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0 pointsTheOtherHobbes3y ago0 comments

Inflation is mostly caused by two things. The first and most obvious are external commodity supply price shocks which crash demand because essential inputs and their dependent outputs become unaffordable. (The demand is still there of course, but it becomes too expensive to satisfy it.)

The second is misdirected money supply which steers money towards sweatable assets like property and stock ownership, and away from productive investment, original invention and research, and small business creation.

Effectively this causes an internal supply shock which raises the prices of the sweatable assets for the ownership class and impoverishes everyone else, to the point where essentials like housing become unaffordable and demand starts to seize up. Small businesses are forced to close rather than being encouraged to open.

Inflation has very little to do with money velocity, interest rates, unemployment, wage rises, or any of that other supply side nonsense.

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rogersnm3y ago

> The second is misdirected money supply which steers money towards sweatable assets like property and stock ownership, and away from productive investment, original invention and research, and small business creation.

You appear to be arguing that an increase in the money supply for "sweatable assets" comes at the cost of a reduction in the money supply for everything else. If this were true, you'd expect inflation in "sweatable assets", and deflation elsewhere, which is not what's observed (we currently have inflation in consumer goods, and if anything, housing & stocks are deflating).

> Inflation has very little to do with money velocity, interest rates, unemployment, wage rises, or any of that other supply side nonsense.

It seems to be a substantial leap to suggest that inflation has little to do with interest rates, given that Central Banks are tasked with managing inflation, and the main lever that they pull on are interest rates. A more typical view is that, in the long run, inflation depends on the quantity of money, and interest rates affect that quantity.

galaxyLogic3y ago

I can see the logic behind raising interest rates to fight inflation. I can choose to buy a new bicycle today, or put the money to bank. If interest rates are higher I am more likely to put the money to bank for later consumption. I will not buy the bicycle this year, which reduces the demand for bicycles this year and thus their price goes down or at least does not rise.

But, inflation is also caused by lack of supply. How do we get more supply? By people starting businesses. But in order for them to do that they must get a cheap loan. But Feds have raised the rates so they can not get a cheap loan and thus do not start a new business and thus supply does not go up.

So Fed increasing rates would seem to help with demand-side inflation, while increasing supply-side problems. But demand-side inflation will fix itself, when things cost more people will spend less. So why is fed raising interest rates?

It's starting to look to me like inflation is a political problem. When things cost more people get angry and are less likely to vote for those currently in power.

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