Inflation: How much for real?

[piezoe]

While its true that the government can pass a 3 trillion dollar infrastructure bill, and that money will in fact be put in someone's pocket, if you follow the entire arc of what this spending does, you would see how short sighted it is.

If what you're saying is true, and in the spirit of the above statement, which makes it sound like a good thing, then why on earth doesn't the government put even more money into the economy? Surely more is even better if a few trillion is fine.

Let's not forget it's spread out over a decade and not necessarily uniformly; thus the subject of my post, which I realize has not had time to sink in. We should not discuss spending only in terms of its dollar total. If we want to be logical we must include in our discussion what's being bought, at what rate over time, and how we expect to benefit. Otherwise we are talking "nonsensical political speak," the same as some of our politicians and media routinely engage in. Their interests obviously lie in something other then accurate conveyance of useful information.

I assume when you write: "Surely more is even better if a few trillion is fine." you are intentionally being facetious.

 

[piezoe]

TLDR

except the part near end about "stop listening to the illogical."

Whether you read what I posted won't make a "hill of beans" difference. But if only one person reads carefully what I posted, I truly believe there is good chance they could benefit greatly.

 

[longshort]

I believe this is profoundly incorrect, though it is commonly believed to be true. To understand why it is incorrect one only has to consider that nowadays all money is "printed", and how much money would be available to carry on commerce in the private sector without any government spending at all.

The other parts of your post are interesting to me but for now, since I'm somewhat time constrained, I'll choose to reply to just this.

As you started out with the US as an example, I disagree that nowadays all money is printed. The US had money historically without the need for government debt, exemplified by President Andrew Jackson who paid off the federal debt entirely.

The US dollar was defined as a weight of silver (371.25 troy grains) with the Coinage Act of 1792. At the same time, Congress established a gold weight for the dollar and set the ratio to 15:1. In 1849, the ratio of silver to gold was changed to 16:1. Both metals were legal tender. The system existed until 1913 and money at the time wasn't printed. Whatever money stock existed at the time still is part of today's US dollar supply.

Spending is not taxation because no taxation is needed for government spending.

We're using different definitions here. The government taking resources from the private sector is called taxation by me. It could also be called levies, fines, tariffs, or theft.

Government spending puts money into the economy. The Government requires no taxation at all to create new money and spend it into the economy. In fact, it does this every time it deficit spends.

I love how Keynesians can make it sound as if this were a good thing. Any time the government deficit spends with the Fed's help (i.e. not borrowing from let's say private citizens) it destroys the value of money. Any time printed money is spent by the government, it exerts an inflationary force on prices, without fail. This doesn't necessarily mean that prices rise, it could also prevent a price decrease that otherwise would have happened thanks to economic progress.

In any case and by doing so, the government deprives the private sector of resources and redistributes them. It's taking stuff from the people and likely squandering it, not adding anything. Only in meaningless nominal terms is "money added", in real terms purchasing power is destroyed and resources are redistributed and likely misallocated.

 

[NoahA]

I assume when you write: "Surely more is even better if a few trillion is fine." you are intentionally being facetious.

Not at all. I truly meant that if you believe that government spending actually benefits the population without any drawbacks, then more is of course even better. Clearly there is a limit to this, and so the question has to be where does this limit come from?

If we want to be logical we must include in our discussion what's being bought, at what rate over time, and how we expect to benefit.

This is exactly right. Everyone of course has a different idea of what to do with the money, and maybe most people don't care if things don't get out of control, but we are way past this point.

Lets look at Covid and the amount of debt that had to be incurred in order to keep the gears of the economy turning. How much of this spending does the average person benefit from today? How about 5 years from now? The government made decisions to go severely into debt and pillage the the future of people today who barely got any benefits from Covid. Most people under 60 perhaps would have survived just fine, and yet their tax burden to pay for all the money spent is enormous.

I read an article that each household in Illinois is responsible for about 110k of pension obligations to government workers. So this is money that has to be collected via taxes and paid to retired people, all before the working class get to see the money they are paying used for things that they will require right now. Can you imagine if you inherited your parent's debt and lost $500 from each paycheck just to pay that off without even getting to use your own money for the stuff that you need?

So the benefit of the spending for the past 18 months has only gone to asset holders, and the bottom 90% are worse off. This is now being paid for with rapidly rising inflation, and we can only hope that the whole system doesn't burst. In other words, the money has been all used up, with nothing to show for it, and the future has been taken away from the young people. The only hope is that the US takes a page from the China playbook and somehow manages to convince the citizens to slave away at a shitty job making little money and not revolt. In fact, its happening before our eyes, the beginning of authoritarian rule in order to lessen the impact from the implosion. That implosion will be rioting, and of course they want to make sure they can keep you locked up at home.

 

[piezoe]

Not at all. I truly meant that if you believe that government spending actually benefits the population without any drawbacks

what does that have to do with any of my posts?

 

[piezoe]

Lets look at Covid and the amount of debt that had to be incurred in order to keep the gears of the economy turning. How much of this spending does the average person benefit from today? How about 5 years from now? The government made decisions to go severely into debt and pillage the the future of people today who barely got any benefits from Covid. Most people under 60 perhaps would have survived just fine, and yet their tax burden to pay for all the money spent is enormous.

The U.S. government does not borrow and has no debt. It prints whatever it spends in excess of its revenues.

I read an article that each household in Illinois is responsible for about 110k of pension obligations to government workers. So this is money that has to be collected via taxes and paid to retired people, all before the working class get to see the money they are paying used for things that they will require right now. Can you imagine if you inherited your parent's debt and lost $500 from each paycheck just to pay that off without even getting to use your own money for the stuff that you need?

I don't know much about Illinois, but States, unlike the Federal Government, borrow and have real debt. They can't print money. What would you propose Illinois should do?

So the benefit of the spending for the past 18 months has only gone to asset holders, and the bottom 90% are worse off. This is now being paid for with rapidly rising inflation, and we can only hope that the whole system doesn't burst. In other words, the money has been all used up, with nothing to show for it, and the future has been taken away from the young people. The only hope is that the US takes a page from the China playbook and somehow manages to convince the citizens to slave away at a shitty job making little money and not revolt. In fact, its happening before our eyes, the beginning of authoritarian rule in order to lessen the impact from the implosion. That implosion will be rioting, and of course they want to make sure they can keep you locked up at home.

I too am concerned about the threat of authoritarian rule in the United States and the danger the limited elements of democracy in our government face. I am voting for democrats mainly because of this concern. I am not concerned about inflation so far. I disagree that the bottom 90% are worse off. Wages at the bottom end have risen much faster than inflation so far. Many of those folks are much better off now than before the Pandemic. Those whose wage increases have not quite kept up with inflation may or may not be hurt much by inflation depending on their circumstances. If Biden's BBB plan should by some miracle pass the Senate, many middle class families and elderly will benefit greatly in excess of any inflation suffered so far. But it looks as though Manchin has killed that legislation. Who knows what 2022 and beyond will bring at this point. If we get to double digit inflation it will be a great concern of course. So far it's moderate and manageable for the most part. I am assuming the supply bottlenecks will ease in 2022. This inflation is driven in large part by demand exceeding supply. Increasing supply and competition and by tackling the supply bottlenecks and other measures is how I hope the administration will respond.. Biden has already ordered 50 million barrels of oil released from the strategic reserve. The effect won't be instantaneous however.

Many people posting in this thread believe the moderate inflation we are seeing is the result of printing too much money. This is incorrect, though one can argue that too much has been spent on the wrong things, as I do. The inflation we are seeing right now is due to people in the lower middle class having more spendable money than they have had for a long time. This is increasing demand for goods and services at the same time the supply of goods and services is tight. This is aggravated by the Federal Reserve continuing to buy Treasuries which increases the supply of base money in reserve accounts. This is independent of printing. All printing is matched with Treasury securities. This takes the money printed out of the economy and returns it to the Treasury. It is the Fed QE that is reversing this process and putting the money back into the economy. (tax cuts also do this.) A mistake, when inflation is running too high, in my view. But this fed action which helps feed into inflation does help to push up nominal earnings and the market. Stocks, like other assets tend to rise with inflation, ceteris paribus. I am not very happy with the Powell fed so far.

 

[NoahA]

what does that have to do with any of my posts?

You said government spending puts money into the economy. This you of course meant as a good thing. So my argument was that if its such a good thing, why don't they put even more into the economy than they already are?

This all gets back to what @longshort is saying. The government is horrible at allocating scare resources, and the way its all set up, politicians have every incentive to act not in the best interest of the majority.

 

[NoahA]

The U.S. government does not borrow and has no debt.

Ouch...

Many of those folks are much better off now than before the Pandemic.

Ouch again. Just because a bunch of people got some free money that they quickly went out and spent does not mean they are better for long term.

If Biden's BBB plan should by some miracle pass the Senate, many middle class families and elderly will benefit greatly in excess of any inflation suffered so far.

Ok, reading this all is getting painful.

The inflation we are seeing right now is due to people in the lower middle class having more spendable money than they have had for a long time. This is increasing demand for goods and services at the same time the supply of goods and services is tight.

This part sounds good at least.

Honestly, we are just too far apart on how we view all this so there is no need to debate back and forth. Let me just leave you with this link. This website is part of what shapes my views.


https://wolfstreet.com/2021/10/02/m...ew-out-the-already-gigantic-wealth-disparity/

 

[piezoe]

Ouch...


Ouch again. Just because a bunch of people got some free money that they quickly went out and spent does not mean they are better for long term.


Ok, reading this all is getting painful.


This part sounds good at least.

Honestly, we are just too far apart on how we view all this so there is no need to debate back and forth. Let me just leave you with this link. This website is part of what shapes my views.


https://wolfstreet.com/2021/10/02/m...ew-out-the-already-gigantic-wealth-disparity/

It is true that the covid payments were temporary, however many of the folks, once they got a taste of 15 per hour, just didn't want to go back to work for 8 or 10 anymore. They held out for higher wages. Remember the complaints from employers that they couldn't find workers. What I think they really meant was their sorry asses couldn't find workers for 10 bucks an hour any more. And thank god for that. It was a boost in the minimum wage by the back door! These workers that held out are now enjoying their higher wages.

I am almost afraid to look at Wolfstreet. Should I do it?

 

[piezoe]

You said government spending puts money into the economy. This you of course meant as a good thing. So my argument was that if its such a good thing, why don't they put even more into the economy than they already are?

It is neither a good nor bad thing, it's an essential thing so long as the economy continues to grow.. Not enough is bad (would eventually cause deflation). Too much is bad ( could eventually cause bond servicing to become too large a proportion of the federal non-discretionary budget -- which could force the fed into QE to buy back bonds and reduce debt servicing --- remember debt servicing of bonds on the fed balance sheet flows right back to Treasury). Major scale QE could contribute to inflation as it dumps more money into private sector reserve accounts while converting future Treasury liabilities to cash in private sector accounts.* The fed can always "retire" bonds by buying them and letting them mature. In the past few years, Japan, according to Stephanie Kelton, retired about have their JGBs this way, or as you guys would say, "bought ~half their 'debt' back."
________
*What the real effect of this would be is controversial among economists at present. Some say it would cause inflation; others say it would cause a loss of wealth. I could explain this but I have hunch no one here is interested. Looks like Japan has volunteered to be the Guinea Pig.