| >What do you think of the current fear of hyperinflation? In principle it is justified, the money supply is increasing endlessly. The problem is that this money doesn't flow, it's in some stagnating pond basically. You have to consider though, that although this an increase in the money supply, it is also a liability that has to be paid back eventually. When inflation doesn't materialize for a long period of time and then suddenly it goes up to a level above the target, but not in an unsustainable fashion, the Fed will be able to increase interest rates again. E.g. house prices can no longer rise because future funding is more expensive/scarce than present funding. People stop taking on more debt and they do one additional thing, they start pay their debts off. Things are heading into the exact opposite direction, as you are paying off your debts, the money supply contracts. This is why the Fed doesn't want unconventional policy like helicopter money, because there is nothing that cancels out the increase in supply, the problem with debt and QE is that you need to be credit worthy or own assets so it is extremely regressive. >I.e. the price of things people care about such as food, services and rent will continue to rise even as the Fed sells assets? This actually has nothing to do with the Fed, rather it has to do with the fact that people are working and they are producing the things that you want to buy. If there is inflation in food this is a signal that companies should produce more food, so the real question becomes whether companies are able to expand production and whether they can do so fast enough to outpace inflation. Of course, beyond a certain level of inflation it becomes increasingly difficult to do this. Simplified example: Think about it this way, you play an MMORPG and an AI can automatically generate items that people want to buy. People keep putting dollars into your game and those dollars are not consumed. You get a premium currency in the game and from a theoretical perspective it is effectively worthless, you can't buy groceries with it. However, you can buy in-game items. Now lets say you are a "central bank" in the MMO and just send everyone 1 million premium currency. The currency should be worthless now right? Actually, the AI can keep up with the production of new items, its relative value compared to items is still the same, you actually run into a completely different problem, too much money in bank accounts after people bought all the items they wanted. If new players join the game there might be enough money for everyone but it is not distributed equally and therefore they don't get any items. |