[lesuorac]

Federal Reserve has no real tools to fight inflation. They can get the buckets out and start bailing but until somebody plugs the whole in the deficit there's a structural problem with the boat.

People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production.

[mothballed]

The federal reserve buys deficit creating treasury securities, with newly created unbacked money. It's hard to separate deficit spending from the federal reserve and unbacked currency.

[gruez]

That might be true during the pandemic but it's been over for years now. The fed is moving in the opposite direction, selling bonds it previously bought.

https://www.federalreserve.gov/monetarypolicy/bst_recenttren...

[mothballed]

Good point; fed also creates buyers of treasury securities, including ones it holds, through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets (which the government is happy to swoop in and offer the ~most stable one -- allowing them to satisfy the market they create.)

[gruez]

>through inflationary policies that pressure dollar holders further in the direction of buying inflation tracking assets.

Is this actually true? It might make sense at a surface level, but if you think a few steps further, you'd realize that that the price of "inflation tracking assets" (TIPS?) would eventually incorporate whatever inflation expectations that the market expects, thereby neutralizing any advantages it might have. Moreover there are deep markets for interest rate swaps/futures, so there's little need to pile into TIPS directly.

[mothballed]

High inflation pressures a near time preference in discharging USD.

Also "inflation tracking" I should have written more as "inflation hedging" -- needn't be TIPS exactly.

Higher inflation raises the cost of not buying treasury and other asset classes. You're right that there may not much change in the general preference in treasuries vs other non-USD asset classes, but it makes all inflation hedging boats rise.

This should be obvious if you simplify the market to just USD and say bonds -- at 0% inflation the opportunity cost of not buying bonds is just the real bonds rate, whereas at 10% inflation the opportunity cost is going to approximate closer to 10+real rate. In the latter the pressure to buy bonds would be much higher. ( Of course Fed can buy treasuries with essentially money created from thin air so the opportunity cost analogy may break down for securities first purchased by the fed, which could spoil the presumption that treasury sales proportion of inflation hedging assets might not change much)

[wakawaka28]

>People love to bring up the gold chart and be like "what happened in the 1970s!". It wasn't ending the gold standard that was the problem. It was the endless deficit spending; if you want to get a handle on inflation you need current demand to match current production.

The deficit spending is the reason why we had to leave the gold standard. France, for example, sent a battleship to NYC to retrieve their gold. The US government realized that they could not give out gold for all the dollars that they spent, and went into default on that obligation. The gold standard could have kept the government honest. But they were given too much slack and they abused it to the point of having to break promises officially.

The Fed cannot actually destroy all the money that they created. But they could start by not printing any more. They won't do that but they theoretically could.

[gruez]

>Federal Reserve has no real tools to fight inflation.

Yes, interest rates?

[wakawaka28]

If they let interest rates go high, the government will go bankrupt along with many companies and individuals. We can't afford 20% base rates anymore. The economy is not healthy enough for that. At least I don't think anyone is ready for the shitstorm that would unleash...

[downrightmike]

They need inflation, it lowers the old debt burden because it is cheaper to service.

[wakawaka28]

No, they don't. If the debt cannot be afforded, they should default. Start by balancing the budget. This inflation will probably ruin us. Kicking the can down the road makes the reckoning worse. It's not fixing shit, and it is causing way more problems.

[downrightmike]

Logically, sure, but Japan has been our aspirational model since things went sideways in 2020. Illogically, even the UK is paying back interest on the South Sea company from 400 years ago. Debt isn't going anywhere even after everyone who accrued it is long dead and dust.

[ThinkBeat]

The traditional way a central bank fights inflation, and take Norway as an example.

The central bank raises interest rates, until there are enough bankrupcies and unemployment rate reaches a high enough level, The economy cools down.

The nation has low inflation again.

Rinse out and repeat.

They do the direct opposite of bailing anyone out.

Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out.

Which heats up the economy and should raise inflation .

[TimorousBestie]

> Now the US is different. The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out.

Biden did not invent quantitative easing.

[smileysteve]

Indeed, it was expanded greatly during the admins of Bush and Trump.

[arunabha]

> The Biden administration decided that the best way to fight inflation was to invent a giant pile og money and hand it out

Can you provide some references for your claim? IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long) and the Fed moved pretty decisively in the second half of the Biden presidency to raise interest rates rapidly to combat inflation. FWIW, the inflation issue seemed to be under control and heading in the right direction before the administration changed.

[ThinkBeat]

Ever hear about: Inflation Reduction Act¹

It authorised $891 billion in total spending – including $783 billion on energy and climate change, and three years of Affordable Care Act subsidies

in order to...... Reduce Inflation.

https://en.wikipedia.org/wiki/Inflation_Reduction_Act

[dgfitz]

> IIRC, under Biden, inflation was stoked by the Covid stimulus(arguably necessary to avoid rapid deflation due to Covid, but probably kept for too long)

I think you answered your own question.

[walls]

Do you know who was president in March 2020, when that happened? I'll give you a hint: he put his own name on the checks.

[TimorousBestie]

Regrettably, everyone more or less memory-holed this. Biden is held responsible for all the bad things that happened because of COVID, and Trump escapes any blame whatsoever despite, yknow, advocating for bleach injections or whatever that was.

[elevation]

> “you’re going to have to use medical doctors but it’d be interesting to check that” [0]

[0] https://m.youtube.com/watch?v=zicGxU5MfwE

[dgfitz]

The quote I quoted said, quite literally, “under Biden” I offered no new information

[serioussecurity]

I'm sorry you're blaming the Biden admin for a bush era policy why?