Seems self-evident to me that increasing the supply of dollars does not automatically increase the supply of goods and services that people actually consume.
> Is running a federal deficit and an increase in the money supply the same thing?
No. The money supply will naturally increase as the value of goods and services in the economy grows. (This creation is done by the banks loaning money against collateral, it's a rather complex subject.) If the money supply increases faster than that, we have inflation.
The way it increases faster than that is via the fiat money printing press.
Here's another way to look at it. The US had a net zero inflation from 1800-1914. Everything the current government blames as a cause of inflation happened all over that time period, but no net inflation. From 1914 on, we've had endemic inflation.
Any explanation of inflation has to account for that.
The creation of the Fed accounts for it. It was given the power to arbitrarily create money, and so they did, to fund the deficits. Every other country saw the magic of this, and switched to fiat money and inflation.
Correct.
I don't see it mentioned much in this thread.
Everyone wants to blame the government for over supply of dollars.
Not much mention that on the production supply side, we have record corporate profits.
On earnings calls CEO's just come right out and say 'because of covid, we are able to raise prices, and man it's great'.
A lot of inflation is in the supply side just raising prices and making more profit.
If there really was a supply chain issue, then the suppliers should also be squeezed, then themselves have lower profit because their source prices were higher.
But it is really just the consumer facing prices that go up. A lot of inflation is profit taking on the corporate side.
> But it is really just the consumer facing prices that go up. A lot of inflation is profit taking on the corporate side.
The US CPI went up 21.9% over the past 5 years[0]. The PPI went up 27.3% over the same timeframe[1]. So it's untrue that it's just the consumer-facing prices that have gone up; the producer-facing prices went up even more.
Corporate profit margins are high compared to historical averages, and total corporate profits went up by 40.7% over the past 5 years[2]; but the money supply went up by even more, by 47.1%[3]. So perhaps it's fair to say that businesses have been good at capturing the bulk of the additional money supply. Real (as in inflation-adjusted) personal incomes went up 9.4% over the same timeframe[4].
Consumer behavior was in turbocharged spending mode, fueled by rock-bottom interest rates and fiscal largesse. When supply remains constrained and demand goes through the roof, prices rise. Nothing too mysterious there.
