Why is there no inflation?

[trade4succes]

Skimming through the posts I haven't read the correct answer, which is:

The effect of the FED increasing money supply is being mitigated by overall deleveraging in the economy after the debt bubble.

For a good primer read the Bridgewater research section.

 

[achilles28]

Quote from trade4succes:

Skimming through the posts I haven't read the correct answer, which is:

The effect of the FED increasing money supply is being mitigated by overall deleveraging in the economy after the debt bubble.

For a good primer read the Bridgewater research section.

Exactly....

Most money in circulation is commercial bank credit. Debt is being paid back (destroyed) in the private sector. The FED is trying to offset this with monetization. And the Government, with deficit spending etc.

 

[ssrrkk]

Quote from Swan Noir:

Those that favor doublespeak have a vested interest in not sticking with the real definition of inflation. Price increases are a consequence of inflation yet the actual inflation is the increase in money supply. They only want you to notice it as it gets too late. Note my language was sloppy in my first post and I have edited it to more accurately reflect my views. Not trying to put anything over on anyone ... lol. The first sentence below desribes inflation the rest is simply nonsense!

The term "inflation" originally referred to increases in the amount of money in circulation, and some economists still use the word in this way. However, most economists today use the term "inflation" to refer to a rise in the price level. An increase in the money supply may be called monetary inflation, to distinguish it from rising prices, which may also for clarity be called 'price inflation'.[30] Economists generally agree that in the long run, inflation is caused by increases in the money supply.[31]

don't think you are right here. if we stuck with your definition, then economies can never grow without inflation.

 

[vicirek]

Quote from StarDust9182:

Money printing as inflation is a myth in my opinion due to a confusion. The analogy I like to use is that printing money and stockpiling in rooms will obviously not cause inflation or any effect at all. The key is that the money has to circulate to have an effect. Then inflation is a possible outcome.

Modern financial system largely avoids physical money printing and uses sophisticated debt instruments and derivatives instead. It occurs on global scale when portion of liabilities is being hidden and shuffled among central banks and big dealer banks internationally. It is similar to US banks shifting liabilities among themselves just before reporting dates and taking them back after that. It finally blew up because system can only take so much of stress.

We are "paperless" society and the impact of growing liabilities is not immediately recognized. Velocity of money is slow because of various mechanisms that delay the effect of increased monetary base that does not match real economic output and savings rate.

But the point is that it is still money printing in the environment of financial engineering and asset price manipulation using exactly the same money that was issued due to political pressure and not economic growth and savings that come with it.

It would be much simpler to stick to technical and very rudimentary definitions of inflation that would measure growth of debt instruments (and money is in a sense just that) against growth of real assets and savings.

The politicians would not like it for sure.

 

[sprstpd]

Quote from bonds:

yet prices seem to be coming in a bit in the supermarket

What, because the packages got smaller? Sure they've been "coming in a bit" per oz.? I call bullsh*t.

 

[StarDust9182]

Quote from achilles28:

Exactly....

Most money in circulation is commercial bank credit. Debt is being paid back (destroyed) in the private sector. The FED is trying to offset this with monetization. And the Government, with deficit spending etc.

You may be right, however, I think that this is the same explanation I hear from economists. (The other common phrase is "it's a demand problem"). I will ask you the same question I always ask, please show me some charts of this private sector debt being paid back. Most go silent at this point but perhaps you have some examples of the deleveraging.

I have not yet read the paper on the website to see what it says. But I will.

 

[Swan Noir]

If the money supply grows to accomadate trade and real growth in an economy there is, as a general rule, no deliterious effect. There are also times when a policy decision is appropriate that increases money supply since inflation (and its by products which can include rising prices) are less poisonous than the alternative of depression. I'm not suggesting modest inflation is always bad but I am suggesting that to measure it promarily by price is to use the by product as the metric.

I wonder if I have introduced symantic differences into this thread that in the end may not be very important. I think we all believe that the current Fed posture (whether appropriate or not) will come at a high price over time.

Quote from ssrrkk:

don't think you are right here. if we stuck with your definition, then economies can never grow without inflation.

 

[Swan Noir]

Dalio has been elequent on this subject (and many others) and is clearly one of the smartest of the bunch. The deleveraging is real, its massive and is a counterbalancing force against rising prices.

Quote from trade4succes:

Skimming through the posts I haven't read the correct answer, which is:

The effect of the FED increasing money supply is being mitigated by overall deleveraging in the economy after the debt bubble.

For a good primer read the Bridgewater research section.

 

[achilles28]

Quote from StarDust9182:

You may be right, however, I think that this is the same explanation I hear from economists. (The other common phrase is "it's a demand problem"). I will ask you the same question I always ask, please show me some charts of this private sector debt being paid back. Most go silent at this point but perhaps you have some examples of the deleveraging.

I have not yet read the paper on the website to see what it says. But I will.

Sure, I'll post a few...

households

banks

banks (mortgages)

 

[Swan Noir]

WOW ... and WOW again. The last graph is no surprise; even the magnitude is well know but what I hadn't quite realized was that debt never went down at all in prior recessions. I believed it had simply retreated much more this time.

It was always clear this recession was different but these two visuals begin to show just how different. It's not just magnitude it is also type.

Quote from achilles28:

Sure, I'll post a few...

households

banks

banks (mortgages)