Consumer demand has been the key driver of inflation in the U.S.

cigaretteman

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Supply chain bottlenecks and labor shortages have been a major factor driving inflation in the United States, though surging consumer demand ultimately did more to drive up prices in the last two years, according to researchers at the Federal Reserve Bank of New York, the University of Maryland and Harvard University.

In a blog post on Wednesday, Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized findings from a paper presented in June that found higher consumer demand for all types of products during the pandemic was responsible for roughly 60 percent of the inflation in the United States between 2019 and 2021.

Supply shocks — which include shortages of workers, raw materials and shipping containers needed to produce and move goods globally — accounted for the remaining 40 percent of inflation in the model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints.

The researchers concluded that, without supply bottlenecks, inflation in the United States would have been 6 percent at the end of 2021, instead of 9 percent. The research finds that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe.

“The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” Mr. di Giovanni wrote.

The findings provide one answer to a debate that policymakers and politicians have been wrestling with about the nature of inflation, which slowed slightly to 8.5 percent in July. While many economists point to the government’s generous spending to support Americans during the pandemic as a key factor fueling inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine.
The debate has important implications for the actions policymakers can take to fight price increases. The Federal Reserve has aggressively raised interest rates to try to cool consumer demand and the economy, but it has no tools to alleviate supply constraints.
Congress and the Biden administration have begun making big investments in infrastructure and providing incentives for manufacturers of key products like semiconductors to invest in the United States. But the impact from those policies will take years to be felt.
There have been signs recently that supply chain shocks are easing, and Mr. di Giovanni said that could be good news for the U.S. inflation rate. In the absence of new energy shocks or other surprises, it’s possible that the easing of bottlenecks in the supply chain “will cause a substantial drop in inflation in the near term,” he wrote Wednesday.

 

TheCainer

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Supply chain bottlenecks and labor shortages have been a major factor driving inflation in the United States, though surging consumer demand ultimately did more to drive up prices in the last two years, according to researchers at the Federal Reserve Bank of New York, the University of Maryland and Harvard University.

In a blog post on Wednesday, Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized findings from a paper presented in June that found higher consumer demand for all types of products during the pandemic was responsible for roughly 60 percent of the inflation in the United States between 2019 and 2021.

Supply shocks — which include shortages of workers, raw materials and shipping containers needed to produce and move goods globally — accounted for the remaining 40 percent of inflation in the model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints.

The researchers concluded that, without supply bottlenecks, inflation in the United States would have been 6 percent at the end of 2021, instead of 9 percent. The research finds that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe.

“The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” Mr. di Giovanni wrote.

The findings provide one answer to a debate that policymakers and politicians have been wrestling with about the nature of inflation, which slowed slightly to 8.5 percent in July. While many economists point to the government’s generous spending to support Americans during the pandemic as a key factor fueling inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine.
The debate has important implications for the actions policymakers can take to fight price increases. The Federal Reserve has aggressively raised interest rates to try to cool consumer demand and the economy, but it has no tools to alleviate supply constraints.
Congress and the Biden administration have begun making big investments in infrastructure and providing incentives for manufacturers of key products like semiconductors to invest in the United States. But the impact from those policies will take years to be felt.
There have been signs recently that supply chain shocks are easing, and Mr. di Giovanni said that could be good news for the U.S. inflation rate. In the absence of new energy shocks or other surprises, it’s possible that the easing of bottlenecks in the supply chain “will cause a substantial drop in inflation in the near term,” he wrote Wednesday.

Huh-uh!

It's all of Joe's big spending. ;)

I've read it on HROT.
 

The Tradition

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The liberal media is still pushing this dumb idea?


Inflation is the devaluation of money across the entire economy. It is not the inability to buy a Ford Maverick because of a chip shortage.
 

LuciousBDragon

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Supply chain bottlenecks and labor shortages have been a major factor driving inflation in the United States, though surging consumer demand ultimately did more to drive up prices in the last two years, according to researchers at the Federal Reserve Bank of New York, the University of Maryland and Harvard University.

In a blog post on Wednesday, Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized findings from a paper presented in June that found higher consumer demand for all types of products during the pandemic was responsible for roughly 60 percent of the inflation in the United States between 2019 and 2021.

Supply shocks — which include shortages of workers, raw materials and shipping containers needed to produce and move goods globally — accounted for the remaining 40 percent of inflation in the model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints.

The researchers concluded that, without supply bottlenecks, inflation in the United States would have been 6 percent at the end of 2021, instead of 9 percent. The research finds that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe.

“The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” Mr. di Giovanni wrote.

The findings provide one answer to a debate that policymakers and politicians have been wrestling with about the nature of inflation, which slowed slightly to 8.5 percent in July. While many economists point to the government’s generous spending to support Americans during the pandemic as a key factor fueling inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine.
The debate has important implications for the actions policymakers can take to fight price increases. The Federal Reserve has aggressively raised interest rates to try to cool consumer demand and the economy, but it has no tools to alleviate supply constraints.
Congress and the Biden administration have begun making big investments in infrastructure and providing incentives for manufacturers of key products like semiconductors to invest in the United States. But the impact from those policies will take years to be felt.
There have been signs recently that supply chain shocks are easing, and Mr. di Giovanni said that could be good news for the U.S. inflation rate. In the absence of new energy shocks or other surprises, it’s possible that the easing of bottlenecks in the supply chain “will cause a substantial drop in inflation in the near term,” he wrote Wednesday.

Thanks Ciggy for posting this!

I had the funny feeling it had something to do with the trillions of dollars the Fed printed but I’ll sleep better knowing it was just Americans wanting things.
 

Bill Doak and 9 others

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The organization that is indisputably THE driving force of inflation says pretty much everything else is causing inflation.

🤣🤣🤣🤣🤣
 

lucas80

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The liberal media is still pushing this dumb idea?


Inflation is the devaluation of money across the entire economy. It is not the inability to buy a Ford Maverick because of a chip shortage.
Or, maybe there are multiple factors owing to a heated economy coming out of a pandemic?
 

binsfeldcyhawk2

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Huh-uh!

It's all of Joe's big spending. ;)

I've read it on HROT.
$1.9T ARP increased demand. We were already in for inflation…just poured fuel on the fire.

 

AreWeCross

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Or, maybe there are multiple factors owing to a heated economy coming out of a pandemic?
Inflation is 100% caused by the 42% increase in the money supply in 2020 and 2021. Everyone needs to understand this basic economic principle.

We have to take liquidity out of the system. Printing more money (Stimulus, PPP, ARP, weapons to Ukraine, etc, etc. etc.) make Jerome Powell's job that much more difficult.
 

cigaretteman

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Inflation is 100% caused by the 42% increase in the money supply in 2020 and 2021. Everyone needs to understand this basic economic principle.

We have to take liquidity out of the system. Printing more money (Stimulus, PPP, ARP, weapons to Ukraine, etc, etc. etc.) make Jerome Powell's job that much more difficult.
Um, no.
 

luvmyhawks

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Inflation is 100% caused by the 42% increase in the money supply in 2020 and 2021. Everyone needs to understand this basic economic principle.

We have to take liquidity out of the system. Printing more money (Stimulus, PPP, ARP, weapons to Ukraine, etc, etc. etc.) make Jerome Powell's job that much more difficult.

very few on this board understand this. This isn’t rocket science.
 
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abby97

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Supply chain bottlenecks and labor shortages have been a major factor driving inflation in the United States, though surging consumer demand ultimately did more to drive up prices in the last two years, according to researchers at the Federal Reserve Bank of New York, the University of Maryland and Harvard University.

In a blog post on Wednesday, Julian di Giovanni, the head of climate risk studies in the New York Fed’s Research and Statistics Group, summarized findings from a paper presented in June that found higher consumer demand for all types of products during the pandemic was responsible for roughly 60 percent of the inflation in the United States between 2019 and 2021.

Supply shocks — which include shortages of workers, raw materials and shipping containers needed to produce and move goods globally — accounted for the remaining 40 percent of inflation in the model, with 58 of 66 industrial sectors that the research identified experiencing supply constraints.

The researchers concluded that, without supply bottlenecks, inflation in the United States would have been 6 percent at the end of 2021, instead of 9 percent. The research finds that demand shocks played a larger role in explaining inflation in the United States, whereas supply chain bottlenecks have done more to fuel inflation in Europe.

“The bottom line of this decomposition is that supply constraints magnified the impact of higher demand in inflation,” Mr. di Giovanni wrote.

The findings provide one answer to a debate that policymakers and politicians have been wrestling with about the nature of inflation, which slowed slightly to 8.5 percent in July. While many economists point to the government’s generous spending to support Americans during the pandemic as a key factor fueling inflation, the Biden administration has often blamed global supply chain issues and rising fuel prices stemming from the Russian invasion of Ukraine.
The debate has important implications for the actions policymakers can take to fight price increases. The Federal Reserve has aggressively raised interest rates to try to cool consumer demand and the economy, but it has no tools to alleviate supply constraints.
Congress and the Biden administration have begun making big investments in infrastructure and providing incentives for manufacturers of key products like semiconductors to invest in the United States. But the impact from those policies will take years to be felt.
There have been signs recently that supply chain shocks are easing, and Mr. di Giovanni said that could be good news for the U.S. inflation rate. In the absence of new energy shocks or other surprises, it’s possible that the easing of bottlenecks in the supply chain “will cause a substantial drop in inflation in the near term,” he wrote Wednesday.

You really had to read this entire article to determine that consumer demand with too little product causes inflation? Wow, what a revelation. The problem is the Biden admin and the dems keep shoveling out more money which increases demand and will exacerbate inflation. We now and 20 million former students who have have been give an additional $10,000.00 to spend, brilliant policy move.
 
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RileyHawk

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It's amazing to me that so many don't understand the basic driver of inflation is supply and demand regardless of how much money is available. Someone who receives an extra $10,000 does not have to spend it. If they save it or pay off debt it does not impact inflation. If they choose to spend it and there is ample supply of what they want, there's little impact on inflation. If they choose to spend it and supply is constrained then inflation happens because of competition for a resource that has become scarce. Still, when prices go up people have a choice to buy at the higher price, save/invest or pay down debts.

A lot of nonsense being spewed in here.
 

BlackNGoldBleeder

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It's amazing to me that so many don't understand the basic driver of inflation is supply and demand regardless of how much money is available. Someone who receives an extra $10,000 does not have to spend it. If they save it or pay off debt it does not impact inflation. If they choose to spend it and there is ample supply of what they want, there's little impact on inflation. If they choose to spend it and supply is constrained then inflation happens because of competition for a resource that has become scarce. Still, when prices go up people have a choice to buy at the higher price, save/invest or pay down debts.

A lot of nonsense being spewed in here.
Right, but if the government keeps printing funny money, what does that do to the value of your currency? I agree there are a lot of factors at play, but government spending and reckless distribution of money is certainly one of them.

@luvmyhawks, correct?
 

mnole03

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It's amazing to me that so many don't understand the basic driver of inflation is supply and demand regardless of how much money is available. Someone who receives an extra $10,000 does not have to spend it. If they save it or pay off debt it does not impact inflation. If they choose to spend it and there is ample supply of what they want, there's little impact on inflation. If they choose to spend it and supply is constrained then inflation happens because of competition for a resource that has become scarce. Still, when prices go up people have a choice to buy at the higher price, save/invest or pay down debts.

A lot of nonsense being spewed in here.
Right, helicopter money is worse than money printed and kept in reserve, but the root cause is still always and everywhere a monetary phenomenon.
 

RileyHawk

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Right, but if the government keeps printing funny money, what does that do to the value of your currency? I agree there are a lot of factors at play, but government spending and reckless distribution of money is certainly one of them.

@luvmyhawks, correct?
It can be, but not necessarily. We saw huge amounts of stimulus in 2008/09 that saved the economy and no real impact on inflation. In this case it's the confluence of the pandemic created demand with supply chain breakdown that created the spike in inflation.
 

Hawki97

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It's amazing to me that so many don't understand the basic driver of inflation is supply and demand regardless of how much money is available. Someone who receives an extra $10,000 does not have to spend it. If they save it or pay off debt it does not impact inflation. If they choose to spend it and there is ample supply of what they want, there's little impact on inflation. If they choose to spend it and supply is constrained then inflation happens because of competition for a resource that has become scarce. Still, when prices go up people have a choice to buy at the higher price, save/invest or pay down debts.

A lot of nonsense being spewed in here.

The more money available though, the more potential impact to supply and demand. If you're a child sitting there with $0, you have no impact on supply (or potential inflation) because you can't demand. If I give you $10 on a whim, you can impact supply with your newfound ability to demand a pack of baseball cards thanks to my generosity.

Your bolded text is the key question. What will the child do with the $10 given to them. Squirrel it away for a rainy day and not really impact inflation? Or run right out and spend it causing those Topps baseball cards to become scarce and drive up costs (e.g. inflation)? I'd like to think the average American consumer will make smart money decisions - but damn, that pretty new iPhone sure is slick.
 
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Hawki97

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It can be, but not necessarily. We saw huge amounts of stimulus in 2008/09 that saved the economy and no real impact on inflation. In this case it's the confluence of the pandemic created demand with supply chain breakdown that created the spike in inflation.

The big difference between 2008/09 and now is that the bail outs went to huge corps (banks, auto, etc.) and not directly into the consumers pocket. And of course it wasn't on the heels of a global shutdown thanks to a pandemic. One could say it indirectly went to consumers pockets through saved jobs - but it didn't necessarily feel "extra."

And FTR, I'm not against finding ways to put more money in lower / middle class families - I do think though that there are consequences in how we've done it / doing it and inflation is one of them. It doesn't mean we should stop, we just need to go in with eyes wide open.
 

RileyHawk

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The more money available though, the more potential impact to supply and demand. If you're a child sitting there with $0, you have no impact on supply (or potential inflation) because you can't demand. If I give you $10 on a whim, you can impact supply with your newfound ability to demand a pack of baseball cards thanks to my generosity.

Your bolded text is the key question. What will the child do with the $10 given to them. Squirrel it away for a rainy day and not really impact inflation? Or run right out and spend it causing those Topps baseball cards to become scarce and drive up costs (e.g. inflation)? I'd like to think the average American consumer will make smart money decisions - but damn, that pretty new iPhone sure is slick.
Which is the entire point - it's consumer demand that drives the inflation. People want their stuff and then they get mad because the stuff they demand is going up in price. But they want their stuff so they pay higher prices even though they could opt out and not contribute to inflation.

This is how consumerism and the free market work.
 

Hawki97

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Which is the entire point - it's consumer demand that drives the inflation. People want their stuff and then they get mad because the stuff they demand is going up in price. But they want their stuff so they pay higher prices even though they could opt out and not contribute to inflation.

This is how consumerism and the free market work.

Yep, and some of the recent programs have given them more $$$ to make that choice. Not a bad thing, it's just reality.
 

RileyHawk

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The big difference between 2008/09 and now is that the bail outs went to huge corps (banks, auto, etc.) and not directly into the consumers pocket. And of course it wasn't on the heels of a global shutdown thanks to a pandemic. One could say it indirectly went to consumers pockets through saved jobs - but it didn't necessarily feel "extra."

And FTR, I'm not against finding ways to put more money in lower / middle class families - I do think though that there are consequences in how we've done it / doing it and inflation is one of them. It doesn't mean we should stop, we just need to go in with eyes wide open.
I think there were lessons learned from 2008/09 that resulted in direct payments to the people. We still had lots going to businesses but done differently. In 08/09 they had to bail out the big banks and financial firms to keep the whole system from collapsing which would have been catastrophic. They gave loans and facilitated deals with car makers to save thousands and thousands of jobs. It wasn't perfect but it worked and led to sustainable growth for a decade.

When big economic issues like these come up there will be consequences to any effort undertaken. It's far too complicated to benefit everyone and to do it completely fairly.
 

LuciousBDragon

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Which is the entire point - it's consumer demand that drives the inflation. People want their stuff and then they get mad because the stuff they demand is going up in price. But they want their stuff so they pay higher prices even though they could opt out and not contribute to inflation.

This is how consumerism and the free market work.
So consumers suddenly demanded things just in the last 2.5 years? There was no consumer demand prior to that? There was no consumer demand prior to the pandemic when the S&P and Dow were setting all time high records?

I’ll admit there was unique demand spurred by the pandemic. But that demand was due to the fact people needed new WFH devices/supplies and producers could not deliver their usual amount of product due to lockdowns and lack of available workforce (Supply side issue not demand). The demand was there prior to the pandemic yet inflation was under control. Something happened during the pandemic that reasonable people here have mentioned multiple times to jump start inflation. It wasn’t gradual, it skyrocketed. And you are sure the sudden increase in the money supply had nothing to do with it?
 
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AreWeCross

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This response just demonstrates why NO ONE should read anything you post. You clearly know nothing about economics. You are doing a disservice by posting comments on issues you know nothing about from sources that have an agenda.
 

bunsen82

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How are we going to fix some of the supply side bottlenecks? You are still waiting 6-8 months to be able to order a new vehicle. The manufacturing of chips continues to be an issue. We have had a quieter 2 weeks on Taiwan I hope that trend continues regarding chips manufacturing. Otherwise we are waiting 2 plus years for vehicles chip manufacturers to be build and begin to help with the supply issues. Energy will be another 12-18 month bottle neck. At minimum it will continue as long as the Ukraine war continues. Even still Europe is pivoting away from reliance on Russia, essentially there is going to be a massive change in the energy sources across the world to get to a new equilibrium. Housing is just starting to come down. Rent will remain sticky. I am not saying supply bottlenecks have added to inflation it very clearly has, but these issues are resolving much more slowly that I originally estimated.
 
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pjhawk

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Inflation is 100% caused by the 42% increase in the money supply in 2020 and 2021. Everyone needs to understand this basic economic principle.

We have to take liquidity out of the system. Printing more money (Stimulus, PPP, ARP, weapons to Ukraine, etc, etc. etc.) make Jerome Powell's job that much more difficult.
LOL. Worldwide inflation is being caused by the US money supply.

Researchers at the Federal Reserve Bank in NY have no idea what they're talking about. You're the expert, you're the guy who knows what he's talking about.
 
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AreWeCross

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LOL. Worldwide inflation is being caused by the US money supply.

Researchers at the Federal Reserve Bank in NY have no idea what they're talking about. You're the expert, you're the guy who knows what he's talking about.
Your ignorance is on full display. Do you think the US is the only central bank that can increase their money supply? Your willingness to share views on subjects you know nothing about is astonishing. Anyone, and I mean anyone who understands economics knows it has everything to do with money supply.

Does it help if I tell you that I don't blame D's for this? I blame all of our elected officials who have contributed to our massive oversupply of money
 

bunsen82

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LOL. Worldwide inflation is being caused by the US money supply.

Researchers at the Federal Reserve Bank in NY have no idea what they're talking about. You're the expert, you're the guy who knows what he's talking about.
Ok, some of the issues are the money supply 2 decades worth of easy money. Plenty of blame to place there. However, did it have anything to do with manufacturing issues at chip plants? There was some natural inflation in food and energy but those popped after the Ukraine war. Does it have anything to do with what will be rising beef costs next year due to ranchers killing off stock due to drought? Did it have anything to do with the rising chicken costs earlier this year due to the bird flu? We are having 2 issues that are adding to this, an overreliance on JIT inventory, when there is a lack of supply there is no inventory to fill the slack, 2 we are transitions from global economies to more insulated economies. That will naturally cause more inflation in the system but will also resolve future shocks.
 

luvmyhawks

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Right, but if the government keeps printing funny money, what does that do to the value of your currency? I agree there are a lot of factors at play, but government spending and reckless distribution of money is certainly one of them.

@luvmyhawks, correct?

To an extent, yes. Government spending and supply chain constraints have certainly played a role in the inflation we are dealing with right now. The bigger issue, however, is the monstrous increase in money supply and the asset purchases the federal reserve was doing for 21 months.
 

luvmyhawks

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LOL. Worldwide inflation is being caused by the US money supply.

Researchers at the Federal Reserve Bank in NY have no idea what they're talking about. You're the expert, you're the guy who knows what he's talking about.

You do realize that every single one of those countries suffering from inflation right now have their very own little central banks that increased their own money supply, right?

Also. You might want to read up on what they are actually saying in this write up. They clearly stated, in the title nonetheless, that increased demand is the key driver in inflation. Increased demand can be directly correlated to the increase in money supply.
 
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BubsFinn

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Um, yes. When you print trillions of dollars out of thin air like Obama did, each dollar you print lowers the value of each dollar already printed.
Quantitive Easing is catching up to us with a vengeance. Obama bailed out the big banks and Wall Street by demolishing their debt. Unfortunately, by doing so he also demolished the value of the dollar.
 

The Tradition

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It's amazing to me that so many don't understand the basic driver of inflation is supply and demand regardless of how much money is available. Someone who receives an extra $10,000 does not have to spend it. If they save it or pay off debt it does not impact inflation. If they choose to spend it and there is ample supply of what they want, there's little impact on inflation. If they choose to spend it and supply is constrained then inflation happens because of competition for a resource that has become scarce. Still, when prices go up people have a choice to buy at the higher price, save/invest or pay down debts.

A lot of nonsense being spewed in here.

Spoken like someone who has never set foot in an Economics class.
 
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