Argentina elects 'shock therapy' libertarian Javier Milei as president - eviltoast
  • honey_im_meat_grinding@lemmy.blahaj.zone
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    1 year ago

    You might be confusing debt issuance with money issuance.

    Nope. Let me quote Joeri from his second video (19 minutes in):

    Let’s tackle the one that the internet loves the most first: money printing. To view money printing as the source of all price inflation actually has a very long tradition in economics. The most prominent economist to support this idea was Nobel prize winner Milton Friedman (11:49) who said that. […]

    Crucially, Friedman inspired economists often assume that velocity and production are roughly constant. Remember that clip from Peter Schiff arguing that stimulus checks for people at home would be inflationary? Crucially, he made the implicit assumption there that this didn’t prevent a further collapse of production.

    “Everything is getting more expensive. And if people think that is transitory, it is because they don’t understand the problem. In fact, they don’t even understand inflation or where it comes from because inflation is about money. You are inflating the money supply. That’s what’s being expanded and none of this is transitory because these deficits aren’t transitory. The money printing isn’t transitory. It’s here to stay. — and that means prices are going to continue to go up because we continue to destroy the value of the dollar as we expand the supply”

    Sounds pretty convincing right? However, the monetary theory of inflation has almost completely disappeared from universities. Why? Well, because the data doesn’t support this simple explanation in most economies. For example, check out this graph of the CPI for Europe and compare it to the graph of central bank printed M1 money supply… You can clearly see that the money supply has accelerated while price growth has slowed. To a less extend this disconnect also exists for the USA. But, if you really want to see this simple theory fail, you only need to look at Japan. Even if we take into account the more expansive M3 money supply measure, which include money created by private banks, and compare it to the CPI. You can clearly see that while M3 kept going up, the CPI had its ups and downs. What can explain this disconnect?

    • cyd@lemmy.world
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      1 year ago

      Pointing to Japanese money supply versus inflation is irrelevant because Japan doesn’t fund its fiscal deficit via monetization. It issues debt, just like every other non-basket case economy on Earth.

      The distinction is important. Debt is tied to a promise to repay later. Monetization has no such promise, so it’s functionally equivalent to issuing debt and then immediately defaulting. So long as lenders believe debt will be repaid, the effects are different from monetization.