The psychology of inflation

[Erdogan]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

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[Este Nuno]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

[Erdogan]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

[Este Nuno]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

[Erdogan]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

You can only make an estimate.

[Este Nuno]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

You can only make an estimate.

Yeah, but at least you have a good general idea of what the rate of inflation has been. Plus you can see with your own eyes how things are getting expensive in your day to day life. So it's nice to have a good estimate to go with what you're already seeing anyway.

[Erdogan]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

You can only make an estimate.

Yeah, but at least you have a good general idea of what the rate of inflation has been. Plus you can see with your own eyes how things are getting expensive in your day to day life. So it's nice to have a good estimate to go with what you're already seeing anyway.

That is why you are easily fooled. It can not be measured accurately and the index is prone to cheating. It is only one of the elements of the psychology as laid out in the OP.

[DannyElfman]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

You can only make an estimate.

Yeah, but at least you have a good general idea of what the rate of inflation has been. Plus you can see with your own eyes how things are getting expensive in your day to day life. So it's nice to have a good estimate to go with what you're already seeing anyway.

Over the long run you are able to measure the rate of inflation. There are many financial products that are linked to the inflation rate.

[Este Nuno]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

People are contempt with a small yearly rise in prices. We adjust for it almost without thinking. When you negotiate your salary, you just assume that an inflation adjustment is accepted, the question is what more. The same with prices. The traders offering prices, more or less automatically adjust for inflation first, then he thinks about should he go more or less whatever he thinks the market can take.

The inflation is internalized.

Measuring inflation is fundamentally impossible. Since the goal of all activity is consumption, only consumer goods and services are included. Traditionally a basket of goods were bought, and then prices compared year on year. But as the world changes, some of the wares in that basket will be irrelevant, and important new goods has to be included. So after a number of years, the basket has to be changed. Then there is the individual preferences, each person sees the the price changes of the goods he tends to buy.

The inflation is thus not really measurable.

The public does not understand what is the input parameters to the value of money. They think it has something to do with the strong innovation, a great country, a strong military, hard working people, or whatever. In reality it is the supply of money, and the demand to hold money that decides the value.

The public will always underestimate future inflation.

Since inflation is internalized, it stops working. There is therefore room to accelerate it. And since it is unmeasurable, there is the possibility to hide it in fake indexes. Eventually they see that they personally can buy less. They do not understand why, and therefore they might think that prices may go down. Therefore, the inflation will always increase, and the public will always be surprised.

This is the psychology of inflation. This is seen in historical hyperinflation episodes.

Refer to "When money dies" by Adam Ferguson. I was pointed at the book somewher on this forum (have not finished reading it).

Why does changing the basket of goods to keep it updated mean that inflation is unmeasurable?

Isn't that logical? you compare different things. Was your granddad richer than you? Maybe he had horses. How do yo compare his horses to your car?

But it's gradual and you can compare lots of different things. Plus there's things like gold which are always going to be the same.

Do you think the inflation rate of the US dollar in the last hundred years that is commonly quoted is wildly inaccurate?

You can only make an estimate.

Yeah, but at least you have a good general idea of what the rate of inflation has been. Plus you can see with your own eyes how things are getting expensive in your day to day life. So it's nice to have a good estimate to go with what you're already seeing anyway.

Over the long run you are able to measure the rate of inflation. There are many financial products that are linked to the inflation rate.

Plus you can still compare different things over time like transportation costs like OP mentioned. You could figure out the marginal cost per kilometer or whatever between a horse and a car. Just because two things are different doesn't mean they can't be compared when they are used for the same purpose.

[tee-rex]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

Could not disagree more. If the economy expands, the shortage of money due to this would hinder the expansion, and keeping money supply in harmony with the economy growth would surely not strip value from "money holders" at all. Thus, not all money-printing is born equal, so to speak.

[IIOII]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

Could not disagree more. If the economy expands, the shortage of money due to this would hinder the expansion, and keeping money supply in harmony with the economy growth would surely not strip value from "money holders" at all. Thus, not all money-printing is born equal, so to speak.

Where's the proof that a so called "money shortage" hinders economic expansion? That's merely a claim made by the school of economics that is currently in charge.
There doesn't exist an advantage per se to keep the value of money stable. People can adapt to changes in purchasing power of their savings and in turn economy will adapt to spending behavior. It's self-regulatory with no intervention needed.

[Erdogan]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

Could not disagree more. If the economy expands, the shortage of money due to this would hinder the expansion, and keeping money supply in harmony with the economy growth would surely not strip value from "money holders" at all. Thus, not all money-printing is born equal, so to speak.

Where's the proof that a so called "money shortage" hinders economic expansion? That's merely a claim made by the school of economics that is currently in charge.
There doesn't exist an advantage per se to keep the value of money stable. People can adapt to changes in purchasing power of their savings and in turn economy will adapt to spending behavior. It's self-regulatory with no intervention needed.

Assuming sound money, "If the economy expands, the shortage of money due to this would" raise the value of money, so there is still just enough.

Assuming fiat money, when this happens, some guy hidden behind a curtain can print more, without anyone knowing. The new money is used to expand that guys power.

[tee-rex]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

Could not disagree more. If the economy expands, the shortage of money due to this would hinder the expansion, and keeping money supply in harmony with the economy growth would surely not strip value from "money holders" at all. Thus, not all money-printing is born equal, so to speak.

Where's the proof that a so called "money shortage" hinders economic expansion? That's merely a claim made by the school of economics that is currently in charge.
There doesn't exist an advantage per se to keep the value of money stable. People can adapt to changes in purchasing power of their savings and in turn economy will adapt to spending behavior. It's self-regulatory with no intervention needed.

It is not a claim. Any production business would confirm this.

Money under-supply makes producers' profits less than they might otherwise be, since it leads to money appreciation. They buy raw materials at the beginning of the production cycle at a higher price, but sell at the end of the cycle at a lower price. The longer the production cycle, the more profits they lose.

[Harley997]

I assume everybody now understands that money printing effectively is the money printers skimming value from all holders of money.

Could not disagree more. If the economy expands, the shortage of money due to this would hinder the expansion, and keeping money supply in harmony with the economy growth would surely not strip value from "money holders" at all. Thus, not all money-printing is born equal, so to speak.

Where's the proof that a so called "money shortage" hinders economic expansion? That's merely a claim made by the school of economics that is currently in charge.
There doesn't exist an advantage per se to keep the value of money stable. People can adapt to changes in purchasing power of their savings and in turn economy will adapt to spending behavior. It's self-regulatory with no intervention needed.

It is not a claim. Any production business would confirm this.

Money under-supply makes producers' profits less than they might otherwise be, since it leads to money appreciation. They buy raw materials at the beginning of the production cycle at a higher price, but sell at the end of the cycle at a lower price. The longer the production cycle, the more profits they lose.

It would be more correct to say that the longer the production cycle the more they stand to lose as it is difficult/impossible to know for sure when the value of money will be higher or lower.

[Erdogan]

The consequence of the money supply to price inflation is not direct. We know this from Bernankes utterings. In this phase, there is no general fear of the dollar going in the toilet. So the money creation is great, but the consequence for price level increase is not that bad.

Later in the hyperinflation, this is turned around.



Here is an extract from "When money dies" by historian Adam Fergusson (near page 57) regarding the Austrian hyperinflation.

"Since January the note issue had increased by 28 per cent, the price index by
36 per cent, and the external depreciation of the korona by between 52 and 75 per cent — the
spread representing the disparity within a single June week. In mid-June a pound would buy
4,500 korona, a reflection, stated the new Finance Minister, Dr Kallay, of the financial state of
Germany and Austria. As in Germany, it was not supposed that the printing press had much to do
with the rate of depreciation, the orthodox financial circles blaming the 'lack of confidence in
Zurich' and asserting that as the depreciation was so much greater than the increase in the note
issue, the latter could at most be a contributory factor to the former."


A few sentences later, comes a temporary rise in value and the consequences. Here is the root of the "deflation is bad" meme.

"Dr Hegedüs's financial policy had affected Hungarian trade in a textbook manner. As the korona
appreciated in the spring of 1921, unemployment, till then negligible, grew markedly because the
goods and raw materials purchased when the overseas rate of the korona was at 2,000 to the
pound could not be disposed of except at great loss when it improved to 800. As the korona
improved, in other words, the position of merchants and manufacturers worsened; and when
Hegedus resigned and the korona fell, a sigh of relief rose from the commercial world and work
was restored to the industrial workless."


Consequently, the nurturing of the money supply must take a long time view. When the money appreciates (deflation of goods prices), the resulting reallocation of capital and workers should be welcomed, not opposed. But there is really not much hope for a sound money policy (using fiat) in times of crisis, the leaders are weak and surrounded by distrusting people, multiple times disappointed. The only solution to this is the widest use possible of sound money, gold and bitcoin.