<story><title>Why inflation is not a threat</title><url>https://www.taxresearch.org.uk/Blog/2021/03/14/why-inflation-is-not-a-threat/</url></story><parent_chain><item><author>throwaway316943</author><text>Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money.&lt;p&gt;A better solution in my mind would have been to directly force the original wealth back into the system.</text></item><item><author>Robotbeat</author><text>Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.</text></item><item><author>throw0101a</author><text>&amp;gt; &lt;i&gt;A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.&lt;/i&gt;&lt;p&gt;&amp;quot;How the CPI measures price change of &lt;i&gt;Owners’ equivalent rent of primary residence (OER)&lt;/i&gt; and &lt;i&gt;Rent of primary residence (Rent)&lt;/i&gt;&amp;quot;:&lt;p&gt;* &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.bls.gov&amp;#x2F;cpi&amp;#x2F;factsheets&amp;#x2F;owners-equivalent-rent-and-rent.pdf&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.bls.gov&amp;#x2F;cpi&amp;#x2F;factsheets&amp;#x2F;owners-equivalent-rent-an...&lt;/a&gt;&lt;p&gt;&amp;gt; &lt;i&gt;The whole argument for printing money being OK is dumb. If it&amp;#x27;s OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?&lt;/i&gt;&lt;p&gt;Because while it may be &amp;quot;OK to print money to pay for some things&amp;quot; it may &lt;i&gt;not be OK for others&lt;/i&gt;. Making &amp;quot;everyone a millionaire&amp;quot; may be one of those times when it is not-OK.&lt;p&gt;&amp;gt; &lt;i&gt;Ultimately, printing money doesn&amp;#x27;t make anyone more productive or produce anything.&lt;/i&gt;&lt;p&gt;Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more &amp;quot;productive&amp;quot; aspects of the economy:&lt;p&gt;* &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Money_creation&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Money_creation&lt;/a&gt;&lt;p&gt;You&amp;#x27;ve managed to fit quite a few straw men in one post.</text></item><item><author>daniel-s</author><text>A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.&lt;p&gt;When you create new money prices don&amp;#x27;t rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.&lt;p&gt;The world used gold&amp;#x2F;silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.&lt;p&gt;The whole argument for printing money being OK is dumb. If it&amp;#x27;s OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?&lt;p&gt;I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you&amp;#x27;re also buying them with less valuable currency.&lt;p&gt;If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I&amp;#x27;m still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I&amp;#x27;m also buying them with currency that&amp;#x27;s less valuable.&lt;p&gt;Ultimately, printing money doesn&amp;#x27;t make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.</text></item></parent_chain><comment><author>lumost</author><text>Ironically the only market mechanism to force money back into the rest of the system is for interest rates to rise.  If real interest rates sat at ~7% those with money would attempt to lend it and liquidate unproductive assets, those borrowing to purchase unproductive assets would be forced to sell.  Productive, but high cost assets would come down in price (housing) due to lack of demand.  For interest rates to rise, there will need to be a lack of liquidity at the current interest rate, many businesses are now dependent on artificially low interest rates and guaranteed liquidity.&lt;p&gt;Unfortunately we&amp;#x27;ve built an economy which requires progressively lower interest rates to sustain.  Rebalancing will be expensive ( see the interest rate increase in the run-up to &amp;#x27;08 )</text></comment>
<story><title>Why inflation is not a threat</title><url>https://www.taxresearch.org.uk/Blog/2021/03/14/why-inflation-is-not-a-threat/</url></story><parent_chain><item><author>throwaway316943</author><text>Does it actually address the source of the problem though? Illiquidity is caused by people hoarding wealth and not circulating it in the economy. Printing money gets more cash in the system but does not free up the hoarded wealth which is still locked up in assets that can remain unproductive. This seems like a temporary patch. If you take your example where there is not enough cash to pay a plumber, the cash is amassed in the accounts of a small number of people that are unable to generate enough work to keep all of the plumbers employed. You print more money to fix the supply problem but this immediately generates another; who gets the new cash first? We give it to institutions that will lend it so that we can reuse the existing system to vet people worthy of loans. So the credit worthy get access to new money and maybe they use it to do new construction or renovations that require plumbers. The plumbers, and others, now have income again. Problem solved? Well no, what about the original wealth that was hoarded? If it was kept as dollars it’s now depreciating but it’s likely that as soon as that started happening it would have been converted into another form that would retain its value. There are a limited set of assets that retain their value in face of inflation so we would see circulation in that part of the economy up until all of the original wealth had been converted into a stable form. It would still be driven by a small number of people though so the impact would be limited. What happens if you don’t continue to print money? I would think it would eventually find its way into one of these asset traps where it would then remain and we’d wind up right back at the start. So keep pumping new money in? But now it no longer affects the original wealth since that has been converted into other forms so the original problem will remain unsolved and you’ll need to keep the tap on forever so you don’t run out of money.&lt;p&gt;A better solution in my mind would have been to directly force the original wealth back into the system.</text></item><item><author>Robotbeat</author><text>Yeah, liquidity is really important. When liquidity runs out, you have people who are CAPABLE and WILLING to work being unable to find productive work. The way around it is to do odd jobs, DIY stuff they’re not good at because they have no choice, and barter (you see this increase during depressions), but this is way less efficient. So “printing money” (providing liquidity) actually increases productivity in the same way division of labor increases productivity. You can pay a plumber instead of taking 10 times longer and doing a poorer job, for instance.</text></item><item><author>throw0101a</author><text>&amp;gt; &lt;i&gt;A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.&lt;/i&gt;&lt;p&gt;&amp;quot;How the CPI measures price change of &lt;i&gt;Owners’ equivalent rent of primary residence (OER)&lt;/i&gt; and &lt;i&gt;Rent of primary residence (Rent)&lt;/i&gt;&amp;quot;:&lt;p&gt;* &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;www.bls.gov&amp;#x2F;cpi&amp;#x2F;factsheets&amp;#x2F;owners-equivalent-rent-and-rent.pdf&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;www.bls.gov&amp;#x2F;cpi&amp;#x2F;factsheets&amp;#x2F;owners-equivalent-rent-an...&lt;/a&gt;&lt;p&gt;&amp;gt; &lt;i&gt;The whole argument for printing money being OK is dumb. If it&amp;#x27;s OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?&lt;/i&gt;&lt;p&gt;Because while it may be &amp;quot;OK to print money to pay for some things&amp;quot; it may &lt;i&gt;not be OK for others&lt;/i&gt;. Making &amp;quot;everyone a millionaire&amp;quot; may be one of those times when it is not-OK.&lt;p&gt;&amp;gt; &lt;i&gt;Ultimately, printing money doesn&amp;#x27;t make anyone more productive or produce anything.&lt;/i&gt;&lt;p&gt;Money printing helps with liquidity, which helps the economy to keep running, which can (but is not guaranteed to) help with more &amp;quot;productive&amp;quot; aspects of the economy:&lt;p&gt;* &lt;a href=&quot;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Money_creation&quot; rel=&quot;nofollow&quot;&gt;https:&amp;#x2F;&amp;#x2F;en.wikipedia.org&amp;#x2F;wiki&amp;#x2F;Money_creation&lt;/a&gt;&lt;p&gt;You&amp;#x27;ve managed to fit quite a few straw men in one post.</text></item><item><author>daniel-s</author><text>A normal household has to pay rent or make mortgage payments. To arbitrarily exclude the biggest expense to consumers from CPI is pretty misleading.&lt;p&gt;When you create new money prices don&amp;#x27;t rise evenly. At the moment we have new money being created by central banks and given to privileged institutions who get access to free money. They use that to buy investments: real estate, stocks, etc. These are precisely the things getting really expensive. The last things to get more expensive during big cycles of inflation are employee wages.&lt;p&gt;The world used gold&amp;#x2F;silver for its currency for most of human history until 1970 when we entered this period of worldwide fiat currencies. Our current situation is pretty remarkable.&lt;p&gt;The whole argument for printing money being OK is dumb. If it&amp;#x27;s OK to print money to pay for some things why are you not doing it more? Why not make everyone a millionaire?&lt;p&gt;I think that another deception is that we should ordinarily be experiencing price deflation. Every day our society is getting more efficient at making things. If prices for goods are staying the same then it may not be that their value has not changed, they may be less valuable goods, but they cost the same because you&amp;#x27;re also buying them with less valuable currency.&lt;p&gt;If you have gone through years of moving everything to China to make it cheaper to manufacture, improved technology to make processes more efficient, etc. and I&amp;#x27;m still paying the same amount for all of the stuff in my life, then again, maybe all these things are cheaper, but I&amp;#x27;m also buying them with currency that&amp;#x27;s less valuable.&lt;p&gt;Ultimately, printing money doesn&amp;#x27;t make anyone more productive or produce anything. All it does is redistribute wealth from those that were first to get the new free money away from those that were last to contact it.</text></item></parent_chain><comment><author>ericd</author><text>Pretty sure illiquidity is not caused by wealth hoarding. It’s caused by taking out more debt than one can service, and people becoming scared to lend to others, because they’re worried they won’t be paid back. When everyone gets scared at once, things grind to a halt. And there’s a natural tendency while times are good to take out more and more debt, because you can use it to enhance your productivity.&lt;p&gt;EDIT: (so things naturally trend toward the overlevered state and a crunch)</text></comment>