Conversation

Mar 18

24) And, the thing is--what drives CPI? Well, CPI is, basically, bread. Elon Musk is worth roughly one million times as much as the median American. @elonmusk does not eat one million loaves of bread per day. So CPI tracks the median American more so than the average one.

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8) So really we have a few effects superimposed on each other (all estimates!) a) burn 5% of bread due to war and COVID; +5% inflation. This is bad inflation! b) print 5% money for everyone; +5% inflation. This is fine; inflation is just the flipside of having more money.

9) c) print +17.5% money, which goes to the rich; they spend on $SPY and $BTC and stuff. No inflation from this. d) print another +17.5% money, which goes to the rich; they spent on energy and stuff, which makes bread more expensive; +5% inflation. This is "bad" inflation.

10) You can't increase monetary supply and expect that to be free. But by the same token, when inflation follows, don't forget that you still have more $! Stock splits aren't free money; they *also* aren't pure dilution. They're two sides of the same coin, perfectly balanced.

11) Except sometimes they're not perfectly balanced. In the end, if you want to know how good things are, look at the actual goods we get in the end; do we have more or less of them, and how are they distributed? COVID sucked. War in Ukraine sucks. So we have less stuff.

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12) And then piled on top are a combination of inflation/monetary supply increase (not super relevant), and a change in monetary distribution (relevant but not pure inflation), just to confuse things.

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Your analysis ignores the impact of inflationary expectations on both future inflation & business investment (job creation). In the 70s, we saw increasing expectations drive a cycle of inflation way beyond the oil shock & money supply increases that triggered it.

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and

2/This cycle HURT investment, cutting job growth needed to offset business failures in companies unable to pass on higher wage & input costs. As you said, the economy isn’t uniform & neither is pricing power. Ask yourself, can FTX charge higher rates if your labor costs increase?

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eh FTX is a weird example here, I think we probably do quite well under high inflation relatively speaking, and our team is pretty lean; revenue > $1m/employee. And, in addition, I do think we would pretty clearly see increased $ demand in response to inflation.

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Interesting, but doesn’t that depend on the asset prices keeping pace with monetary inflation. Even if those that FTX trades do (which I tend to agree will happen) many businesses wont be so lucky if price rises are uneven.