Help me understand the difference between consumption and buying stocks/real estate?
The money remains in circulation in both cases. Debt isn’t paid off or defaulted on, so the money isn’t destroyed. It isn’t printed or lended beyond any normal rate, either. So there is no atypical expansion. Inflation continues to, at worst, remain flat as the money continues to exist.
Hyperinflation is a result of increased money supply relative to goods/services causing a feedback loop.
If all of that money was suddenly recirculated via retail outlets, restaurants, and …stuff… it may increase the demand for those sectors and cause some inflation temporarily, but the total amount of money in circulation hypothetically remains the same. High prices would cure high prices.
In hyperinflation, a necessary ingredient is increased money supply (pick your favorite method: printing or lending). This prevents high prices from coming down as the increased supply acts as a backstop. Worse, the supply is continually and rapidly increasing to combat the inflation.
If the money left investment, it means less money in the hands of businesses and more in the governments via higher taxes (sales, income). Follow this through to the end, and to me it appears net deflationary, not inflationary as the same amount of money exists but businesses will suffer slowly as it is moved to government waste. So much of business today is dependent on being flush with investment funds rather than operating on real revenue - precisely due to all of the mal-investment.
Stocks/real estate investments have astronomical values, due to getting the inflows of commercial/central bank money.
But if this money was cashed out, it would drive up consumed goods, the same way it now drives up stocks and real estate.
You reference hyperinflation needing an increase in the money supply, and there was. The prices of consumer goods didn't rise because it all was funneled into investments.
The illusion can only continue on, if:
a) the investors never cash out. The richest just earn, and earn, and earn, but literally can't consume.
b) the average worker/consumer accepts the fiat values as legitimate, because of inequality.
No, I said that for hyperinflation to occur, there needs to be a continuous backstop of monetary expansion. Much more than the current rate.
I agree that there would be price inflation on goods/services if stocks/investment vehicles were cashed out - no debate there. The argument is whether or not that would be hyperinflation - and it wouldn’t be. You even used the past tense for describe the expansion: “was” - as in, isn’t occurring now.
There’s no illusion - everyone is aware of the rapid expansion during Covid (the rate has returned to something closer to “normal”). The investors aren’t trapped. If they sold and spent it, they’d benefit from the Cantillon effect. Everyone else would feel the effects as the money moves through supply chains - but not the investors. They’re first in line. And they know it.
If there is an illusion, it’s one of wealth by having the denominator of asset prices being constantly debased. But we know that, and even the masses are slowly starting to figure it out, again, like the boomers did in the 70s.
We are not really disagreeing much here, mostly definitions and outcomes. I do think there would be hyperinflation tho. It's not possible for either of us to know, as the asset prices themselves would collapse, as they cashed out. So our disagreement is subjective.
I agree it isn't an illusion on an individual level, as they aren't trapped. But as a collective group they are. This is the same with fractional reserve banking. As an individual depositor there is no illusion or trap. This depends on how one defines "illusion".
Yep. Just speculation. But it’s good to play this out, and I’m always learning.
Yeah, asset prices would collapse if there was a sudden mass sell off. This would be another deflationary impulse, as this would ultimately lead to the destruction of money supply due to the resulting defaults, downsizing, and bankruptcies. Jobs would be lost, and the value of money goes up, not down. Prices would fall as a result. The asset sellers still win in this regard, as they’re both first in line to the deflationary impulse and will be flush with more cash - even if it’s less than they desired.
Anyway I play out the selling of assets, I end up with either no real change or deflation.
Hyperinflation typically leads to the abandonment of money - a rush to assets.
I don’t think any group is trapped other than the poor that hold no assets. No matter the outcome, they remain poor.
Those with assets can come out at break even or possibly even enrich themselves.
I think the only thing trapped beyond the poor is the system itself and those who control the system. Not really the participants…
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