This video is an example of a false equivalence fallacy. To compare American “printing money” to Zimbabwe “printing money”... smh. It seems like a bunch of random topics strung together. And it offers investment advice using historical examples, which makes no sense in the context of a black swan event. If you want to try betting against the US government, have fun!
Can you expand? Why is American stimulus not comparable to Zimbabwean stimulus? Personally (as someone not familiar with these topics) I thought the video did a good job of explaining why it was comparable.
>>"Why is American stimulus not comparable to Zimbabwean stimulus?"
Zimbabwe (like Venezuela) didn't get hyperinflation because they "printed" a lot money, they had to "print" a lot of money because they get hyperinflation (1).
The video actually mention this in all the examples that use, it's only that it get the conclusions wrong. If you destroy the productive capacity of a country, you are going to get inflation, that's inevitable. That's not what happened in the USA.
The authors of the video, also, don't understand the difference between adding bank reserves (not inflationary beyond a point) and fiscal stimulus (which can be inflationary beyond a point).
The good thing is that, maybe, in the future, when hyperinflation doesn't happen this time, I will not have to hear this nonsense anymore. One can hope, I suppose.
This is a very insightful comment. I wonder if the production capacity has indeed remained intact or if it has actually been partially destroyed beyond repair. Some companies will have gone out of business. The products these companies sell will have experienced low demand during the pandemic, but their demand may rise when it's over. Will that trigger a sharp rise in prices? If all restaurants in my town closed except 1 and we all of a sudden want to dine out, I don't see how that remaining restaurant won't raise its prices when it gets flooded day after day. It's a simplistic example, but even restaurants can take months if not years to open (think licenses, contracts, hiring, training, etc). The last remaining restaurant from this simplistic example would have sustained high demand over a considerable period of time, enough to continually raise prices and not see a drop in demand
Not only many business have closed, but the global supply chains are disorganized. I'm very surprised that we have not seen more inflation already and I think we will see some.
But that's not what this video is claiming, the video is talking about Zimbabwean style hyperinflation. That's not going to happen in the USA or the EU. Those are very powerful economies with a productive capacity like have never seen before in the history of humanity.
Actually, I think that even if in the short term we see some inflation in the Euro-zone, in the middle term we will see deflation and grow far below the USA because, as always, the masters of the Euro will refuse the needed fiscal stimulus.
Yeah the video is just an ad for a product trying to get peoples attention. I also expect to see inflation and have slightly increased my real estate debt accordingly
> The good thing is that, maybe, in the future, when hyperinflation doesn't happen this time, I will not have to hear this nonsense anymore. One can hope, I suppose.
I wouldn't hold your breath. Inflation doomsday predictors have been at it forever. We didn't see hyperinflation during the 2008 stimulus. That hasn't stopped people from yelling about it this time around.
The difference between Zimbabwe printing a ton of money and us printing a ton of money boils down to social capital, cultural capital, political capital & influence. The US has all of these in spades, which Zimbabwe never had. This allows the us to exert an outsized amount of influence on shaping the story, which in turn allows it to print money with impunity.
We need publicly created money because all money is ultimately publicly created - all the money any of us earns was created by the US government.
"Printing money with impunity" is a loaded phrase if ever there was one. Behind it is a whole narrative and belief structure which thinks money is something other than a unit of account, that has to be "earned" even by the entities that issue it, or somehow tied to other tangible assets. This is a bogus understanding of money, imo. Warren Mosler explains this in a variety of books and YouTube presentations.
Maybe that's kinda right, but i really comes down to production. You can't have hyperinflation if you're producing enough. You can have a big inflation, but not the venuezela kind.
And if your country is producing as much as the US is producing, you should not fear hyperinflation.
Tangent: Money supply is an adjustment variable, and most government don't even have direct power over it (not even China). more than 90% of all euros are created through loans. Consummation loans alone created more money that European stimulus package.
Mugabe printed so much money that it was a strain on the world's money-printing presses, and Zimbabwe is a small country. Doing something comparable for an economy as big as the US... I don't think so. Logistically probably impossible even though only a little money is cash, and the attempt would IMO run that "social capital, cultural capital, political capital & influence" down to Mugabe-like levels.
Even though the US may be the country with the largest ability to do that kind of thing, its ability does not stretch that far.
As I understand it, reflationing is fine provided you have a strong sovereign currency so you aren't at the mercy of the international forex markets. The US ticks this box, therefore it can pump out new money without the same risk of hyperinflation.
ZMB OTOH probably had a weak currency and an economy largely dependent on imports. Therefore when they started printing money it became worthless since it was a proxy for a currency they didn't control (the USD), and a strengthening of the USD would have a huge impact in reducing confidence in the ZMB dollar. A similar thing happened in Venezuela and Post-WW1 Germany I think.
For a better explanation see Big Debt Crises by Dalio.
That's the root cause of ZMB hyperinflation. As well as droughts and a reshuffling of agricultural land that did not benefit anyone, decreased overall production and created food stress.
> Why is American stimulus not comparable to Zimbabwean stimulus?
Well, for one thing, the US wasn’t engaging in a massive and extended campaign of expropriation of productive assets that was destroying the core of the economy over a period of years while printing orders of magnitude more dollars than had ever existed, when inflation by traditional measures waa already significant when the money printing started.
The value of money is strongly tied to consumer trust. Zimbabwe is one of the most corrupt countries in the world, and the government literally created money out of thin air to fund its wars, increase their salaries, and to protect its regime.
Pick apart the video, sure, but the guy has a PhD in economics and lives and breathes the topic of discussion.
I thought it was made pretty clear it’s an oversimplified thought experiment, especially when it’s actually explained that there might or might not be hyperinflation.
A lot of people on the right (libertarians) seem to think that the government is somehow responsible for money creation, and therefore, one needs to go to gold standard or limit the government's ability to print money in some other way. These are pretty much exogenous theories of money creation.
But I believe in endogenous theories of money creation (e.g. chartalism), which claim that money are created as IOUs, basically bonds that can be further traded. And conversely, any bond that can be further traded behaves, in effect, as money, and there is no "hard" definition of what money is. Which means money are really created by lots of different actors in the economic system, not necessarily just government, and to control money creation, you need to regulate the system in many different places (for example, you would have to limit what kind of deals can citizens make with each other, which goes against the libertarian ideology).
In some sense, exogenous theories give their supporters an illusion of control, that the government somehow controls money creation, and so it can and should deal with the problem. But it probably does not, the Central Banks go at lengths to control it, but in lot of cases (like asset price inflation fueling itself) the system can effectively create money on its own and unbalance itself. (I really recommend great post from Steve Keen: https://www.debtdeflation.com/blogs/2009/01/31/therovingcava...)
It's worth distinguishing money, which is created by government regulation, from other forms of wealth and stores of value.
The reason that money has value is because the government will demand a certain amount of it as taxes. The amount of money created -- whether by "traditional" mechanisms such as interest on sovereign debt, or more ad-hoc helicopter deposits -- is balanced against money to determine the value of a currency.
Bonds are a temporary removal of money from the economy. You give the government $95 today, and they promise to pay you $100 in 10 years[0]. Whether that's a good deal depends on the expected inflation rate.
Gold is therefore not a bet on the presence of inflation, but on the (predicted) relative ratio of inflation vs same-currency sovereign bonds. If the dollar is inflating at 3% and a 10-year treasury yields 1% then gold is a great investment, but flip those numbers around and it changes from a currency hedge to a plain commodity.
[0] Or, if you're buying a German bund, you pay $101 today and get back $100.
Your view is exactly the position of exogenous money theorists. My point is, there is the other view.
> It's worth distinguishing money, which is created by government regulation, from other forms of wealth and stores of value.
Well, depends on how you define money. In exogenous theories, money are defined extensionally, by listing examples of money, i.e. money is what government issues. However, in endogenous theories, money are defined intentionally, by their properties, i.e. money is something that has not value in itself (have no use value), but can be readily exchanged for something that is valuable (have exchange value). (And then in practice, you have different indicators M1, M2, M3, ..)
> The reason that money has value is because the government will demand a certain amount of it as taxes.
This is different in the endogenous theory, money simply have value because people deem them to have value. It's not necessarily because government says, "this has value". Bitcoin is obvious counterexample, it has exchange value.
> Bonds are a temporary removal of money from the economy.
Under the intentional definition of money this is not true. If those bonds can be further traded between the creditors, then they will act as money (they will become a thing that can be exchanged for something else valuable). And you can see that amount of money in the economy increased, because now the original money paid for the bond and the bond itself is potentially in circulation, and can be spent on goods and services at the same time. So bond creation creates new money, and its repayment will destroy the new money.
The endogenous theories are built on the observation that there is systemic similarity between a banknote and a bond, they are both intrinsically worthless pieces of paper that represent value for which they can be (possibly) exchanged in the future.
Maybe I should add, the way I view the 2008 crisis, is that lot of new money were already created by private sector in the asset (housing) bubble, in the form of private debt, and this eventually starved money out of the parts of the economy which really produced something useful.
So the government printing money (QE) was really trying to replace the newly created money with "official" money so that the starved portion of the economy would not end up too victimized. They basically socialized all these private decisions to create more money.
Alternatively, what they could have done, selectively tax the gains from the asset bubble, as taxation without spending actually destroys money, but that's kinda hard to do both politically and technically. Although some selective spending might have been beneficial for the victims (all the poor souls who took on debt during the bubble). That's pretty much standard Keynesian economic policy - to reduce the stalemates between debtors and creditors, by reducing privately created money during the boons, and creating extra money during the busts. However, nobody today really likes taxes and government transfers, so we end up with inflation as a resolution mechanism of choice.
> Maybe I should add, the way I view the 2008 crisis, is that lot of new money were already created by private sector in the asset (housing) bubble
And why did this happen? Because the federal government repealed Glass-Steagal in the 90s and allowed the banks to do so by trading in risky securities. So, even in this case that you brought up, the money was in effect created by the policy of the legislature.
By this argument, government is responsible for anything that ever happens in society. Which to me doesn't sound right, unless you're talking about some kind of totalitarian regime. The asset bubbles happen in other economies, too, so they cannot be explained away only by removing Glass-Steagal.
The asset bubbles not happening from 193x (whenever it got passed) to 200x (whenever it got repealed) maybe can be explained by Glass-Steagal, though...
Its not "believing" if its true. Most of the world money supply is created through loans. I looked at the numbers last week and my memory is failing me, but is think that less than 6% of circulating euros are issued by the european central bank. I mean you just have to look at the money supply (estimated) and agregate all ECB issued money since 2001 (data freely available online, but you can pay to have the work done for you). Government creating money is a drop in the water. At all time, money is created through loans. Reimbursing the money destroys it.
Yes tell people to overborrow and refund with a marble, skipping the fact they won’t be able to pay the taxes gas and basic goods to support the asset due to... hyperinflation! I don’t mind the rest of the doom scenario, we know nothing lasts for ever, but oversimplifying this by that margin is... well I guess its free speech...
