We Now Understand How Little We Understand About Inflation - Fed’s Powell

@MoneyMacro

Жыл бұрын

Hope these types of statement by leading central bankers now make more sense. They are not stupid. The macro economy is insanely complex. It's tempting to oversimplify. But in this case, we just haven't fully figured out how the system works.

@daliborbobr6331

Жыл бұрын

@@MoneyMacro the most cogent explanation of the current situation I know is from prof. Werner and prof. Russell Napier. QE itself was not inflationary, because the money got trapped in the bank reserve system and the banks used the money to buy more securities such as bonds. But during covid, the money was mostly channeled to the people which increased inflation.

@AH-vc3hb

Жыл бұрын

@@headsofhiphop because it has no relevance to the current inflation? Money printing would have caused short term transitory inflation, not inflation 2 years after

@leponpon6935

Жыл бұрын

Mind you all money does not exist or is created in a vacuum. Let's not be so naive to think that.

@AH-vc3hb

Жыл бұрын

@@headsofhiphop That makes no sense at all

27.6% official figures in Ghana. But our pockets feel that it's more than 50%

@MoneyMacro

Жыл бұрын

I heard about this from a friend in Ghana. Crazy times.

@MJ-uk6lu

Жыл бұрын

Meh, in Lithuania it's already over 21% and it's in EU

What concerns me is that wages are just about 5% and inflation is at about 8 or 9% (core at 4 or 5%). But wages haven't been keeping up with prices at all for the last few decades.

@lucasportessoares589

Жыл бұрын

First time Bro?

@JamielDeAbrew

Жыл бұрын

That is such an interesting area. Ideally we want productivity growth to: * lift wages * provide return on investment * lead to either, ‘cheaper products/services of the same quality’, OR better prices products/services at the same price. If the benefits of productivity improvements only flow to investors, then you might see higher inflation growth than wages growth. It goes further than this… Does economic systems lead to spending ( from individuals and organisations) in ways that can increase productivity? Eg1 if there is lots of corruption, spending may be more wasteful Eg2 if money flows to the top, spending may be on more bespoke items. These items may not have much efficiency… * a custom made car won’t have the construction efficiently of a construction line * high end clothing often has limited numbers of each item. This means the design costs aren’t shared by many buyers * holiday homes can sit empty for part of the year. This isn’t an efficient use of the land, building materials or construction labour. If governments spend more than they tax, it “can” push inflation higher. This is because it gives the market more spending power. If government spending improves productivity, it can reduce inflation. If spending improves productivity by more than it increases inflation, then your wages may have greater buying power. The government can also fight inflation by raising taxes. If the government did this by enough to stop inflation, then the reserved bank wouldn’t raise interest rates. Since raising taxes can be politically unpopular, most governments prefer to let their countries reserve bank so the work instead.

@incawarrior5470

Жыл бұрын

And they won't in the future, because the price increases we are seeing is not due to inflation rather they're due to shortages. As long as essential goods remain scarce, they will expensive irregardless of how much wages increase/decrease. This is not a money problem, it's a problem due to shortages.

@Embassy_of_Jupiter

Жыл бұрын

There is this weird kink in all quality of life graphs in 1971 after which they all get worse, not sure why

@waterbloom1213

Жыл бұрын

@@incawarrior5470 This narrative has been debunked by now. The idea that a supply and bottleneck shock that causes shortages is at fault for inflation would imply that worldwide production, particularly in the intermediate and manufacturing sides of industry, should have taken a big hit after covid. And yet worldwide production is above pre-covid levels. There's too much monetary mass pumped into the system.

It is really quite amazing how little we understand one of our central tools of macroeconomic management. Astronomers are learning about galaxies billions of light years away and we can't even get the stuff in front of us right D:

@MoneyMacro

Жыл бұрын

Yeah. Although in our own defence, stars don't interact, learn, let alone react to the people observing them.

@diegocolomes

Жыл бұрын

Yeah, there were people 6 months ago believing that inflation had touched the roof and that there was nothing to think it could be above 4 or 5%. For the 2008 crisis there were economists litteraly one month before the crash saying with complete confidence that the economy was strong and healthy (with just a little bit of transitory heating here and there, but nothing to worry about).

@he1ar1

Жыл бұрын

@diegocolomes Do a quick word search for uncertainty in the wealth of nations and you will find it littered everywhere. It is the key rule of economics and not the exception.

Hello, Dr. Schasfoort. I've been saying the same thing since inflation started getting out of control in the USA earlier this year. Central banks continue to lie and say they got it under control but they don't control the supply shocks caused by covid, the Ukraine war, and China lockdowns. If the central banks can't control real world economic activity they can't control inflation. I believe central banks can reduce the effects of inflation but until the causes of high inflation are resolved I doubt we'll be back to business as usual. Thanks for another fantastic video! Cheers!

@phanomtaxskibididoodoo

Жыл бұрын

What but a redditor told me you can get rid of inflation if you dissolve the central bank.

@StyxTBuferd

Жыл бұрын

@@phanomtaxskibididoodoo Well you get what you pay for on reddit

@pritapp788

Жыл бұрын

Gospel truth. Raising interest rates is like applying a band-aid on a body which is bruised all over.

@camerondye6108

Жыл бұрын

Yes. Oversimplified explanations of inflation are rampant in public discourse (it’s all because of the Fed, money printer go brrrr etc.) Wait until they find out most money is made by private banks.

Thanks for doing this work.

Thanks to you I'm starting to understand economy more and more! You explain everything very well! Great job!

To be honest I kept checking your channel the past week or two looking for this video. Thank you! Great analysis as usual.

Alweer een goeie video! I know next to nothing about economics and you make many things somewhat understandable. The editing quality keeps getting better too.

It always feels like christmas every time a new Money & Macro video drops -- thanks Joeri!

It has to be noted that while the central banks are tightening their policies, many fiscal authorities in the Eurozone are still stimulating their economies. The European Commission had issued a communicate outlining how countries may support businesses due to war in Ukraine and rising prices of minerals. European countries are now pouring billions in subsidies to businesses as well as VAT cuts to consumers, energy price regulation to households, etc.

@paxundpeace9970

Жыл бұрын

Yes, in an effort to curb inflation. Rate hikes are just ahead for the EZB.

@TomSmith-li5se

Жыл бұрын

@@paxundpeace9970 this doesn't curb inflation, it has the opposite effect.

@kamilo4989

Жыл бұрын

Thanks for mentioning this

@nickoutram6939

Жыл бұрын

This fiscal support used to be called 'stimulus' no? I'm no economist but shaking the magic money tree like this sounds extremely inflationary, the fact they are advising and all at it makes me think they are either clueless or they want high inflation to lessen their debt burdens and are masking the real reason by telling us its all Putins fault, etc. Inflation is just another form of tax after all.

@TomSmith-li5se

Жыл бұрын

@@nickoutram6939 it partially is Putin's and Germany's fault for trusting him. But yeah other than that they are either clueless or want to inflate away the debt of european countries.

This continues to be an excellent channel! I learn so much from each video

@MoneyMacro

Жыл бұрын

Thanks Daniel!

Such valuable content on this channel. Thanks, man!

I hadn’t seen one of your videos in a while! Glad you’re back

@MoneyMacro

Жыл бұрын

I've taken a bit of time off to rest and to get my process in order to make my content more consistent in the future.

@fettywap1738

Жыл бұрын

@@MoneyMacro good to hear mate - hope you are well and look forward to the future content

Great topic and presentation, thanks

Really love your channel

I love how you say whopping %9 like it is high or something, thinking Turkey's lowest inflation rate was %10.

@andred.4664

Жыл бұрын

Lol...true..

@boceksiadam

Жыл бұрын

It's the Mr. Incredible getting uncanny scale where normal countries are at the raising eyebrow phase and Turkey is VERY uncanny. Probably the skeleton. The final troll face is reserved for legendary Venezuela.

@1993Topg

Жыл бұрын

I moved to turkey when the inflation was 14 percentage and i thought i was in heavean things are so cheap lol

@inflationstation1

Жыл бұрын

Yet still you can get a high quality meal for 2 with drinks for £4.25 in Turkey and a full set of veneers for £5k.

@exosproudmamabear558

Жыл бұрын

@@inflationstation1 What are you talking? About 80 liras(£4.25) you cant even order one dominos pizza menu let alone drinks.3 beer cans is 80 liras. If you go for anything imported then you fucked up even in pound it wont be cheap. Also, 80 liras isn't really that little either 5 years ago we would do proper market shopping with it. Also 5k for veneers is cheap? Mate you have been scammed by your country. Again I will say this, the average wage in Turkey is 5.500 liras which becomes like 225 pound or someshit you need to work all year to get some full set of veneers and you would still wouldn't be able to pay half of it. One more thing I think you don't understand what inflation is. Inflation isn't about the value of the products falling,they stay same but value of the currency falling so you would get same product with same valued currency for same price while for decreased currency it will get a high number. Problem is that people's wages do not raise along with it.

3:55 It's true that the Fed is decreasing the size of their balance sheet, but they aren't actually selling anything. Their plan from May 2022 is that they're just not reinvesting all the payments they receive. And to the extent that some payments _are_ being reinvested--that's buying! The idea that the Fed will sell assets to reduce their balance sheet is just theoretical at this point. And despite Mr. Powell's talk of "resolve," I'm skeptical it will ever happen.

Excellent explanations Dr. Schasfoort

I am waiting for part 2 of this topic, especially when you prediction is becoming very exact as bank run happening.

My speculation: Making a 0.75 percent change in interest rates would have a negligible impact on business and private plans if the economy was based mainly producing goods and valuable services. But, since the economy is primarily based on hype, speculation, and expectations of future actions, this sort of signal will end up having a big effect. You talk about that we have a decentralized economy, but we have a mixture of decentralized elements combined with highly centralized wealth, banking, and governmental elements both directly making actions and trying to influence the decentralized elements.

@paxundpeace9970

Жыл бұрын

It really does matter and housing is the best example for it. The economy is just the economy like it is today and nothing else.

@rlkinnard

Жыл бұрын

it is not just that the they raised the rates; it is that the fed will do what it takes.

@rutessian

Жыл бұрын

@@rlkinnard no it won't. That 0.75% raise is proof they won't. They think the neutral rate is 2.5-3%.

@patrickmccarthy5617

Жыл бұрын

You'll be alright.

Finally a KZread talking about economics who doesn't sound hyperbolic and claims to know it all!

Fed Chair William Martin (1951-1970) famously remarked that the job of the Federal Reserve is to remove the punchbowl (raise the interest rate) just as the party gets going. If we fail to apply the brakes sufficiently, and in time, we shall go over the cliff.

@kamilo4989

Жыл бұрын

It feels like things could go the other way around though. Because all these increased gas prices could curb inflation since cost of production will go up, potentially curbing spending. So if Fed pulls out too much when there is already a natural declination from the gas forces then I could see their actions as being unintentionally too heavy and down-swinging. What do you think?

Very interesting, thanks!

Dr Schasfoort please more fiscal and treasury economic policy analysis! I read a lot of economic data but as an enthusiast I barely know what half the economic data means. Continue with more videos explaining central bank economics that my macr professor and my managerial econ professor said I'm not ready to digest real-world fiscal economics

Thank you for the very informative video. It would be really interesting if you could do a video on an idea like universal basic income or a single tax policy for all of EU.

Well explained!

Enjoying the content - keep it up. Spent a good bit of time in your home country in 2015-16. Beautiful place and beautiful people. I’ve heard things have deteriorated there in the past few years, and hope they can right the ship. Would be a shame otherwise.

@reyanahtesham1272

Жыл бұрын

Where is he from?

@TexanWarEagle

Жыл бұрын

@@reyanahtesham1272 South Africa

@MoneyMacro

Жыл бұрын

Thanks. But, no, sorry for the confusion. I started the channel in South Africa. Am now in Belgium. But, I am 100% Dutch. Still hope to go back to South Africa one day and that the economy of that beautiful country recovers.

@TexanWarEagle

Жыл бұрын

@@MoneyMacro ahh I see - apologies for the assumption on my part! Keep up the great work 👍🏽

Good Job BRO !

@MoneyMacro

Жыл бұрын

Thanks!

The relation or overlap between inflation expectations and price gouging could use some explanation/exploration, as well as other tools policy makers can use to control inflation (increased banking regulation, taxation, price controls, and so on)

I think we will enter *De-flation* cycle soon. Everyone is talking about inflation, Demand destruction, commodities are rolling over, increasing interest rates, real estate dropping. Interesting times.

@MoneyMacro

Жыл бұрын

Absolutely. Lot's of signs that inflation has already peaked. Let's see.

@richardsoncuthel810

Жыл бұрын

I was retired and it's bad enough that I'm now looking to go back to work , finding something local that I dont need to drive to because I can't afford to run a car is my plan. Inflation means my retirement pot of just under £400k ( and going down )is now nowhere near enough.

@lylahthompson2169

Жыл бұрын

@@richardsoncuthel810 Be that one guy that keeps cool and uses a bear market to your advantage and capitalize long term, by compounding your investments today. Who cares if prices drop more. Know the value of what you own and stay the course. When you're pushing against the crowd and sticking to a disciplined strategy you're going to come out on top of the stack

@richardsoncuthel810

Жыл бұрын

@@lylahthompson2169 How can i take advantage of the bear market . I have always thought the stock & crypto market is a fool game just like going to the fair/carnival and trying to win a prize . fools are born everyday

@lylahthompson2169

Жыл бұрын

@@richardsoncuthel810 I'm no pro myself i seek guidance from Katherine Duffy Burke who’s an investment advisor. She’s one of the best investment advisers out there. she’s well known, so you can search her using her fullname, lookout for her webpage and seek guidance

That was a great video! I suggest to do a video about how supply side measures/investments can help cut inflation. Through fiscal policy the government could increase economic output, lowering prices.

Nice shirt!

We have a bubble. There is no nice way to have it blow up. But rather today than tomorrow. One possibility is to support people at the bottom through the recession.

jp's drastic fall in exchange rate is very interesting, maybe that could be another vid topic

Good video! I think it would be worth mentioning just how damaging deflationary spirals are since that plays a lot into the game theory of why the Fed would hesitate to move on the rates before seeing the spike. I think no one except those that have sat in good Econ classes understand how much deflation breaks our models. I think the problem today is that the Fed lost to exogenous factors but did they still play the game right with what knowledge they had?

@SrCoxas

Жыл бұрын

I would like to see a video about deflation just because I see too many austrians saying that deflation would be good and would make people richer by lowering prices

@krissp8712

Жыл бұрын

I dunno if it's just capitalism but the constant desire for growth means financially inflation sets the lower bar for investment, and if there is no lower bar then it stands to reason that humans bring risk averse would just keep what they have rather than risk it investing. I mean, technically I guess you do come out ahead of deflation if your company ends up being worth a lot but to many it'd be "why take the risk when deflation is guaranteed and you could lose your whole investment going bankrupt?" rather than "going bankrupt is a small risk compared to the potential chance of reward" as the theoretical rational person (that doesn't exist) would say.

@AnyVideo999

Жыл бұрын

On CPI, deflation should be the norm. How many times did anyone wait for the prices of TVs to come down from $10k to $200 and how badly did that mess up the market? And I can assure you that if groceries declined, you wouldn't have the economy skipping meals or letting vegetables rot to get a better deal on them next year. As long as savings are preferrable to cash, you will find positive interest rates. Besides, nominal currency is just a measuring stick. The economy is adjusting to real prices, real wages, and real interest - the central bank can only confuse the participants on these values by messing with the nominal versions.

@daliborbobr6331

Жыл бұрын

@@SrCoxas deflation would pop the debt bubbles. basically, they cannot allow deflation because of the massive debts worldwide. So they can only inflate it away

@MrRepublican5

Жыл бұрын

@@daliborbobr6331 I think the issue with how Austrians view the economy is making normative judgements about what is good spending and what is bad spending. It shouldn’t be up to the central bank to “pop bubbles” by allowing deflation since it could cause unintended consequences that hurt other non-bubble opportunities. The systemic issues caused by the financial crisis hurt a lot of non-bubble activity so it’s preferable that companies fail on their own accord under a standard inflation model.

4:20 Was the narration inconsistent with the video? Aren't the long-term rates supposed to be increased via quantitative tightening instead of quantitative easing?

@MoneyMacro

Жыл бұрын

Yes. My bad. I misspoke. It was quantitative tightening.

@sussos

Жыл бұрын

@@MoneyMacro I see, anyways I just want to say that your videos are really educational yet enjoyable to a beginner economics student like me. The images from flaticon are also really cute and reminds me of the presentations I do in school. Thank you :)

I think we are in a new experiment. The first was a low IR and low inflation environment with rising asset prices, now its the opposite: higher IR and high inflation with falling asset prices.

@leacwpc

Жыл бұрын

a recession, that's called a recession lmao.

@paxundpeace9970

Жыл бұрын

@@leacwpc Driven by the Federal Reserve bank when they continue to crash the economy with .75 point hikes.

@rileynicholson2322

Жыл бұрын

The experiment is conservative neoliberalism, which allows free trade and free flow of capital without information sharing or common labour and environmental regulations. Beginning in the 1970s, this has caused a race to the bottom for taxes and the gutting of the fiscal power of democratic states all over the world. The monetary policy on top of that underlying political experiment is more a distraction than a cause of our current economic situation. Unless central banks mess up and cause a major recession or hyperinflation, all they can do is bounce us up and down around the major trend like a dog on a leash.

That was great ☺️☺️☺️ love dream mode 😻

Fed raises rates on excess reserves and uses reverse repurchases to raise or lower fed funds rate which effects other borrowing rates to slow down demand

I really recommend you do a video on Brazil inflation between 1973 and 1995. It's a complete exercise on "how the fu** this inflation exists? They did all the stuff and they still have 200% inflation per year". It's really interesting because by the end 1980 the government went to recessive policy to control the balance of payments (interest rate shock on Euromarket, there wasn't enough dollars to pay the loans and services) to stimulate exports and decrease consumption and investiment as much as possible (this was to decrease imports of capital and goods). This was made with standard rise on domestic interest rate (pretty much what FED is doing) and several cuts on government expending across the economy (this was even more significant when IMF took over the domestic policy when we required loan from them, specially with cuts on subsidies), despite all these policies the hyperinflation was only controled with the "Plano Real" which changed the national currency and several other things that, frankly, I don't know exactly.

@gustavowagner9786

Жыл бұрын

That is definitely a "study case" which should be studied by all economists, governments and central banks in the world. It is not by chance that Brazil now responded to inflation much faster than US, EU and UK. Simply, the ghost of inflation is fresher in brazilian memory than in these other countries. I can recommend the documentary "Economia Brasileira". Ep 5- 7 talk about the time you suggested. I think the main change from "Plano real" compared to the previous ones is that it was not only a "monetary plan" but also a "psychological plan", where first people learned that life with a stable currency (URV) was possible. And only then that was made the currency (Real). The biggest mistake afterwards, was to keep the dollar exchange rate fixed for the sake of re-election (burning exchange reserves). Otherwise it would have been just brilliant.

Many good points but one quibble. As to increased supply from stim checks, most stimulus in the US did not get into the hands of normal citizens as 80%+ went instead to major political contributors or was in other forms that did not get to citizens. While many citizens had no losses from Covid and the modest stimulus checks were a bonus, most who lost ate up to ten times the income loss they got in stimulus as I did. Even many formerly prosperous self employed professionals dropped under minimum wage since 3/2020 and have not recovered even to the $20k per year level.

One thing I've noticed is that alot of price increases on the shelf in the US far exceed the 8-9%... how much of this is lingering supply issues, how much of this is demand increase, and how much is opportunistic price gouging? I don't know.

@tomlxyz

Жыл бұрын

Inflation is average price increase, some will be above, some under

@mikebaker2436

Жыл бұрын

@@tomlxyz Average price increase of items on the CPI. And some of these items (particularly gorceries) are seeing 8-10% summer increases at a rate of MOM rather than YOY... which makes an inflation-only explanation rather implausible.

Can someone explain why 1-2 *means tested* stimulus checks totaling $3200 in the US caused a “demand shock” with “extra purchasing power” but periodic stimulus checks in Canada, the UK and EU didn’t? Please note that the US also doesn’t provide its citizens the safety net benefits that these other countries provide their citizens. You’d think that there would be much less purchasing power in the US from stimulus checks as it has much less net disposable income (in many cases the stimulus was used to pay off bills). Something is missing.

@pascalausensi9592

Жыл бұрын

The American Rescue Plan Act totalled around US$1.9 trillion in stimulus, that's by no measure a meagre sum.

@douglaslarsen162

Жыл бұрын

@@pascalausensi9592 so its more about what else that money went to, because 3200x330,000,000 is not 2 trillion, it's tens of billions maximum.

@alberts9781

Жыл бұрын

Its because it was printed and not taxed out. You can give out as much money as you want as long as you also tax it back in, the amount you can do without taxing it in is intrinsically limited. edit: btw they weren't that means tested at all, most people got the checks, also they gave a bunch of loans to companies as well.

@alawesy

Жыл бұрын

@@douglaslarsen162 3,200 x 330,000,000 is about $1 trillion.

@douglaslarsen162

Жыл бұрын

@@alawesy oh thanks! So there's still a trillion out there unaccounted for?

Hey , I waanted to ask as to what camera do you use to shoot your video?

1:00 I think you ment to say it the other way around; "Millions of households and thousands of Firms"

Is there an update with the evergrande fall? How is it affecting China and global economy as of the present time?

Been making this point to people for a while, square peg round hole analogy. But Central banks will still ram it through and it'll hurt.

Can you do a video on the "Equivalence Tussle?"

What I have been asking myself for more then a year is why longer run higher inflation and higher interest rates are never stress tested. I have asked this to my lecturer's at uni and nobody seems to fully understand that that is a risk. How would u think a scenario like 5% inflation and a interest rate slightly higher or lower then that would play out in the economy if it was sustained for say a year or 3? In my view it would blow up almost all banks and pension funds, as they are levered on government bonds, mbs and just morgages with short term central bank debt and deposits, if this happens then they are gonna get increased margin requirements and will need to sell assets at a loss to cover it, all at the same time I might add which in my view ends in insolvency unless the central bank represses interest rates and uses inflation to bail everyone out.

@krissp8712

Жыл бұрын

Humans hate risk and the error bars on big numbers are often bigger than that for small ones! 5%+/- one tenth error is equivalent to 5.0%+/- 0.5 percentage points. But one tenth error on 2.0% is a mere 0.2 percentage point error. So yeah I think you're right, people would probably go insane and lose their shit lol

@Sogartar

Жыл бұрын

The other option to reduce leverage is bankruptcies. Usually governments prefer higher inflation. I am not convinced this is the better option. Historically, the worst case scenario for the inflationary path for small nations has been pretty bad. Hyperinflation is worse than a deflationary spiral. For large nations there may be just less examples due to sample size. The US may be actually in a more vulnerable position if the World decides to abandon the US dollar as a reserve currency.

@alberts9781

Жыл бұрын

@@Sogartar you cannot really let the entire financial system default, thats how you get a great depression-2.0-squared. This is why everytime there is a "disorderly" market the central banks come in with the money hose. Sadly for them this time they also have inflation to deal with so they will have to choose one.

@MrAnonymousRandom

Жыл бұрын

Banks should have no problem surviving as long as they don't issue too many bad loans and are able to get funds at a lower rate than they loan out. Pension funds actually benefit from higher interest rates because of their reliance on fixed income investments. If the central bank has the ability to arbitrarily increase the money supply, who needs bankrupt financial institutions to distribute the funds? There must be a way to create alternative channels for the funds to flow back into the economy.

@paxundpeace9970

Жыл бұрын

A FED reserve rate of 5% might really produce a problem like that, hope they don't do that again because higher interest rate higher defaults. So banks would need even higher rate to cover defaults. The FED is really pushing the limit when going to 3.75 % peak and 2.5% long term sustained rates above 3% would become problematic. Sometimes lectures don't want to speculate about things like that.

​ @Money & Macro While central banks have some control on the attractiveness of borrowing and hence spending (via interest rates increases), they have no control over the main causes of the current global inflation eg the war in Ukraine. Are these three tools outdated/not relevant in our current inflation? what do you think? Worth to note that increasing interest rates (directly or indirectly via quantitive tightening) actually makes the people poorer and might trigger a recession (this is very likely now in the UK).

@MoneyMacro

Жыл бұрын

I do think that we are seeing a bit of a rethink about inflation in economist circles. There is now more focus on supply side policies and relying less on global value chains, particularly when they are in hostile nations. At the same time there is now more and more focus on the role of fiscal policy alongside monetary policy.

@rileynicholson2322

Жыл бұрын

@@MoneyMacro I agree. I think inflation is starting to take a back seat to inequality in political discussion of macroeconomics and central banks have even less control over inequality than they do over inflation.

So USA has a demand-side problem and the video explained how these three mechanisms affect demand. How about supply? Europe has supply side problems so what tools are being used here and how do they work?

@rutessian

Жыл бұрын

the US and EU both decided to go all in on Ukraine, even before the war started (some people believe it led to the current war), and said "let's fuck ourselves!" by sanctioning the country who has the EU's balls in a vice.

Where did you buy your custom neon light?

@MoneyMacro

Жыл бұрын

Check out the link in the description op the video :)

So higher interest rates diminish demand, which is great for when inflation is caused by demand. But if it is caused by supply, doesn't these same higher rates make the investment in increasing the supply more difficult, hence making the problem last longer?

@eduardomacedo6040

Жыл бұрын

It is easier to decrease demand (interest rates), then to increase supply (years of investment and reshaping industry). Because this problem needs a fast solution, interest rates is the answer. This inflation was mainly caused by artificil demand created during the pandemic though

As always, the central bank is just one player. When it comes to the real economic situation of people on the ground, fiscal policy matters at least as much as monetary policy. You can have an average inflation of 0%, but that doesn't mean the workers in your economy are seeing stable real wages. Right now central banks have a fine line to walk to tame inflation without triggering a massive crash in asset prices. Even if they walk the line well, none of it will matter if governments ruin it with poor tax policy and fiscal policy.

How do you rule out supply chain issues facilitating price gouging? For instance crude oil was similar price in 2008 but petrol was much cheaper than now suggesting reduced refinement. Also is the inflation across all sectors equally or are some showing especially high increases?

@paxundpeace9970

Жыл бұрын

It is about market expectations too and today i think some are sure that prices will rise or rather tty being on the safe side to stay in business when charging for gasoline.

@holysd

Жыл бұрын

Reduced refinement is due to the hostility of the current Biden administration. You cant just continue to remove subsidies and be continuously hostile to the fossil fuel market and expect these companies to continue investing in refineries like there is no tomorrow. These companies are feeling the heat and are no longer scaling up due to that. Its like asking you to invest millions in your house while it will get demolished tomorrow. The CPI has an index for numerous things. However, the CPI is not the best indicator as rents have shot up more then the CPI reflect.

@ling636

Жыл бұрын

Their is no such thing as price gouging. It is just the adjusting prices to the current market price.

@Embassy_of_Jupiter

Жыл бұрын

The fossil fuel price increase is just because the companies expect a reduction in consumption in the future, because of all the green policies. They expect a loss of profit in the future so they compensate for it today. In the past it was always guaranteed that consumption would stay the same or increase, which is why they didn't increase prices. It's all about expectations and the current political signaling reduces their expectations. The US's and EU's politicians are causing this price increase on purpose to speed up the green transition away from fossil fuels. But I'm not sure how people are supposed to buy electric cars if they spend all their money on gas and increased prices due to increases in transportation and production cost. The only logical conclusion is that they want to cause an economic crisis they can blame on fossil fuels to speed up the transition away from fossil fuels.

Only a small part, but where did you get that 80s sounding music within the first minute?

This clears up a lot of noise on what's causing inflation in many parts of the world. Excellent vid 👍👌🏽

What can the Bank of England do about largely cost push inflation? Cus energy bills and transport prices going up quickly leading to higher prices and consumer spending largely cut down to just necessities. Would higher interest rates tame this

hi Joeri, are you still in the transitory camp? Nice reference to russian bond as a safe investment, by the way :)

@Money&Macro around 4:26 you say, interest rates on bonds will be raised indirectly by "quantitative easing" but I think you mean tightening as that is also what it says on the screen. Misspoke I think.

@MoneyMacro

Жыл бұрын

Yes.

This is a very Keynesian way of looking at things tbh, but that's fair enough. I would have liked if you had covered what Austrian/Chicago school thinkers would have said about Inflation and its causes (inflating the money supply and thus making each dollar have less value than before, which in turn pushes up prices).

@MoneyMacro

Жыл бұрын

It is. That's because most central bankers are heavily influenced by New -Keynesian economics.

@skeletonkeysproductionskp

Жыл бұрын

@@MoneyMacro Very true, and thanks for the response; as a fellow KZreadr I know the struggle of responding to everyone!

Maybe there is also a little of competition to appreaciate currencies so imports are less expensive.

kidnly improve ur audio quality please. keep up the good work

Central Banks controls the price of money (CB interest rate), and to some extent the Money Supply (buying/selling T-bonds/notes/bills). They do not _control_ inflation, but they have pretty solid tools to deal with it...

There is a huge amount of fancy math behind control theory. If you want to keep a reactor at a set point you got to pick control strategy that doesn’t lead to instability. You can mathematically show that some control strategies are mathematically unstable. I think you could prove that the feds control strategy is unstable.

Yes central banks have the tools to fight inflation but they need to use them. Central banks can set interest rates they charge on lending but if they take other measures like increasing the lending to the government to fund more higher deficits they will be in conflict with the interest rate increases.

Yea and CEO's want higher stock dividends, making prices rise to increase the companies value in the market. How about taxing payment in stock as income. Getting rid of the CEO and upper management incentive to focus solely on stock value as opposed to actual production.

How much do you think that the energy sector raising prices/profit levels affected current inflation levels?

I don’t even think it’s so much that the Fed is lying about being able to tame inflation, but rather trying to maintain positive optics (given how much inflation expectations contribute to actual inflation).

@srolesen

Жыл бұрын

Underrated comment of the year👍 However I really like my optics very much straight on and crystal clear, not overly positive OR negative 😵

Joeri, didn't you say in a previous video that money printing didn't create the inflation?

What other ways are there to deal with the inflation? Is it at all woth dealing with the inflation?

@MoneyMacro

Жыл бұрын

Improving supply chain flexibility, price controls (very tricky though) and fiscal spending. Definitely worth it to fight inflation and deflation in my opinion. Very helpful to have a stable unit of account.

The real problem is that people don't complain or see the dangers during the 'boom' phase because in general they feel it benefits them. -To use an analogy it's like a person that enjoys food and eats too much for years and years and only when the fat starts to have negative health side effects do they have to go on a diet. They then 'blame' the diet for their woes...

The biggest problem with inflation in a country where consumption is the single major driver of the national economy, like the US, is that sometimes, key macroeconomic shocks occur that cause the prices of these consumer goods to skyrocket, and this is something that the Fed has absolutely no control over. The high inflation of the 1970s was largely caused by the oil shocks from the Arab oil embargos and the Iran revolution, which were made worse by poor economic policy regulating the production and distribution of petroleum products. The current high prices are caused by a variety of supply chain disruptions, most linked to the COVIC pandemic and/or to the Russian invasion of Ukraine. One thing that is not often taken into account is that the persistently low inflation rates of the 2000-2019 era was largely the result of the deindustrialization of the US and offshoring of the production of durable goods to countries with cheap labor. This was this single biggest factor that caused the CPI numbers to stay so low. Things that could NOT be offshored, like healthcare, education, and home building, continued to inflate at much higher rates during this period. So, yeah, anybody who thinks the Fed or central banks can control inflation doesn't have a clue.

lowering their balance sheet right ? 🤨 So QE is the FED buying (or ‘guaranteeing’) mortgages, loans and bonds from the private banks and companies so that they will then make spend spend more and loan more, drive up asset prices due to cheap credit, etc…. Now what is QT ? is it now selling these mortgages, loans, bonds or just buying less ? If selling…Who are they selling it too ? I.e. who is buying ? House of cards ?

how is US inflation caused by stimulus checks we got in 2020-early21?

Conducting quantitative tightening FED have to dump a lot of bonds and Tbills at lower prices (to incentivise byers) imho.. that means that interest on these papers should raise, how can this (separately) reduce inflation? Thanks from Ukraine for awesome materials!

@paxundpeace9970

Жыл бұрын

They can keep them on the books for now. They can sell them. The interest rate is the primary measure.

@MrSupernova111

Жыл бұрын

I don't think the Fed is selling assets. They just let them expire.

No, central banks are not in control of inflation, though they play a small role in attempting to guide market expectations. Due to dollar-denominated credit creation within the shadow banking system, large private transnational lending institutions are in control of monetary inflation. Additionally, central banks CAN'T print more goods (including fuel), such that geopolitics and trade policy are the true drivers of supply-shortage driven price inflation. Lastly, monopolization doesn't help either.

Did anyone else notice that Brother Powell was shaking during his speech? s/o from South Africa

6:59 what does he mean by weaker domestic labour market?

Hi M&M. In my country (Denmark) the politicians talk big game about how the opposing parties could have prevented inflation. But our currency is pegged to the euro? Surely this must mean that all inflation that hits the euro will also affect the DKK. Am i dumb or are politicians dumb?

@MoneyMacro

Жыл бұрын

Look at how global inflation is. Would have been very difficult to avoid I think. Not impossible. But they would have to come up with a really good plan I would argue

@srenjensen2836

Жыл бұрын

@@MoneyMacro Thats a nice way to look at it. Thanks for the reply!

I think it is important to note that there are two types of inflations: one where the money loses value and one where goods and services are becoming more expensive. The former is always caused by fiscal and especially monetary policy while the latter should be mostly independent of monetary policy. The good news about the former is that it can easily be undone with policy changes, but usually existing policy is doubled down on and you can get hyperinflation. Luckily the supply side inflation should not spiral into hyper inflation but should have the sad and unfortunate consequence that yes, you're quality of life will decline.

@brandoncliffswarts5100

Жыл бұрын

Goods and services become more expensive when money loses value. They are both the same thing.

@holysd

Жыл бұрын

@@brandoncliffswarts5100 They both lead to the same outcome. However, goods and services becoming more expensive can be caused by reduced supply (artificially or otherwise), in this case 1 dollar is still 1 dollar, only you will be able to buy less. On the other hand monetary policies increase the supply of money, effectively increasing the money supply, which in turn devalues the currency, e.g. 2 dollars worth 1 dollar.

@anthonyfrias8864

Жыл бұрын

@@holysd How do you know that 1 dollar is worth less if it is not by comparing it to what you can buy with it? I agree with Brandon Cliffs Swarts but maybe I am missing something.

@someonespotatohmm9513

Жыл бұрын

@@anthonyfrias8864 Inflation calculation depend a lot on what you use to calculate the inflation. Because yes "food"being twice as expensive is an issue. But when just "food" is becoming twice as expensive but nothing else is the inflation is probaply caused by something making food more expensive, not money becoming worth less. (although money still became worth less). The difference doesn't realy matter, except that the cause of the inflation is different and so the way you handle it is different. To much money causing inflation: reduce the suply of money. Everything is becoming more expensive because suply chain issues: fix your suply chain issues. Monitary policy can't cover for an actualy reduction in productivity. Which is what the value of money ultimatly reprecents (how much production is this token worth).

Central bankers also got it very wrong. Here in Canada we were told by our central banker in 2020 that inflation and interest rates would remain low for a long time. OOOps

It's good that they will get CBDCs in the future so they can directly control who buys what to finally effectively control inflation.

Do a video on eurodollar!

You should collaborate with Garys Economics channel and Emil Kalinowski channel

I see someone said why 9% inflation is so high for us and Europe because central bank measure their target inflation after taking into account different aspect like their increase in the gpd you doesn’t know the central bank of turkey’s have target or not but the point is Europe and US have target and they are 4 times above the target as explained in the video i hope if someone know the central bank of turkey’s target inflation to provide it I also hope the channel will make a video to explain in detail how central bank measure their target

Wow, that loss of jobs at Tesla's really hit me as I currently heard in some other news about a leaked email from Elon Musk to his employees where he praises them for their valuable work (doing some important good for the world etc.) likely indicating some future firing of people and cutting of salaries.

Raising interest rates do not at all stop the inflation in my opinion. Actually we can see the opposite effect atm. The rise in interest rates has caused people to not buy houses. Sellers are panicking. The house bubble will burst soon in the USA. Not so much in the EU tough because of the different boomer demographic. People just buy food at the moment in the EU, because there is no left over money for anything else. This will crush many businesses, which leads to even more monopoles that rise prices unreasonably.

we are in inflation driven economy it cant be minimalized over long run, thats how the system works - issuing monetary debt and taxed back into payoff plays here!

But what about impact of interest rate on aggregate supply curve. Higher cost of borrowing means less investment which means less supply which means higher inflation.

@axelnils

Жыл бұрын

The impact on demand is probably bigger/faster

@realkosherpork9223

Жыл бұрын

Fluctuations in nominal demand determine the business cycle, real output determines longterm growth.

@paxundpeace9970

Жыл бұрын

@@axelnils But not helpful either. Less demandn, higher costs per unit, less margin in addition to higher rates

@AnyVideo999

Жыл бұрын

Takes me back to econ 102. Seems like everything said in that class followed the post hoc fallacy unlike micro econ where you could make genuine predictions which seem to play out in real life.

This is an up to bottom inflation, you had 10 years of great economic boom on the higher end of the economy, so much that a lot of companies just didnt had to produce profit for investors to rain from the sky, even wild speculative projects that are borderline ponzi formed the crypto+NFT space. When you have so much created speculative wealth up there it starts to increase prices all around them, in housing, in the higher end products, etc. After a while that breach has effect on the lower side and you have measurable consumer prices go up, thus, you start measuring inflation. But dont get me wrong, the inflation was already there, but not in the products that are usually measured, like invisible inflation if you like.

@rutessian

Жыл бұрын

Is this speculative bubble inflated by low interest rates? Don't central banks control interest rates? Does that mean this money¯o fellow is full of shit?

How will making people poorer help against inflation induced from a lack of goods? There will still be a lack of goods assuming people are simply buying the thing they need to survive like fuel and food. In a market in which people were buying luxuries that makes sense but in the current market I'm just not seeing it.

Please do an updated video on the Russian economy

Except, the Swiss Central Bank, they have eliminated inflation using the same economic tools.

Can you briefly explain that why does central bank prefer inflation?

@MoneyMacro

Жыл бұрын

The most common explanation is that they want to avoid a debt-deflationary spiral at all cost. So, to avoid people who are in debt to never be able to get out of it (inflation slowly erodes all debts). A second popular explanation is that for an economy to do well people need to spend (deflation is a motivator not to spend because you money gets worth more over time if you do nothing).

Do you think this event will spur central banks on to digitise currencies to be able to better track the flow of money and curb run away inflation?

Top kanaal! Blij dat ik je heb gevonden, want er is veel misinformatie op YT helaas! Ben je zelf ook econoom?

@MoneyMacro

Жыл бұрын

Fijn om te horen. Yes. Ex-universitair docent van de Rijksuniversiteit Groningen.

When energy is expensive, something has to give. From the dawn of civilization, the primary constraint on our economies has been how easily we can gather energy. This came from the food gathered before farming, then from farmers' domesticated crops, then from coal, and nowadays overwhelmingly from fossil fuels. OPEC caused the recessions of the 1970s, and the Iranian Revolution that of the early '80s. A high oil price seemed to spark the 2008 recession, and now it is probably causing another. Hopefully, in a few decades, we will have cheap electricity, generated from wind and sun, stored somehow and kept at a low, steady price. But for the moment, there is no better storage than pumped hydro or battery farms - neither of which have much capacity, but both of which are being expanded.

@nattygsbord

Жыл бұрын

The war in Ukraine have pushed up energy prices. Germany's selfish, parasitical and reckless energy policy have made bad things worse. And the cherry on top of this cake have been all Wall Street speculation in commodities that have driven up prices on oil and wheat even more. And after Covid we had also oligopoly cartels that have scammed companies and consumers all over the world - such as the global shipping industry where the large shipping companies controls 80% of the market, and 95% of the most important trade route between China and Europe. And since Covid have they increased their profits 7-fold. Their cost of operation is 3.7% on average, but their profits are not running at 50%. So they make tonnes of money at everyone elses expense. And to make matters worse have they also begun making new stupid unnecessary rules that are designed to deliberatly cause shipping delays so they can charge their consumers extra fees and scam them out of even more money. They do for example not allow certain types of forklifts to off-load cargos from a ship, and all this is of course deliberate to cause unnecessary trouble and delays. It all reminds us of the recent behaviour of the Swedish company Klarna. So yeah, lets hope that governments regulate this speculation and put an end to all this fee scams. And perhaps is also price controls necessary to stop all this over-pricing that cause inflation. Pulling up interest rates and f*cking with the poor and the middle class is a favorite thing to do for neoliberal central bankers and rightwing pundits. However wages are already historically low and have not caused this mess, so creating unemployment and lowering wages will not be effective to stop inflation. The only way that problem can be solved is that we deal with the root cause of this problem which is cartels and commodity speculation.

@colbyisthewalrus

Жыл бұрын

Civilization growth and household prosperity as a function of energy production growth. I very much agree with this assessment. The downturns in global hydrocarbon fuel production are very concerning. Nuclear seems to be the obvious solution, I'm at a loss as to why it's not spoken about more often. I'd posit that global financialization shifted the macro dynamic away from production-based profit maximization and toward short-term rent seeking via 'manufactured' scarcity. The oligarchs have 'right sized' humanity's potential.

@alphamikeomega5728

Жыл бұрын

@@colbyisthewalrus Nuclear power has advantages and disadvantages. On the pro-side, it is low-carbon, is safe, produces a stable baseload, and can be cheap in the long run if regulations aren't too stringent and if a lot of reactors of the same design are built at once (thus spreading the cost of safety testing). The drawbacks are that it is slow to react to changes in electricity demand and that it can be expensive. These two disadvantages of nuclear power - where it does poorly - are where renewables such as wind power do well. One prudent option is to combine the two power sources so that they complement each other. Simon Clark has a good video discussing this approach. The energy storage we have at the moment is low-capacity, but can react quickly to changes in demand, meaning that this also complements nuclear and fossil-fuel power rather well. Once again, it seems that energy storage will be key to a decarbonised electricity grid.

@colbyisthewalrus

Жыл бұрын

​@@alphamikeomega5728 Given the mineral-intensive nature of constructing and replacing green energy infrastructure, 'going green' seems fundamentally price inflationary. And, as those commodities are being redirected to heavily subsidized renewable energy efforts, new oil and gas exploration will likely continue to receive little capital investment. It just doesn't seem feasible unless developed nations are willing to sacrifice generations to declining living standards or developing nations are willing to abandon industrialization. It strikes me as unnecessarily Malthusian. As a member of the court of public opinion I vote; nuclear + gas = prosperity. Then, eventually, we'll have worked out fusion.

@alphamikeomega5728

Жыл бұрын

@@colbyisthewalrus All infrastructure needs replacing eventually. I just looked up the cost of power by various sources: by US numbers, combustion power stations, onshore wind and solar are in a league of their own in terms of how cheap they are, while nuclear power is 3-4 times as expensive as these (and about 40% more expensive than offshore wind). (That said, nuclear power is much cheaper with looser regulations and with batch production of the same reactor design.) Mineral scarcity is certainly not a barrier to the adoption of wind power; as for PV, this has got cheaper over the past decade at a rate even quicker than was predicted, whereas one would have expected it to become more expensive as it was adopted if mineral scarcity were an issue. Regarding nuclear fusion, that might as well be fantasy at this point. You may have read articles stating that we are close to break-even regarding net energy input in experimental designs like ITER; however, this metric only describes one part of the power generation process. In terms of overall effectiveness, we're putting about three times as much energy into these experiments as we extract, whereas for viability we would need a big enough net output to make the expensive infrastructure worthwhile. Sabine Hossenfelder has a video discussing this in more detail.

You can target financial assets and interest rates all you want, but when the most basic survival necessities are too expensive due to supply chain issues and shortages, I wonder how well their tricks will work... I feel it's more or less a worldwide issue, although different regions have their problems (like gas in the EU)... Really depressing.