On the simple side, I'll just say that I think we've figured out how to not have recession, we just pump money into the system. So the problems that methodology creates are apparently less painful than recession? For the last 14 years or so, we've talked about raising the interest rate. At the first hint of economic slowdown, we stop raising the rate, or even lower it. And if the slowdown, or the threat of slowdown, persists? Well, pump some money directly into the systems. Say, like $5 trillion+ for Covid relief. I'm not saying good or bad, just that it seems that's where we are.
Since most of the research cited says the demand side is a small part of the inflation problem, it's hard for me to see how reducing aggregate demand and supply thru higher interest rates fixes the problem?
Everybody seems to focus on the liability side of the inflation balance sheet. What about the asset side? Who benefits? I see some (all?) of the components of inflation as a transfer of assets from ordinary people to certain members of the wealthy class. Examples include: price gouging to increase profits, raising energy prices to maintain cash flow to the oil barons and fossil fuel companies when their finds or reserves are declining and the complexity of supply chains for technology. And when we use higher interest rates to combat inflation, we transfer more assets from ordinary people to the wealthy classes.
And why do we see inflation as devaluing currency just because it takes more currency to purchase the higher-priced goods we want? Currency measures value and, if the value placed on things is higher, that does not mean the currency is worth less intrinsically. If I measure the length of a piece of wood that is 96 inches long, the inches have not gotten smaller when I measure a piece of wood that is 120 inches long. But it makes no sense to use a tape measure with inches to measure the distance across the front of my property when feet and meters are more appropriate or to measure the distance across the country when miles are more useful. The mileage indicators have not made the inches smaller.
Dollars are also used to measure credit. The dollar has not shrunk when the banks issue more credit to buy higher-priced housing for example. My mother bought a house in 1950 for $8k and it would now sell for $1 million. In aggregate it now takes more currency to purchase the same property but the individual dollar is still the same size. 100 pennies.
How about giving people what they desperately need, directly, instead of giving them money and then hoping they get it?
On the simple side, I'll just say that I think we've figured out how to not have recession, we just pump money into the system. So the problems that methodology creates are apparently less painful than recession? For the last 14 years or so, we've talked about raising the interest rate. At the first hint of economic slowdown, we stop raising the rate, or even lower it. And if the slowdown, or the threat of slowdown, persists? Well, pump some money directly into the systems. Say, like $5 trillion+ for Covid relief. I'm not saying good or bad, just that it seems that's where we are.
Since most of the research cited says the demand side is a small part of the inflation problem, it's hard for me to see how reducing aggregate demand and supply thru higher interest rates fixes the problem?
MR. VOLCKER: The Federal Reserve has a long history with operating
credit controls.
MS. FOX: From war time.
MR. VOLCKER: And they went on for 10 years more after the war.
Mortgage & consumer credit controls went on for quite a long while.
We should still have them. [Laughter] 72
--As cited from Tankus, 2022, "The New Monetary Policy." Modern Money
Network.
Everybody seems to focus on the liability side of the inflation balance sheet. What about the asset side? Who benefits? I see some (all?) of the components of inflation as a transfer of assets from ordinary people to certain members of the wealthy class. Examples include: price gouging to increase profits, raising energy prices to maintain cash flow to the oil barons and fossil fuel companies when their finds or reserves are declining and the complexity of supply chains for technology. And when we use higher interest rates to combat inflation, we transfer more assets from ordinary people to the wealthy classes.
And the numbers used are statistical analyses weighted differently in accordance with arbitrary decisions by economists and central bankers. Blair Fix has done some interesting analyses of the breakdown. https://economicsfromthetopdown.com/2021/11/24/the-truth-about-inflation/
And why do we see inflation as devaluing currency just because it takes more currency to purchase the higher-priced goods we want? Currency measures value and, if the value placed on things is higher, that does not mean the currency is worth less intrinsically. If I measure the length of a piece of wood that is 96 inches long, the inches have not gotten smaller when I measure a piece of wood that is 120 inches long. But it makes no sense to use a tape measure with inches to measure the distance across the front of my property when feet and meters are more appropriate or to measure the distance across the country when miles are more useful. The mileage indicators have not made the inches smaller.
Dollars are also used to measure credit. The dollar has not shrunk when the banks issue more credit to buy higher-priced housing for example. My mother bought a house in 1950 for $8k and it would now sell for $1 million. In aggregate it now takes more currency to purchase the same property but the individual dollar is still the same size. 100 pennies.