How do higher interest rates lead to higher inflation? I'd love to see the theory behind that if you get a chat to explain it.Bond yields are being driven to zero by ECB to facilitate cheaper (free) borrowing.
Without it interest rates rise, inflation etc
How do higher interest rates lead to higher inflation?
You do realise that the reason CBs are printing money is to create inflation?
And that suggestion makes absolutely no sense, and flies in the face of all economic theory.I suggested that without ECB intervention inflation would good higher.
It's not working as well as they want, but based on your comments above I'm guessing you haven't factored in that we'd be in a massive deflationary period without the intervention?Yeh, how has that been working out so far?
You're suggesting that if there was less money, prices would be higher
That still contradicts all accepted economic theory.No, I'm suggesting if there no ECB interference the cost of borrowing will rise... a not insignificant factor in setting prices.
That's fair enough on the source - it was posted on the understanding that its indicative. Authoritative data outside of official sources is hard to come by.You mean a tweet that shows the prices of a select number of commodities, some of which have recovered back to the levels they were a few years ago, before falling sharply?
Duke, going back a few months, you said that the btc price performance was unimpressive given the extent of the rampant money printing. I think bitcoin was around $15k at the time. You also said that you were concerned at the level of money printing. Are you now saying you were mistaken?It is clear now that the fear of hyperinflation is partly behind the btc surge, although the Muskie effect has also been enormous. If the gnomes are right or even if Mme Lagarde has her wicked way and gets inflation up to 2% I can't see the hyperinflation insurance aspect of btc lasting till 2028.
That still contradicts all accepted economic theory
There are lots of different measures for inflation. As you've mentioned the one that economists like is 'core inflation' which excludes certain items which can fluctuate a lot over short cycles, as it's a better reflection of the drivers of the economy.On statistical analysis of data re. CPI, I don't share the Duke's same level of unquestioning confidence. Government agencies responsible for such analysis have been roundly criticised on the misrepresentation of data going back donkeys years.
With all due respect, you're just making stuff up now.Not really, its just chicken and egg stuff along the business cycle.
Not at all. In fact I should have backed my intuition. $15k was too low for the spectre of hyperinflation that the official reaction to Covid had definitely spooked. Though I am not sure how much of the rise since then is due to hyperinflationary fears or the Muskie effect.Duke, going back a few months, you said that the btc price performance was unimpressive given the extent of the rampant money printing. I think bitcoin was around $15k at the time. You also said that you were concerned at the level of money printing. Are you now saying you were mistaken?
With all due respect, you're just making stuff up now.
No, you are way out of your depth on very basic economic theory.I'm not really, honest.
The asset purchasing programs by Central Banks over the last 6/7yrs have no resulted in the desired effect - target of 2% inflation rate. There is nothing theoretical about it, it is a fact. It hasn't worked. It has increased asset prices, go figure!
I'm guessing you haven't factored in that we'd be in a massive deflationary period without the intervention?
You are suggesting that if central banks hadn't intervened, then interest rates would be higher (fully agreed), but that that increased interest rate would in turn have led to inflation????
Wasn't the 'Core CPI' measurement utilised for many years for general reporting purposes?There are lots of different measures for inflation. As you've mentioned the one that economists like is 'core inflation' which excludes certain items which can fluctuate a lot over short cycles, as it's a better reflection of the drivers of the economy.
That's interesting. Question, though. A bond offering that's inflation-linked is likely to be entered into by those that have an intimate knowledge of the applicable CPI measurement. That measurement may be consistent but it may still exclude items that are inflationary. Once again, my understanding is that technology is driving a deflationary environment but that doesn't mean that every category/item is immune from inflation eg. there may well be considerable asset price inflation.RedOnion said:I would say that the increase of the volumes of inflation linked bonds is adding to the confidence level of CPI figures.
I agree - this is not Zimbabwe. However, as you rightly state, this could still go wrong. I assume that this is the reason that absolutely nobody seems to be able to answer how much money printing is acceptable and how much is too much.It might go wrong. I would like insurance against that but I don't see any realistic way to get that insurance, certainly not bitcoin. Unlike some in this parish, I trust the motivations and expertise of the monetary authorities in their efforts to steer us through this (this is not Zimbabwe) but as I say it might go wrong.
If the gnomes are right and we get to 2028 with very subdued inflation I think bitcoin will have its BOHA moment. The surge to $60k, driven by hyperinflation fear and Muskie syndrome, is a threat to bitcoin's long term sustainability IMHO.
Really really basic economic theory - increased cost of borrowing will reduce demand, and therefore prices. Increasing interest rates is the most commonly employed policy to slow down inflation. The claims you are making are absolute nonsense in the truest sense of the word.I'm saying that if CBs stopped (or reduced) interferance now cost of borrowing will rise and this in turn will lead to higher prices.
But, what would the level of deflation be if they hadn't intervened?But as fact, going by the ECBs stated aim to target a 2% inflation rate through asset purchasing program the results have been derisory.
Really really basic economic theory - increased cost of borrowing will reduce demand, and therefore prices
But, what would the level of
I think you may be getting a bit too caught up with your metaphor. Physical printing presses are not the actual tool being used. The ECB will make monetary conditions as easy or tight as it thinks is required to achieve its targets, and thankfully I agree with its targets and I have a reasonable amount of confidence that they will achieve them, there or thereabouts. They have the tools to withdraw that so called "printed" money if they need to. As I say, this is not Zimbabwe. By contrast, Mugabe having literally printed zillions of Z$ could not withdraw them from circulation. You are trying to simplify beyond the bounds of simplification. Satoshi might have thought 21m was a nice round number to hard code for all time. The real world is not like that, and so you are destined to be frustrated in the search for the answer you are looking for.I assume that this is the reason that absolutely nobody seems to be able to answer how much money printing is acceptable and how much is too much.
I just checked. Bitcoin has increased in price 10 fold over the last 12 months. Gold is exactly at the same price as it was a year ago. So you are right. The fear of hyperinflation cannot be a factor at all. Muskie is good for some of the increase but please enlighten me as to the "other facets".I don't think its that straight forward, Duke. Monetary expansion was just icing on the cake as regards the utility of bitcoin. It has other facets to it.
Yes indeed, a very controversial area. By definition assets are not consumables so they do not enter the CPI. CPI is used for such things as pension planning and adjusting social welfare payments and informing collective wage bargaining. Arguably it is the cost of living that is relevant here and not the cost of assets. But there is no doubt that QE has led to inflation in asset prices and a consequent increase in wealth inequality. Is this deliberate CB policy or an unfortunate by product of the monetary easing? I do not accept Big Short theory that it is a deliberate ruse to line the pockets of the elites. But the increased wealth effect may be a not unwanted side effect. I think in March last year the Fed were as concerned with the stock market crash as they were with the loss in employment induced by the pandemic.tecate said:there may well be considerable asset price inflation.
I think 'core CPI' and 'core inflation' are just different terms for the same thing, depending on audience / jurisdiction. Open to correction on that though.Wasn't the 'Core CPI' measurement utilised for many years for general reporting purposes?
Yes, fair point. The 'market makers' of the bonds would understand exactly how CPI is calculated, and the consistency of it. The constituents and weighting of each are constantly reviewed, I remember a few years ago the Irish 'basket' was changed to better reflect the items households were actually buying.Question, though. A bond offering that's inflation-linked is likely to be entered into by those that have an intimate knowledge of the applicable CPI measurement.
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