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25) And, in fact, CPI inflation has been roughly in line with median wage growth! So, ok, if

@elonmusk

doesn't buy $1m of bread, what *does* he buy $1m of?

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26) Ok, so, yeah, some things are up a lot more than CPI over the last few years.

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27) In particular, given the amount of wealth that has gone towards creating the richest in history, the assets whose prices have appreciated–the place that the 17% annual monetary supply increases have gone–are assets that a single person could spend millions of dollars on.

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28) So yes, cryptocurrencies. But also stocks, and high end housing, and private planes, and art, and NFTs, and sports teams (which, really, are themselves NFTs). In general, things you can invest in have gone up a lot. And things with limited supply. As have Giffen Goods.

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29) (An interesting aside: when a ton of capital flows into those assets, and prices appreciate, then the investors make money. Also capital is cheap, so they can borrow or raise, and then buy more, and then prices go up more, and then...)

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30) So, ok, CPI inflation has been somewhat stable, but other measures of price inflation have been huge, because CPI is in line with median wage growth and markets are in line with invested capital growth.

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31) And if you average those out, you get something closer to what the monetary growth implies: that real, true inflation has probably been closer to 17% than 2.5%.

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32) And 17% is a lot. So, in the end, I think that in some senses the straightforward answer is the correct one. The inflation has been here the whole time, hiding in plain sight. The worry, then, is hyperinflation, devaluation of the US dollar, and serious economic impact.

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33) Does that mean that monetary policy has been bad and reckless? I don’t know–it’s complicated. Because we’ve only been talking about the inflation side of monetary policy. And, again, it’s not a coincidence that this has been the decade of QE.

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34) In 2008, every bank almost failed. And then in 2020, the world economy half shut down for two years. And somehow, not only did we make it out with the financial system intact, but we made it through COVID without a recession–in fact, markets hit all-time highs! Oh, wait.

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5:20 PM · Mar 18, 2022Twitter Web App

35) I mean, partially what happened, probably, was that commerce and investment were incentivized by loose monetary policy. And partially, the government effectively provided desperately needed bridge loans to companies that were going to have a bad few years because of COVID.

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36) And so to some extent we made a trade, as a world. We accepted higher inflation that generally makes sense, in return for weathering a huge financial storm remarkably well. Yeah, price increases hurt, but honestly it’s way better than if you tacked 2008 on to COVID.

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37) There’s another side to this, too, though. “Number go up.” See, if all you do is ‘stock split’ the US Dollar, handing everyone an extra 50%, it has no real economic impact… …as long as everyone mentally multiplies all price charts by ⅔ after the split.

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38) But if you don’t adjust how you look at the charts, then it seems, I guess, like everything just went up 50%. Which is bad for inflation, but great for markets?

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39) And so some of what’s happened over the last decade–and especially over the last few years–is that bad things happened (e.g. COVID) but markets went up instead of down, because we increased monetary supply.

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40) And, I guess, it ‘tricked’ some of us into thinking that things were going great, because “number go up”, when really that $440 SPY buys about as much stuff today as $330 SPY bought a few years ago.

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41) So what does all of this imply for the future? Well, on the one hand, inflation–true inflation–is high. Really high. High enough that it would generally be worrying. Does that mean markets will keep going up? Especially given that even CPI inflation is now high?

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42) Maybe. But maybe not. Because to some extent, that should already be priced in to “efficient” markets. As soon as the world realized what was going to happen to policy because of COVID, prices should have adjusted to the full increase that all future QE would bring.

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43) CPI increasing this year doesn’t make markets go up more: markets already knew that the monetary supply had increased, and didn’t have to wait for CPI to move.

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44) Instead, CPI increasing this year had the effect of increasing political pressure to reduce inflation by tightening monetary policy. So increased inflation indicators sometimes lead to decreased inflation, because of policy reactions.

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45) So I don’t know what this means going forward. On the one hand, there are real signs of tightening policy for the first time in a while. On the other hand, even the proposed rate hikes are a lot less than true inflation probably is, barely making a dent in real rates.

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46) And also, there’s a war going on now, on top of COVID; there will be pressure to prevent markets from crashing, which means, well, you know…

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47) So in the end–I don’t know what will happen going forward. I wish I were smart enough to see the future, rather than just the past. But I guess my main takeaways from MMT are: a) It probably lead to significant, serious inflation b) Also it probably prevented a recession

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48) Those are, sometimes, two sides of the same coin. And, also: c) QE → number go up → easy to get financing → number go up → easy to get financing → …

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49) We have, accidentally, been exploring Post-Modern Monetary Theory as a society. A system designed so that numbers mostly just go up and up and up, as they mean less and less and less.

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