patrick.net

Money supply and price increases are not correlated.

Demand causes inflation.

In this case, loan demand, right? Can you expound?

control point says

Demand causes inflation.

or lack of supply (rental housing inventory, small beef herd), or legislated higher prices (drug companies able to raise prices without negotiation).

CL said: Is it not true that since new money is not really created that QE does not cause inflation...
QE is non-sterilized activity on the open market. The Fed buys Treasuries (and in the most extreme case, asset backed securities) with newly created electronic money.

CL says

In this case, loan demand, right?

Yes...

CL says

Can you expound?

I'm really not trying be be funny, but you've basically got it. Dipshit Austrian's can get their heads wrapped around it - we could printed elventy bazillion dollars every second, but if no one actually attempts to spend those dollars on anything, inflation goes nowhere. Demand comes first, always has, always will. When you say new money is not really created - what you are basically saying is each of these newly printed dollars are not being spent at the same rate as before. The amount of times money is spent is money velocity.

And in case you didn't know, money supply * Money Velocity = GDP. Also known as aggregate demand. Hence, demand causes inflation.

If you give me all the money, it does not cause inflation.

If you give everyone else all the money, it does cause inflation.

Thanks guys!

CL says

Does QE cause inflation, or not?

control point says

Money supply and price increases are not correlated.

Don't even use the word inflation. It has been thoroughly poisoned by the bankers and the average person doesn't even known what the term means as demonstrated by control point.

Instead, use the terms currency debasement and cost of living increases or CB and COLI if you really need to use short terms. These terms are disambiguous and allow for more accurate discussion of the subject matter.

And yes, currency debasement does cause cost of living increases. It's not the ONLY contributor to COLI, but it is most certainly a contributor. Demand and lack of supply are other contributors, as is wealth inequality, outsourcing, taxing the middle class, subsidizing corporations, and weakening unions. Currency debasement always increases cost of living relative to where the cost of living would be without the currency debasement. So if cost of living dropped 10% while currency was debased 10%, then had the currency not been debased, cost of living would have dropped about 19.2%. Unfortunately, most Americans are too dumb to comprehend this idea or to do the math, so they won't even understand this post or how I arrived at that figure.

Dan8267 says

Don't even use the word inflation. It has been thoroughly poisoned by the bankers and the average person doesn't even known what the term means as demonstrated by control point.

Similarly, others demonstrate an inability to comprehend previous educations.

http://patrick.net/?p=1280356

control point says

Money supply and price increases are not correlated.

Demand causes inflation.

Demand does not cause inflation. People can have a demand for any type of product but if they can't afford it what good is demand?

EBGuy says

CL said: Is it not true that since new money is not really created that QE does not cause inflation...

QE is non-sterilized activity on the open market. The Fed buys Treasuries (and in the most extreme case, asset backed securities) with newly created electronic money.

The Fed Buys Treasuries which in turn the government receives the money. What the hell do you think the government does with the money? Well, pay their employees and social welfare receiptants, and what the hell do you think the employees and welfare folks do with all that extra created money that was funded by the FED? SPEND IT! Holy sh!t can't believe the rest of the clowns in this thread didn't think of that.

OP to answer your question, YES!! QE Causes inflation.

spydah_hh says

People can have a demand for any type of product but if they can't afford it what good is demand?

That isnt demand.

control point says

spydah_hh says

People can have a demand for any type of product but if they can't afford it what good is demand?

That isnt demand.

Nor is demand inflation.

it contributes, but not any one factor is the 'cause' of inflation.

CL says

Does QE cause inflation, or not?

yes, look at stocks and REIT.

control point says

Money supply and price increases are not correlated[...]And in case you didn't know, money supply * Money Velocity = GDP.

Your statements conflict. MV=PQ. Thus, if M increases, so does price * quantity of goods sold (increased money chases limited goods and assets).

Banks are flush with cash, which they are not lending to Main Street. It's important to keep in mind, M=MB/R, where R=Excess Banking Reserves. IOW, MV will not increase as a result of FED printing as long as the banks hold the additional money in reserves. Joe Blow needs to get the money, or it's rendered NULL.

A trend was established in the 70's and early 80's of increasing rates. The subsequent double-digit rates, allowed the FED to continually decrease rates for 30 years in order to continually stimulate the economy. So we had 30 fat and easy years where all the FED had to do was push a button in order to put food on Joe Blow's plate and stock his garage with new toys. Eventually, we hit the 0-bound and landed in a liquidity trap.To reverse the rate trend, the FED needs a new drug. Yes, releasing the excess banking reserves into the economy will cause inflation. The question is, what economic factors could offset the influx of money enough to keep it from establishing a long-term trend?

moldhaven says

The question is, what economic factors could offset the influx of money enough to keep it from establishing a long-term trend?

http://research.stlouisfed.org/fred2/graph/?g=1cel

8 million jobs missing in the productive economy

Key thing about the 70s was there was a bumrush of baby boomers getting jobs, +20 million new jobs that decade.

The Obama recovery has seen +10M jobs since 2009, but nearly all of that was just clawing back what was lost in the 2008 dump.

We're in a post-labor economy now, so we're not going to get a wage-price spiral like the 70s, outside the health sector of course, that's the last bastion of labor with pricing power.

Of course, along with the landlords they're robbing the rest of the economy, but that's the way we want it apparently.

moldhaven says

Your statements conflict. MV=PQ. Thus, if M increases, so does price * quantity of goods sold (increased money chases limited goods and assets).

Not if velocity drops.

Dan8267 says

So if cost of living dropped 10% while currency was debased 10%, then had the currency not been debased, cost of living would have dropped about 19.2%. Unfortunately, most Americans are too dumb to comprehend this idea or to do the math, so they won't even understand this post or how I arrived at that figure.

Well, perhaps most Americans understand the concept of money velocity so they know that your 19.2% is crap. You could print $100 trillion, give it to me, but if I just put it under my mattress, it would cause exactly 0% inflation.

And this is another reason why inequality causes deflation. As the rich get richer, they spend a smaller and smaller % of their wealth so velocity goes down, which is precisely what we've seen over the last 20+ years.

spydah_hh says

Demand does not cause inflation. People can have a demand for any type of product but if they can't afford it what good is demand?

As you said--we've been over this already. A prerequisite for demand is an ability to pay.

tatupu70 says

As you said--we've been over this already. A prerequisite for demand is an ability to pay.

Right but you and I know that demand changes all the time. It goes up and down. If prices are low chances are demand will rise, but if prices are too high demand will fall. Therefore demand cannot be a prerequisite of inflation.

spydah_hh says

The CPI isn't a good method anymore. The US has changed it so many times that you might as well discard it.

I see this on pat.net often from you and mell and others of similar mindsets. Yes, the CPI methodology has changed and yes, the basket of goods has changed over time. It has to--look at how home heating fuel choice has changed over the last 50 years. Or use of landline phones vs. cell phones. Even the use of equivalent rents makes perfect sense when you think about it--the reason people would pay for to buy a house is because of the potential for appreciation. So the extra cost is really to purchase an asset and assets aren't included in CPI.

If you did, in fact, do your own CPI calculation and it was significantly higher than the official version--please post it here. I'd definitely be curious to see it. The government does have an incentive to keep CPI low to reduce COL increases low. I've just yet to see anyone post anything more than--my grocery bill is higher, therefore government CPI is bullshit!!! Obviously some things will rise faster than CPI and some slower-that's intrinsic to the calculation...so the fact that the some food is rising faster than CPI is proof of nothing.

tatupu70 says

If you did, in fact, do your own CPI calculation and it was significantly higher than the official version--please post it here. I'd definitely be curious to see it. The government does have an incentive to keep CPI low to reduce COL increases low. I've just yet to see anyone post anything more than--my grocery bill is higher, therefore government CPI is bullshit!!! Obviously some things will rise faster than CPI and some slower-that's intrinsic to the calculation...so the fact that the some food is rising faster than CPI is proof of nothing.

I posted this a year ago. But here's the link.

http://patrick.net/?p=1240139&c=1067352#comment-1067352

spydah_hh says

Right but you and I know that demand changes all the time. It goes up and down. If prices are low chances are demand will rise, but if prices are too high demand will fall. Therefore demand cannot be a prerequisite of inflation

Yes, demand changes--often based on income. Higher prices do tend to reduce demand, all else equal. Of course, all else in never equal. Think of it this way- In order for prices to rise, there must be higher demand. The entire demand curve has shifted upwards. Otherwise, profits would fall and prices would fall back to the profit maximizing price. So, increased demand is absolutely a prerequisite for inflation.

spydah_hh says

I posted this a year ago. But here's the link.

http://patrick.net/?p=1240139&c=1067352#comment-1067352

It's as I suspected--not a good basket of goods. Gold is not a consumable and should never be included. If you're going to include energy, why not natural gas? It is the primary heating fuel in the US at this point. And while I understand the use of commodities--really you should use the price of goods at the point of sale. Nobody buys corn or meat for dinner on the commodity market.

Do the analysis again with a proper basket and see how you do.

tatupu70 says

Yes, demand changes--often based on income. Higher prices do tend to reduce demand, all else equal. Of course, all else in never equal. Think of it this way- In order for prices to rise, there must be higher demand.

This is false, you do not need higher demand for prices to rise. The money supply can increase prices as well or decrease it. So if interest rate are low, people are borrowing money and spending more money then prices will rise because the low interest rates causes people to borrow more which in turns cause spending to increase. So in this sense demand has increased because of interest rates.

Now for the other end, if the money is printed such as QE. First you have to understand what happens in QE. QE is when the fed lends money to the government, not just to the banks. The fed lent money to the government (indirectly) because other government stopped buy US treasuries (or at least there's a shortage or treasury purchases needed to keep the government going) this is why the FED balance sheet is up almost 5 trillion dollars. So when the government receives all this created money they spend it on various government programs such as healthcare, military, welfare, housing, plus their employees. So it's not like this money was printed and not sent out into the economy it is. A lot of it is also purchased on imported goods, therefore a lot of the money also leaves the economy too. So a lot of the inflation is exported but doesn't mean all of the inflation is exported or halted in bank vaults. Therefore prices still rise, but just imagine if the dollar wasn't in global demand and we printed all this money, inflation would have been through the roof. But the world is slowly moving away from the dollar so I expect inflation to rise even more in the future.

tatupu70 says

It's as I suspected--not a good basket of goods. Gold is not a consumable and should never be included. If you're going to include energy, why not natural gas? It is the primary heating fuel in the US at this point. And while I understand the use of commodities--really you should use the price of goods at the point of sale. Nobody buys corn or meat for dinner on the commodity market.

Do the analysis again with a proper basket and see how you do.

I am sure if i used natural gas it would of been the same but i used coal since a lot of energy is use from coal anyway. Gold isn't a consumable? Really, didn't think people did not buy jewelry. But nonetheless gold is use as a hedge against inflation so Included it. Everything except for milk has vastly outstripped the rate of income. The items I listed are items that many people use, corn is used in just about every food product there is simply because of it being so cheap mainly through government subsidy. Soybeans, common item, coal common item, cattle common item, oil common item. I can go on with more items and the result will still be the same. I don't need some lame government basket of goods to tell me that the price of food or living are rising. Simple math can easily tell me truth.

tatupu70 says

Not if velocity drops.

Based on the formula, that's stating the obvious. But the given scenario was not about multiple events; it was about the single event of directing R into M. In actual practice, this typically fuels velocity as opposed to causing a decrease. Thus, a decrease would most likely need to result from a separate event.

Yes.

Certainly the Fed fended off continued malaise and 1930s-style price discovery.

http://research.stlouisfed.org/fred2/graph/?g=1c88

shows there were 3 pumps, the big one in 2009, the follow-on in 2010-2011 (including Twist, not shown on that graph), and the post-election pump of 2013-14.

Job growth since 2010 has been eerily consistent, but:

http://research.stlouisfed.org/fred2/graph/?g=1cgY

shows we're still 10M jobs away from 2000-level 'full employment', and all those jobs are full-time jobs.

P/T employees have little bargaining power, given the shortage of f/t jobs and demographics of Gen Y flooding into the workforce now.

Wages rose ~8% pa for most of the 70s, that's inconceivable now.

http://research.stlouisfed.org/fred2/graph/?g=1aJQ

No wage inflation, no inflation!

Good question. The stated purpose of QE was to counter "the deflationary pressure"; in other words, if QE did not create inflationary pressure, it would have been deemed as unmitigated failure.

The problem with the "1930s-style price discovery" was that the price crash was prevented from taking place earlier and quicker like it did during the 1920-21 market correction. Instead, the government under both Hoover and FDR tried to force up the nominal prices, and therefore the resource reallocation in the economy had to take longer to implement, benefiting the existing holders of obsolete capital at the expense of the society in general, especially those whose livelihood depends on new opportunities such as the youth.

The crashes, then and now, took place because of previous misallocation of capital. The least painful way of removing of such misallocation was/is a rapid correction shaking out the incompetent companies and making the surviving companies more profitable, which then in turn would hire more people to facilitate their better ways of doing business. The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution. Dreaming about a market economy without crashes eliminating badly run companies is like talking about evolution without extinctions. If there had been the supposed busy-bodies all along the evolutionary past, the dodo birds would not have gone extinct nor would have the giant dinosaurs, leaving no niche to fill by mammals and therefore no human at all. In the case of corporate evolutions, if the corporations do not pay for the price of extinction due to their own malfeasance, it is the flesh and blood human beings who have to pay the price of corporate rescue and economic retardation. Anthropomorphizing corporations in this way is fundamentally anti-human.

The paycheck economy is suffering because of FED and government policies turning a market place of capitalists competing for labor into a bunch of rent-seeking fat cats waiting for manana falling from the Cargo-Cult FED and government. Read up on Cargo-Cult. The bastardized Keynesianism is essentially a modern form of Cargo-Cult.

moldhaven says

But the given scenario was not about multiple events; it was about the single event of directing R into M.

The given scenario was the correlation between M and P. Given V is non-constant (and also non-linear) MV = PQ only proves my point. (and is what I said: Money supply * money velocity = GDP.)

In other words, the statements do not conflict.

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution.

And this is why the tophat n' monocle crowd is so pissed off at Obama. (and FDR before him)

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution mechanism of transferring capital from weaker to stronger hands.

The world was Uncle Warren's Oyster in 2008-2009, and he did pretty good on the firesales, LOL.

His purchase of BNSF is one for the ages.

control point says

Reality says

The crash and the ability for new businesses to buy up old assets at discount during those crashes are the capitalistic market economy's fundamental source of vitality, progress and evolution.

And this is why the tophat n' monocle crowd is so pissed off at Obama. (and FDR before him)

They are not pissed off at all, they are pleased with him, the wealthy and the 47% because Obama increased the at that time decreasing wealth disparity at the expense of the middle-class. The only reason why you hear more dissident voices against Obummer from the wealthy is because they have enough fuck-you money to be independent and thus can turn on their yesterday's favorite on a dime. The 47% can't oppose him since they are worried about stopping government "support" (dependence). Letting the 2008 market clear out itself and the TBTFs (and a bunch of wealthy investors) fail would have been the best option for the economy (and also followed the most important rule-of-law). That and prosecuting a bunch.

Bellingham Bill says

The world was Uncle Warren's Oyster in 2008-2009, and he did pretty good on the firesales, LOL.

His purchase of BNSF is one for the ages.

He would not have bought any of this crap if he hadn't gotten government buy-in for backstops, relieving him of any tail-risk whatsoever.

sbh says

The Fed influences the primary market for its debt during QE, but once QE is over it's the secondary market that tells the tale. There is no evidence of a change in falling yields.

I agree but must clarify that falling yields were interrupted when we hit the zero bound. Volcker ran the rates up high enough, that the FED got away with 30-years of subsequent rate lowering stimulus. But now that all of Volcker's candy has been eaten, the FED needs a new cannon to blast us out of the liquidity trap. We most likely agree the amount of QE put forth hasn't the power to trigger a sustained rate trend reversal, given the current economic conditions.

That said, the fact that we are still stuck at the zero bound is not evidence that the pumping had zero affect on inflation. We're still seeing the effect of having printed, but it is relative to where we would be had we never printed in the first place.

sbh says

But, ask yourself, why would we have interest rates that high?

This is what these assclowns cant figure out. Yes, yes, please give me a higher return on my treasuries. Yeah, 5-6% sounds good.

Well, how about 10-12%?

No, no, no, not that fucking high.

control point says

The given scenario was the correlation between M and P. Given V is non-constant (and also non-linear) MV = PQ only proves my point. (and is what I said: Money supply * money velocity = GDP.)

In other words, the statements do not conflict.

If I'm not mistaken, you also said, "Money supply and price increases are not correlated." Perhaps I'm misunderstanding your intention with the statement, but on the surface it appears to say that M and P have no correlation what-so-ever, despite being on opposite sides of the equation.