[Puffer Fish]

The media has recently been repeating that there is a trade-off between trying to lower inflation and preventing a recession.
Does this trade-off actually exist and is this a legitimate claim? Or is this yet another example of politically biased economics?

Maybe anyone here would like to try to explain why they think trying to reduce inflation might cause a recession?
How does printing more money prevent a recession?

Otherwise, is this just a lie that the media is propagating?


I am going to guess that some people think that higher government spending will help avoid a recession. But does this still apply when the government has been chronically overspending for many years? That sounds like just continuing to kick the can down the road in an unsustainable way. You can't go overspending forever. That is not economically healthy. If this is really the case, then it is time to face any recession now. The longer the delay, the worse it will be.

Furthermore, government printing money only moves purchasing power away from consumers to government. How can this really increase demand in the economy? Anyone care to take a try at explaining that?

[pugsville]

The media has recently been repeating that there is a trade-off between trying to lower inflation and preventing a recession.
Does this trade-off actually exist and is this a legitimate claim? Or is this yet another example of politically biased economics?

Maybe anyone here would like to try to explain why they think trying to reduce inflation might cause a recession?
How does printing more money prevent a recession?

Otherwise, is this just a lie that the media is propagating?


I am going to guess that some people think that higher government spending will help avoid a recession. But does this still apply when the government has been chronically overspending for many years? That sounds like just continuing to kick the can down the road in an unsustainable way. You can't go overspending forever. That is not economically healthy. If this is really the case, then it is time to face any recession now. The longer the delay, the worse it will be.

Furthermore, government printing money only moves purchasing power away from consumers to government. How can this really increase demand in the economy? Anyone care to take a try at explaining that?

I donlt think the media is propagating a lie per say. They juyst have poor understanding. It;s just economists is widely poorly understood. I done some reading and it;s really hard to get good books, there is lot of misunderstanding and poor stuff that gets a lot of circulation.

Political parties and pundits like simple explanations that suit their personal agendas, and teh devil is in teh detail and rarely as simple asthey make out so there a natural pumping of outright BS and FUD (fear uncertainty doubt, the slogan of IBM marketing in the old days) often drowning out any sort of sensible debate.

All economics is politically biased. Economists is the resource allocation system. Who gets what. It's always political, there always winners and losers to some extent. Money is fiction , an social construct,

A recession is dip in demand an contraction of the overall economy, there is less work, less demand for stuff, leading to less jobs and less ability of people generally being able to buy stuff. It can snowball.

Government spending can effectively create more demand, creates jobs, which enables people to buy more stuff leading to more jobs and yet more demand.

The Government builds a bridge (or some piece of infrastructure) which reduces travels times, lowers business costs, the guys building the bridge can afford stuff like new cars or appliance, pack their mortgages which enable the banks to lends more money. SO yes government spending can create more demand in the wider economy, and also generate more taxes for the government.

But any sort of growth can lead to inflation, people get better paid or more people have jobs they are willing to pay more for stuff, they compete in cases of scare objects (a lot scarcity can be artificial too)

There sort of standard convention that "pump priming" spending during recession or similar should be stuff that will ideally lead to more productivity down the line, infrastructure etc.

The standard capitalist economy we have is built on there being some inflation. Growth is assumed to absolutely necessary for a better economy. It's challengeable I personally don't agree but almost all political parties, economic pundits agree that grow is good. And if you have growth you will have some inflation. Increasing demand, will sort of tend towards increasing prices.

[Puffer Fish]

Government spending can effectively create more demand, creates jobs, which enables people to buy more stuff leading to more jobs and yet more demand.

That's true, but that government money (or government purchasing power) just comes from somewhere else.

Sometimes in the case of borrowing money, it just creates a delay in when the bill has to be paid.

[Puffer Fish]

But any sort of growth can lead to inflation, people get better paid or more people have jobs they are willing to pay more for stuff, they compete in cases of scare objects (a lot scarcity can be artificial too)

I disagree. Growth in the absence of expansion of the money supply usually leads to delfation.

[Negotiator]

The reason why we have inflation is exploding prices for gas, oil, fertilizer and food.

The main reason why these prices explode is the sanctions on Russia, though the exploding oil prices already started months before the crisis in Ukraine.

Demand for food is basically constant. If there is less supply, prices will explode.

Oil and gas are everywhere. Again this cannot be avoided either. Less supply again leads to higher prices.

Thus this inflation has external reasons and thus is not avoidable through local measures. Well, one could remove the sanctions on Russia, ask Putin for a ceasefire and negotiate a peace in Ukraine. But obviously that wont happen.

The reason why this inflation is a problem is because 7 out of 10 US americans live from paycheck to paycheck. They have no reserves and they cannot afford more expenses. Rising food prices however are impossible to avoid.

In theory one could avoid this inflation on paper by inducing a deflation. That means other goods would have to cost less. However since food is the most important thing to human being to sustain themselves, this really wouldnt do much to people of really small incomes.

In short, this is a completely retarded discussion, completely running within theoretical, simple models of economic theory but not related to reality, which is completely different from these simplified models.

[pugsville]

I disagree. Growth in the absence of expansion of the money supply usually leads to delfation.

Well that would be unusual and in recent times the actual money supply is pretty much unlimited. The private sector can just keep created credit. The Money supply does not generally matter anymore, who's actually using physical money?

[Steve_American]

That's true, but that government money (or government purchasing power) just comes from somewhere else.

Sometimes in the case of borrowing money, it just creates a delay in when the bill has to be paid.

PF, economics claims to be a science, but since it doesn't refer to reality in its proofs or do many experiments, it isn't a science. It's more like a religion.

For example, most economists will claim that endless deficit spending is by definition "too much deficit spending". Like you sort of said above.
. . . MMTers assert that there is a level of deficit spending that is way above current levels that will not cause inflation, and borrowing doesn't need to be paid with tax revenues. It can be paid with more borrowing, forever.

Most economists agree with you that someday the borrowing will have to be paid back. However, the UK, aka England, has had a national debt since 1694, or for 328 years. It has not needed to pay it back yet. I'm sorry, but 328 years seems like never paying it back.

Also, if the US bonds are sold to the Fed. and the Fed just holds them to maturity, then those bonds never need to be paid at all, because paying the Fed just give it cash that it must turn around and return to the Treasury.

.

[Puffer Fish]

Rising food prices however are impossible to avoid.

In theory one could avoid this inflation on paper by inducing a deflation. That means other goods would have to cost less. However since food is the most important thing to human being to sustain themselves, this really wouldnt do much to people of really small incomes.

Is it really your claim that food prices are rising much faster than other prices in general?

If prices for ALL things are rising at a similar rate together, that usually suggests the cause of inflation is monetary.

The reason why we have inflation is exploding prices for gas, oil, fertilizer and food.

The main reason why these prices explode is the sanctions on Russia, though the exploding oil prices already started months before the crisis in Ukraine.

I suspect this is not actually true and is just what you have been told. It is what the media wants people to think.

Lots of people on the Left love printing money, and don't want anyone to get the idea in their heads that government printing lots of money could cause problems.
Especially because then this would make it the government's fault, if it were the cause.

[Unthinking Majority]

The media has recently been repeating that there is a trade-off between trying to lower inflation and preventing a recession.
Does this trade-off actually exist and is this a legitimate claim? Or is this yet another example of politically biased economics?

Maybe anyone here would like to try to explain why they think trying to reduce inflation might cause a recession?

In order to try to reduce inflation the central bank can increase interest rates. When you do that it makes borrowing more expensive, and makes saving more profitable as opposed to investing it into the markets. Both of these means less spending in the economy, which lowers demand for goods and services. The price of goods and services is determined largely by supply and demand. Less demand = lower prices.

For example, higher interest rates for a mortgage means house buyers will have to lower with bids because spending more on their mortgage every month reduces the amount of money they can bid on the house.

Covid has reduced supply for many goods/ services due to lockdowns & supply chains being disrupted, while increasing demand for some goods (and lowering demand for others). This means higher prices for a lot of stuff. Reducing demand can help inflation.

Similarly, governments injecting tons of money into the economy via benefits etc has the purpose of increasing economic activity to stimulate and heat up the economy. The economy is overheated while lacking supply for many goods. This can be counteracted by doing the opposite, which is destimulating the economy via rate hikes.

[Steve_American]

Is it really your claim that food prices are rising much faster than other prices in general?

If prices for ALL things are rising at a similar rate together, that usually suggests the cause of inflation is monetary.


I suspect this is not actually true and is just what you have been told. It is what the media wants people to think.

Lots of people on the Left love printing money, and don't want anyone to get the idea in their heads that government printing lots of money could cause problems.
Especially because then this would make it the government's fault, if it were the cause.

My professional economist source of inflation rates of different items in economies, clearly shows that energy and food are going up much faster than other rates.

@Unthinking Majority
It will take a lot of "demand" reduction to stop people from buying food to feed their kids or gas to drive to work.

This means a lot of suffering by the poor people to stop inflation that might hurt the rich.

It seems like a more Christian thing to ride out the supply shortages caused inflation by increasing the incomes of the poor with stimulus checks, than making people be unable to feed their kids enough to avoid stunting their growth or to make their kids live in their car because they can't ford rent.

I just started a thread about making the rich be the ones who must suffer because of supply chain shortages that the rich caused with their business decisions, rather than to make the poor suffer.

.

[ckaihatsu]

But any sort of growth can lead to inflation,

Increasing demand, will sort of tend towards increasing prices.

I've noticed that the two empirical kinds of inflation, Federal Funds Rate, and Consumer Price Index, tend to be *conflated together* in general treatments, as in the press.

Sure, since the CPI is up almost double digits lately, it doesn't matter to the *consumer* which-inflation-number is causing the extra expense all of a sudden, but I raise this point to say that, long-term, the inflation thing *isn't* due to any lack of *capacity* in the system -- otherwise the Federal Funds Rate would go up (via the Fed), indicating that money is becoming *more expensive*.

That's not the case right now, so the pre-existing paradigm of *capitalist overproduction* tends to predominate. The uptick in prices -- more-severe in Ukraine, Russia, etc. -- is due to warfare and the resulting *destruction* and artificial-scarcity caused by such destruction, and previously from unforeseen coronavirus spending and the energy crisis.


https://en.wikipedia.org/wiki/2021%E2%8 ... rgy_crisis

[ckaihatsu]

Well that would be unusual and in recent times the actual money supply is pretty much unlimited.

You're thinking of government deficit spending, and even *that* is limited to national debt-to-GDP ratios, indicating how *solvent* a country may or may not be, for future lending, from the rest of the world. (The U.S. is a special case in that its currency, the U.S. dollar, is the world's *reserve currency*, or 'independent variable' (in scientific terms), so all other currencies are graded on-the-curve in relation to the dollar reserve currency valuation.)

https://en.wikipedia.org/wiki/Debt-to-GDP_ratio


---

The private sector can just keep created credit. The Money supply does not generally matter anymore, who's actually using physical money?

Okay, yeah, the actual *currency note* itself may be digital these days, but, again, the constraint on continued issuings of government debt is bottom-lined by whether investors are going to *want* to take that risk:

In 2008, Lehman faced an unprecedented loss to the continuing subprime mortgage crisis. Lehman's loss was a result of having held on to large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages; it is unclear whether Lehman was simply unable to sell the lower-rated bonds or voluntarily kept them. In any event, huge losses accrued in lower-rated mortgage-backed securities throughout 2008. In the second fiscal quarter, Lehman reported losses of $2.8 billion and was forced to sell off $6 billion in assets.[90] In the first half of 2008 alone, Lehman stock lost 73% of its value as the credit market continued to tighten.[90]

Shortly before 1 am Monday morning (UTC−5), Lehman Brothers Holdings announced it would file for Chapter 11 bankruptcy protection[111] citing bank debt of $613 billion, $155 billion in bond debt, and assets worth $639 billion.[112]

https://en.wikipedia.org/wiki/Lehman_Br ... age_Crisis

And:

The crisis took the form of a “dash for cash” in major global financial markets in mid-March [2020] as financial assets were sold off. Its most significant feature was that it struck at the very foundations of the global financial system—the $20 trillion US government bond market—as Treasuries were sold off.

As the Financial Times noted in a report on the crisis in September: “The US government bond market is akin to the investment world’s bomb shelter, a safe space where everyone can seek refuge when the rest of the financial system is exploding. In March, the bomb shelter itself started to rumble ominously.”

According to the FSB report, the crisis was set off when foreign investors, primarily central banks, sold off almost $300 billion worth of US Treasury debt. “Market dysfunction” was then exacerbated by “substantial sales” of US Treasuries as speculative and highly-leveraged trades, based on taking advantage of the difference between the price of Treasury bonds and their futures, became loss-making.

The large-scale unwinding of these trades, amounting to $90 billion during March, was “likely one of the contributors to a short period of extreme illiquidity on government bond markets,” the report said.

https://www.wsws.org/en/articles/2020/1 ... a-n19.html