[astrange]

It's the opposite, our deficit is the way we run our worldwide financial empire that easily absorbs inflation. Your econ101 household analogies are for other little baby economies.

https://twitter.com/quantian1/status/1260387202871287809

Instead, inflation comes from energy shocks (70s) or supply chain shocks (now). And the current one is mostly because everyone started online shopping due to being stuck at home.

[WalterBright]

> inflation comes from energy shocks

The disproof of that is straightforward. Have we ever had deflation from gluts? There have been several oil gluts since the 70's. No deflation.

[astrange]

This isn't my personal theory here, it's the standard explanation.

It basically only happened once. One reason is that preventing deflation is the Fed's job and they've been doing it. Another is that for a wage-price spiral you need both things to increase; in the 70s we had wage spirals because we had a lot more union workers with automatic cost of living increase contracts. Losing those means inflation doesn't happen as fast, and workers don't exactly expect wage decreases the same way, so it's assymetric. (Japan does have wage decreases, and has been stuck in deflation for decades.)

Basic article:

https://www.frbsf.org/economic-research/publications/economi...

[WalterBright]

So the Fed prevents deflation by causing inflation.

I.e. not oil shocks.

[astrange]

It’s “stable prices and maximum employment” ie preventing both. They mostly fail to cause inflation, which is why we undershoot the 2% target more often than not.

Compare to Argentina for a country that really fails at it.