Did QE Cause Inflation?

[904VT]

Originally Posted by Wcdhtwn

Absolutely untrue. There are many different pricing strategies to go along with the many number of business strategies. Some businesses will price to increase volumes of sales, that isn’t profit maximizing. Some companies want to have a certain position in the market, not the most expensive nor the least, or maybe they want to be the least. These aren’t pricing to maximize profit. Some companies price very aggressively to put pressure on competitors, also not profit maximizing. These are not uncommon examples, thousands of companies undertake these pricing strategies daily and there are countless more.

No product would ever go on sale, no company would ever offer promotions, if the sole objective was to maximize profit.

A discussion about short-term profit maximization vs long-term profit maximization would add context. What you describe may increase long-term profitability vs shorter-term. In some cases companies will take hits on shorter term profit i.e not price at marginal cost = marginal revenue, because it will give them other value. In this case that could be increase in intangible value and/or greater long term margin maximization by squeezing competitors. Both increase potentially shareholder value and determined based on maturity of the industry.

You guys are both correct but talking two sides of the same coin.

[Wcdhtwn]

Originally Posted by 904VT

A discussion about short-term profit maximization vs long-term profit maximization would add context. What you describe may increase long-term profitability vs shorter-term. In some cases companies will take hits on shorter term profit i.e not price at marginal cost = marginal revenue, because it will give them other value. In this case that could be increase in intangible value and/or greater long term margin maximization by squeezing competitors. Both increase potentially shareholder value and determined based on maturity of the industry.

You guys are both correct but talking two sides of the same coin.

Agree on short term profits vs. positioning for the long term and future profit potential. But that still supports my comment refuting what was said: “Businesses always charge what they believe is their profit maximizing price”. Companies sacrificing profit today, for whatever reason, are not maximizing profit today so they are not “always maximizing profit”.

[binArt]

...

[Star Ferry]

Originally Posted by Wcdhtwn

Absolutely untrue. There are many different pricing strategies to go along with the many number of business strategies. Some businesses will price to increase volumes of sales, that isn’t profit maximizing. Some companies want to have a certain position in the market, not the most expensive nor the least, or maybe they want to be the least. These aren’t pricing to maximize profit. Some companies price very aggressively to put pressure on competitors, also not profit maximizing. These are not uncommon examples, thousands of companies undertake these pricing strategies daily and there are countless more.

No product would ever go on sale, no company would ever offer promotions, if the sole objective was to maximize profit.

I think your point is that businesses do more than just jack prices up in a linear fashion, and even now that’s surely still true. They are charging the profit maximizing price, perhaps not literally at that moment in time, but they are pricing to max profit on whatever timeline is relevant for that business.

If sales didn’t help profits in the long run, e.g. by winning new customers, keeping customers engaged and coming back, or moving stale inventory out the door, then businesses would never do them. Similarly, slashing prices to put competitors out of business (A) is a scheme to ultimately increase profit once those competitors are gone, and (B) is such a good way to maximize profit it can be illegal, e.g anti-dumping laws. If it’s not for charity, then it’s for profit.

You’re conflating setting the highest price with maximizing profit. Of course Wonder bread can’t charge $100 a loaf. Of course a low-end furniture store can’t move $ 20,000 coffee tables, and that store may be perpetually having a sale. In both cases, the goal is still to maximize profit. If it’s a public company, there’s a legal obligation to do exactly that.

Increasingly businesses are finding they can make more money by raising the price, in a way that wasn’t true earlier. I’m no self proclaimed financial wizard here. But the “businesses are greedy” argument can’t be the answer, since they were greedy back when they lacked the pricing power they now have.

[mountainjogger]

Originally Posted by Patton250

Excellent point. After all morality is nothing more then expressions of peoples personal taste.

Patton, my Floridian friend, I never would have taken you for a moral relavist. On a philosophical and cultural level, I take the point on certain issues. But I cannot accept the whole premise all right and wrong being merely merely an expression of one's taste. But there are some scholars who would agree with you

[Star Ferry]

Originally Posted by mountainjogger

Patton, my Floridian friend, I never would have taken you for a moral relavist. On a philosophical and cultural level, I take the point on certain issues. But I cannot accept the whole premise all right and wrong being merely merely an expression of one's taste. But there are some scholars who would agree with you

My point was that it's suspect when someone pressures other people to sacrifice, suffer or die for a moral cause while shielding themselves from any pain. I do believe there's a concrete difference between right and wrong. But in most cases, the "you have a moral obligation" crowd has never sacrificed anything (unless it directly benefited them).

And I think Patton agrees that right and wrong are two different things, but doesn't think the folks saying he should pay higher prices for the greater good have any legitimate moral authority or compass.

[77T]

Any round of financial policy by a central bank that is aimed at changing behavior applies to a different public psyche each time.

The Great Depression, Social Security & allied programs, the Financial Crisis in 2008, and myriad others required some form of financial action.

The difficulty is modeling the steps to be taken now using the earlier crises’ data. If I said the current behavior is affected via inextricably linked cryptocurrency assumptions, you’d think I was nuts.

In other words we don’t know the current market forces with certainty. QE by itself didn’t create the huge demand we see, nor the supply-side constraints. Those are more likely the inflation-causing forces.


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[Patton250]

Originally Posted by mountainjogger

Patton, my Floridian friend, I never would have taken you for a moral relavist. On a philosophical and cultural level, I take the point on certain issues. But I cannot accept the whole premise all right and wrong being merely merely an expression of one's taste. But there are some scholars who would agree with you

I completely agree with you. However that only leaves us with two other options. Then morality either derives from a consensus or is a rock solid unchangeable set of moral codes established from the beginning from One source. But remember this. If morality is nothing more then expressions of peoples personal taste or comes from a consensus of people then that means morality is fluid and changing. And that my friend is exactly how we get a Hitler, Lenin, Zedong and even a Caligula. All of these men had several things in common. First they were all insane murderous dictators but they also all had their own set of morals to which they expressed and in some cases were approved by at least a small consensus. So if you ever ask yourself why is there so much evil on the earth the answer is simple. Fluid morality. Have a great day my friend.

[Andad]

[Patton250]

Originally Posted by Star Ferry

My point was that it's suspect when someone pressures other people to sacrifice, suffer or die for a moral cause while shielding themselves from any pain. I do believe there's a concrete difference between right and wrong. But in most cases, the "you have a moral obligation" crowd has never sacrificed anything (unless it directly benefited them).

And I think Patton agrees that right and wrong are two different things, but doesn't think the (SOME) folks saying he should pay higher prices for the greater good have any legitimate moral authority or compass.

Fixed that for you.

Some of these folks who claim to want to help the greater good constantly initiate programs do just the opposite. High gas prices for instance. Who does that hurt? Inflation? I still bought filet mignon this weekend. I bet you did too. Anyway you threw morality into this. Not a big deal but it did hone in on the genesis of the cause. Unfortunately they don’t let us talk about these things here. Either way I appreciate you.

[77T]

How “moral hazard” affects macroeconomics is complex. Inflation can result in some segments of the economy due to the possibility of a bailout. This form of moral hazard drives consumers to borrow beyond their means to pay. Also, for banks, it can encourage them to lend carelessly. The cries for student debt amnesty craziness is driven by similar forces.

See: http://home.uchicago.edu/~rmyerson/r.../mhazmacro.pdf

So, no matter how we cut it, interactions among different generations of borrowers/lenders can create credit cycles that central banks are called upon to “manage”. QE and subsequent QT are two tools to deal with with repeated booms and recessions. So it isn’t QE itself - inflation is a symptom like the fever your body emits due to infection. Until the source of the infection is cured, the fever can’t subside. Overtreatment can also have a negative effect.

Sadly, recessions are a real outcome of overtreatment, as a scarcity of financial support limits investment. Subsequently this reduces employment. Our cohort of workers suffer due to this. Under such conditions, taxing workers to subsidize the borrowers/bankers is even worse.

Bailouts must be paid back. In the most recent financial crisis, the terms of the bailouts were met by bankers and corporations. The pandemic rounds did not have the same teeth, so borrowing and spending did rise, triggering demands for the central banks to rein it in. Ergo, the recent rise in the borrowing rate.

Inflation hurts the segments of society that can afford it the least. They aren’t likely to buy a Rolex in their lifetime.

So…yes…moral hazard plays a role.


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[904VT]

Originally Posted by Wcdhtwn

Agree on short term profits vs. positioning for the long term and future profit potential. But that still supports my comment refuting what was said: “Businesses always charge what they believe is their profit maximizing price”. Companies sacrificing profit today, for whatever reason, are not maximizing profit today so they are not “always maximizing profit”.

Not sure I agree that this isn’t still maximizing profit what you’re describing. What you describe being profit maximizing would potentially maximize revenue in short term, but not necessarily margins. At price setting companies have to take into consideration how that will impact future demand (and as a consequence their ability to reach profit maximizing long term equilibrium). For example, NVIDIA is dealing with this today because they maximized current revenue at the expense of long-term margins by catering to crypto miners with Ampere. By selling to crypto miners NVIDA maximized short term revenue but negatively impacted long term margins with Ada Lovelace. As crypto miners are now dumping their used GPUs with high wear VRAM at a massive discount in the secondary market. This forced NVIDA as a result to continue sale of the RTX 3000 series longer than anticipated and at a major discount and negotiate a delay in 5nm production with TSMC. So their typical GPUs that would help pad margins at equilibrium (the 4070, 4080, 4080Ti) have been delayed in an effort to drive demand to their productivity GPUs (90s and Titans). Since they focused on shorter-term revenue by selling to miners with Ampere, they sacrificed long-term margins with Ada Lovelace by reducing demand for gaming new GeForce GPUs in future releases. Now their only option is to play the Rolex game of driving demand up model range and losing customer intangible/goodwill. That’s how intangibles impact profitability. Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time. A picture in time vs movie over elapsed time essentially. Maximizing profit in short term (is really maximizing revenue in application) does not necessarily maximize profit which is long-term margin protected by an economic moat.

[Wcdhtwn]

Originally Posted by 904VT

Not sure I agree that this isn’t still maximizing profit what you’re describing. What you describe being profit maximizing would potentially maximize revenue in short term, but not necessarily margins. At price setting companies have to take into consideration how that will impact future demand (and as a consequence their ability to reach profit maximizing long term equilibrium). For example, NVIDIA is dealing with this today because they maximized current revenue at the expense of long-term margins by catering to crypto miners with Ampere. By selling to crypto miners NVIDA maximized short term revenue but negatively impacted long term margins with Ada Lovelace. As crypto miners are now dumping their used GPUs with high wear VRAM at a massive discount in the secondary market. This forced NVIDA as a result to continue sale of the RTX 3000 series longer than anticipated and at a major discount and negotiate a delay in 5nm production with TSMC. So their typical GPUs that would help pad margins at equilibrium (the 4070, 4080, 4080Ti) have been delayed in an effort to drive demand to their productivity GPUs (90s and Titans). Since they focused on shorter-term revenue by selling to miners with Ampere, they sacrificed long-term margins with Ada Lovelace by reducing demand for gaming new GeForce GPUs in future releases. Now their only option is to play the Rolex game of driving demand up model range and losing customer intangible/goodwill. That’s how intangibles impact profitability. Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time. A picture in time vs movie over elapsed time essentially. Maximizing profit in short term (is really maximizing revenue in application) does not necessarily maximize profit which is long-term margin protected by an economic moat.

NVIDIA example is more about their ability to predict the future value of Crypto, or inability. Now that BTC is around $30K below all time highs the demand for mining chips has fallen substantially. When it was in the $60K’s it was a cash cow with no end in sight. If they could have predicted the price drop, thus the demand drop, their pricing strategy would have likely been very different. As would their product dev and release plans. This is a good example of confusing a pricing problem for a different business challenges, the ones actually causing the challenges.

“Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time.” Agree, again not what was said in the post I responded to, despite the subsequent posts reframing the comment.

Companies do not maximize profit on every product all the time. This is true in both the B2C and B2B worlds. They may give up profits today for the potential of higher profits in the future, but that doesn’t always work out. In fact it usually doesn’t. Three reasons:
1. Customers get angry always paying more.
2. Customers become dissatisfied having to negotiate prices every time they buy. The trust in the relationship is undermined.
3. for reasons 1 and 2 customers will find another supplier to avoid these headaches and stress on their businesses and employees.

These mostly apply to B2B pricing but most of what we buy at retail went through a B2B transaction first.

The ability for a company to raise prices and always maximize profit, short or long term, is much more difficult and complicated than 99% of people understand. Especially those who blame todays higher prices on “corporate greed”.


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[huncho]

Originally Posted by Wcdhtwn

NVIDIA example is more about their ability to predict the future value of Crypto, or inability. Now that BTC is around $30K below all time highs the demand for mining chips has fallen substantially. When it was in the $60K’s it was a cash cow with no end in sight. If they could have predicted the price drop, thus the demand drop, their pricing strategy would have likely been very different. As would their product dev and release plans. This is a good example of confusing a pricing problem for a different business challenges, the ones actually causing the challenges.

“Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time.” Agree, again not what was said in the post I responded to, despite the subsequent posts reframing the comment.

Companies do not maximize profit on every product all the time. This is true in both the B2C and B2B worlds. They may give up profits today for the potential of higher profits in the future, but that doesn’t always work out. In fact it usually doesn’t. Three reasons:
1. Customers get angry always paying more.
2. Customers become dissatisfied having to negotiate prices every time they buy. The trust in the relationship is undermined.
3. for reasons 1 and 2 customers will find another supplier to avoid these headaches and stress on their businesses and employees.

These mostly apply to B2B pricing but most of what we buy at retail went through a B2B transaction first.

The ability for a company to raise prices and always maximize profit, short or long term, is much more difficult and complicated than 99% of people understand. Especially those who blame todays higher prices on “corporate greed”.


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also, eth is switching from mining to staking this year

[Star Ferry]

Originally Posted by Wcdhtwn

“Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time.” Agree, again not what was said in the post I responded to, despite the subsequent posts reframing the comment.

Companies do not maximize profit on every product all the time. This is true in both the B2C and B2B worlds. They may give up profits today for the potential of higher profits in the future, but that doesn’t always work out. In fact it usually doesn’t. Three reasons:

I think it’s clear that “always” doesn’t mean literally every moment in time, but rather that there’s an ongoing profit interest.

If profit had to be maximized at all moments in time, then a restaurant wouldn’t pay people to clean up after closing time, no office would ever throw a departing employee a retirement party, I wouldn’t be able to take prospective clients to lunch, and nobody would sink money into building a new factory, condo building, etc. It Follows logically that no business can be making it’s maximum or desired profit at all moments.

[Wcdhtwn]

Originally Posted by Star Ferry

I think it’s clear that “always” doesn’t mean literally every moment in time, but rather that there’s an ongoing profit interest.

If profit had to be maximized at all moments in time, then a restaurant wouldn’t pay people to clean up after closing time, no office would ever throw a departing employee a retirement party, I wouldn’t be able to take prospective clients to lunch, and nobody would sink money into building a new factory, condo building, etc. It Follows logically that no business can be making it’s maximum or desired profit at all moments.

https://www.merriam-webster.com/dictionary/always

Always does mean every moment in time, or invariably.

Obviously that’s not a logical perspective. But joining two prevailing beliefs today, 1. Corporations are greedy and 2. They always try to make the most they possibly can from every customer on every transaction, is also not logical and is a highly uninformed belief.

Many companies today are struggling to pass on their higher costs to consumers/ buyers. Some companies have been able to do this. Every Wall Street pundit for the past 9 months has been telling people to invest in companies with pricing power, the ability to increase price and capture higher costs. If every company could do this, this advice would be unnecessary.


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[Star Ferry]

Originally Posted by Wcdhtwn

https://www.merriam-webster.com/dictionary/always

Always does mean every moment in time, or invariably.

Obviously that’s not a logical perspective. But joining two prevailing beliefs today, 1. Corporations are greedy and 2. They always try to make the most they possibly can from every customer on every transaction, is also not logical and is a highly uninformed belief.

Many companies today are struggling to pass on their higher costs to consumers/ buyers. Some companies have been able to do this. Every Wall Street pundit for the past 9 months has been telling people to invest in companies with pricing power, the ability to increase price and capture higher costs. If every company could do this, this advice would be unnecessary.


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I entered the thread by disagreeing with point #1, and your point #2 is also something I clearly don’t believe, inferred only from an ultra literal reading of my post. So in the end, it’s clear you’re just being difficult and looking for opportunities to call people illogical, misinformed, wrong, etc. I have no interest in bad-faith “gotcha” discussions, so I will bow out of the thread now. Have a nice Sunday.

[Reikolexguy]

Originally Posted by Chewbacca

I’ll get the coffee going.

Hit me up for a large cuppa joe.


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[Reikolexguy]

Originally Posted by brandrea

Which sadly will always be the case.

Lots of “dirty oil” out there to be had from any number of sources

I’d like to add that energy, and access to energy such as oil & gas, is the real money.

I’m not sure if it’s just a coincidence that the territories of Ukraine that have been and are still being most heavily targeted happen to also be some of its most abundant oilfields. I think Russia and its leaders recognise the supreme importance of maintaining control of oil/gas/energy supplies.

What scares me isn’t the high water mark of oil/gas prices. It is that they stay at much higher than historical averages for the long term. (My utility company is now charging a unit rate that is 70% higher per kWh than 2019).

Sustained, elevated energy prices are what will probably be the biggest contributors to inflation. And QE, since it entails the permanent increased supply of money, is going to feed into this inflation. Prices are permanently, structurally higher now because of this.

I reckon this is the new normal.


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[Reikolexguy]

Originally Posted by Star Ferry

As a general rule, when anyone tells you about your moral obligation to do anything, they’re planning to screw you over.

Wise words.


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[BNA/LION]

Bitcoin did...

Ibtl

[904VT]

Originally Posted by Wcdhtwn

NVIDIA example is more about their ability to predict the future value of Crypto, or inability. Now that BTC is around $30K below all time highs the demand for mining chips has fallen substantially. When it was in the $60K’s it was a cash cow with no end in sight. If they could have predicted the price drop, thus the demand drop, their pricing strategy would have likely been very different. As would their product dev and release plans. This is a good example of confusing a pricing problem for a different business challenges, the ones actually causing the challenges.

“Maximizing profitability does not mean maximizing profit in a given quarter but maximizing to that point over time.” Agree, again not what was said in the post I responded to, despite the subsequent posts reframing the comment.

Companies do not maximize profit on every product all the time. This is true in both the B2C and B2B worlds. They may give up profits today for the potential of higher profits in the future, but that doesn’t always work out. In fact it usually doesn’t. Three reasons:
1. Customers get angry always paying more.
2. Customers become dissatisfied having to negotiate prices every time they buy. The trust in the relationship is undermined.
3. for reasons 1 and 2 customers will find another supplier to avoid these headaches and stress on their businesses and employees.

These mostly apply to B2B pricing but most of what we buy at retail went through a B2B transaction first.

The ability for a company to raise prices and always maximize profit, short or long term, is much more difficult and complicated than 99% of people understand. Especially those who blame todays higher prices on “corporate greed”.


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I think everyone knew a crypto crash was coming including NVIDIA. I mentioned on threads numerous times over the last year leading up that it was in a ponzi unit phase of valuation just like mortgage pools leading up to the Great Recession. So I’d be shocked if those folks at NVIDIA didn’t see it coming. Energy input alone for crypto was unsustainable let alone valuations. NVIDIA sacrificed long term margin for short term revenue selling pallets of GPUs to miners. Now they’ll have to deal with a massive secondary market and lower demand for their core GeForce GPUs/profit drivers the 4080/4080Ti. They admitted their mistake in lesser words when they went to TSMC and wanted to lower 5 nm production. They went to TSMC much later than the crypto crash. Their plans were obvious to prioritize miners and leave their gamers with the secondary products from last generation. I like NVIDIA a lot, I think just one example though of how focusing on the short term actually lowers margins long term as they lost goodwill with the consumers that were the loyally customers and reliable purchasers/upgrades. Anything that impacts long-term margins in a negative matter imo is a pricing problem (bc out of LT equilibrium) at core, even though it could impact other business issues as you mention. NVIDIA in this example is working hard to manufacture demand now to smooth out. Look for a 4090 to be released this fall exclusively and in limited quantities with secondary going for $3k+ a unit. It will have a high enough hash rate to make up for price and create miner demand again. We’ll see the RTX 4080 next Summar, the RTX 4070 next Fall (the first affordable 4000) and 4080Ti next holiday season 2023. Let’s revisit this next year.

As far as ETH, proof of work has continued. We’ll see if proof of stake actually proves to not be a unicorn. Good luck with your trades this week

[904VT]

Originally Posted by BNA/LION

Bitcoin did...

Ibtl

Is IBTL your new signature Larry? You seem to be using it a lot lately