Inflation of common items since 2021

[SC Maintenance]

Fractional reserve banking really doesn't exist. Bank lending is constrained by capital not reserves. IIRC banks in the UK and Australia don't have reserve requirements. Just a thought.

My comment on fractional reserves were that banks create money. So just taxing something doesn't necessarily shrink the money supply if the banks still exist, they can create money on their own. The Euro Dollar system is twice as big as the regulated banking system, and it not only has no reserve requirements, it has no oversight at all technically.

Interesting discussion. Thank you for sharing.

 

[PWMDMD]

Fractional reserve banking really doesn't exist. Bank lending is constrained by capital not reserves. IIRC banks in the UK and Australia don't have reserve requirements. Just a thought.

The money goes back to the treasury and vanishes. It's an accounting entry after all.

It is my understanding all banks have accounts at the Fed and not only are there reserve requirements for which they can and do draw on but the Fed after 2008 started paying the banks interest rates slightly above the federal funds rate to further encourage reserves to be deposited there.

 

[Just a civilian pilot]

The Fed has the difficult job of not only conveying what is happening but also not pushing the economy in a bad direction simply by making a statement that becomes self-fulfilling. As for the economists, I was taking an economics course post C thing and we spoke a lot about inflation and he was honest and said he did not know if it would be transitory vs entrenched. The other thing we talked about was while the past can give guidance, we are truly in a unique time for many many reasons, and sometimes you just have to wait and see. His candor was refreshing.

Up here, we now have the second worst housing problem in the world that we never had prior to the bank keeping rates far too low, for too long ( plus another issue putting demand on housing availability ).

The head of the bank of Canada encouraged people to borrow with confidence ( “ rates will be very low for a long time” ). He eventually jacked up rates very fast to levels many young borrowers have never seen.

The head of the bank was in denial about how entrenched inflation was becoming and kept reassuring people it was only “ transitory”

He was wrong.

Now people took on too much housing debt while pushing home prices up due to bidding wars

 

[PWMDMD]

Up here, we now have the second worst housing problem in the world that we never had prior to the bank keeping rates far too low, for too long ( plus another issue putting demand on housing availability ).

The head of the bank of Canada encouraged people to borrow with confidence ( “ rates will be very low for a long time” ). He eventually jacked up rates very fast to levels many young borrowers have never seen.

The head of the bank was in denial about how entrenched inflation was becoming and kept reassuring people it was only “ transitory”

He was wrong.

Now people took on too much housing debt while pushing home prices up due to bidding wars

Out of all of the criticism of the Fed including how they've handled post you know what, it was the decade of zero rates going into you know what, that was their biggest mistake, IMO. Part of the problem now is people have come to expect super low interest rates when we are RIGHT NOW at the average for the past 100 years and most people will say rates are high right now. There was nothing "normal" about 2.75% 30-year mortgages.

 

[PWMDMD]

IIRC banks in the UK and Australia don't have reserve requirements. Just a thought.

Ultimately, 2008 imploded because of the lack of capital reserves to cover losses by AIG and Lehman Brothers which is why the Fed started paying banks to keep their reserves with the Fed. If not forced to do so, banks and insurance companies will over-extend their lending well beyond the safe point.

 

[Just a civilian pilot]

I will just say this, up here in Canada, the central bank should have known better ( like the Titanic Captain ) , was warned inflation was not transitory , but his ego was too big, didn’t like “ people who don’t understand monetary policy” criticizing him, so he kept them too low , for too long. He wanted to prove them wrong but they proved him wrong.

Best part is, thus same guy tries to tell private sector ( not part of his mandate as head of the bank ) CEOs not to give big pay raises because he fears it will make inflation worse ( embedded ) while they all received big bonuses at the bank of Canada even though they screwed up.

Combine that with people who will borrow as much as they can , and grew up used to low rates anyways, it’s no surprise we have problems today.

It’s like a Captain with an ego problem who can’t admit they are wrong until it’s either too late or the problem could have been mitigated had they listened to others.

 

[BMWTurboDzl]

It is my understanding all banks have accounts at the Fed and not only are there reserve requirements for which they can and do draw on but the Fed after 2008 started paying the banks interest rates slightly above the federal funds rate to further encourage reserves to be deposited there.

Ya in response to the 2008 meltdown the Fed exchanged cash for MBS they kept the banks from lending it out by paying interest on their deposits. I'm talking about fractional reserve lending. Reserves don't restrain the amount of lending but rather it's the amount of capital a bank retains. Interestingly the biggest "money creators" are banks. Using double entry accounting they create money out of thin air.

 

[PWMDMD]

Ya in response to the 2008 meltdown the Fed exchanged cash for MBS they kept the banks from lending it out by paying interest on their deposits. I'm talking about fractional reserve lending. Reserves don't restrain the amount of lending but rather it's the amount of capital a bank retains. Interestingly the biggest "money creators" are banks. Using double entry accounting they create money out of thin air.

I'm confused. Capital reserves can be held liquid at the bank or in their account at the Fed and both contribute to meeting the required reserve ratio. If reserves are too low, it does restrain bank lending.

 

[buster]

MMT is not a economic theory - its a social theory with no basis in economics. Its basis is the idea that the government can spend as much money as they want, because their debt does not matter.

This has clearly been proven false many, many times. Most currently Venezuala, Argentina and Turkey seem to be proving this wrong in real time, but you can go back to Weimer, or the UK in the 1930's or whatever.

MMT is simply a statement of how monetary systems function. It is not a set of policies.

"This is a primary concern among detractors of MMT. When trying to dismiss or critique modern monetary theory a lot of people express concern that if government spending increases, the additional currency in the economy will lead to hyperinflation. The common examples that people point to prove this notion are Weimar Germany, Zimbabwe and Venezuela. What the people who use these examples from history fail to identify is that increasing the volume of currency in the economy was not the cause of hyperinflation. While governments in these cases did have to create more currency to maintain the demand for rapidly decreasing value, they did this after the hyperinflation had begun.

To set the parameters, MMT describes a monetary sovereign. A government with its own currency, its own central bank, a floating exchange rate and all debt issued in denominations of its own currency. A monetary sovereign government cannot be subject to a balance of payments crisis. The other really important tenet to understand is that all economies face real resource constraints relating to what can be produced and consumed by any economy and this includes the availability of labour."

 

[buster]

If you really want to get into MMT, watch/listen to anything by Prof Steve Keen.

*I'm not 100% sold on the idea, but I've looked into it.

 

[BMWTurboDzl]

I'm confused. Capital reserves can be held liquid at the bank or in their account at the Fed and both contribute to meeting the required reserve ratio. If reserves are too low, it does restrain bank lending.

Capital is not the same as reserves.

A link on bank Capital: KS FED

In practice when a loan is created the bank looks for reserves rather than the other way around. Remember reserves are just to insure the bank has sufficient cash to meet a certain degree of depositor demand. Banks can buy excess reserves if they need it.

Other banking systems in the world do not have a reserve requirement (ex, UK, Canada, AUS) as lending revolves around capital.

 

[Dave Hess]

We gave each of kids $70K for down payment to buy their first house..

They laughed when I said to buy that same house today they would have to get $160K for down payment.

 

[andrew_j]

My lol about is Fed keeps raising rate to slow spending however consumers are like whatever, let me borrow for a car , vacation or whatever .

 

[Dave Hess]

Unfortunately the distribution of the "too much money" has gone completely out of control since the C word.

It will be much worse in 10 years.

1% folks will own the 99% ants.

Expect another Occupy Wall Street style protests in the near future.

 

[fdcg27]

I must be a glass half full kind of guy, in that I see inflation moderating, economic growth continuing and unemployment remaining low in the company of continued good wages.
The really awful price spikes we saw in things like gasoline and food that we all have to buy are behind us.
That the Fed and the Treasury have some of the brightest economic minds on the planet currently running things is also cause for optimism.
The widely forecast 2023 recession never came nor does it look like the next twelve months will bring one.
I do hope not to be proven wrong about the later, although it would not much impact me and mine.

 

[Dave Hess]

I must be a glass half full kind of guy, in that I see inflation moderating, economic growth continuing and unemployment remaining low in the company of continued good wages.
The really awful price spikes we saw in things like gasoline and food that we all have to buy are behind us.
That the Fed and the Treasury have some of the brightest economic minds on the planet currently running things is also cause for optimism.
The widely forecast 2023 recession never came nor does it look like the next twelve months will bring one.
I do hope not to be proven wrong about the later, although it would not much impact me and mine.

I still believe everything propped up until the beginning of 2025.

I’m at all time highs and admittedly loving the manipulation and malfeasance going on.

 

[dishdude]

I must be a glass half full kind of guy, in that I see inflation moderating, economic growth continuing and unemployment remaining low in the company of continued good wages.
The really awful price spikes we saw in things like gasoline and food that we all have to buy are behind us.
That the Fed and the Treasury have some of the brightest economic minds on the planet currently running things is also cause for optimism.
The widely forecast 2023 recession never came nor does it look like the next twelve months will bring one.
I do hope not to be proven wrong about the later, although it would not much impact me and mine.

Everyone I know myself included are doing really well right now. Some prices are up, but if you're a smart consumer you can avoid a lot of the traps. Aldi, Trader Joe's and Costco all are still offering very good value. Everyone close to me has had some pretty nice wage adjustments over the last two years.

To OP's tweet he's referencing, anytime I see eggs listed I know it's bogus. They were up temporarily due to the bird flu, but they're back in the $2 range. I buy a dozen every week and have 2 for breakfast every morning.

 

[Lubener]

You forgot home and auto insurance which has increased in double digits.

 

[PWMDMD]

Everyone I know myself included are doing really well right now. Some prices are up, but if you're a smart consumer you can avoid a lot of the traps. Aldi, Trader Joe's and Costco all are still offering very good value. Everyone close to me has had some pretty nice wage adjustments over the last two years.

To OP's tweet he's referencing, anytime I see eggs listed I know it's bogus. They were up temporarily due to the bird flu, but they're back in the $2 range. I buy a dozen every week and have 2 for breakfast every morning.

Same here. Life is good. I employ 26 people and we are in the process of finishing up giving everyone a pretty hefty bump in pay that is related to practice performance. My payroll is up but my collections are up even more. My increase in collections and my increase in payroll has certainly outpaced inflation and as an owner, I'm making more money. Just a single data point but there it is. I don't have a single friend complaining right now about work, income, whatever, and yes, these are people who'd share this with me.

My patient population is mostly blue-collar but lots of wealthy and impoverished people too - a solid crossectional mix. In my profession, I'm in a position to know what is going on with my patients. When people lose their jobs, I often hear about it. When people are struggling, I often hear about it. Accounts receivable is as low as ever. The percentage of people being sent to collections is as low as ever. The number of people transferring out due to insurance hardships is as low as ever and we've been in the process of dropping insurance over the past 5 years.

Maybe I'm just in a bubble, but I don't see what many claim is going on out there.

 

[Just a civilian pilot]

Same here. Life is good. I employ 26 people and we are in the process of finishing up giving everyone a pretty hefty bump in pay that is related to practice performance. My payroll is up but my collections are up even more. My increase in collections and my increase in payroll has certainly outpaced inflation and as an owner, I'm making more money. Just a single data point but there it is. I don't have a single friend complaining right now about work, income, whatever, and yes, these are people who'd share this with me.

My patient population is mostly blue-collar but lots of wealthy and impoverished people too - a solid crossectional mix. In my profession, I'm in a position to know what is going on with my patients. When people lose their jobs, I often hear about it. When people are struggling, I often hear about it. Accounts receivable is as low as ever. The percentage of people being sent to collections is as low as ever. The number of people transferring out due to insurance hardships is as low as ever and we've been in the process of dropping insurance over the past 5 years.

Maybe I'm just in a bubble, but I don't see what many claim is going on out there.

Same with planes, they are full.