[headbee]

After the Federal Reserve adds money to the economy, they usually want to take some of it back out. They take money out either by selling bonds or through taxes. The goal of removing money from the economy is sometimes to control inflation, but it's debated whether "printing money" actually affects inflation.

[usrnm]

> it's debated whether "printing money" actually affects inflation

The fed "printed" a shitton of money during Covid, dismissed all inflation concerns, and now, two years later, we're facing record inflation. I'd say there is a good chance that it does in fact affect inflation

[lesuorac]

Even a broken clock can get the time correct.

Happy to see an article or w/e from you in 2020 correctly predicting the actual inflation and when it was going to occur. Saying everytime the fed does something that it'll cause inflation and then waiting years to say "Ha told you so!" is not impressive and not even p-hacking since you don't even have a p variable.

[influx]

What's the argument that it doesn't affect inflation? If the feds printed infinity dollars, surely each dollar would become less as it approached infinity? Otherwise, we should just do that and give everyone money?

[criddell]

I think you are asking about modern monetary theory. If you google that term you might find what you are looking for.

[influx]

Thanks, this was exactly the term I was looking for, will read up!

[thehappypm]

MMT has substantial critics

[shock-value]

Are you implying that it's impossible to draw such a conclusions from particular events such as those of 2020? Or that an increase in the size of money supply does not promote price inflation, all else equal?

Don't think there is much credible evidence or opinion regarding the latter.

[colinmhayes]

The empirical evidence that money supply increases don't necessarily cause infaltion is https://fred.stlouisfed.org/series/M2SL from 2009 to 2019. Money supply doubled and inflation was non-existent. Obviously this is an incredibly complex topic, but there was at least some reason to believe inflation wouldn't be as high as it has been. There are also many reasons beside money supply inflation for the rise in price inflation.

[shock-value]

The key phrase is of course "all else equal". A lot was going on in that decade that could (and is) argued to have been an opposing deflationary force. Worldwide demographics and productivity improvements, in particular. (On a separate note, much of that is or will be slowing/reversing in the coming years.)

To argue that an increase in money supply wouldn't lead to price inflation (again, all else equal) implies that the difference would just be hoarded indefinitely rather than used to buy anything, which seems unlikely just on the face of it.

[colinmhayes]

Sure, but all else wasn’t equal during covid, so I’m not sure that’s a fair addendum.

[lesuorac]

> all else equal?

Reality is never all else equal.

---

> Are you implying that it's impossible to draw such a conclusions from particular events such as those of 2020?

That's not my claim at all. In fact I've invited the person to link me to their article explaining their analysis of 2020 and why it would lead to inflation in 2022. My point is strictly that people always claim that X is going to cause inflation and then just wait until inflation occurs to say "Aha, X does cause inflation" while doing 0 analysis to show that it was X as opposed to literally any other reason.

[shock-value]

> Reality is never all else equal.

Agreed, but that's not really relevant to the discussion.

> My point is strictly that people always claim that X is going to cause inflation and then just wait until inflation occurs to say "Aha, X does cause inflation" while doing 0 analysis to show that it was X as opposed to literally any other reason.

But we are talking about the money supply. Prices are measured in units of money. You are suggesting that there is not a reason to think that changes in the size of the money supply influence price inflation. That makes no sense. Unless that additional money is just being systematically hoarded which seems unlikely in the long run.

Put another way, a mismatch between the money supply and the demand for money (for use as a medium of exchange) is essentially what price inflation is, almost by definition. So whatever the underlying "cause" of inflation, it's also always fair to say that the money supply was or became too large to keep it in check.

[nomel]

I know nothing of the economy, but I was pretty convinced by this: https://www.longtermtrends.net/m2-money-supply-vs-inflation/

For most significant spikes, there's a two year delay to a spike in inflation. 2009 and 2012 being a clear violation of that observation.

[lesuorac]

I'm not sure how that graph convinced you of anything, it looks mostly like two random lines. Would be much nicer if there was some equation that correlated the two.

It does look like there are only 3 scenarios ('74, '80, '22) of a spike in m2 preceding a spike in inflation. But the m2 spike in '22 is so much larger (~2x) than '74 and '80 and the inflation spike is so much less (~0.7x) so the correlation of those variables based on those 3 samples seems poor.

But there's also '61, '67, '83, '01, '09, '11 where there was solid m2 growth or a spike and no inflation.

[mwint]

Is there any evidence the other way? I know, proving a negative, but I’d argue the null hypothesis here is “pumping money into the economy causes the economy to have more money”

[smileysteve]

But it should be possible for the fed to react to states opening, paycheck protection infusions, unemployment boosts, and stimulus checks.

Imo, once us states began reopening the fed should have carefully moderated their equity and qe buys maybe even selling positions they opened in April 2020 as early as July 2020. Combine that with vaccine timing around May 2021 where a single 50bps change could have eased in.

[jhobag]

the subtext here, after they kept insisting that inflation is transitory and that we are not in a recession/soft landing messaging, is that they dont want to be seen as tightening into a downturn

[whatever1]

In Europe we did not print (that much) money and still got inflation.

In fact, the countries that use the same euro currently posted different inflation rates. In your economic model we should have evenly distributed inflation.

So there you go.

[chordalkeyboard]

https://en.wikipedia.org/wiki/Richard_Cantillon#Monetary_the...

> the countries that use the same euro currently posted different inflation rates.

this is expected.

> In your economic model we should have evenly distributed inflation.

no one expects inflation to occur uniformly. its well understood that one of the prime distortionary factors that result from money printing is that the price level does not adjust uniformly, but responds to where the money is spent. This is bad for inequality because typically the newly printed dollars are preferentially routed to politically connected client groups who then use these new (unearned) funds to purchase assets at prices that have not had time to adjust to the increased money supply.

[missedthecue]

"but it's debated whether "printing money" actually affects inflation"

...yet no one, not even MMTers will advocate for unlimited printing. Curious.

[belltaco]

Curious how the physical laws of the universe can be violated by printing infinite things.

[missedthecue]

I didn't say infinite, I said unlimited.

[meragrin_]

The Federal Reserve can tax?

[headbee]

Not directly as far as I know, but federal taxes are the other mechanism by which money can exit the economy. I should have stated as such.

[NovemberWhiskey]

How do taxes cause money to exit the economy? The government spends every cent it takes in from taxes (and some more): what happens is just redistribution.

So (e.g.) it takes taxes from overpaid SV software engineers and makes Social Security payments, buys missiles from Lockheed Martin, pays interest on debt, etc.

No; the Federal Reserve has essentially complete control over the monetary base.

[meragrin_]

> How do taxes cause money to exit the economy?

Less money is printed to cover the current budget.