Hyperinflation

This seems to have some people in a tizzy. Can someone explain to me what it means?
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"What is reverse repo" would probably be a great place to start! :)
 
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My local Pizza Hut has taken the prices off the menu. When I asked why they said you can scan the QR code to see what the price of things are at the moment.

Only reason for doing that is if they expect to have to start changing prices more frequently and don't want to waste money redoing the menus all the time.
 
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mindlessobserver said:
My local Pizza Hut has taken the prices off the menu. When I asked why they said you can scan the QR code to see what the price of things are at the moment.

Only reason for doing that is if they expect to have to start changing prices more frequently and don't want to waste money redoing the menus all the time.
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The important thing to remember is no more mean tweets.
 
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HymanHive said:
Banks putting money back in to the fed to make money because of low interest. I believe it was @The High Prophet of Truth that gave me the explanation in another thread
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Well, I decided to try and answer it myself. With the greatest respect I didn't really understand the mechanisms of your answer. One of the first things I get searching for the term though is a reference to Frederick Mishkin saying how useful a tool it was. He should know - he IS a useful tool. Iceland paid him something like a hundred grand to write a book about how great their economy was. It was called "Financial Stability in Iceland". Two years later, Iceland's economy exploded like a fish rotting in the Sun and he attempted to retroactively pretend the book had been called Financial INstabilty in Iceland". He was a governor of the Federal Reserve when the sub-prime mortgage collapsed. He resigned and fled back to teaching. If he's for something, get out now!

So apparently a "repo" is a repurchase order. Apparently it's basically pawning financial assets (bonds, not sure if the term applies to other things) with an agreement. Gives the institution (bank, Fed, whatever) some liquidity and they agree to buy it back at a later date for more. It's basically an alternative approach to a loan - not paying interest, promising to buy back your collateral for more later on. Reverse Repo is just the same thing but from the lender's perspective.

So if I'm reading this right, the Federal Reserve is pawning a shit-tonne of bonds to banks and they're lending money to the Federal Reserve. The banks are doing this because low interest rates (controlled by the Federal Reserve) are making lending elsewhere not very profitable and the reverse repo a better bargain. This last sentence is my own attempt to understand it - I'd welcome someone confirming it.

Am I wrong here or is the Fed basically building up a massive repayment it will have to make to the banks?
 
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Overly Serious said:
Well, I decided to try and answer it myself. With the greatest respect I didn't really understand the mechanisms of your answer.
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Neither did I. I can't quite understand what the point of the reverse repo is.

Overly Serious said:
One of the first things I get searching for the term though is a reference to Frederick Mishkin saying how useful a tool it was. He should know - he IS a useful tool. Iceland paid him something like a hundred grand to write a book about how great their economy was. It was called "Financial Stability in Iceland". Two years later, Iceland's economy exploded like a fish rotting in the Sun and he attempted to retroactively pretend the book had been called Financial INstabilty in Iceland". He was a governor of the Federal Reserve when the sub-prime mortgage collapsed. He resigned and fled back to teaching. If he's for something, get out now!

So apparently a "repo" is a repurchase order. Apparently it's basically pawning financial assets (bonds, not sure if the term applies to other things) with an agreement. Gives the institution (bank, Fed, whatever) some liquidity and they agree to buy it back at a later date for more. It's basically an alternative approach to a loan - not paying interest, promising to buy back your collateral for more later on. Reverse Repo is just the same thing but from the lender's perspective.

So if I'm reading this right, the Federal Reserve is pawning a shit-tonne of bonds to banks and they're lending money to the Federal Reserve. The banks are doing this because low interest rates (controlled by the Federal Reserve) are making lending elsewhere not very profitable and the reverse repo a better bargain. This last sentence is my own attempt to understand it - I'd welcome someone confirming it.

Am I wrong here or is the Fed basically building up a massive repayment it will have to make to the banks?
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Thanks for this explanation. Though i still don't understand why the fed that prints it's own money, need to make money by selling assets?

My bigger concern is WHY did this occur. What triggered the event?
 
HymanHive said:
Neither did I. I can't quite understand what the point of the reverse repo is.


Thanks for this explanation. Though i still don't understand why the fed that prints it's own money, need to make money by selling assets?

My bigger concern is WHY did this occur. What triggered the event?
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Yeah, we need someone in here who understands this stuff properly. But to answer why it would need to make money by selling assets when it can print it, I think the idea is that it's not inflationary if you're borrowing money that exists. Is this some part of Modern Monetary Theory? It's okay to print as much money as you like, so long as it doesn't get into the hands of ordinary people. That way it's only inflationary in terms of stock market, devaluing national debt, etc. but bread doesn't suddenly cost 200% more.

Although for some reason I'm now thinking about the Three Gorges Damn in China.

EDIT: Found a good article on this: https://www.marketplace.org/2014/01/14/fed-explainer-whats-reverse-repo/ It seems that what this is really about is the Fed entering the market as a competing customer to the banks as a way to reduce lending. Bank was going to lend money to factory X. Fed says: "I'm more reliable and will pay more interest than that company. So lend to me instead." Then if some factory owner wants to get a loan from the bank they have to beat the Fed's offer. Essentially it's like what you said: if interest rates are too low, this forces them up. But unlike just raising interest rates directly, it affects everybody rather than just the banks. I don't know why that's a good thing. 🤷‍♂️
 
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Overly Serious said:
Yeah, we need someone in here who understands this stuff properly. But to answer why it would need to make money by selling assets when it can print it, I think the idea is that it's not inflationary if you're borrowing money that exists. Is this some part of Modern Monetary Theory? It's okay to print as much money as you like, so long as it doesn't get into the hands of ordinary people. That way it's only inflationary in terms of stock market, devaluing national debt, etc. but bread doesn't suddenly cost 200% more.

Although for some reason I'm now thinking about the Three Gorges Damn in China.

EDIT: Found a good article on this: https://www.marketplace.org/2014/01/14/fed-explainer-whats-reverse-repo/ It seems that what this is really about is the Fed entering the market as a competing customer to the banks as a way to reduce lending. Bank was going to lend money to factory X. Fed says: "I'm more reliable and will pay more interest than that company. So lend to me instead." Then if some factory owner wants to get a loan from the bank they have to beat the Fed's offer. Essentially it's like what you said: if interest rates are too low, this forces them up. But unlike just raising interest rates directly, it affects everybody rather than just the banks. I don't know why that's a good thing. 🤷‍♂️
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I can't get my tiny little brain around it. Why would the fed want to be the one that loans money, when the fed is already the one that loans money? Other than to strangle the supply of loans being given out...unless - and this is off of the top of my head, the Fed are about to tank interest rates and don't want the plebs getting favourable debt/loan/interest rates? Or, it allows the fed to give very favourable rates to the banks, without passing on those favourable rates to the people/business/government?

Inflation for everyone rises, inflation for the fed and banks are artificially driven in to the negative, so that they can clear their debts off?

Like you say, we need some of the financially autistic posters to clear this up
 
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HymanHive said:
I can't get my tiny little brain around it. Why would the fed want to be the one that loans money, when the fed is already the one that loans money? Other than to strangle the supply of loans being given out...unless - and this is off of the top of my head, the Fed are about to tank interest rates and don't want the plebs getting favourable debt/loan/interest rates? Or, it allows the fed to give very favourable rates to the banks, without passing on those favourable rates to the people/business/government?

Inflation for everyone rises, inflation for the fed and banks are artificially driven in to the negative, so that they can clear their debts off?

Like you say, we need some of the financially autistic posters to clear this up
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My best guess is that a TON of people are defaulting on their debts. That is terrible for the banks, who need to be highly liquid to function. Yes, they can take your house and car and sell them for cash in a bankrupcy, but that takes a VERY long time and they need the liquidity now. So they need to be able to get quick cash at favourable interest rate, and the plebes should cope and not have gotten into debt.

This is just a guess btw.
DSPs of America have fucked the system!
 
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Overly Serious said:
Yeah, we need someone in here who understands this stuff properly. But to answer why it would need to make money by selling assets when it can print it, I think the idea is that it's not inflationary if you're borrowing money that exists. Is this some part of Modern Monetary Theory? It's okay to print as much money as you like, so long as it doesn't get into the hands of ordinary people. That way it's only inflationary in terms of stock market, devaluing national debt, etc. but bread doesn't suddenly cost 200% more.

Although for some reason I'm now thinking about the Three Gorges Damn in China.

EDIT: Found a good article on this: https://www.marketplace.org/2014/01/14/fed-explainer-whats-reverse-repo/ It seems that what this is really about is the Fed entering the market as a competing customer to the banks as a way to reduce lending. Bank was going to lend money to factory X. Fed says: "I'm more reliable and will pay more interest than that company. So lend to me instead." Then if some factory owner wants to get a loan from the bank they have to beat the Fed's offer. Essentially it's like what you said: if interest rates are too low, this forces them up. But unlike just raising interest rates directly, it affects everybody rather than just the banks. I don't know why that's a good thing. 🤷‍♂️
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Well according to all the headlines I see the answer to "Why that's a good thing?" is always "Here's Why That's A Good Thing"
 
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Beavis said:
The important thing to remember is no more mean tweets.
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Lol at thinking Trump, who gave huge tax cuts to rich people, would've been printing less money.

Hyperinflation is a 50% jump in cost of goods in a month. We're a long ways off from that. Some inflation (2-3% annually) is a good thing, hyper inflation is obviously not a good thing
 
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Hollywood Hulk Hogan said:
Lol at thinking Trump, who gave huge tax cuts to rich people, would've been printing less money.
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He gave tax cuts to everyone, and we're literally not printing money either.
Hollywood Hulk Hogan said:
Hyperinflation is a 50% jump in cost of goods in a month. We're a long ways off from that. Some inflation (2-3% annually) is a good thing, hyper inflation is obviously not a good thing
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Yes we know we're not there yet, we're just speculating if we are heading there. Things are still wonky & getting noticeably worse.
 
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Hollywood Hulk Hogan said:
Hyperinflation is a 50% jump in cost of goods in a month. We're a long ways off from that. Some inflation (2-3% annually) is a good thing, hyper inflation is obviously not a good thing
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I'll ask you what I ask everyone else who comes into this thread and says something like this. Do you think hitting 5-10% inflation is possible? If not, why was it possible 30-40 years ago, but not now? What has fundamentally changed?
 
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MarvinTheParanoidAndroid said:
He gave tax cuts to everyone, and we're literally not printing money either.
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We are printing money. What do you think we do when we need to issue bonds?

MarvinTheParanoidAndroid said:
Yes we know we're not there yet, we're just speculating if we are heading there. Things are still wonky & getting noticeably worse.
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Nah, they've been talking this crap for decades.

Never Scored said:
I'll ask you what I ask everyone else who comes into this thread and says something like this. Do you think hitting 5-10% inflation is possible? If not, why was it possible 30-40 years ago, but not now? What has fundamentally changed?
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It's definitely possible.
 
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Hollywood Hulk Hogan said:
We are printing money. What do you think we do when we need to issue bonds?
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Then please explain to me why @Rich Evans Apologist is wrong.
Rich Evans Apologist said:
You can buy back bonds or you can buy debt. If you really want to pump the supply, you can buy back those securities at expediated valuation (ie, buying a 15-year bond for full value at 12-years) and you can buy up toxic debt. The government normally issues bonds to pull money out of the money supply - people and companies (as well as international entities) can pick them up.

To take an example, say you buy a $400 bond that'll be worth $500 in ten years. Anyone that buys the bond has given $400 to the fed, which they can choose to sit on to 'remove' it from the economy. When that bond is cashed for the full amount, the government is now putting $500 in -- on-net, they're putting $100 more into the economy. To make that money, they either have to issue more currency or sell more bonds - or take on loans. That naturally means you'll see a gradual, 'base' increase in the money supply over time with a fiat currency.

So when the government issues a bunch of currency, it buys back a bunch of existing securities / debt. Issuing currency doesn't necessarily involve printing it - you can print some of the stuff that you issue, sure, but that's not really the important part. It goes to banks just the same as changing values on their balance sheets.

There are other ways that the fed raises funds that involve interactions with overnight trading of debt between banks as well as the all-important interest rates, but that's the short of it. The government always has to issue new currency naturally by the very existence of bonds, as otherwise people would be parking money to lose money. This is fundamentally why discussing money 'printed' is pretty irrelevant, and the more interesting topic of concern is how all indicators of inflation responded to the 2011 bailouts, which saw $4tr in currency issued to pretty limited effect.
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