Topic: What impact of printing a lot of money on inflation and Bitcoin (Read 368 times)

The discrepancy is caused by how the government calculates inflation. They use something called consumer price index or CPI to measure how the price of things have increased over time. I will spare you the details and just say they fudge their numbers in variety of ways to make their official inflation statistic look good (3-4% annually). They do this in several different ways. One is by calculating inflation by taking the CPI and excluding volatile economic variables like real estate prices and student loans. There are other methods they use to lower their calculation of CPI and inflation but I won't get into that here, you can Google that on your own time if you wish. In a nutshell, the government understates their inflation statistic to look reasonable so that savers do not get spooked. A crude analogy to explain this would be that of a student that is allowed to write his own falsified report card to show his parents. In a similar way, the government writes their own report card when it comes to inflation.

The reason why inflation is not noticed by the majority of the population can be explained by the fact that it is not uniform across the board. While the price of groceries may have appreciated a small amount, everyone will acknowledge that housing prices or student loans have mooned over the past few decades. If the government inflation statistic of 3%/year is to be believed one must do mental gymnastics or adhere to contrived explanations to make sense of it.

I don't think that's quite the mechanism at work. It's more about the US dollar functioning as the global reserve currency during a period when investors need quick access to liquidity. When such events occur, even safe have assets come under pressure:


Due to the deflationary effects of the economic shutdowns, we also probably won't feel the dollar depreciation for a while, perhaps years.

Just look at China you will see how much money you can print without cause a lot of trouble. China used to have neglectable GDP comparing with USA, now it is the world second biggest GDP, and during the process, their money supply become the world biggest

Correct me if I am wrong:  I think increased productivity, more efficient business models, more demand of U.S. dollars from other countries have lowered the dollar inflation rates all these years to less than half those calculated based on new money printing rates.

There are at least three procedures for it, RPI, RPIH and CPI.  And, even then, the accuracy of each of those is still questioned in certain circles.  No one seems to be able to agree on which formula is most accurate.  Plus, as I mentioned earlier, whichever procedure they use, they can also change the items they choose to base price increases on.

But isn't there a standard procedure for it, something like an average price index for essential goods taken from the current rates, then compared to the rate taken from the year before?

Indeed, the calculation of inflation from the price value that is currently scarce so that the price of products may experience inflation, but from the other side the calculation of import and export calculations also determines because the calculation can be based on the dollar so that purchasing products from outside can be one of the triggers for inflation.

Because each government can pick and choose which products they deem "essential".

The list seems to change rather often, generating confusion and raising suspicions.

Printing so many bills will depreciate the value of dollars. This affects the value of bitcoins just the same as each bitcoins has a corresponding dollar value and when the value of the dollar drops, then the value of per bitcoin will drop as well.

Isn't the rate of inflation calculated based on the price of essential products compared to the price of last year? I don't know how they can fudge numbers if other economists can see that.

Good question, you can rarely see them. Personally, I think that an injection of such volumes in the future may lead to a slight weakening of the dollar, but now it may not be very noticeable, because money is being pumped from other countries to the United States, and these flows compensate for this.

It's also difficult sometimes to know what the real rate of inflation is.  Different governments use different formulae to calculate it, giving the impression that they prefer to fudge the numbers a little to make the situation appear less dangerous than it really is.

This might actually be a sad event for the lower-class. Yes immediate inflation won't be felt by the economy, BUT, the only people who have close-access to the newly-printed money, are mostly ONLY the upper-class.

Once the newly-injected money finally reaches the lower-class, inflation has already been felt.

Printing more money doesn’t increase economic output because it only increases the amount of cash circulating in the economy. If more money is printed, consumers are able to demand more goods, so that there’s a shortage in a product. And the price of the bitcoin will also go down. So that printing more money is not a solution for the economic growth.

As per my basic understanding of economy, one government and country could only print money based on their economy, their income, GDP, GNP, and other factors affecting it. They couldn't just print any amount they want because it can incur price inflation just like what happened to Venezuela and Zimbabwe wherein they encounter a hyper inflation because they tried to pay their wages by printing more money. As a result, people are buying groceries with lots of cash, they are sometimes called, poor millionaires.

Meaning to say that, if printing of money in US or other country is based on economy, and it is logically increasing over time, it has a positive impact to the market of bitcoin as more people have the chance to convert more fiat currency to BTC.

Injecting as huge as 6 trillion USD in the economy by way of stimulus is definitely a cause for a much higher inflation. But I guess monetary, economic, and financial experts could also put up mechanisms to curb the rising of prices especially in times of crisis or calamities. The current situation calls for it. There must be efforts to somehow balance out its effects. For sure, profiteering is a grave offense in times of disaster like we are right now. Sooner or later, when the dust of this crisis settles down, the government could also shrink the amount of circulating money to control inflation to a tolerable rate.

I am not sure what answer you are looking for, but inflation doesnt work that way. You see figures that you did mentioned cant be followed because there are politicians who trapped those supposedly used money on goods and services. Production level on different sector cant increase it as we are having a huge crisis here. Same like what happened before, as you mentioned there is a huge dollar injection during 911 attack but inflation doesnt increase than supposed to be needed. Corruption is the answer. The money has been shattered into dots of those selfless politicians instead boosting one's economy. Nice discussion OP.

Normally when you pump in lots of money, you should have corresponding increased products/services/assets that can be traded with those money. That is what happpened in China, their money were used to modernize their country that billions of people are living

But this time, due to the total lock down of the whole city and whole country, transport is disrupted world wide, there are less products, services and assets available to be traded. If the virus can not be controlled in a few weeks, then there will be shortage of many things in every shop. Even with purchase quota, those who simply double the price will have no problem to sell. Unless the whole country fall into a communist model that uses planned economy, there will be run away inflation, because now everyone have received some cash, unlike 2008 that only banks received the money

None of the replies or comments above has addressed my questions: According to "The Bitcoin Standard" book,  U.S. prints an average of about 7% more money per year and China prints an average of about 20% more money per year over many years or decades. Why the actual average yearly inflation rates seem to be less than half of those numbers? Why the huge injection of U.S. dollars after 911, 2008-2009 Great Financial Recession, and 2020 Health and Financial crisis don't seem to cause any jump in inflation but only the mild or steady inflation many or most people desire?

We need more experts' input!!! Thanks.

It remains to be seen what the inflation rate will look like in several years time. gmaxwell makes some good points as to why immediate inflation shouldn't be expected as a result of the stimulus, let alone hyperinflation.