plus some margin. Right now, US corporations have borrowed the maximum they possibly can. If the interest rates on that debt go up, many corporations will immediately go bankrupt. The US government also has a debt ceiling it is refusing to raise, which may mean that the US government itself may become insolvent faster with an increase in interest rates.

> If the interest rates on that debt go up, many corporations will immediately go bankrupt.

Interest rates on 10 year debt have gone up about 0.75% in the past year or so already (based on US 10 year treasuries, a common benchmark). They currently are at about 1.5%, a little below the average for the past decade of around 2%.

I'm curious which companies, specifically, you think will "immediately" go bankrupt if interest rates come back up to 2% - a rate they were paying as recently as 2 years ago.

> If the interest rates on that debt go up, many corporations will immediately go bankrupt

Do you know which rates are the ones the Fed sets?

These threads always bring out the people who don't understand how the economy works.

Ah fun, a baseless ad hominem attack.

The feds sets the prime rate which then works its way down into the corporate markets. Corporations right now are borrowing at 1 or 2% interest rates, but if the fed rate goes to 5% then those corporations will have to roll over their existing debt at 5 or 6%.

BTW, I majored in finance in college and worked at Merrill Lynch. 12 years ago I started my own company and have 200 full-time employees. I think I know a little bit about how the economy works.

> The feds sets the prime rate

No.

The Fed sets the target for the Federal Funds Rate (currently, as a range target, used to be a single rate target), which is an interbank lending rate, but don't actually set that actual rate (but it is usually very close to or within the target range.)

Currently, the actual Fed Funds Rate is 0.25%, the target range is 0-0.25.

The prime rate, a measure of available commercial rates, is set by banks lending decisions. It is pretty invariably higher than the Fed Funds Rate; currently, its 3.25%.

> if the fed rate goes to 5%

...it would be an enormous jump from the lowest its ever been to the highest since before the 2009 crisis.

You are correct on all points. I know the Fed sets the targets and can't always get what they want, but effectively in recent past they have set the general direction of these rates. I was trying to oversimplify.

>The feds sets the prime rate...

Just to clarify, the Fed doesn't directly set the prime rate, though it does have influence on it:

>...Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate--the rate that banks charge each other for short-term loans--established by the Federal Open Market Committee.

https://www.federalreserve.gov/faqs/credit_12846.htm

> BTW, I majored in finance in college and worked at Merrill Lynch

As an intern, yes? I know enough people working sell-side to know that it doesn't give you an intimate understanding of the economy, and certainly not after an internship.

> Corporations right now are borrowing at 1 or 2% interest rates, but if the fed rate goes to 5% then those corporations will have to roll over their existing debt at 5 or 6%.

Fair enough. I don't think we will be seeing 5% anytime soon, nor do I think that will be necessary for a price level increase largely driven by disruption to real output due to the pandemic.

It weirds me out that this is a considered a controversial opinion instead of common sense.

Give people money during pandemic, people feel less pressure to work. Less people who want/need to work, wages rise to attract more people. Companies have higher wage bills, they raise prices to compensate. Hey presto, inflation.

There's also a secondary feedback loop of people buying more stuff with their payouts and the increased demand translating into higher prices, but this hit various sectors of the economy really unevenly, where wage inflation seems to be very widespread.

Even common sense needs to be validated though. There are always "common sense" solutions that end up being wrong, often because they are an overly simplistic model.

There was an interesting outcome of some states stopping benefits because common sense said that would make people more pressured to go back to work. This was essentially a large-scale economics experiment.

"25% of the workers who lost their benefits in June had gone back to work by August. Now, in states that left the benefits in place, 21% of unemployed people found jobs. So there was only a four percentage point difference when these benefits went away...And what this means is those states that ended benefits early, they turned down billions of dollars in federal unemployment aid, and it ended up backfiring for their local economies."[1]

The "common sense" solution to helping their economy may have actually hurt their economy.

[1] https://www.npr.org/transcripts/1034965231

That 4% difference is absolutely massive. Further, these benefits have to be paid by someone somewhere. These benefits are being paid by all the rest of us in the form of inflation eating way our income.

We could probably debate whether 4% is "massive" in the context of COVID unemployment levels, but I'll sidestep that because I don't think it will actually resolve anything.

What I think is the better question is whether that 4% dip was better for the respective economies in the context of the aid they had to give up. It seems to me it probably wasn't a good tradeoff if the goal was to improve the economy.

I also understand it may be a moral argument rather than an economic one, but that's another one that could probably be debated without resolution.

>These benefits are being paid by all the rest of us in the form of inflation eating way our income.

I agree, but that's also the price to be paid by living in a society. We could just remove all safety nets whatsoever and deal with whatever instability results, but I don't think that's in most people's best interest. The point of the discussion is finding the right balance that provides a moral yet stable economy.

> I agree, but that's also the price to be paid by living in a society.

I really dislike this point.

I keep seeing it as a justification for more government control, typically without real justification.

> We could just remove all safety nets whatsoever and deal with whatever instability results, but I don't think that's in most people's best interest.

Has welfare been in some way proven to increase stability? Seattle, Portland, and SF all have strong welfare programs, but they seem to me to currently be much less stable than other cities.

The larger context is that society is a give and take. I have an old, likely out-of-print, book called "Your Rugged Constitution" that I got from an old Marine. What I like about that book is that it frames each part of the Constitution, not just in terms of what one gets from the government but also what one is expected to give up. I get concerned when people only focus on one side of that equation.

I don't think it should be used as a catch-all, but as a reasoned and balanced approach. It may be used as a justification for "government control", but hopefully people recognize that there is an expectation for something to be received in terms of what was given. It's up to society to determine whether that's a good trade, not to automatically disregard the option because of some "government control" boogeyman.

Take the Fed which is such a big part of this discussion. Society gives the Fed certain levers to affect the economy and monetary policy. In return, society gets more stabilized unemployment and inflation to limit boom/bust cycles. Society has determined that is a reasonable tradeoff. Likewise, we give the Congress the ability to levy taxes and in exchange we expect to be provided common defense and general welfare.

>Has welfare been in some way proven to increase stability? Seattle, Portland, and SF all have strong welfare programs, but they seem to me to currently be much less stable than other cities.

It gets harder to study because of the larger number of confounding factors as you get to larger groups (city, state, or federal levels). There's certainly evidence that social safety nets provide stability at the family level and evidence that safety nets like unemployment insurance enhance stability as well.

I expect inflation to remain high for a while, and I think concerns about it (if not for self-fulfilling psychological, which are very real and significant) are overblown. I think this stimulus, and the resulting inflation, DID help the economy, relative to the alternatives. The critical thing was to avoid structural damage:

- Businesses going under

- People losing jobs

- Mortgages going under

... and so on. All of this DOES directly impact the productive output of the economy.

Inflation does distort the economy a little bit. It makes some of us poorer (those with cash), some of us richer (those with debt), and leaves some neutral (this with hard assets). But I think this distortion pales relative to the alternative.

Business is going under is actually a good thing. It frees up market space for new entrepreneurs and new businesses to be able to get going and make newer better offerings. The last two recessions all of the big companies have been bailed out, which means that we have the same bad practices and bad CEOs still in charge of our economy. Let them go bankrupt and then we will have fresh ground for entrepreneurs to flourish.

>Let them go bankrupt and then we will have fresh ground for entrepreneurs to flourish.

I agree to this in some contexts, but I also think it's sometimes used with too broad of a brush. It seems to ignore the time lag that means sometimes things can get really bad before they get better. Sure, allowing banks and automotive manufacturers to go under could create "fresh ground for entrepreneurs to flourish." But it could also create decades of depression/recession effects before that flourishing happens. We're currently seeinng the supply chain effects that people didn't really anticipate well. As someone from the rust belt, there are an awful lot of tangentially related manufacturers who will also go away with the automotive sector, which has ripple effects in a ton of other industries. Protracted economic depressions tend to create "fresh ground" for despots to "flourish" as well.

> That 4% difference is absolutely massive.

4% of the entire workforce is massive.

4% of unemployed workers who were previously receiving unemployment benefits is irrelevant.

If you zoom out, you'll see that the biggest drops in unemployment benefits weren't in the 2021Q2, they were in 2020Q4.

https://www.statista.com/statistics/284857/total-unemploymen...

> Give people money during pandemic, people feel less pressure to work. Less people who want to work, wages rise to attract more people.

I feel that depicting the current scenario as a sudden global reluctance to work because people are getting benefits is a gross misrepresentation of the facts, and one which is rooted in the old moralist notion that poverty is tied to laziness.

The truth of the matter is that the year-long lockdown enabled workers to reconsider their life priorities and their professional choices, and those stuck in awful jobs with awful working conditions decided to reconsider their options.

To illustrate the fact that "giving people money" is not the key factor here, keep in mind that priviledges workers, such as handsomely paid software engineers working for FAANGs, started quitting in droves due to working conditions, and right now we are seeing these same FAANGs scrambling to contain this hemorrhaging. FAANG-caliber engineers don't just quit their job because the government started passing on handouts.

The service sector imposes exceptionally abusive and poorly-paid working conditions, thus no wonder they are having problems attracting workers without doing any soul-searching and addressing their problems.

Giving money to both corporations and to individuals destroys the motivation of both to do better. When corporations go bankrupt, it seems like a sad event, but in reality it is clearing market room for new entries to be able to start up and take share. Instead of allowing corporations to go bankrupt in the 2007 market crash and in the 2020 market crash, we have given them massive government handouts. This shuts down entrepreneurs and make sure that walking dead corporations keep going with their terrible practices.

The same thing happens when you give individuals handouts, whether those handouts be in the form of pandemic aid, welfare, or social security. They're less motivated to work and often just don't.

Get out of here with that rational nonsense! The government will fix all the problems by doing the same thing that caused them.

Sorry, couldnt help myself. Completely agree. The motivation to participate in most markets has been sapped by handouts on a massive scale. No business is too big to fail. If a business fails it is their own fault. Allowing businesses to fail regardless of the economic impact is a necessity for the economy to function. One business fails and a handful jump in to compete for the open space.

Get out of here with that rational nonsense! The market will fix all the problems by doing the same thing that caused them.

Sorry, couldn't help myself. Completely disagree. The free market continually makes bad decisions. And the term "free market" never meant an un-fettered market free of government influence and control.

> "free market" never meant an un-fettered market free of government influence and control.

What could it even mean then?

You could maybe make a case that people don't mean a totally free market when arguing using the term, but that's about the degree of freedom. Free market literally means people trading goods and services without coercion.

Free market originated as a term with Adam Smith in regards to free of rents and privileges.

"For classical economists such as Adam Smith, the term free market does not necessarily refer to a market free from government interference, but rather free from all forms of economic privilege, monopolies and artificial scarcities.[1] This implies that economic rents, i.e. profits generated from a lack of perfect competition, must be reduced or eliminated as much as possible through free competition."

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

Naturally, the term has taken on differing meanings, some useful, some not. The idea itself, of a market free from government influence and control is a pipe dream that has never, and will never exist.

To you it means trade without coercion. To others it means less taxes (a type of coercion). To yet others it means no regulations (yet another type of coercion). This just doesn't exist in any economy. Taxes, regulation, permits, all are a form of economic coercion. It's just used as a cudgel by those who stand to gain or lose the most with a particular regulation or tax policy.

> Giving money to both corporations and to individuals destroys the motivation of both to do better.

No, it really doesn't. At most, this represents a one-time-only bump in disposable income, which you either spend to meet your immediate needs, save it up, or blowin up on whatever tickles your fancy.

A one-time bump in disposable income does not change anyone's drive, determination, or professionalism.

If that assertion had any bearing on reality, all companies which hand out hiring bonuses to new hires or pay any sort of bonus would be seeing determined workers turning into slackers overnight, which makes absolutely no sense at all.

>They're less motivated to work and often just don't.

This is most impactful if you think money is the sole motivation for working. The fact that the U.S. has the highest volunteer/charity rate while one of the highest average work week rates for industrial countries seems to indicate otherwise.

> reconsider their options.

What are the options for minimum/lower wage workers? They still need money for food and shelter.

The ability for low wage workers to decide "this job is not worth it" was only made possible by the increased government unemployment benefit and stimulus.

I absolutely believe that if given the choice of getting over $1200/month on unemployment versus making the same but working, most people would choose not working. That seems so intuitive to me.

>I absolutely believe that if given the choice of getting over $1200/month on unemployment versus making the same but working, most people would choose not working. That seems so intuitive to me.

This seems to be a rational choice to me as well if you define work as "shit I don't want to be doing". If you were paid $1200 a week for playing with puppies, you probably wouldn't mind going back.

I think what the OP was alluding to was that it caused people to evaluate the nature of work. I'm not saying it's a purely rational decision, but probably a largely emotional one. When your norm is working a miserable job and you are given a reprieve from it, emotionally it may be that much harder to return.

One of the software engineers that I respect the most was bussing tables a few years ago.

I think it's less about "reconsidering life priorities" as it's simply breathing room. If you have $0 in the bank and are hustling 3 minimum-wage jobs to feed your kids, it's financially extremely difficult to break the cycle, unless there's a windfall like a stimulus check.

I generally agree with you, but I think that your example of FAANG workers is bad given what's happened to equity prices in the last 2 years.

FAANG workers probably made a boatload, I know my friends at Google did.

I probably need to add this to the start for context; I say the following not because I don't think people should earn more, but rather that it's bad, rather than good increases in wages, which will be eaten up by inflation almost immediately at this pace.

I just saw a notice on a fast-ish food place saying they will pay $3 more per hour than the last wage. So not only is poaching happening, this inflation is being baked in. For context that is ~$6,240 more annualized or $520 per month.

On the contrary, good wage increases would come from a restriction of the labor supply through things like a decrease in immigration. What is happening though is that the labor pool is now being flooded with quite literally millions of unskilled laborers on the southern border and soon enough even high skill sectors like tech will be flooded with foreign tech workers if the ruling class is able to pull it off and places like India and China, etc. don't put a stop to it in order to retain their talent rather than letting the US ruling class profit from their people.

Unfortunately, any proposal to reduce immigration is seen as morally evil.

The reason why it is "controversial" is because people believe we did the same thing in 2010, and no inflation occurred.

Very broadly this is true, M2 peaked at 10% in 2008 and was 6% for most of the decade but the actual transmission of this into the real economy was impaired. So you have to actually understand how monetary policy is being transmitted.

But what has just happened is evidence that this lesson wasn't learned because the view seemed to be that inflation is impossible...not that we need to look at transmission more carefully. M2 growth YoY is running at 25%, federal spending is clearly leaking into the money supply, on top of supply issues...it is going to be tricky to resolve fast (even if you don't consider the political pressure the Fed is clearly under, the willingness to trade inflation for lower unemployment...that is what this comes down to, can your politicians take the pain? It is very clear there is no capacity for pain in the US).

In 2010, "quantitative easing" meant plowing a whole lot of money into various financial assets, which is a very different kettle of fish from giving people cash handouts.

Yes, that is what I meant by the transmission (indeed, there was a huge difference between QE in 2010 and QE in 2014). There is also a huge difference in QE now, and 2010. Each time the structure changes and the impact on transmission changes (because the Fed had no idea how QE was supposed to work, and apparently still doesn't appear to know precisely). A key point is that QE in 2010 primarily worked through portfolio composition, not directly on money supply.

Similarly, giving people cash handouts is not necessarily inflationary either (it happens all the time anyway, food stamps, unemployment benefits) because cash handouts don't necessarily increase the money supply. The issue is that transmission appears to have changed in a very subtle way (this isn't just occurring in the US either) where you have fiscal policy seeming to leak through to the money supply (something that a significant proportion of politicians think is impossible atm).

Given that pandemic relief has ended and in fact ended a while ago in a lot of the country while inflation has kept up would imply this isn't true.

The fact that people "bought" stuff that is nonetheless still stuck off the coast waiting to be unloaded suggests that the listed price paid is not the actual market price (if you had any expectations of receiving things quickly like you would have in 2019.) Likewise for anyone who had a plumber come to their house do work, paying 30% more and waiting a week for service.

Prices seem to be sticky, so it's not that surprising that it takes some time for higher prices to work their way into all facets of economic life.

Thank God for the meme stocks and crypto. Otherwise we could have seen all the money jump into commodities or trying to corner markets or other goods.

> It weirds me out that this is a considered a controversial opinion instead of common sense.

A lot of people think it is "common sense" that raising the minimum wage will decrease employment because of higher labour costs, but that link is… tenuous… at best:

> In pioneering work from the early 1990s, David Card analysed some central questions in labour economics – such as the effects of a minimum wage, immigration and education – using this approach. The results of these studies challenged conventional wisdom and led to new research, to which Card has continued to make important contributions. Overall, we now have a considerably better understanding of how the labour market operates than we did 30 years ago.

* https://www.nobelprize.org/prizes/economic-sciences/2021/pop...

Sure, total common sense if you forget about velocity effects and changes in consumer behavior.

Good thing we have economists whose job is to not forget about those things.

You’re pretty smug about “velocity of money” there. Also you appear to not understand that economics isn’t a hard science where there is some rigid consensus.

Some (many? Most?) economists think that this “modern monetary theory” stuff is suicidal. It looks to me like they’re being proven right.

Your comment seems to imply that the MMT set is actually directing policy, rather than being in favor for a smaller subset of progressive politicians.

The fed isn’t run by Stephanie Kelton. We are still living through one of the most disruptive periods in modern economic history, seeing moderately elevated inflation in this context doesn’t mean the sky is falling.

> Some (many? Most?) economists think that this “modern monetary theory” stuff is suicidal. It looks to me like they’re being proven right.

You have no idea what you are talking about if you think that the Fed's actions are based off of a fringe heterodox theory like MMT.

> economics isn’t a hard science where there is some rigid consensus.

Oh, guess that gives you license to make up whatever theory you want then, my bad.

Not going to continue replying.

“velocity of money” long predates and has little connection to MMT.

I can't quite tell if you are being sarcastic. I also can't quite settle on what is more concerning, if you are serious it implies that you think economists are just ranchers that herd their cattle at a whim, or that you think they will be able to exert those powers flawlessly and in self-less ways without screwing it up like all other instances of command/planned economies in human history.

Neither, I certainly don't think they execute flawlessly/without screwing up.

I'm making the much more defensible claim that if we took you and the GP commentator and put you in charge of the Fed, the economy would go into a recession.

> Good thing we have economists whose job is to not forget about those things.

Because authority!

Aka argumentum ad verecundiam.

Yeah, I'm sure we'll get better results if we put the "Velocity is fake" dude in charge of the Fed.

Velocity is fake.

Money is valued according to totalStuff / totalMoney. If there is one item of food left on the entire planet, everybody is about to starve to death. If you print enough money to quadruple the supply of money, everybody will still starve to death, and the item of food is effectively costs 4x the number of dollars. You can argue the cost is already infinite in such a scenario, so 4x infinity is still infinity, nevertheless, abstractly if everybody owns a Corolla, then you 100x the money supply, the Corollas do not turn into Ferraris. Houses do not get built out of thin air. Real things have real value when given effort by real people, and money is abstractly a layer above that. Printing money does not print food, mine metals, or construct aircraft. If it DID, we could colonize the entire universe by simply leaving the printer on for long enough.

It's not common sense that printing money "causes" inflation, it's directly given by the ratio of money to real things. Printing IS inflation. Again, if printing was NOT inflation, then printing would increase REAL value and we would colonize the entire universe by printing.

Back to velocity. You temporarily tricked some people. They go and buy food instead of dying. Now there's less food in reserve. Now food is more expensive. This converges the price to the amount printed as in the above logic. So where did we get this free interim benefit where starvers can buy things? Prices weren't initially raised, so the people that would've had more food incorrectly gave it to other people for less than they should have until the adjustments kicked in. Therefore, printing money can have the effect have stealing from businesses if they're slow to react. Or, printing money can have the effect of stealing from everybody that's not that business if the printed money goes right to that business. Give an asset company 500 trillion dollars and suddenly every house in America is spoken for. There's no "inflation" depending on which idiot you ask, but everybody who doesn't own that company will die of weather or infinite rent -> starvation soon enough.

At the end of the day, printed money is only fair if given to everybody equally, which is equivalent to doing absolutely nothing in a world where business immediately adjust prices in response to the fake change in money supply. Otherwise it's trickery against the interests of people who set prices incorrectly, and especially against people incapable of setting prices because they are mere "consumers", unless all printed money goes only to consumers, but then it still solves nothing by definition of consumer.

What the above is alluding to is that being a consumer rather than a producer by definition means they have no or negative value. A farmer adds value, a waiter subtracts value. More people are alive because a farmer can feed himself and others, whereas a waiter is replaced by a dude walking 12 feet and getting his own food, or skipping the restaurant entirely and cooking himself with stuff he or the farmer grew. Every business that isn't multiplying food output, healthcare output, etc. vs. their cost is effectively a drain. Restaurants would have to bring enough "joy" (utility) to make up for the drain that simply shuffling food around inefficiently and placing it on oval plates next to candles in dark rooms and charging 70 unitless (if it's marked at all) currency thingies for a leaf of non-GMO vegan-enhanced anti-racist triple-vaccinated gluten-free organic hydroponic soy lettuce. While I typed that, 500 Africans starved to death.

The modern economy is just a ruse that tricks people into having "jobs" rather than owning all of America's farmland (Bill Gates).

The fix is four fold: 1. become a farmer 2. end Bill Gates ... legally 3. end BlackRock et al ... legally 4. end the fed ... legally

edit: Six fold: 5. end all central banks 6. end all central-central banks

>Give people money during pandemic, people feel less pressure to work.

It lets people stay home more to prevent the contagion from spreading... but it is not the good life. It might help buy groceries or pay a bill or two, not much more than that.

> wages rise to attract more people

Has this actually happened in the last year?

We've been "giving" (I know, it's not technically that) billions to rich people for decades and it hasn't done anything to inflation. So it's reasonable to wonder if that still holds when everyone gets the cash.

My theory is that rich people save it, and poor people spend it; so here we are.

> My theory is that rich people save it, and poor people spend it; so here we are.

Supposedly this money is being dumped on conservative investments which are actually worsening the whole economy, such as the massive inflow of institutional investments in real estate which is behind the astronomical real estate prices in some cities.

The rich all competed for assets and it was reflected in asset prices.

It probably wouldn't have been as bad if the time before it and time after it is similarly inflated.

If it was a one-off 2T expense, it probably wouldn't be as noticeable as the every growing hockey stick of Keynesian economics (funding expensive mandatory social programs).

They moved on from Keynesian economics a long time ago, today it is all about MMT i.e Magical Monetary Thinking errrr... Modern Monetary Theory

> They moved on from Keynesian economics a long time ago

This 100%. Keynesian economics sees debt as temporary to be used to fight a war or stimulate the economy during a depression, with the expectation that the debt is paid down during the good times. This is what the U.S. did during World War 2. They ran up a huge debt to fight the war then paid it back down in the prosperous years following the war.

Modern Monetary Theory on the other hand is the philosophy of a six year old who asks daddy why the government can't just print more money to buy stuff.

I’m not really sure that you understand MMT. MMT isn’t about giving out a free pass to print money, it simply states that deficits are the primary driver of inflation rather than changes in the money supply. That’s not the same thing as giving out a free pass, in fact, it’s proponents would state that in the face of rising inflation one should reduce budget deficits.

> deficits are the primary driver of inflation rather than changes in the money supply

MMT "theorists" will say different things every time you ask them.

I doubt many of them would say this though, because it's pretty obviously on-face wrong.

It seems clear that you have very little respect for the MMT set. But I haven’t seen anything to suggest they’d disagree with my characterization. I wonder where you draw your understanding of MMT because from my view the theory is fairly straightforward: money creation happens when the government spends, and is taken out when it raises taxes. The purpose of central banks is to provide financial stability.

> from my view the theory is fairly straightforward

But as you've stated it, the "theory" is on-face wrong.

Money isn't created when the government spends because it borrows from private credit markets when it spends, taking money out of circulation.

Money is created by monetary policy, not fiscal policy.

I don't necessarily disrespect MMT, I just have trouble tying people down to making a specific claim. Either they are saying something obvious and not at all contrary to mainstream economics, or they are making claims that I think are wrong - but I have trouble pinning down any particular claims.

I think the crux of the disagreement is the order of events.

MMT proponents would not character bond issuance as something that takes money out of circulation per se. It is only when that money is taxed back out of the economy that money is removed.

In this construction central bank policy and government budgets both do play a role, the question is what comes first. When governments runs deficits, it signals the central bank to print money.

TBF, we never really _paid_ off the WW2 debt.

We started to use GDP vs Debt as the measurement tool to avoid actually paying off debt instead of endlessly servicing it. It didn't take much time to convince our 6-year-old selves that we could just endlessly service more debt when GDP grows and to grow more GDP. Obviously there's no bad if taking debt causes GDP to grow, and GDP will always grow, so debt should always grow, because more GDP!

> Modern Monetary Theory on the other hand is the philosophy of a six year old who asks daddy why the government can't just print more money to buy stuff.

MMT is just “fiat money isn't commodity money, so fiscal constraints are historical cosplay rather than fundamental reality. The real constraint on so-called ‘fiscal’ activity is purely monetary.”

No part of the descriptive element of MMT is in actual serious dispute by orthodox economics. Orthodox economists just tend to prefer the policy behavior that occurs with c the cosplay of fiscal rather than purely monetary constraints. Which is fine—frankly, I think Congress does a bad enough job with fiscal policy when monetary policy is hived off and given to the Fed, so I can see some naive policy responses to the realities embraced by MMT that would be counterproductive. OTOH, acknowledging the realities instead of trying or bury them because their are some obvious bad potential responses is necessary to have the discussion that gets to policy that incorporates reality well.

What do you call the period from 1971-2019 when the government printed lots of money with no intention of paying it back, but only handed it out to the upper class? From my fiscally conservative Austrian perspective, MMT is actually an improvement - by creating direct price inflation (as opposed to just asset inflation that nobody dares to call real inflation), it forces the Fed to put the brakes on the printing press.

> MMT is actually an improvement - by creating direct price inflation

MMT doesn't create price inflation, it acknowledges that monetary effects (like inflation and deflation) are the only real constraints on government finances when spending its own fiat, and that requiring debt financing for net spending is a farcical result of pretending fiat is resource-limited commodity currency, and encourages abandoning that kind of fiscal fiction in favor of expressly considering monetary effects in setting the kind of policy that has historically been called “fiscal”.

I agree with you - MMT mostly just acknowledges the dynamic that has already been in place for the past 50 years, ultimately letting the government regain the power to spend money where it deems fit (eg infrastructure), rather than being bound by this "lending" facade that mainly directs new money to the financial industry.

What I mean by it causing price inflation is that money directly spent (especially on social welfare programs) tends to flow to consumers within one or two hops, where it will directly bid up the CPI. Whereas money that is "loaned" tends to linger in the financial economy and mainly causes asset inflation (which only eventually, maybe, causes price inflation). By making the economic feedback loop shorter, MMT makes the results of monetary inflation more apparent, and from an Austrian perspective this is a good thing.

I'm an Austrian myself, and that's an interesting take on MMT I hadn't considered. I'll have to noodle on that one for a bit.

This is a common misunderstanding. As a percentage of GDP, debt did go down. But the US government didn't actually paydown the debt. The debt notional more or less stayed the same. The ratio decreased due to GDP growth and inflation.

https://fred.stlouisfed.org/series/FYGFD

> The ratio decreased due to GDP growth and inflation.

Inflation, the magic silver bullet that makes a countrys' debt disappear.

At whose expense is of course the question.

It’s so convenient that the everybody was confused about economics, and actually the really good economics is that politicians can and SHOULD spend money on whatever they want!

You have no idea what you are talking about.

> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?!

Plenty of folks thought (a) we needed to spend lots of money on relief, (b) this would cause a spike in inflation, and (c) this is fine:

* https://www.nytimes.com/2021/02/07/opinion/covid-biden-econo...

* https://www.piie.com/blogs/realtime-economic-issues-watch/in...

A 12-18 months spike in inflation is worse than the alternative, not spending not enough and the economy stagnate for years like it did post-2008:

> I see the following scenario: a weak stimulus plan, perhaps even weaker than what we’re talking about now, is crafted to win those extra GOP votes. The plan limits the rise in unemployment, but things are still pretty bad, with the rate peaking at something like 9 percent and coming down only slowly. And then Mitch McConnell says “See, government spending doesn’t work.”

* https://krugman.blogs.nytimes.com/2009/01/06/stimulus-arithm...

> Who would have thought printing Trillions of US dollars for pandemic relief would circulate more money in the market and lead to inflation?!

Pretty much everybody, as that was precisely (in comparison to the expected course without it) the intent.

That eventually stimulus of all kinds would have to be reeled back in to control inflation was also expected.

The exact timing and course of the rebound in both the general economy and inflation was less predictable, and widely understood as such.

> Not saying a government shouldn't provide relief during a pandemic, just stating that it sounded obvious to me rather than alarming.

It shouldn't be considered overly alarming, in broad monetary terms, in the short term, the question is whether appropriate steps are taken to prevent it from becoming alarming, on the broad monetary front, and whether appropriate steps are taken to address acute harms on the distributional front.

Most people here seem more concerned about the first question and less or unconcerned about the second.

A trillion dollars is basically a 12mo-18mo of GDP growth for the USA. And it was handed out in a year where GDP fell by 600 billion.

Those are not comparable other than that the GDP growth you reference IS that trillion dollars you also reference, and then some. It's essentially like switching to buying everything on credit card to keep up the facade to your friends that nothing has changed, in spite of the fact that your business is bankrupt/you lost your job. The GDP will still go up because you are buying things, but that does not change the fact that taking on one trillion dollars in debt or embezzling one trillion dollars from shareholders of your company is a good idea.

My somewhat-uneducated opinion has been that this was not due to pandemic relief, but due to long-term inflation pressure that the economy stopped being able to absorb as a result of the pandemic, and/or wasn't being measured (because it was being reflected in real estate, commodities, and securities).

As you say, they created a bunch of money. But also, we have less stuff (because when all those people who weren't working, they weren't doing whatever they normally did, and so there's missing output in the economy). So, more money and less stuff, and what do you know, we have inflation. This is my complete lack of surprise.

But, if we stop creating more extra money, and if people can return to work, then it should be transitory. I don't see reason why we should expect 5% inflation every year going forward.

Government should NOT provide relief. They didn't even discuss alternative solutions. One time taxes would have been a possible alternative.

EDIT: relief in terms of QE.

> Government should NOT provide relief.

Why? Isn't this one of the very core responsibilities of a government? Otherwise what would be the point of having a government to begin with?

> They didn't even discuss alternative solutions.

Which solutions do you have in mind? I mean, you mentioned QE and arguably QE has been going on for a decade or so.

> Otherwise what would be the point of having a government to begin with?

You tell me. It seems the reasons keep expanding.

Ostensibly governments were initially for defense of a nation. People even resisted the creation of the US federal government. Unfortunately even then there were financiers willing to lend against future taxation for the expense of qwelling dissent.

In these conversations consent of the governed, and the source of the 'relief' is never considered.

>Ostensibly governments were initially for defense of a nation.

Can you elaborate on this conclusion? At least in the U.S., the Constitution explicitly defines responsibilities of the government that go beyond national defense.

One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2. QE is not a valid option in my opinion.

> One-time taxes is the alternative I suggested. That's what they did in parts of Europe after WW2.

Why do you believe that creating/increasing taxes all on itself will address the problem caused by a) economic stagnation, b) workers seeing themselves out of a job and without a paycheck?

I'm not sure if I understand your question. I simply suggest that people should be paid using one time tax income by the state instead of being paid by newly printed money. Of course the taxes need to be targeted at people who have enough money to pay it and not at people who need it.

The printing is part of it, but not all of it. The commercial credit that amplifies the money in circulation is a major factor. This is itself driven by the amount of money available to leverage against with fractional lending.

Don't you have to eliminate supply chain issues before you can confidently assert "printing trillions of US dollars for pandemic relief" is the primary cause?

Also driven by skyrocketing energy costs.

Maybe if we had a pipeline, to move fuel in a more efficient way....