What is the lag time between increasing money supply and inflation?
The US money supply has greatly increased since the beginning of 2020.
Many people are blaming Biden for the inflation we are feeling, but how long does inflation lag and would it be more accurate to call if Trumpflation than Bidenflation?
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7 Answers
There isn’t a direct correlation between money supply and inflation. There is no time line that one can point to and say “money supply went up by X amount last month, we will have inflation in Y months”.
The componets of inflation are varied, but in the current economy, much is caused by energy pruces directly related to Russian war on Ukraine. There are also supply chain disruptions causing inflation directly related to Covid.
One can’t really point fingers at either Trump or Biden in this situation.
I think it’s worth mentioning that inflation is being experienced globally right now. It is not limited to the US.
^^ stole my answer…Inflation is up worldwide & Biden is ONLY in control of the US economy. I do feel that 45 left a few surprises waiting to implode once he left office so he could blame whoever followed him. Knowing they were there & fixing them wouldn’t have been much of a problem had he returned to office!!!
How is there no direct correlation between increasing the money supply and Inflation? If more dollars are in circulation, the less the dollar is worth, the more things will cost. Of course there are other factors such as supply and demand, supply chain issues, etc, but how does more dollars in circulation NOT devalue the dollars in our pockets?
In regards to worldwide inflation, I do not disagree. However, what else would we expect when almost every country on earth needed economic stimulus, ie. More money into system?
@SquirrelEStuff – That’s not what I said, but there are different opinions and other answers.
I tend to exclude all the partisan calculations because I gave up on that crap long ago. But I’m not really sure whether you’re asking for straight economic data, or some kind of political forecast. In terms of the economic process some inflationary effects were probably predictable, but overall what’s happened isn’t exactly typical because of COVID pandemic impacts at nearly every level worldwide.
Did the amount of US currency in domestic circulation really increase? Technically no, because federal stimmulus payments only replaced individual earnings and business profits lost to COVID shutdowns that shrank the economy by more than 33% from March to July of 2020, with an overall drop in GDP of over 19% from 2020 to January 2022 :
Worst GDP Report Ever
https://www.npr.org/sections/coronavirus-live-updates/2020/07/30/896714437/3-months-of-hell-u-s-economys-worst-quarter-ever
Is the value of the dollar shrinking dangerously? Not really. International exchange rates are still solid against other international currencies, but domestic buying power is impacted by price surges on a range of consumer goods caused by supply related scarcities :
Value of $1, 2020 – 2022
https://www.in2013dollars.com/us/inflation/2020?amount=1
And comparing the US recovery to other world economies shows us doing better in some sectors, but not as well in others :
A Most Unusual Recovery
https://www.brookings.edu/blog/up-front/2021/12/08/a-most-unusual-recovery-how-the-us-rebound-from-covid-differs-from-rest-of-g7/amp/
But beyond all the numbers is the daily reality we all struggle with – Everything costs more, and it’s hard to find the stuff you need when you need it. My own guess on how long it takes for supplies, jobs, & wages to really catch up is maybe within the next 18 months. In the meantime all the bloviators will bitch about Biden, and in November voters will be pissed enough to vote Dems out of office. Then they’ll blame Republicans for the usual billionaire tax breaks and decline in growth, and the whole cycle will repeat itself over, and over, and over.
God bless ‘Murika.
^quiet applause from the gallery
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