Napkin Maths to Explain Inflation

Printing and printing does not stimulate or stimulate the economy, David Sukoff reminds us in this guest post. However, the main inflation ...

Lipstick calculation to explain inflation

Guest post by David Sukoff

Legend has it that in 1974, Arthur Lafer described supply-side economics in a paper towel created by Lafer Curve . "And the results are clear!" The more tax you pay in this case, the less you earn. On the contrary, low taxes encourage economic growth. (Lafer curve is often used to show that lowering tax rates increases tax revenue.)

It is easy to see that low wages will reduce employment or that free trade will benefit both parties. For all the recent inflation, Napkin has been using the simple fact that inflation is the cause of inflation (meaning we can borrow money again today or the government will pay). This.). Spend on loved ones).

Of course, we can write books, write research papers, hold town hall meetings, and have regular conversations. However, for some financial problems, you only need a paper towel. In order to apply mathematics to Napkin, the explanation must be clear, concise, and in fact the paper is certified (or derived from Napkin's law, such a 900-word blog). ).

First of all, we have to understand that inflation is primarily a matter of money (as Daniel Agler adjusts profusely here in another post). When money is printed or borrowed, it adds value to the economy.

Time. Full point.

For inflation, we can draw a historical chart of the supply of currency , in this case the US dollar. It is no coincidence that March 2020 is a watershed moment to increase pressure. This is what happened when the federal government pushed for the CVD to "revive" the economy - and that's where inflation began. .

The rest of the area under the lipstick includes a recognizable and beautiful contrast.

• The label (number below) is the total cash supply.
• The counter (number above) can represent anything. For lipstick, it is only X.
• As the account grows, the value of X decreases with the amount of money in the system. This is not rocket science, but it is an undeniable element of math. Lipstick Math.

It does not matter what the "X" is. For example, suppose some people are stuck on a coconut island with the only assets of their small economy, and the total amount of money between them is $ 100. On Monday, coconuts are sold for $ 5 each. But if the island government publishes and distributes $ 100 on Tuesday and nothing happens, the price of coconut will return to $ 10. As an equation, this would be 5/100 = 10/200. With two dollars in circulation, each dollar can now buy half as much as before. (Or as we usually say, the price of coconut has doubled!)

But what if we increased our supply of coconuts? Suppose there were 20 coconuts at first. Then there were 40 coconuts by natural miracle. If the supply increases from $ 100 to $ 200, coconut costs $ 5 each. Thus, the island government can "manage" economic growth by spending money to maintain its supply chain. But if you invest more in coconut development , the cost will increase. We are still comfortable in this fabric.

The US economy is obviously more complex. But logic and math are preserved. Factual data on inflation supports simple logic and arithmetic, which has been repeatedly proven by Lafer.

The so-called First Awakening Law of the Davidic Age On March 27, 2020, it was approved at a key point in the funding table. It was $ 2.2 trillion. The second was approved on December 21, 2020, in addition to the combined expenditure bill of $ 900 billion. The so-called third stimulus bill, the U.S. Rescue Plan, was approved on March 10, 2021, at a cost of $ 1.9 trillion, at a cost of $ 5 trillion. It is based on initial costs. Because we are still doing this, we can understand the funding program more or less, which is currently $ 22 trillion, and the road ahead will be $ 17 trillion. As a result, $ 3 billion - $ 17 billion = $ 5 billion will be diverted to the right path. (This one has five, then twelve to zero!)

As a result, inflation has historically been so high that we had to sleep a little after lunch or two. Considering the obvious link between cash flow and inflation, one might wonder why it is important to take inflation when there are so many accounts. The answer to Napkin Mathematics is well known and clearly we started seeing very early, just like somewhere else. Again, more lipstick is needed, but we can draw flat, stock and stock charts, bitcoin, stone , SPAC , personal guarantees, etc. It was at a time when the press was crowded, prices were rising and consumer goods were being chased. . Unfortunately, these items were not included in the official inflation, so it was easy to lose to unknown analysts.

Unfortunately, we are all suffering from these political mistakes. In fact, the double suspicion is that in addition to the government's push for money, it is also causing inflation, which is behind the epidemic. In contrast, our politicians have underestimated the value of the dollar. The results were clear: a huge asset shift for existing assets (increased equity), capital misalignment (increased risk for failure) and high generational inflation.

Now, as usual, the government is pointing its finger at the outside world and discussing policy solutions that do not identify the source of the problem, but it will certainly grow.

They are responsible. And the ever-increasing cost and pressures of the economy are not the main cause of inflation. The explanation is simple, but the path to politics is clear. Stop spending, no, print money!

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David Sukoff
Dave Sukoff is a community investment consultant who has previously created a $ 500 million fixed-income fund, is a software company founder, and has created numerous patents. Dave graduated from Massachusetts Institute of Technology with a degree in finance and economics.

His publication appeared in the Economics Education Foundation ( FEE ).

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