There's no evidence that inflation now or in the last decade has anything to do with deficit spending. It's a favorite talking point of reactionaries because it feels so close to individual finances, but it's far more disconnected. This inflation is primarily caused by global speculative asset/supply changes in world trade markets.
A speculative asset bubble can create its own money supply through private borrowing backed by the paper value of those assets.
To use housing as an example, as housing prices rise on paper, banks can approve ever larger mortgages to purchasers of those houses, which can drive the prices still higher, and so on. This borrowing temporarily creates new money in the system, independently of any action from the government or central bank. This loop can only persist temporarily, but temporarily can last a long time.
So that's where the money for the current run up in asset prices came from? It didn't come -- even a little -- from the almost free money central banks have been handing out for the past 15 years?
(I only said it can, I didn't say it necessarily did this time! I think it's a mix and may depend in part on what country you're in and the specific assets in question.)
Central bank free money certainly can tie into it and IMO almost definitely did. Speculative asset bubbles seem to happen more easily in low interest rate environments, and bubbles can be halted early by responsible government / monetary policy. (Or conversely, allowed or encouraged to continue for far too long by irresponsible policy). Speculation on something money-adjacent, like gold or bitcoin, can happen in anticipation of future government money printing that may or may not happen. Anticipation of official or unofficial government backstops of financial institutions or pension funds can also create moral hazards that incentivize private lending into a speculative asset bubble without due risk management.
But bubbles can also apparently happen all on their own.
(And of course an increase in asset prices can also be caused by a genuine increase in the fundamental value or productivity of those assets, which hopefully has occurred to some extent over 15 years of hard work, so it's not all speculation.)
Money supply wasn't fixed after Bretton Woods. The exchange rate of paper to gold was fixed. That didn't stop the Federal Reserve from issuing more certificates than there was gold to back it. The roaring 20s were due to an increase in money supply. The '29 crash came after a contraction of the money supply.
Uncertainties in the continued supply were driving up the price of futures.
It’s not “let’s bet some free money on the price of gas increasing”. It’s “we need to secure enough gas to keep the factory running next year, let’s buy as much as we can at any price we can reasonably turn a profit at”.
I was referring to the commodities market. The stuff you need to keep your factory running.
I agree with you that the financial economy is largely divorced from actual stuff, which is why pumping money into it doesn’t lead to rising prices of stuff, just rising prices of financial instruments.
That’s the key here. Increasing the money supply should lead to increase in prices if and only if it is spent on stuff. If it’s squirreled away in complex financial instruments, we just call it “amazing returns”
I don't see how you can increase the money supply faster than population growth and not have price increases eventually. When money supply increases manifest via the debt markets, cheap dollars will flood into markets that are typically financed (e.g., houses.) When people see those 'amazing returns' over a prolonged period of time, they feel wealthy and are willing to spend more and spend more freely on goods and services.
You pump more money into the system and businesses are gonna try to capture as much of it as they can. Money isn't stagnant and it will be permeate its way throughout the entire economy regardless of what it was originally spent on.
No that’s wrong. That refers to the money made by issuing actual currency, but that’s not how the money supply is regulated. Most of the money is created by banks and other private entities though fractional reserve lending, not actual currency printing.
https://www.pewresearch.org/short-reads/2022/06/15/in-the-u-...