“There’s not much the Federal Reserve can do about gas prices per se… After all, the Fed can’t create more oil.”
But the Fed can create more dollars, and for every batch of dollars it makes the number of dollars needed to buy oil goes up. So the Fed can - and does - quite a bit about gas prices; unfortunately, it’s all bad.
Once again, terrible.
In 2008, we initiated a serious of asset repurchases and interest rate adjustments and it had a big impact on the price of oil - it fell, through the floor. The problem with the analysis that money printing = inflation is that it isn’t strictly true, particularly when the economy is functioning poorly. Money supply creation has to mingle with demand to spike inflation.
The difference between 2008 and 2011 is that global demand has recovered AND the market has far fewer negative expectations about the future. We aren’t speaking the language of apocalypse anymore, which fundamentally changes the reality of commodity speculation. Incidentally all of the Middle East and North Africa are in a total uproar, creating concern about supply disruptions even before we get into what is predicted to be a difficult hurricane season.
Other factors play a role. You know how Tuscaloosa was just leveled? There’s a huge refinery there. The appreciating yuan has an impact, as does the G7 intervention made necessary by Japan’s recent earthquake.
Most importantly, though? That isn’t the point. If wages or wealth had anything approaching a reasonable distribution, money supply increases would be effectively a technical phenomenon that hurt lenders and helped debtors. Instead, asset-price inflation creates positives wealth effects for those with assets and drastically negative wealth effects for those without, especially given the inability of labor to re-price itself with the regularity of years past. Workers are accepting the same devalued salaries, meaning the outcome of inflation will be miseration, or economic growth that actually diminishes relative quality of life due to declining purchasing power.
Easy way to solve that, though. Couple inflation with tax increases to distribute the inflated wealth more effectively. It worked for Reagan!
Once again, terrible. Oh wait; I’ve never interacted with you before so to say “once again” like that would be pompous of me and really get me off on the wrong foot.
Thanks to you central planning apologists, you are correct that today “money printing = inflation isn’t exactly true.” Reason being: your nearly 100-years’ worth of Orwellian language restructuring.
Inflation was and is definitionally printing money, or more specifically inflating the money supply. By divorcing the word from its literal origins, you cloud the direct effect between money printing and the value of money.
This concept is so elementary that there was even a Duck Tales episode about how if you create money out of thin air, the value of money is diminished. And since I can already hear the leftist deflections/ad hominems about using a cartoon as an economic reference, allow me to quote from the left’s deity himself, Keynes:
Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth. …
Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. …
The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent governments, unable or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.
And in these few sentences we see inflation used properly: arbitrary printing of notes.
Update: In fact, from 1864-2003, that’s exactly how Webster’s defined inflation: “undue expansion or increase, from over-issue; — said of currency.”
This is clear in this chart where the effect of fiat currency that can be inflated at whim - such as the greenback during the “Civil War” or the Federal Reserve note when losing its silver/gold backing in the late 60’s - is clearly seen.
In a way, though, I almost can’t fault you when the world’s leading inflationist doesn’t himself know what inflation is.
And, sure, other factors than the Fed can affect money velocity (a word you didn’t use but I’ll assume is what you ultimately meant by “mingle with demand”) and money’s value - but only the Fed has been a constant disaster in devaluing the dollar.
So your “asset repurchases” are simply more of the same Orwellian doublespeak. Yes, “assets” are “purchased” (or rather, transferred), but with what value are these assets purchased if not thin air? How is the price set? What is exchanged? In a free market with non-coercive, voluntary exchange, transactions are mutually beneficial. In an “asset purchase” by the Fed, the Fed gobbles up garbage assets that governments or favored corporations cannot hold in order to offer them liquidity and… magic happens?
But I’d like to move past those rhetorical questions, your revelations about recovered global demand and comments on those nasty speculators, and dive into this line: “If wages or wealth had anything approaching a reasonable distribution, money supply increases would be effectively a technical phenomenon that hurt lenders and helped debtors.”
Ignoring the inherent subjectiveness of what “reasonable distribution” might be, you are absolutely right about what money supply increases do: “hurt lenders and [help] debtors.” Which is precisely why the Fed inflates the currency, because the federal government and its cronies are cochlea-deep in debt. What concerns me about your accurate assessment is that it seems you find this proper. That hurting lenders and helping debtors would be a worthy goal. Indeed, your next line seems to further imply this: “asset-price inflation creates positives (sic) wealth effects for those with assets and drastically negative wealth effects for those without.” If you are saying the Fed’s activity has helped the rich more than the poor, then I can only agree! But there are a couple of ways your logic fails.
First, that rich-poor contrast was not what your previous line on inflation’s intended effects was about. You reframed the argument in one deft sentence by claiming that the debtors are primarily poor and lenders are primarily rich. But while the rich may clearly be the lenders, the rich are also often the biggest debtors. The average person living paycheck-to-paycheck will worse feel the effect of the price increases as a result of inflation than the devaluation of his debt because his debt relative to the money supply is so small. On the other hand, the more debt one holds, the more one benefits from inflation.
Second, this hurting of lenders and helping of debtors, while superficially sating the left’s carnal redistributive desires to eat the rich, is actually not desirable since it would necessarily lead to fewer loans. After all, if those who would lend would be punished for doing so, they would then not lend or charge greatly to offset their increased risk. And those most in need of a loan would pay the consequences. Why would you advocate for policies that would further keep the have-nots from what the haves have?
And now on to your solution: “Couple inflation with tax increases to distribute the inflated wealth more effectively.” So you want to increase the general money supply and also usurp portions of that supply to then return some of that devalued currency, as if they were yours to distribute to begin with, in a way you deem “more effectively,” which incidentally would not mean morally nor meritoriously since you would have taken without consent and through threat of violence from the lenders and producers to give to the debtors and whichever other population or cause you - but not necessarily millions of others who would otherwise voluntarily do so - deem worthy.
It’s comforting that you, Ben, and the boys have all the answers. All this freedom to decide what to do with my life and my property is so tiresome anyway. Choices are merely an obstacle to reaching utopia, aren’t they? With the nearly endless pauses for decisions to be made… Liberty is unhedged trouble. It is the serf with no worries who is the happiest of all! Freedom is slavery!
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