[neilwilson]

Inflation is never caused by there being 'too much money'. It's caused by people spending and choosing to pay the higher prices on offer, rather than shopping around, saying 'no deal' or saving.

A $100 in a drawer can't cause inflation. It's not a stock problem; it's a flow problem.

Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation. Firms are too scared to push prices for fear of losing market share.

We don't need hair shirt people going around confiscating assets from people. What we need is more investment to create more capacity to supply, and anti-trust action in any areas where a monopoly has arisen.

We don't need an Office of Budget Responsibility, we need an Office of Price Competition.

The target should be to maintain leptokurtic turnover vs price curves in all markets. Then we'll have stable prices.

[rogersnm]

> It's not a stock problem; it's a flow problem.

It's arguably both a stock problem and a flow problem (MV = PQ). If the stock is constant and the flow increases, you get inflation. If the flow is constant and the stock increases, you get inflation.

> Inflation is always, everywhere, a lack of effective competition. In situations of excess supply you have very little to no inflation.

Excess supply at a given price level almost by definition means prices should trend downwards (it is price that ultimately balances supply and demand, and therefore it is too high a price that causes the relative excess of supply/lack of demand).

The price of commodities around the world is going up, by definition this cannot be due to a lack of competition - there must be something else at play.

[marcosdumay]

What is missing from every discussion like this are the constraints over V.

AFAIK, nobody has ever managed to formalize any. Economists either imposed them by definition and let it float freely... Yet, the thing is very clearly highly constrained on practice. So the flow volume (MV) is somehow highly dependent on M, but not completely defined by it.

[neilwilson]

"Excess supply at a given price level almost by definition means prices should trend downwards"

Excess capacity to supply doesn't mean there is excess supply. Supply is restrained due to lack of demand.

With excess supply capacity, Firms don't generally run at full output unless there are orders to fulfil. But that doesn't mean they can't then ramp up if the orders come in.

It's when capacity to supply is exhausted that we get price inflation.

"The price of commodities around the world is going up, by definition this cannot be due to a lack of competition - there must be something else at play."

If prices are going up there is a lack of capacity to supply, therefore there is insufficient supply which is why prices are going up - to eliminate demand.

At root the shortage of energy feeds into everything else.

There is no competition. No supplier gets a 'no deal' bid to their offer. They can sell everything they can make at the price they set.

[CraigJPerry]

>> If the flow is constant and the stock increases, you get inflation

That seems like it’s missing a variable to describe when increased supply is spent vs when it is saved.

If stock increases but is not channeled through flow, i.e. i take a loan at 2% to save in my bank’s savings offer of 5.25% then flow stays the same (i still spend on the same things each month) but money supply went up and inflation remained uninfluenced by my activities as supply slowly regresses to almost prior state while i pay off each month. Not quite prior stage because i get to save the extra from interest rate arbitrage.

[rogersnm]

I think you can decompose stock into 'money that is in circulation', and 'money that is not'. In some sense, the only relevant partition is the quantity of money that is actually in circulation. If I take $100bn of cash and bury it and hide the map, I haven't actually decreased the quantity of money (the total amount that exists), but I have effectively decreased the quantity of money (the amount that is in circulation).

> i take a loan at 2% to save in my bank’s savings offer of 5.25% then flow stays the same (i still spend on the same things each month) but money supply went up

Arguably the quantity of money the bank has created for you depends on the bank's net lending to you, so if you borrow money but hold it at the same institution, you haven't really increased the money supply at all.

[CraigJPerry]

> In some sense, the only relevant partition is the quantity of money that is actually in circulation

Yeah thats the bit i’m trying to get my ahead around. Specifically:

>> It's arguably both a stock problem and a flow problem

I’m thinking the key variable here is flow

>>> it's a flow problem

You cant have inflation without increased flow, but i’m still wondering about stock because it’s not as simple as just excess money.

Perhaps it is correct enough to just frame it as a flow problem, since that variable is always dominant in every inflation scenario.

> depends on the bank's net lending to you

Yeah that makes sense, so my example should have been a loan from one bank and a savings account at another

[neilwilson]

Given that money is just a promise there are endless money things as well.

We can't define money, we can't define velocity, prices are all relative and what is included as a transaction depends on the definition.

The naive QTM is overly abstract. All we can really do is address the root cause - insufficient supply and competition.

[galaxyLogic]

> All we can really do is address the root cause - insufficient supply and competition.

Sounds like a great suggestion.

On the other hand it is also clear that if FED printed out much more money, that would cause prices to go up. BUT that would not really be a bad thing would it, people would have more money.

https://youtu.be/j_DJhEXmOmY

[imtringued]

The entire concept behind a demurrage currency is to turn paper currency(and demand deposits) into money that always circulates and certificates of deposit into money that never circulates.

When you do that, then you can control inflation simply by controlling the supply of paper currency. Like the monetarists suggested.

[neilwilson]

Yet the crypto stable coins with that two part design fall apart.

Why? Because you can discount a CoD into a derivative that also then circulates.

Which is essentially what a bank does - but with a much wider selection of assets.

Eventually you realise that the solution is to embrace Full Liquidity and use a powerful buffer stock offset mechanism to create price stability.