| > I really do not understand why most people seem to think deficit spending is not the cause of inflation. For one, because Japan has been deficit spending for over two decades and not only is its inflation rate extremely low, it has gone negative on multiple occasions: * https://fred.stlouisfed.org/graph/?g=1680i In the 1980s there was huge deficit spending during the Reagan years, and yet inflation tanked (thanks Volcker). There was deficit spending during the Bush43 years, and yet inflation was flat. > Why would their attempt to acquire anything scarce, like desirable houses, not cause the price of said asset to go up? Because most of the time, especially in recent years/decades, money is just sitting around doing nothing: * https://fred.stlouisfed.org/series/M2V * https://en.wikipedia.org/wiki/Velocity_of_money What most money-supply-inflation people get wrong is outlined in this good analogy by Cullen Roche: > But also – why do so many people insist that inflation is an increase in the money supply? This makes zero sense. Here’s why – our economy is mostly a credit based economy. So, if I take out a loan for $100,000 then the money supply has technically increased by $100,000. But what if I don’t actually tap has technically increased by $100,000. But what if I don’t actually tap that loan? What if I borrow the money because, for instance, house prices just went up 25% and I want to have some cash around for emergencies? This doesn’t tell us anything about prices, living standards or really anything. But this is what so much of the money supply represents – money that has been issued and is just sitting around unused. Why is this useful? It’s like calculating your weight changes by counting how much food you have in your refrigerator. No. That’s potential calories consumed and potential weight gain. The amount of food in your fridge tells you little about your future weight changes just like the amount of money in the economy tells us little about the actual price changes in the economy. * https://www.pragcap.com/three-things-i-think-i-think-i-see-d... So there's deficit spending, so there's a money supply increase: so what? What is the money doing? It turns out mostly nothing (notwithstanding people going a bit crazy post-pandemic recently—though there's geopolitical effects too (thank Russia)). |