@bigkid posted:Supply and demand is playing a role here,that is classic economics at work. The thing is the government has been doing that by running deficit spending all along and it didn't create widespread inflation. The government basically did the same thing with a 2.1 trillion dollar tax cut, yet inflation didn't happen.
Now let's look at the pandemic. The idea that government spending is generating this alone is not true, pure and simple. Yes, the government stimulous checks definitely helped fuel demand, there is no doubt about that, but there were a lot of things fueling demand that is being left out. People were not travelling on vacations and the like, were not spending money on travelling to the office, all those things, so they had pent up money. Did they save it? No, they used it to do things like fix up their houses (try getting a contractor these days..). Or they spent it on RV's (the whole industry has been in a huge boom, I mean unprecedented). The irony of Covid is some people lost their jobs in industries hard hit (restaurants and hospitality especially), others suddenly had a lot more money.
The problem? The supply is restricted, thanks to the global supply chain and the (bad) bets that shippers and manufacturers made. Put it this way, some of the hardest hit states with covids actually had budget surpluses, that tells a big picture about what happened during this. You have restricted supply and prices are going to go up, even without stimulus.
The problem with classical theory about deficits it says that by printing more money, the value of each one goes down, and that was true. The problem is that these days currency value is determined on how the currency trades in international markets, and the dollar is still strong compared to other currencies, that is where classical inflation would come from. If the value of the dollar drops, then when you buy products from a country where there are 3 of their unit to a dollar, and suddenly a dollar only gets 2 of them, you will pay more dollars because it still costs 3 of their currency unit.
Again, the government stimulus increases demand and that in turn can cause prices to go up, but with covid the demand is from a lot of money not spent on other things and a severely reduced supply thanks to covid. Until we get to the point where the supply chain is working fully, where the auto industry isn't producing half the cars they normally would and so forth, we would see inflation even if the government wasn't 'printing money' or deficit spending. Without the stimulus checks the inflation might be a bit less, but they pale in comparison to what consumer spending is in total.
^^ Nailed it. Enjoyed reading your summary - glad I caught it before the thread goes bye-bye.
Most of us are old enough to have lived through inflation in the 1970s, the stock market crash of the late 80s, the recession of 2008, etc. In every case, those who panic are screwed and those with patience are rewarded. It will be the same this time.
