Comments by "JP 72" (@739jep) on "In Search of the Ultimate Inflation Hedge" video.

@tman458 causation is different from correlation, there was a lot of stuff going on in 2020 that could explain inflation , not just QE. The pandemic , shocks to supple chains , war , large govt fiscal deficits. If you want to cherry pick this specific time in history to establish a correlation then you’re going to have to find an explanation for decades of QE in Japan , who actually had deflation. You also need to explain why qe has been ramping up in many countries since the gfc unaccompanied by significant inflation until now.
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⁠⁠⁠⁠ @trumpthelegend6357 ‘you forget that governments heavily cut spending during deflationary periods’ You forget that they commonly do the exact opposite. Saying deflation is simply too little money chasing too many goods is reductionist and not necessarily correct. Periods of deflation in the past : - the great depression - Japan’s lost decade - the great financial crisis - eurozone crisis - Asian financial crisis During these periods of deflation, governments were not the only ones worst off. Many periods were severely affected. Your post is simply incorrect.
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‘An expansion of the money supply IS inflation.’ No , that is only how it is defined by some economists , most of whom probably subscribe to the Austrian school of economics, but t they’re certainty in the minority. Respectfully it sounds like you’ve maybe fallen for either Friedman/monetarist theory or Austrian economics. Their view on the monetary system has no support in the empirical data. I think your error is two fold. First it seems you’re treating the relevant variables as independent when they are in fact interdependent. ‘More dollars chasing the same or fewer goods…’ for starters why couldn’t the increase in money supply lead to more goods? Also why does the increase in money supply have to ‘chase’ anything? Second it’s not clear where causation lies. Increases in money supply are caused mostly by commercial banks via lending. Why does an increase in bank lending have to ‘cause’ a rise in prices? Could it be that rising prices causes an increase the demand for loans and hence money supply? Could new technology and emerging industries (increasing the amount of goods) result in businesses demanding loans in order to capture market share in the new industry? If it was so simple that raising money supply leads to rising prices you would expect it to show up empirically. However if you look at average global inflation levels over the last 120 years it’s not at all easy to identify which periods we saw massive expansion in monetary supply. It is however easy to spot periods of war and economic shock such as the end of the Bretton woods system. Heck even just take a look at Japan , who has expanded their monetary supply like crazy for decades and has struggled to even avoid deflation.
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@willryan5508 First of all doubling the supply of money on a monopoly table wouldn’t make the prices go up , those are fixed according to the rules (unless the rules of changed since I was a kid?), it would however increase the amount of hotels being built. You need a better analogy. Regardless that’s not how changes to the money supply happen in reality , what you’re describing is the treasury printing new dollars (which has happened historically and led to inflation i grant you) but that is not what is happening now in the west. your position sounds purely ideological and not backed up by data at all I’m afraid. Friedman monetary theory of the price level no longer holds much stock at all in economic academia for that very reason , the model wasn’t supported by the data. Could inflation be a monetary phenomenon? Sure , but it hasn’t been for some time now , and there’s little evidence to conclude it is currently. Only speculation and a reliance on 50 year old theories. More modern fiscal theory of the price level proposes that inflation is caused by rising govt deficits and a decreasing likelihood that they can be paid back? Couldn’t that explain the current environment? Keynesian economics is indeed flawed but not the only school of thought that considers inflation not purely a monetary phenomenon. Current inflation is most likely caused by fiscal policy and supply chain issues. Why is it silly that more dollars could create more goods? If I’m a business , and borrow from a bank , is it not reasonable to assume I will use those funds to finance production? And for the record I’m not saying it has to lead to an increase in production, I’m just saying it can’t be ruled out. The reason QE failed wasnt because it caused inflation - it failed precisely because it didnt increase production or inflation. It’s strange you suggest deflation could be a good thing. Deflation historically has been associated with economic hardship , not increasing wealth. Just look at the Great Depression. This is one reason why most developed nations aim for a controlled/moderate level of inflation.
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@Green__one I think your mistake is failing to see that MV=PT tells us nothing important about each of those variables and how they’re related. You’re treating them like independent variables when they are interdependent. If M increases the formula tells us nothing about why it increased or what it will do to the other variables in the equation. This is one reason why economics abandoned monetarism long ago. I understand the confusion, I used to think the same thing , it is even what is taught very early on in econ courses. But economics students often joke about econ degrees just being a progression of classes that teach you why everything you learnt in the previous class is complete bs. Expanding money supply = increasing inflation is one of those things. There are many factors at play and many theories that attempt to explain inflation , even the best ones we have now will probably not explain inflation well at some point in the future. Until economics improves our inflation models I think the best thing we can do is be nimble in our thinking and in our policy and diligently keep an eye on our economic data.
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@Green__one your perception of what is occurring in reality is deeply flawed my friend. ‘as has happened every time in history when the money supply has drastically increased , inflation skyrocketing can’t be far behind’ How would you explain Japan then? If you look at the global average inflation rate of developed nations over the last 100 years , you actually cannot identify periods where money supply expanded rapidly based on the inflation data. What you can easily identify are periods of war , supply shocks and other economic shocks. The reason economists come out with new theories is becuase inflation isn’t caused by the same things over and over again. It is not ‘always and everywhere a monetary phenomenon‘. When new data comes in that challenges a model you need to fix the model. That’s just basic science as I’m sure you agree. Some of these new theories , explain the current inflation phenomenon much better. You must surely accept that correlation doesn’t necessarily mean causation? That seems to me to be the error you’re making here. What else has happened recently other than money supply expansion ? Heck what’s happened even just this year. There’s a war , new covid strain coupled with the covid recovery , supply chain shocks, expansion fiscal debts ….. could it be that perhaps inflation is a multi variate problem? To deny this would surely demonstrate your reasoning is purely ideological. I fail to see how inflation existing in an environment of rising money supply proves me wrong. The amount of teams in the nhl is expanding pretty rapidly as well, using the same logic you could conclude the size of the nhl rather than the feds balance sheet is what’s causing inflation? 😂 ‘There’s no way you can accumulate wealth with a mindset like that’ Only a sith deals in absolutes 😈
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Yep and there’s sufficient evidence and a theoretical basis to support that position
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Sure …. All those periods in history involving deflation never bothered the little people 🙄
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It’s not really throwing them away, it’s just that those theories have been improved upon since they were developed, economics has come along way since 2008 let alone Friedman Economics
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Why is it idiotic?
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@alankoslowski9473 I imagine REITs would allow investors to invest broadly in real estate, I don’t think there’s much evidence that they’re good inflation hedges though? 🤷‍♂️
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That’s not the take away of everything being priced in.
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I think he said a deflation spiral would be good to avoid. The reason being similar to when inflation gets out of control , just in the opposite direction. If prices are falling consumers start spending less because they expect prices to be lower in the future. For this reason amongst others deflation is often associated with weakening economies. Does it have to be bad , no, but inflation isn’t always bad either. There’s a lot of factors to consider
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How that money is used is what matters, banks can give out more loans thus increasing the money supply , but if those loans are used for increasing the productive capacity of the economy then it may not be inflationary. On a related note , central banks can implement expansionary monetary policy and bank lending may not even increase.
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Well that wasn’t all he said - ‘In the Monetarist view of the price level the only thing that matters is the monetary supply’ We know that monetary supply isn’t the only thing that influences the inflation rate. We’ve had long periods of expansionary monetary policy with little effect on inflation. Actually during a lot of those times where the money supply was increasing , deflation was a more immediate concern. The reason is that monetary supply isn’t the only thing that can influence it , it depends a lot on how that money is used. If increasing the money supply leads to activities that can also put downward pressure on inflation , why would it be nonsense to say that the supply is unrelated to inflation?
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@timbradford9397 you don’t need both monetary and fiscal policy to increase the money supply , you only need banks to start writing more loans. If banks stop writing loans then the actions of the fed will find it difficult to influence the money supply. Regardless you said it yourself , it’s not the increase in money supply that caused inflation of asset prices , it was the actions of investors. How the money is used has a significant impact , if it’s used to increase the productive capacity of an economy then there will less upward pressure on prices.
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@timbradford9397 I understand why you would see it that way, but I disagree. The line you quoted as it stands on its own is a little puzzling but that’s not all he’s said on the matter. If it’s possible to have periods of both low inflation and high inflation during periods of expanding monetary policy then I’m not sure how much of a relationship can be established. The problem is you’ve taken one throw away line out of context I think , he has a whole other video discussing this issue. It’s a little like if you clipped ‘returns are not related to profits’ from his other video and left out everything else that was said. What is your own opinion on money supply , the actions of the fed and inflation and how exactly is what was said in this video nonsense?
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