SBF talks about inflation: Inflation that increases the money supply is neutral, and the "Cantillon effect" of uneven distribution is hyperinflation

Original title: "SBF Talking About Inflation - Inflation that increases money supply is neutral, and the "Cantillon effect" of uneven distribution is hyperinflation"

Original source: FTX

Is inflation a bad thing? - SBF throws this question in a tweet. Intuitively, inflation must be a bad thing. SBF explained that if the total value of money in the world is $x and the price of bread is $y, then as y rises, the distributable wealth x decreases. Very simple logic.

What if the total amount of $x increases?

SBF believes that it depends on the distribution method of the total increase. For example, he assumes that if 1 cent (Cents) is exchanged for 1 dollar (Dollars), then the total amount of US dollars has increased by 100 times. As a result, the price of bread $y has also increased by 100 times, and everyone still has the same amount. Bread

"Look at what's happening now (referring to rising commodity prices), in terms of monetary aggregates, over the past period Time, x has increased by 40%, and y has increased by about 15%, so the bread in the world has increased by 25%?"

of course not. SBF noted that the world's bread supply may have been reduced by 5% in the most recent total. One is because of supply chain problems, and there is also the Ukrainian-Russian War. Both Ukraine and Russia are major exporters of wheat (bread raw material).

So if the total amount of money in the world is 40% more and the total amount of bread is reduced by 5%, then why is the price of bread only going up 15%?

"Because most of the extra dollars printed go to the rich, but they can only eat so much bread. This It becomes that most of the increase in x does not lead to an increase in the demand for y (bread).”

While there is no increase in demand, assuming If the supply decreases by 5%, then the price should increase by 5%, but why is the price increased by 15%?

“On the other hand, the dollars owned by the rich increase the demand for other commodities, which leads to Higher demand, such as energy. The increase in these raw materials has in turn led to an increase in the cost and price of bread.”

SBF said that the actual price inflation index has some superimposed effects. The war and the epidemic caused hyperinflation; while the inflation caused by the increase in the total amount of money needs to analyze the flow of money. He divides inflation into the following four items:

a. Wars and epidemics cause a total loss of 5% of bread, +5% Inflation, this is hyperinflation.

b. Print 5% of the currency and distribute it equally to everyone, +5% inflation, but this inflation is only for everyone All become richer.

c. Print 17.5% of money to rich people, they invest money in $SPY and $BTC, no inflation . (Bringing demand will cause d)

d. Print another 17.5% to rich people who spend money on energy and Among other ingredients, this makes bread more expensive. +5% inflation, which is "bad" inflation.

At present, everyone seems to have naturally confused the increase in money supply with inflation, but the increase in currency issuance and changes in currency distribution are Different, it is necessary to distinguish clearly.

"Money supply increases and money distribution are very confusing. Money supply increases and (bad) inflation are not super correlated, money Distribution is (highly) correlated, but inflation in question is not the same thing as pure monetary inflation.”

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Cantillon Effect

The sub-editor of one of the editors of the economics fan special "Bastiat Candle Workshop" said that SBF's idea of currency price transmission is closer to the Cantillon effect.

The Cantillon Effect (Cantillon Effect) means that when the government issues additional currency, the new currency needs an export, and then gradually flowed into society. This process will take a while, so the impact of currency issuance on the economy is uneven.

Zibian said that the increase or decrease of currency will first affect the existing production structure of society, and the price of some commodities will be higher than others Increases and decreases occur first.

“In other words, the production structure is distorted, resulting in a wrong production structure, and this wrong production structure cannot be restored Reversal. The wrong production structure brought about by the increase or decrease of currency cannot be restored or remedied, and in the end it will only be paid by everyone.”

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