Do you think that the Federal Reserve should try to lower inflation?

Discussion in 'Economics & Trade' started by wgabrie, Oct 19, 2021.

  1. wgabrie

    wgabrie Well-Known Member Donor

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    Ok, so nearly everyone is concerned about rising inflation. Do you think that the Federal Reserve should try to lower inflation? They can act quicker than the Federal government. But a problem with that would be hurting an already serious COVID recession to pursue lower interest rates
     
  2. Lil Mike

    Lil Mike Well-Known Member

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    At this point, I would say no since our price inflation right now seems to be related to item scarcity due to the idiotic economic shut down the "best and brightest" had us do last year to stop Covid in 15 days. No economy in history has been shut down like that so we don't know all of the side effects of this. So give it a year until after the supply chain issue clears up and we'll see what our inflation rate is.
     
  3. modernpaladin

    modernpaladin Well-Known Member Past Donor

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    In order to reduce inflation they'd have to print less money, which means our govt would have to reduce spending.

    So there you have it- not gonna happen.
     
    Last edited: Oct 19, 2021
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  4. Mircea

    Mircea Well-Known Member

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    Aren't you an ECON student?

    Well then, ECON this: The Federal Reserve has twice caused recessions by erroneously interpreting "Inflation" (snicker) data.

    You are experiencing Demand-pull Inflation.

    Who/What causes Demand-pull Inflation? You do.

    You are also experiencing, to a limited extent, Cost-push Inflation.

    Who/What causes Cost-push Inflation? You and STUPID-19.

    You are not experiencing Monetary Inflation.

    Since your Congress and/or the Federal Reserve causes Monetary Inflation, they may take action to stop it, but you cannot stop something that is not causing prices to rise.

    That is patently false.

    The only way the Federal Reserve can stop Demand-pull Inflation...well, wait...let me re-phrase that....the only hope the Federal Reserve has of stopping Demand-pull Inflation is for the board of governors of each Federal Reserve Bank to go door-to-door visiting all 132 Million US households.

    Since there are 12 Federal Reserve Banks, that means each board of governors would have to visit 11,000,000 households.

    It would take the board of governors about 4 hours to explain to you why your frenzied Demand for everything is driving up prices and that if only you would reduce your consumption of all things subtle and gross, that would reduce Demand and prices will decrease.

    Since the board of governors would only be able to visit one household in the morning and one in the evening, it would take them 5,500,000 days or 15,068 years to visit all 132 Million households and explain to them how reducing Demand decreases prices (assuming the board of governors visited households on Saturdays, Sundays and Holidays.)

    Would you even listen to the board of governors as they sit in your home explaining to you why you are the cause of Demand-pull Inflation?

    No, you'll continue to consume because you want what you want, right?

    Wrong.

    When Monetary Inflation exists, the available options are for Congress to reduce spending and/or to raise taxes and/or the Federal Reserve to decrease the money supply and/or to raise interest rates.

    Hey.....there's an idea....Congress can tax the holy snot out of you and reduce your disposable income by 50%.

    That'll put the brakes on your consumption and reduce Demand causing prices to fall.

    Oh, wait.....here's an even better idea. Congress can tax the holy crap out of you until your eyeballs are bleeding and then the Federal Reserve can jack interest rates. So you have no money to consume anything and the interest rates on your credit cards and mortgage just ballooned taking up whatever little money you have left to spend.

    That'll reduce Demand and then prices will fall.
     
  5. wgabrie

    wgabrie Well-Known Member Donor

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    Your idea of runaway demand doesn't make sense. How can people be spending more? No, I think people are buying the basics and just trying to survive.
     
  6. Mircea

    Mircea Well-Known Member

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    What I'm hearing is you've never constructed a Demand Schedule, never constructed a Supply Schedule, and never graphed the Demand Schedule against the Supply Schedule, and then never plotted the effect of increased/decreased Supply or Demand against that.

    Because, you know, if you had ever done those things at least once in your life -- and people pay me $750/hour do those things -- you wouldn't be asking the question.

    I do congratulate for your Straw Man Fallacy.

    You have completely misrepresented my explanation in a manner most-Göbbels.

    I never said there was "runaway demand."

    You said that, not me.

    Anyone with half a brain knows that if Demand remains constant but Supply decreases then prices rise.

    Demand has not runaway, but it is reaching pre-STUPID-19 Demand levels for many goods and services, and because there is insufficient Supply to meet Demand, prices rise.

    You don't even need ECON 101 to figure that out.

    Oh, and in before some moron says Demand for movies on Amazon and Netfliks increased but prices didn't rise.

    Well, duh, those are common goods, so why would the price rise?
     
  7. wgabrie

    wgabrie Well-Known Member Donor

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    You say that people have gone back to pre-coronavirus demand levels. Oops, You got me! I leased an SUV this year. I also started an online bachelor's degree.

    But, I remember earlier this year when I encountered a man who had just been evicted when the eviction moratorium expired. He, and those like him, will need to rebuild his life before they get back to regular consumption.
     
  8. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    My view is that the Federal Reserve can't really "do" anything to lower inflation. The Federal Reserve causes inflation.
    If they want to reduce the level of inflation they should stop causing inflation. They should stop expanding the money supply.

    It's a two-sided relationship. The Federal government overspends, and then the Federal Reserve has more money issued to be able to lend that money to the Federal government. They do that to try to give the government money without having to borrow the money from the private sector at higher interest rates.
     
  9. Mircea

    Mircea Well-Known Member

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    So, all you've got is anecdotal evidence which is totally useless.

    That's wrong. The Federal Reserve can, and has in the past, lowered Monetary Inflation. It's not my fault you weren't living at that time.

    The problem is you're not experiencing Monetary Inflation.

    You are enjoying Demand-pull Inflation and Cost-push Inflation and since the Federal Reserve cannot cause either of the two, there is nothing the Federal Reserve can do.

    You are the sole cause of rising prices, not your Congress and not the Federal Reserve.
     
  10. Chrizton

    Chrizton Well-Known Member

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    You have that backwards. For the fed to fight inflation they would have to raise interest rates. The super low COVID rates is why housing prices have become so inflated in the last couple years. You can afford to pay 15% more for a house and still have the same monthly payment and loan length when you have a couple percent drop in mortgage rates.

    Anyway, the one thing the government could do, but won't, is incentivize the markets being flooded with fossil fuels. That is part of what many people are experiencing. Some of it is also weather related when it come to food. Canada had a drought so that cuts cereal supplies, Brazil got whacked with a frost that created a sugar shortage, etc etc etc.
     
  11. Mircea

    Mircea Well-Known Member

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    Wrong.

    The Federal Reserve cannot fight/stop/end Demand-pull Inflation, Cost-push Inflation or Wage Inflation.

    The reason the Federal Reserve cannot is because they are not the cause. You are (except for Wage Inflation).

    The Federal Reserve can only fight Monetary Inflation, which is practically non-existent at the moment.

    The reason the Federal Reserve can fight Monetary Inflation is because it or Congress is the cause.

    To fight Monetary Inflation, Congress can raise taxes and/or decrease spending and/or the Federal Reserve can raise interest rates and/or decrease the money supply.

    Monetary Inflation has only occurred twice since the inception of the Federal Reserve.

    The first occurrence the Federal Reserve took no action.

    The second event the Federal Reserve raised interest rates which failed. It is likely to have failed because Congress did not increase taxes nor did it decrease spending. Congress did not increase taxes nor decrease spending in part because the US economy was highly recessionary at the time and already had 3 recessions.

    Ultimately, it was a combination of higher interest rates and decreasing the money supply that brought Monetary Inflation under control.

    Prior to the existence of the Federal Reserve, the US historically had periods of Monetary Inflation from the period 1752 through the present, each and every period of Monetary Inflation was followed by a period of Monetary Deflation, without fail and without exception.

    No, I didn't stutter. 1752 means 1752.

    The first period began June 1752, ending around August 1765 and was immediately followed by a Deflationary Period last through the end of 1778.

    The second period started in 1807 lasting through 1820 and also was immediately followed by a Deflationary Period ending around 1834.

    The next period starts 1860 to 1874, then Deflation to 1888. The Inflationary Period was rather extreme, with Demand-pull Inflation piggy-backed on Monetary Inflation leading to rates of 100%-200% per year.

    You have another Inflationary period starting in 1916 and ending in 1928, with Deflation starting and then ending around 1942. Monetary Inflation ran around 25%-35% annually.

    Again, during that period the Federal Reserve took no action in part because "Inflation" was poorly understood and in part because the government maintained exactly ZERO data on anything. There was no price data, no employment data, no unemployment data, no unemployment claims data, no data on anything, except for the number of households in the US based on the decennial census.

    Not that it matters, since at that time it would have taken 4-6 years to collect the data, another 8-10 years to analyze the data, another 2-3 years to come up with a solution and then 1-2 years for Congress to effect whatever remedies were required at which time the problem has long since faded.

    That's one reason government is ineffective because it does not have real-time data. That's why your GDP has a 1st estimate and then a 2nd estimate before finally making an announcement, because that's how long it takes to analyze the data, which I would point out is aggregated making it useless for evaluating any form of "Inflation" and to flesh out the pieces would take another 1-2 years.

    The next period begins 1970-1985, with the deflationary period ending in 1999. It had low double-digit Monetary Inflation, coupled with Demand-pull Inflation. Your next period will be roughly 2025-2039, with the Deflationary Period ending around 2053.

    Wrong. The low interest rates were in effect prior to STUPID-19.

    How you bothered to read primary sources with real data you would now that, for whatever strange bizarre reason, STUPID-19 somehow forced Millennials to abandon mommy's basement and go find a home. You need only look at 1st time home-buyer data or the demographics to see that, because you apparently have an aversion to primary source data.

    Wow, you finally got something right.

    That is a phenomenon known as Interest Inflation. The prices of those items affected by interest rates can artificially inflate (or deflate.)

    Another place where Interest Inflation exists is car prices.

    When the immoral unethical auto-maker Toyota tells you you're getting 0% financing, that is a lie.

    The actual interest rate varies from 22% to 38%.

    A Toyota vehicle (or a car from any other auto-maker) has a base price of $14,000 which includes a 100% profit margin for Toyota.

    Toyota then jacks the price to $19,000 and tells you you're getting 0% financing.

    If you're lucky, Toyota will give $1,000 cash back for fun, but you're still paying an extra $4,000 or....

    $4,000 / $14,000 * 100 = 28.57% Interest.

    You could probably do better at a credit union or your bank.

    I'm not sure Congress could enact a law that compels auto-makers to decouple themselves so that they cannot finance their own vehicles.

    Better would be to modify TILA -- Truth in Lending Act -- to require the auto-maker to disclose the true base price of the vehicle including the profit margin so you can at least enjoy being raped.
     
  12. kazenatsu

    kazenatsu Well-Known Member Past Donor

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    You need to understand how they actually are capable of carrying that out, keeping in mind the the context within which we are discussing "reducing inflation". (They will often casually throw around the phrase "reducing inflation" when the reality of what that means is really more like stopping the additional expansion of the money supply, not creating more inflation)
     
    Last edited: Oct 30, 2021

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