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What Causes Inflation? · Stuff You Should Know

0:01
Speaker 1: Welcome to Stuff You Should Know, a production of I
0:04
Speaker 1: Heart Radio. Hey, and welcome to the podcast. I'm Josh Clark.
0:14
Speaker 1: There's Charles w. Chuck, Wayne Waynester, Wayne Train, what what,
0:18
Speaker 1: Wayne Bryant, And there's Jerry Jerome Roland over there, and
0:24
Speaker 1: this is Stuff you should Know. Yeah, kill me episode whatever, dude,
0:29
Speaker 1: this is fine. I was going to say that, I
0:31
Speaker 1: know it's again. We just did an economics episode. What
0:34
Speaker 1: was it. I don't know, but I think economics is
0:37
Speaker 1: literally right there. Besides, like chemistry and physics for me,
0:40
Speaker 1: now maybe worse because at least those are interesting to me.
0:44
Speaker 1: Chemistry and physics still make sense because they're really hard
0:47
Speaker 1: to understand. Economics doesn't make sense because it's b s
0:52
Speaker 1: and it's just that's key to understanding economics. I'm good here,
0:55
Speaker 1: I'll tell you where I'm gonna need help. I'm good,
0:57
Speaker 1: except for like were paragraphs right there where it says
1:01
Speaker 1: kill me, it really does, think kill me right there,
1:05
Speaker 1: and then right there where it says wake up listeners. Whatever,
1:10
Speaker 1: I'm good. I'm gonna need your help there the rest
1:11
Speaker 1: of it, this is a personal challenge to keep everyone interested.
1:16
Speaker 1: That's funny because on the John Your document. I have
1:18
Speaker 1: blah blah blah over there. Oh boy, are seeing how
1:25
Speaker 1: the sausage? That's like year one stuff. Dude, No, we've
1:28
Speaker 1: been doing that forever. I think we generally are into
1:30
Speaker 1: one another's topics. Yeah, it's not the topic, and I
1:36
Speaker 1: think economics is boring, is heck? I don't think he
1:39
Speaker 1: was what we'll talk about John here in the John
1:41
Speaker 1: Your episode. How about that? I was about to defend
1:43
Speaker 1: my position on well that have already been out. I
1:46
Speaker 1: don't know, man, we'll find out. I think people should
1:49
Speaker 1: play these back to back. So you should, especially the
1:52
Speaker 1: Cleft episode, because the listener mail from the Cleft episode
1:57
Speaker 1: really sets up some of the jokes in the night
2:00
Speaker 1: Trap episode that follows. So don't listen to those two. Well,
2:04
Speaker 1: those are too fun to listen to. I think listeners
2:06
Speaker 1: listen to these two back to back. It's like Thilman
2:09
Speaker 1: Louise territory right into the Grand Canyon. What does that mean?
2:14
Speaker 1: Have you never seen Tholm and Louise? I have, but
2:16
Speaker 1: I don't get how it applies to listening to these
2:18
Speaker 1: episodes out of order spoiler alert for Tholma and Louise. Everybody,
2:22
Speaker 1: Oh you already kind of in the Grand Canyon. They
2:26
Speaker 1: drive into the Grand Canon at the end, just straight
2:28
Speaker 1: off that cliff, And that's what would happened if they
2:31
Speaker 1: listen to both of these episodes back to back. Well,
2:33
Speaker 1: i'll tell you what. If you watch Thelma and Louise
2:36
Speaker 1: as their drive, it really is as they're Actually I've
2:39
Speaker 1: only seen the last ten minutes. Yeah, really, you're like,
2:43
Speaker 1: what was their problem? Yeah? Why they do that? It
2:46
Speaker 1: seems a little overreacting. Um the the if you listen
2:53
Speaker 1: really really closely, I mean, like, turn your volume up
2:55
Speaker 1: so loud that you can hear the fawse of the video,
2:58
Speaker 1: the grain of the video making it sound, you can hear.
3:02
Speaker 1: I can't remember who's Thelma? Oh why do you ask me?
3:05
Speaker 1: I always get these two confused. Right now, Gina Davis
3:09
Speaker 1: is Thelma? I thought she was Louise. Okay, Jerry's got it.
3:13
Speaker 1: Jerry so mad right now? So so it is Tholma
3:17
Speaker 1: is Gina Davis says, It says to Louise, well, we
3:22
Speaker 1: can thank John you're for this beautiful view on the
3:27
Speaker 1: way to our deaths because no one else cared about
3:29
Speaker 1: the natural environment. That's actually absolutely right. He's still alone,
3:34
Speaker 1: No one thought the way that he thought. So we're
3:37
Speaker 1: talking about inflation. Obviously that was the most fun part
3:40
Speaker 1: of this episode. But no, it's not. Chuck. I refused
3:43
Speaker 1: to believe that we're talking about inflation. And the reason
3:46
Speaker 1: that I picked this is because inflation is kind of
3:48
Speaker 1: a thing right now. There's a lot of fear until today, Yeah,
3:53
Speaker 1: I think until today, Um, when the fag came out
3:56
Speaker 1: and said, everybody, calm down, stop being dramatic, Joe's ruining
3:59
Speaker 1: the dry there's not going to be an inflation fear
4:02
Speaker 1: or there's not gonna be inflation. Stop your fears. And
4:04
Speaker 1: as a matter of fact, um, the fear stopped. Everybody
4:07
Speaker 1: stopped worrying about inflation because the fact came out and
4:10
Speaker 1: said something. Yes. And but the reason I picked this
4:13
Speaker 1: is because it's good to know what people are talking
4:16
Speaker 1: about when they're like, uh, we should be really worried
4:19
Speaker 1: about inflation right now. And all you have to do
4:21
Speaker 1: is understand a few basic things, and all of a sudden,
4:24
Speaker 1: you're in the convo, baby, sure, and we're going to
4:28
Speaker 1: explain those few basic things to everybody. And then the
4:31
Speaker 1: next time inflation starts to go crazy, you can say
4:35
Speaker 1: everybody just calmed down. Yeah, it's just cost push going on. Yeah.
4:39
Speaker 1: You you you'll be like, uh at every party you
4:41
Speaker 1: go to, you can talk about that, and you'll be
4:43
Speaker 1: the equivalent of Colleen Robinson. Who's that from what we
4:48
Speaker 1: do in the Shadows? Is that the Energy Empire? Oh yeah, yeah,
4:52
Speaker 1: he probably sits around and talks about inflation. Yeah. Yeah,
4:55
Speaker 1: you threw me off with the Colleen. Well that's how Yeah,
4:57
Speaker 1: I understand now no spoiler alert. We're watching that again
5:01
Speaker 1: a little bit, just because what we've been watching is
5:04
Speaker 1: and just finishes I'll be Gone in the Dark, the
5:06
Speaker 1: great documentary about the Golden State Killer and Michelle McNamara's
5:11
Speaker 1: research and dog in Pursuits. I'll be Gone in the Dark.
5:15
Speaker 1: Is it Netflix? No, it's hbom X, but it's it's great,
5:19
Speaker 1: but it's so heavy. We will then cleanse the palette
5:22
Speaker 1: with reruns of what we do in the Shadows, very smart,
5:25
Speaker 1: the Great Palate Cleanser, which is what I'm gonna do
5:27
Speaker 1: right after we record this. Okay, have you done stalling now? Yeah.
5:32
Speaker 1: So one of the things that really kind of gets
5:36
Speaker 1: people about inflation is the idea that like, if you
5:39
Speaker 1: go back to the sixties. Yeah, the good old days
5:42
Speaker 1: you could buy like a brand new car for like
5:44
Speaker 1: three grand, brand new car, and that's when they made
5:48
Speaker 1: them big and shiny. Yeah, you want to and very unsafe.
5:52
Speaker 1: Do you want a house? All right, give me, I
5:54
Speaker 1: don't know, it's yours. And that's a nice house to
5:57
Speaker 1: very nice house. Like a ticket to a movie cost
6:00
Speaker 1: a dollar. Now, if you pay a dollar to see
6:02
Speaker 1: a movie, you have to see something terrible like Hidalgo
6:04
Speaker 1: or national Security or something that's like a dollar movie.
6:07
Speaker 1: Today this is like good movies. Yeah, the dollar movies
6:11
Speaker 1: were a penny, right, Yeah, basically, so, um, all of
6:14
Speaker 1: this sounds like it makes it sound like the good
6:16
Speaker 1: old days were just this cheap, idyllic paradise. But that's
6:20
Speaker 1: just not the case because of inflation, where you can't
6:24
Speaker 1: really compare today's you know, cars, or today's houses, or
6:30
Speaker 1: today's movie ticket prices without using an adjustment for inflation. Yeah,
6:36
Speaker 1: because I think in nineteen sixty seven, if you were like,
6:40
Speaker 1: if you made a lot of money, you made about
6:42
Speaker 1: nineteen thousand dollars a year. That was a lot of money. Yeah,
6:45
Speaker 1: sixty of American households earned less than eight thousand three
6:50
Speaker 1: dollars a year. Uh, and so yeah, I mean they
6:54
Speaker 1: have all these inflation calculators is one of our favorite
6:57
Speaker 1: things to do. Let's go look at inflation calculators online.
7:00
Speaker 1: West Egg. Yeah. West Egg is when I use mostly,
7:03
Speaker 1: but there are a couple more because I think one
7:04
Speaker 1: of them sometimes doesn't go back far enough. But honestly,
7:08
Speaker 1: when it goes back too far, it's just a little
7:10
Speaker 1: bit of like, I don't know, this seems about right right, Well,
7:13
Speaker 1: that was the thing. Do you remember when when I
7:15
Speaker 1: can't remember, we were talking about but it wasn't too
7:18
Speaker 1: long ago, and I was saying, like, I don't think
7:21
Speaker 1: this fully captures that this adjustment for inflation. I think
7:24
Speaker 1: things were cheaper where things were more expensive. And that's
7:27
Speaker 1: the point of of like tracking inflation is to say, actually, yes,
7:32
Speaker 1: things were more expensive back then. Things do actually get
7:36
Speaker 1: cheaper over time because technology becomes more less novel and stuff.
7:40
Speaker 1: So for example, like a TV, like if you wanted
7:43
Speaker 1: to buy a new color TV when it came out
7:45
Speaker 1: in the sixties, Um, you paid probably about a thousand
7:48
Speaker 1: dollars for that for that TV, right, that's a crazy price.
7:53
Speaker 1: Back then, it was an enormous price. Like you would pay.
7:56
Speaker 1: That would mean then in today's dollars that you would
7:58
Speaker 1: pay something like ten ring in for a new TV. Yeah,
8:02
Speaker 1: and TVs when they first started coming out with the
8:04
Speaker 1: new flat screens were really expensive. And then, like you said,
8:09
Speaker 1: that technology gets better and they get cheaper and cheaper
8:11
Speaker 1: and cheaper. Where now you can get a I mean
8:14
Speaker 1: it depends on what kind of flat screen, but you
8:15
Speaker 1: can get a good flat screen for five bucks. Tops
8:20
Speaker 1: in a decent one for five bucks. I mean you
8:22
Speaker 1: walk into cost because they just give you one for
8:24
Speaker 1: walking in, and it's huge. They're huge, they're much better,
8:28
Speaker 1: They're enormous, they're lighter, they look better, and they're cheaper.
8:31
Speaker 1: I think like a TV today, like the sixties TV
8:34
Speaker 1: is about twenty of that how much it would cost
8:38
Speaker 1: the person buying that color TV. So all of this
8:42
Speaker 1: kind of goes to say like prices may go up
8:45
Speaker 1: over time, but they actually relatively might actually be going
8:49
Speaker 1: down too, or they could just be going up. Thankfully,
8:52
Speaker 1: there are people who track this kind of stuff because
8:55
Speaker 1: when you look at inflation, when you look at the
8:57
Speaker 1: cost of price, the eyes of prices over time, that's
9:01
Speaker 1: what inflation is. One way to put it. Yeah, overall prices,
9:05
Speaker 1: goods and services. It's not just like, oh, gases a
9:07
Speaker 1: lot for the next three months because the summertime. That's
9:10
Speaker 1: not inflation, right, right, It's more like Hubba bubba costs
9:14
Speaker 1: way more today than it did when we were kids. Sure,
9:17
Speaker 1: that's a good example of inflation, but it's a general
9:20
Speaker 1: rise in prices. And if you track this stuff, you
9:23
Speaker 1: can actually track allegedly the health of your economy and
9:27
Speaker 1: make allegedly good decisions on how to juice that economy
9:31
Speaker 1: to keep it going at a steady, controllable rate, but
9:35
Speaker 1: ever upward, right, which is what the FED does. Uh?
9:39
Speaker 1: Did we do one on the Fed or we just
9:41
Speaker 1: danced around them a lot? I don't remember. I know
9:44
Speaker 1: we've done one on currency, how much money there is
9:47
Speaker 1: in the world. We do one on stag inflation, which
9:50
Speaker 1: will mention in a few I thought it was groundbreaking.
9:53
Speaker 1: We did a whole Remember when all the rage was
9:56
Speaker 1: those uh super stuff guides, Yeah, the super Stuff guide,
9:59
Speaker 1: the audiobooks. We do one on economics. Remember that guy
10:01
Speaker 1: who was like chicken. He kept using chicken as an example. Really, yeah,
10:06
Speaker 1: he was great. And then yeah, there it was a
10:09
Speaker 1: good It was a good listen if you ask me, Okay,
10:13
Speaker 1: I'm glad those didn't become a thing though why I
10:16
Speaker 1: don't know. It's a lot of work for Jerry and us.
10:18
Speaker 1: And Jerry loved it, No she didn't. She keeps asking
10:21
Speaker 1: when we're gonna bring those back. So there are a
10:25
Speaker 1: couple of There are a couple of ways to look
10:28
Speaker 1: at this. And it's funny, how like when you look
10:30
Speaker 1: at most of this stuff, economists don't all agree. There's
10:33
Speaker 1: a lot of chicken in the eggs stuff going on. Yeah,
10:36
Speaker 1: exactly where it's like you're just saying the same thing
10:40
Speaker 1: in a different way. It's still the same thing. And ye,
10:43
Speaker 1: And this is sort of the first example which is
10:45
Speaker 1: all maddening, isn't it. It is because some people say,
10:48
Speaker 1: you know what, in a free market, in an open market,
10:51
Speaker 1: it's just supplying to man like it always has been. Uh,
10:55
Speaker 1: if the product has is greater in supply, it's gonna
10:58
Speaker 1: go up in price. Uh. If it's greater than demand,
11:02
Speaker 1: and prices are going to go down. And it's really
11:04
Speaker 1: just as simple as that for these products and for
11:07
Speaker 1: money and cash. And some people say, well, no, that's
11:11
Speaker 1: not true at all. Uh. Inflation is the thing that
11:14
Speaker 1: happens first. And you don't increase the supply of money
11:18
Speaker 1: beyond demand because some people say, oh, well, the Fed
11:21
Speaker 1: just increases the supply of money, right, and they did
11:23
Speaker 1: it too much, and now prices are going up because
11:26
Speaker 1: another way to put it is not just that prices rise,
11:29
Speaker 1: but that inflation actually is a decrease in the buying
11:32
Speaker 1: power of the dollar. Yeah, which is again, I know,
11:35
Speaker 1: the exact same way to say this the other one
11:38
Speaker 1: I know, but it's like the nuance of nitpicky. It
11:41
Speaker 1: really is very nipicky. But we're talking macroeconomics for like,
11:45
Speaker 1: you know, the money of three million people, and like
11:49
Speaker 1: how it kind of moves and interact. So like if
11:52
Speaker 1: you could figure this out, if you could just kind
11:54
Speaker 1: of crack the code, I mean, but you can't. You
11:57
Speaker 1: can do anything they haven't been able to so far.
11:59
Speaker 1: And inflation a really good example of that, because nobody
12:01
Speaker 1: can agree on exactly like you're saying, what causes it.
12:05
Speaker 1: So one way to look at it is is that
12:07
Speaker 1: you can split explanations in a couple of ways. Is
12:10
Speaker 1: it based on a change in the demand or the
12:13
Speaker 1: cost of goods or services or the products or is
12:17
Speaker 1: it because of money? So the first one is that
12:20
Speaker 1: money thing where there's too much money on the market, right,
12:23
Speaker 1: which just if you don't get into economics, that just
12:26
Speaker 1: sounds like a mind numbing thing to even think about,
12:28
Speaker 1: but it's it's really simple to understand. Money is just
12:31
Speaker 1: like anything else. If there's a lot of money, there's
12:34
Speaker 1: a big supply, that means anybody has it who cares,
12:38
Speaker 1: which means that there's um less value to it. Yeah,
12:41
Speaker 1: and that's not just cash in circulation, it's cash and credit.
12:45
Speaker 1: It's like everything we think of is kind of like
12:48
Speaker 1: buying power, I guess. Yeah. And another way to look
12:51
Speaker 1: at it is if there's a lot of money on
12:52
Speaker 1: the market, that means the average person has more money
12:55
Speaker 1: than usual. That means that they can buy more stuff
12:58
Speaker 1: than usual. That means that more people are requesting, trying
13:02
Speaker 1: to buy demand, right, more goods than they usually are.
13:05
Speaker 1: So if demand is increasing, that means there's like more
13:10
Speaker 1: That means prices will rise, which means it costs more
13:13
Speaker 1: money to buy those things. And a good way to
13:16
Speaker 1: put it is that there's um lots of money chasing
13:19
Speaker 1: fewer goods. Yeah, that's how that's how that one's explained.
13:23
Speaker 1: That's one explanation for inflation. There's too much money, which
13:26
Speaker 1: causes prices to rise because there's more people trying to
13:29
Speaker 1: buy those goods than usual. That's right. And the I
13:33
Speaker 1: think one example here, Professor John T. Harvey at TCU,
13:38
Speaker 1: He's who I was talking about earlier. He's like, no,
13:41
Speaker 1: that's not really true. He says inflation happens first, and
13:45
Speaker 1: that they don't increase the supply of money beyond demand
13:48
Speaker 1: because that you wouldn't need you need more money because
13:53
Speaker 1: prices are going up. So then that brings more money
13:55
Speaker 1: in the market. Right, that's right. Growth accompanies the inflation,
13:58
Speaker 1: it doesn't cause it. Yeah. So again this is all
14:02
Speaker 1: these economists are saying, no, there's too much money, and
14:04
Speaker 1: this guy is saying, no, the prices are rising, which
14:07
Speaker 1: brings more money into existence. And in the meantime, everyone
14:10
Speaker 1: else in the room is like, I gotta go to
14:11
Speaker 1: the bathroom, I gotta go take a call, I gotta
14:13
Speaker 1: go finger foods. Yeah, and we say it every time.
14:17
Speaker 1: But the fact that you have liberal economists and conservative
14:20
Speaker 1: economists that right there is that reveals it all. It's
14:23
Speaker 1: all made up. It's all who do let's take a
14:27
Speaker 1: break on who do you That's nice little cliffhanger. That
14:30
Speaker 1: was my signal, and we'll come back and talk about
14:32
Speaker 1: two other theories that are kind of the same thing
14:36
Speaker 1: right after this. So Chuck is want to say, you're
15:06
Speaker 1: doing great, Well, that's because I haven't gotten to those
15:08
Speaker 1: paragraphs yet. It's gonna be just easy, okay, okay. So
15:13
Speaker 1: there are another couple of theories. Again, economists are gonna
15:17
Speaker 1: agree and disagree about these two theories. They are the
15:20
Speaker 1: cost push theory and the demand pull theory. It's even
15:25
Speaker 1: right there in the title push and pull. Essentially, it's
15:28
Speaker 1: the same action going on, but one is choosing to
15:31
Speaker 1: look at one side and one's choosing to look at
15:33
Speaker 1: the other. So cost push means that it's the increase
15:37
Speaker 1: of uh, the cost of like labor or the cost
15:40
Speaker 1: of raw materials. Uh. Basically anything that's gonna end up
15:45
Speaker 1: getting like a loaf of bread on a shelf, including
15:48
Speaker 1: like the fuel for the trucking and packaging and all
15:51
Speaker 1: that stuff. That that is what is going to push
15:54
Speaker 1: up in prices. That that is the driver of inflation,
15:58
Speaker 1: which makes a lot of sense. Like there was apparently
16:02
Speaker 1: right now, I don't know if it's still going on,
16:04
Speaker 1: but it definitely was the spring. There's a shortage in
16:07
Speaker 1: wood in lumber still happening, okay, because of at least
16:12
Speaker 1: in part, the wildfires that California suffered last year were
16:15
Speaker 1: so devastating that it actually affected the national supply of lumber. Yeah,
16:21
Speaker 1: and I also read that the lumber people decreased production
16:25
Speaker 1: overall because they thought because of the pandemic, they thought
16:29
Speaker 1: there was going to be a big lull. They didn't
16:31
Speaker 1: want all this extra inventory on their hands. It turned
16:34
Speaker 1: out everyone was like, no, I want to build stuff now,
16:37
Speaker 1: and they dis miscalculated. So it's not a good time
16:40
Speaker 1: to build a pavilion at your family camp. Let's just
16:43
Speaker 1: say that, right, or to try to increase the housing stock. Right.
16:47
Speaker 1: So that means then that lumber going up in price
16:51
Speaker 1: makes building a new house that much more expensive. So
16:55
Speaker 1: the house, the finished product, has become more expensive because
16:59
Speaker 1: of the input that raw material lumber. That's a really
17:03
Speaker 1: good example of cost push theory of why prices are
17:06
Speaker 1: rising because of something downstream in the production process. Yeah,
17:11
Speaker 1: but there's a key little factor here. All of this
17:14
Speaker 1: is true, Uh, when companies are running already at full
17:18
Speaker 1: production capacity. So that's a really key element there. It
17:21
Speaker 1: can't be a company that's um like behind or whatever.
17:27
Speaker 1: It's like it's a company that's just humming along basically,
17:30
Speaker 1: and then something happens in the supply chain, let's say,
17:33
Speaker 1: big increase in fuel or lumber cost or any kind
17:35
Speaker 1: of raw material. I think did Dave help us with this?
17:38
Speaker 1: This is a Dave How Stuff Works article? Okay, yeah, wow,
17:43
Speaker 1: I know, hats off. We found another one. But he's
17:46
Speaker 1: as bread as the example. At the cost of wheat
17:48
Speaker 1: goes up, the cost of flower is obviously going to
17:51
Speaker 1: go up, and the cost of bread is eventually going
17:54
Speaker 1: to go up under the uh the CP theory, and
17:57
Speaker 1: so people like you and I end up paying more
18:00
Speaker 1: for a new house, or more for a loaf of bread,
18:03
Speaker 1: more for whatever, because something somewhere that was a component
18:07
Speaker 1: in that caused this rise in prices, that would cause
18:12
Speaker 1: that would that's the cost push example of theory of
18:16
Speaker 1: of inflation, the kind of opposite of that. But I
18:20
Speaker 1: don't even know the right word. They say, no, no, no,
18:24
Speaker 1: it's not the raw materials that um cause the increase
18:27
Speaker 1: in prices. It's actually the demand for that finished product
18:32
Speaker 1: that that that causes the increase in prices, and so
18:36
Speaker 1: housing right now actually is a really good example of
18:40
Speaker 1: both cost push and demand pull at the same time. Yes,
18:44
Speaker 1: it's crazy, and it's also demonstrating like, okay, we have
18:47
Speaker 1: no idea what's going on, or at the very least,
18:50
Speaker 1: that these things don't exist in isolation, and that is
18:53
Speaker 1: that people like you're saying there the pandemic, We're like, no,
18:56
Speaker 1: we want to move. I don't want to live in
18:57
Speaker 1: the city anymore. I want to live as far away
18:59
Speaker 1: from other people as possible, but but only as close
19:02
Speaker 1: as instat cart will deliver. That's as close as I
19:04
Speaker 1: want to live to the web van. Sure, yeah, um
19:09
Speaker 1: so uh it was totally unpredicted. But the upshot of
19:14
Speaker 1: it is that there is a lot of people trying
19:16
Speaker 1: to buy houses right now and the housing markets just
19:18
Speaker 1: gone through the roof, and so that's caused housing prices
19:23
Speaker 1: to increase, and it's caused like all of the other
19:26
Speaker 1: components of the housing market to increase as well. So downstream,
19:32
Speaker 1: that demand for houses caused every bit of housing to
19:37
Speaker 1: increase as a as a result. Yeah, and the example
19:41
Speaker 1: Dave to stick with the bread as well. Because it's
19:43
Speaker 1: a I think it's slightly easier to understand than the
19:46
Speaker 1: housing market because it's so weirdly affected by a lot
19:49
Speaker 1: of things. Right now, is that if the cost of
19:53
Speaker 1: or if a lot of people want bread, the baker
19:56
Speaker 1: doesn't immediately raise the prices because of that demand, um
20:00
Speaker 1: until they run out of the flower. Then they got
20:03
Speaker 1: to go back and buy more wheat, and the wheat
20:04
Speaker 1: farmer might say, well, now it's a little more expensive. Yeah,
20:06
Speaker 1: there's a lot of bakers who are have everybody wants
20:09
Speaker 1: my wheat right now, and so that's when the cost
20:12
Speaker 1: is eventually pulled and uh and then increased I guess
20:16
Speaker 1: for the consumer. Right So it looks like if you're
20:19
Speaker 1: just looking at it, like oh this this wheat price,
20:22
Speaker 1: this raw material rose in in cost and that caused
20:26
Speaker 1: bread to rise, and people are like, no, no, that
20:29
Speaker 1: that's an illusion. It was actually this demand for bread
20:31
Speaker 1: that increased that caused the wheat to rise. And again
20:34
Speaker 1: it sounds so similar to cost push demand pull does
20:39
Speaker 1: that it doesn't even matter, but it really does matter.
20:42
Speaker 1: It does matter because and this part is the key here.
20:44
Speaker 1: If you're at home and you're just like stop talking,
20:49
Speaker 1: this is what kind of drove at home for me,
20:50
Speaker 1: the difference in those two it might seem like just
20:53
Speaker 1: words and nitpicky, but it's really not because in one
20:56
Speaker 1: scenario and demand pull, you've got an economy that's really
20:59
Speaker 1: humming and people like I want to buy all that stuff. Yeah,
21:01
Speaker 1: it means a lot of people have a lot of
21:03
Speaker 1: money that that they want to spend and that yes,
21:06
Speaker 1: that means like you have a healthy economy, right then, right,
21:10
Speaker 1: and under cost push, it's more like hey, uh, people
21:14
Speaker 1: feel like they have to do this repair on their
21:16
Speaker 1: house and I'm sorry, it's just a lot more expensive.
21:19
Speaker 1: It's not like oh I need this new thing. It's
21:22
Speaker 1: like I have to pay for this thing and it's
21:23
Speaker 1: a lot more expensive because of the raw materials or whatever.
21:27
Speaker 1: The labor has gone up, right, And and yeah, it's
21:30
Speaker 1: much worse because that means, like you said, the company
21:34
Speaker 1: is humming along at max capacity, and all of a sudden,
21:37
Speaker 1: it's like we don't have wheat anymore, and we aren't
21:40
Speaker 1: gonna be able to satisfy demand because we don't have
21:42
Speaker 1: this basic component. It means that there's something broken in
21:45
Speaker 1: your supply chain or the mechanisms of production and that's
21:51
Speaker 1: not a good place to be in. So it's very
21:54
Speaker 1: healthy economy or everybody has money increasing demand or demand
21:57
Speaker 1: increases because you can't supply the basic parts to to
22:02
Speaker 1: create those goods. Right, Okay, I know the beginning of
22:05
Speaker 1: this part, so I'll take it, and then I have
22:09
Speaker 1: a cot set up in the next room. I'm just
22:12
Speaker 1: gonna go. I feel like you're setting me up for failure. Now,
22:15
Speaker 1: you'll do fine because there's no math. Well, there is
22:18
Speaker 1: math involved, but you'll still do fine. Where is their
22:20
Speaker 1: math involved? Uh? In this part the annual rate of
22:24
Speaker 1: inflation calculation. So but if if we get it wrong,
22:29
Speaker 1: we'll just say Dave got it wrong, we'll pass that.
22:32
Speaker 1: We'll cost push it his way. So we're talking about
22:36
Speaker 1: how inflation is actually measured now, and uh, this is
22:40
Speaker 1: a big deal because we like to keep track every
22:42
Speaker 1: year and say that you know, inflation, what is it?
22:44
Speaker 1: Usually between about one and a half percent to three
22:47
Speaker 1: and a half percent annually in the US generally, unless
22:50
Speaker 1: it's like the nineteen seventies or early eighties. I think
22:53
Speaker 1: over the last several years it's gone between negative two
22:58
Speaker 1: point one well in like five something per cent, which
23:03
Speaker 1: is pretty five points. Something is pretty high. It's generally
23:06
Speaker 1: in the two to three range. It is for our experience,
23:08
Speaker 1: but in the early eighties it was as high as
23:10
Speaker 1: almost that's bad. It was very bad, but not as
23:14
Speaker 1: bad as like why Amar Republic Germany or in which
23:18
Speaker 1: we've talked about a million times, where their hyper inflation
23:20
Speaker 1: was just out of control. Yeah, wouldn't. We'll get to that, okay.
23:24
Speaker 1: So we have to measure the um the inflation rate
23:27
Speaker 1: because we like to keep tabs on our economy so
23:29
Speaker 1: the FED can can do their weird black magic. And
23:33
Speaker 1: so the Bureau of Labor Statistics the BLS, is who
23:37
Speaker 1: kind of sets this stuff by working through a big
23:42
Speaker 1: data collection system called the Consumer Price Index. It's nuts,
23:47
Speaker 1: it is nuts how big it is. They take, Uh,
23:50
Speaker 1: what they try and fill up is what's called the
23:52
Speaker 1: CPI market basket. And it's basically, if you imagine a
23:56
Speaker 1: grocery basket that includes everything everything basically like eighty tho items. Yeah,
24:01
Speaker 1: I'm not just groceries. They have two hundred categories of
24:04
Speaker 1: products in eight major groups food, housing, apparel, transportation, medical care, recreation, education, communication,
24:12
Speaker 1: and then other which is basically everything else, uh, funerals
24:15
Speaker 1: and manicures basically the other and saunas sounds. Yeah, definitely
24:21
Speaker 1: that might be under recreation you think, I think it
24:25
Speaker 1: might be or medical care. It's good for you, Yeah,
24:27
Speaker 1: for sure, depending on how progressive your your Bureau of
24:31
Speaker 1: Labor Statistics agency is at the time. That's right. So
24:34
Speaker 1: every couple of years, thank you for waiting until I finished.
24:39
Speaker 1: The Bureau of Labor Statistics interviews twenty four thousand American
24:43
Speaker 1: families on the stuff that they bought. Yeah, because if
24:46
Speaker 1: you have if you want to figure out what eighty
24:48
Speaker 1: thousand items you need to include basket, you have to
24:50
Speaker 1: find out what Americans are actually buying. Yeah, I bought
24:53
Speaker 1: you a slide whistle. That's right. They called me up
24:55
Speaker 1: and I said, I bought a slide whistle. That's the
24:57
Speaker 1: only thing about this year. They said you're the one,
24:59
Speaker 1: and they said that must have been for a very
25:01
Speaker 1: special guy in your life, and it said it's true. Wow,
25:05
Speaker 1: I'm blessing right. Uh. Then they have another twelve thousand
25:08
Speaker 1: families that are keeping a spending diary. Basically it's kind
25:12
Speaker 1: of like Nielsen a little bit. For that one. They
25:15
Speaker 1: did kind of remind me that a little bit because
25:16
Speaker 1: they're just trying to get a big broad overview of
25:19
Speaker 1: what a typical schmuck here in America spend. And you say,
25:22
Speaker 1: where's my three or five dollars? And they just go ahead,
25:25
Speaker 1: they hang up real quick exactly somebody else. Uh. And
25:29
Speaker 1: then every month they have a big team of assistance
25:32
Speaker 1: that records the prices of those eighty thousand things. And
25:36
Speaker 1: this is an effort to get just a good look
25:39
Speaker 1: at what that big market basket looks like. Yeah, so
25:42
Speaker 1: two years they figure out what they need to be
25:44
Speaker 1: buying or what Americans are buying. They use that data
25:46
Speaker 1: for another couple of years, but every month they go
25:51
Speaker 1: and price all items in that that market basket every
25:57
Speaker 1: single month. If you get a figure out inflation, you
25:59
Speaker 1: got to be as current is possible. Yeah, So the
26:02
Speaker 1: to figure out what item needs to be in the basket.
26:05
Speaker 1: So there's like two d categories, eight broad categories, two subcategories.
26:11
Speaker 1: So like transportation will have like auto insurance category subway
26:16
Speaker 1: exactly m or food will have like you know, cheese
26:20
Speaker 1: will be one. But in that cheese category sample, I
26:24
Speaker 1: think they call it, there's you know a bunch of
26:27
Speaker 1: different kinds that everybody buys like Kraft singles. Some are
26:30
Speaker 1: Velvita slice. People like me, man, I used to love Velvita.
26:34
Speaker 1: It's still good. I have it, had it in decades.
26:37
Speaker 1: I will buy you somebody. Do you get blocks of Lvita? No,
26:40
Speaker 1: we don't get blocks of Lvita. You get slices now, Okay,
26:43
Speaker 1: but it's not cheese, right, and the cheese product perform cheese,
26:47
Speaker 1: but I think it's still qualifies under the cheese sample
26:50
Speaker 1: in the market basket that but if you're making a
26:53
Speaker 1: chili cheese for something, you got to use it. Sure, yeah,
26:55
Speaker 1: that's good. No, but this is it's good for grilled
26:57
Speaker 1: cheeses to of course, so um that particular brand, but
27:02
Speaker 1: not just that brand, like the you know, sixteen slice package.
27:07
Speaker 1: They find it makes up sevent of the market for
27:11
Speaker 1: that type of cheese. So they'll pick that one. They
27:15
Speaker 1: use that for four years and then they go reevaluate it.
27:17
Speaker 1: This is like the level of detail the BLS is
27:20
Speaker 1: putting into their their basket. And so they take all
27:23
Speaker 1: of this and they price it. Every single month. They
27:26
Speaker 1: literally go to the store and I meant to say
27:28
Speaker 1: literally that time and say, oh, well, the Velveta Cheese
27:33
Speaker 1: slice sixteen pack is three forty nine, right, now, write
27:37
Speaker 1: the price down. I think so, And then they go
27:40
Speaker 1: back and they type it it and every month they
27:42
Speaker 1: say this is how much that this cost and they
27:46
Speaker 1: compare it strangely too. Right. Take it from here, Chuck, Well,
27:54
Speaker 1: two was basically, uh was that was the baseline year
27:59
Speaker 1: where they said, all right, here's our CPI index. It's
28:03
Speaker 1: not an actual um it's an index. It's not a
28:07
Speaker 1: dollar figure. I know, I looked everywhere. I'm like, how
28:09
Speaker 1: much does that eight thousand, you know, item basket cost
28:12
Speaker 1: in real dollars? Everything? Every they won't sorry, index buddy, Yeah,
28:17
Speaker 1: they'll talk about UFOs sooner than they'll tell you how
28:19
Speaker 1: much is in that basket? How much? So eighty two
28:23
Speaker 1: is when that baseline figure was set, which was the
28:26
Speaker 1: Consumer Price Index is a hundred uh in two thousand six.
28:30
Speaker 1: It hit two hundred in April two thousand six, which
28:34
Speaker 1: basically at that point they should have said, they should
28:37
Speaker 1: have just reset it and said we have a new
28:39
Speaker 1: base here because we doubled it, and they didn't know.
28:42
Speaker 1: They just and I'm not sure why really they just
28:44
Speaker 1: sort of left it in two. It seems like a
28:49
Speaker 1: maybe they're just used to that math, it seems like
28:50
Speaker 1: it would be a lot of extra math. And it wasn't. No,
28:53
Speaker 1: it wasn't that they doubled it. It was that it
28:56
Speaker 1: was the exact same in two I think. Or was
29:00
Speaker 1: it that they doubled it. No, it was doubled. But
29:04
Speaker 1: they said they should. I mean, some people say they
29:06
Speaker 1: should have said like, all right, well we have a
29:07
Speaker 1: new base, but they're still using the two. I guess,
29:11
Speaker 1: I just I just don't know why. I don't either why.
29:14
Speaker 1: Maybe it makes perfect sense. So so the actual um
29:18
Speaker 1: number that they come up with is a number that's
29:21
Speaker 1: relative to the amount that it costs in night two. Yeah,
29:26
Speaker 1: this is where I kind of got a little foggy.
29:28
Speaker 1: So for example, and that I mean, I fell asleep
29:31
Speaker 1: on my debts in in two thousand nineteen, the c
29:35
Speaker 1: p I, the consumer price index for that basket of
29:38
Speaker 1: goods was two nine point to T two, okay, meaning
29:42
Speaker 1: that that amount of goods cost almost two and a
29:46
Speaker 1: half times what that same basket of goods would have
29:49
Speaker 1: cost you in nineteen eighty two. Sure, so you say, okay,
29:55
Speaker 1: I don't care how much it costs in nineteen eighty two.
29:57
Speaker 1: I want to know how much it's affecting me now,
29:59
Speaker 1: and they said, we'll just set a now, settle down.
30:01
Speaker 1: They can take that number and say, well, how much
30:03
Speaker 1: was it last month or how much was it last year?
30:06
Speaker 1: So they can compare, say like the two thousand nineteen
30:08
Speaker 1: and two thousand twenty c p I s and find
30:11
Speaker 1: that there was a difference of something like about three
30:14
Speaker 1: point oh two six between those two numbers. Then they
30:16
Speaker 1: divide that by the two thousand nineteen percent um number
30:21
Speaker 1: and they get the actual percentage that says the cp I,
30:24
Speaker 1: the consumer price index, the amount of basically what it
30:29
Speaker 1: cost people to just live in two thousand nineteen was
30:33
Speaker 1: one two percent less than it costs in which means
30:37
Speaker 1: that inflation rose one between and two thousand nineteen. Right,
30:43
Speaker 1: And when you hear about inflation annual inflation rate, that
30:47
Speaker 1: is generally what people are pointing to. But as we
30:51
Speaker 1: will see, that is not how everyone likes to look
30:54
Speaker 1: at inflation. There are other things to take into consideration.
30:58
Speaker 1: I think the FED like to look at core inflation,
31:01
Speaker 1: which is that CPI minus uh volatile things like food
31:06
Speaker 1: and energy, things that like the prices kind of go
31:08
Speaker 1: up and down uh more volatively. Sure is that a word, yeah, molybdium. Yeah. Uh.
31:18
Speaker 1: And then the FED also looks at another data set
31:22
Speaker 1: compiled by the pure the Bureau of Economic Analysis. This
31:26
Speaker 1: gets a little wonky, but it actually does make sense.
31:28
Speaker 1: The difference between the BLS and the b e A
31:30
Speaker 1: indexes uh comes down to the fact that if chicken
31:35
Speaker 1: costs a lot more money all of a sudden because
31:36
Speaker 1: of some supplies or shortage or whatever, or increased demand, rather,
31:41
Speaker 1: then people might go to the other white meat and say, well,
31:44
Speaker 1: I'll start buying pork then. Yeah. That was explained by
31:46
Speaker 1: Benjamin apple Bomb from the New York Times Economics blog
31:50
Speaker 1: Benjamin Okay, yeah, he said, I swear to god I
31:54
Speaker 1: nailed the apple Bob apple Bomb Okay, yeah, that's my
31:58
Speaker 1: imaginary friend, Binjamine apple Bomb. Um. So uh he was.
32:05
Speaker 1: He was explaining it like that, that that's the difference
32:07
Speaker 1: that people adjust, Like we're not just like automatons were like, Okay,
32:11
Speaker 1: well we're buying chicken and that's all we eat, and
32:15
Speaker 1: we also buy X amount of hot dogs. It's like, yeah,
32:18
Speaker 1: if the price of chicken goes up, you're gonna eat
32:20
Speaker 1: something else that month. That that's just how people do
32:23
Speaker 1: and so he was saying that the Bureau of Economic
32:27
Speaker 1: Analysis really is much better at taking that into consideration.
32:31
Speaker 1: And so since about two thousand, the FEDS kind of
32:33
Speaker 1: relied a little more on that one than the c
32:36
Speaker 1: p I. But the CPI is still very much the
32:39
Speaker 1: most broadcast one. But it turns out that economists used
32:42
Speaker 1: whichever one suits their needs and politician given month to
32:46
Speaker 1: say our policies are right and your stink. That's a
32:50
Speaker 1: great place for a break, and we'll come back and
32:52
Speaker 1: talk about why inflation even matters and what we can
32:55
Speaker 1: do about it, which is nothing right for this? All right,
33:25
Speaker 1: So we're back to wrap this up. This wasn't as
33:28
Speaker 1: bad as This wasn't as bad as I thought. Why
33:30
Speaker 1: is it funny? I'm just I'm glad we're reaching in here.
33:34
Speaker 1: I'm glad to see that you've come around a little bit.
33:37
Speaker 1: You did great explaining everything. I appreciate it. So. Uh,
33:40
Speaker 1: strength of Dave's research, I think, sure, not like the
33:44
Speaker 1: John Mirror person. Dave's wonderful his work, he is, He's great. Uh.
33:50
Speaker 1: So inflation can be a bad thing because of some
33:54
Speaker 1: sort of obvious things. But one is if you have
33:58
Speaker 1: a fixed income and you're living off a pension or something.
34:02
Speaker 1: A lot of times, most times that pension isn't going
34:06
Speaker 1: to go up because inflation goes up. Luckily, social security does.
34:10
Speaker 1: It's tied to that CPI UM, which was a really
34:13
Speaker 1: smart thing to make people like not absolutely loath social
34:17
Speaker 1: security in every way. But yeah, social Security will go up,
34:22
Speaker 1: but your pension won't. So that's a big deal. And
34:24
Speaker 1: that's why inflation matters. Yeah, I mean it also stinks
34:27
Speaker 1: for those of us who are like, man, I'm paying
34:29
Speaker 1: way more for bread than I was this time last year,
34:32
Speaker 1: and why should i? Um. It also has an effect
34:36
Speaker 1: on investments too. Um. Remember, a different way of looking
34:40
Speaker 1: at inflation is not just that prices are rising, but
34:43
Speaker 1: that the buying power of the dollar is going down. Yeah,
34:46
Speaker 1: so your investment, Yeah, if you have an investment is
34:49
Speaker 1: worth ten grand. Uh, you know, five years from now,
34:52
Speaker 1: it's still the dollar amount, still worth ten grand, but
34:56
Speaker 1: the value of the dollars far less than it was
34:58
Speaker 1: five years before, and so that ten grand just doesn't
35:00
Speaker 1: amount to quite as much. Another thing that can happen
35:03
Speaker 1: is your interest rates might go up or uh not.
35:08
Speaker 1: Your interest rate role reset. But if you go to
35:10
Speaker 1: buy a house or something. The interest rate might be
35:13
Speaker 1: higher because a bank might say, you know, I think
35:16
Speaker 1: inflation is gonna be pretty bad this year, so we're
35:19
Speaker 1: gonna we're gonna have to charge more money on that
35:21
Speaker 1: loan because we're losing that dollar value, right exactly, and
35:24
Speaker 1: banks don't like losing money. Um. There's also like a
35:28
Speaker 1: lot of uncertainty that could come when inflation is going on.
35:32
Speaker 1: Remember I said inflation, Like, there are a lot of
35:33
Speaker 1: inflation fears until today. Um. That has a really deletrious
35:38
Speaker 1: effect on business in that Um, they don't it's harder
35:42
Speaker 1: to plan for the future. They don't know how much
35:44
Speaker 1: the cost of the goods that they need to make
35:47
Speaker 1: their finished products they're going to be, right, So you
35:50
Speaker 1: don't know, you know, if you're gonna buy a whole
35:52
Speaker 1: bunch of you know, meal worm spray for your your
35:56
Speaker 1: flower to make bread with. Um, is a better to
36:00
Speaker 1: buy it now? Is it better to buy it later?
36:02
Speaker 1: And how much am I going to price? Has spread
36:04
Speaker 1: for it's it's just a catastrophe. And then they eventually
36:07
Speaker 1: just give up and go home and watch Judge Judy. Yeah,
36:10
Speaker 1: I gotta say that's um. Like with Emily, small business
36:13
Speaker 1: that I think, especially with small businesses, she can't just
36:17
Speaker 1: be like, oh, well, shipping is a lot more now
36:19
Speaker 1: because fuel costs are going up or packaging is increases.
36:23
Speaker 1: So she can't just raise and lower her prices willy
36:26
Speaker 1: nilly when you're a small business selling soap in lotion
36:29
Speaker 1: and candles, Which is funny because that is one of
36:32
Speaker 1: the major explanations for inflation. I know, but you just
36:36
Speaker 1: can't do that as a small as you can be
36:37
Speaker 1: like our soap a quarter more all of a sudden,
36:40
Speaker 1: or a quarter less, like she kind of a lock
36:43
Speaker 1: in for a little while. Like a price increase for
36:46
Speaker 1: a small business like that is sort of a big deal.
36:49
Speaker 1: You got to really think it through. Yeah, yeah, I do. Um.
36:53
Speaker 1: And that's actually another problem with it too. It's like
36:56
Speaker 1: if if Emily can make less money um selling her wares,
37:01
Speaker 1: but she's paying more to make them, her profit margin declines.
37:06
Speaker 1: In that sense, she might have less to expand um
37:10
Speaker 1: to hire more people total, and so that has a
37:13
Speaker 1: ripple effect through the economy where it can affect employment.
37:16
Speaker 1: Higher prices can actually lead to lower employment. Yeah, Like
37:20
Speaker 1: she gets killed on shipping, that's her big one, Like
37:22
Speaker 1: she loses money a lot of money every year on
37:25
Speaker 1: shipping costs. But you can't just like she's not Amazon,
37:29
Speaker 1: so she can't can't ship for free, and you can't
37:31
Speaker 1: also charge what it really costs to ship. You just
37:34
Speaker 1: have to kind of take the hit. Yeah, you know
37:36
Speaker 1: it's interesting. Uh. I guess we can talk about hyper
37:41
Speaker 1: inflation a little bit. We've covered it a few times
37:43
Speaker 1: over the past thirteen years. But the one big one
37:47
Speaker 1: that people always talk about is, like you mentioned earlier,
37:49
Speaker 1: the Weimar Republic of Germany when the mark exploded from
37:54
Speaker 1: two thousand marks to the US dollar in nineteen two
37:58
Speaker 1: to four point two trip alien marks to the dollar,
38:02
Speaker 1: uh less than a year later, And that nuts. That
38:05
Speaker 1: is I mean, you can't even wrap your head around
38:07
Speaker 1: and remember in Zimbabwe and that I can't remember what
38:11
Speaker 1: what decade it was, the eighties, maybe the nineties where
38:14
Speaker 1: they were they were like using wheelbarrows to cart trillion
38:17
Speaker 1: dollar bills um to the grocery store and still could
38:21
Speaker 1: barely buy bread or toilet paper with it. Yeah, the US,
38:25
Speaker 1: like I said earlier, it had its own brush with
38:27
Speaker 1: I don't know if you call it hyper inflation, but
38:29
Speaker 1: definitely much higher inflation than anybody was comfortable with UH,
38:33
Speaker 1: and that actually came I was researching this today. A
38:36
Speaker 1: lot of people blame the UM, the opeque, oil embargo, UM,
38:41
Speaker 1: a lot of other stuff, but it apparently can all
38:44
Speaker 1: be laid at the feet of Richard Dixon, who juiced
38:47
Speaker 1: the economy. He fired his FED chairman and replaced him
38:50
Speaker 1: with a sycophant who had no formal economics training, and
38:54
Speaker 1: then started telling him what to do. Sound familiar to
38:57
Speaker 1: juice the economy to get reelected. And it worked for
39:01
Speaker 1: a minute, and then all of a sudden, it was
39:02
Speaker 1: like this plane going up and then the gas was
39:05
Speaker 1: no longer in the fuel injector and started just tumble
39:08
Speaker 1: back towards the earth. We had almost um uh inflation. Yeah,
39:14
Speaker 1: I mean that unemployment. That's a real number that like
39:18
Speaker 1: makes an actual difference in American families, like getting what
39:20
Speaker 1: they need, Yeah, for sure gas and food and you know,
39:23
Speaker 1: paying builds. Yeah. So it took a good decade or
39:26
Speaker 1: so to come out of that death spiral that it
39:29
Speaker 1: was in, and it took the FED. And this is
39:32
Speaker 1: a this was actually a big reason why the FED
39:34
Speaker 1: plays such a big role in the economy today is
39:36
Speaker 1: because of that the FED had to step in and
39:38
Speaker 1: basically do the opposite of um easy money and basically
39:44
Speaker 1: get money off of the market to basically say, all
39:47
Speaker 1: these people who have money right now, we need to
39:49
Speaker 1: take some of their money to lower demand, to cause
39:52
Speaker 1: prices to go down. And it was a really hard
39:56
Speaker 1: time to be an American in the late se in
40:00
Speaker 1: these early eighties because it caused this, uh, the Great
40:02
Speaker 1: Inflation and then a pretty big recession. Yeah, there are
40:06
Speaker 1: a few things that the FED can do to uh,
40:10
Speaker 1: you know. One thing that you might see on stupid
40:13
Speaker 1: Facebook comments is like, just print more money. Fed. That's
40:17
Speaker 1: all they do anyway, just put more cash into the economy.
40:21
Speaker 1: They don't do that. The FED doesn't just print more money.
40:24
Speaker 1: They can influence the money supply though, in a few ways.
40:28
Speaker 1: One is there's something called the reserve requirement, which is
40:31
Speaker 1: basically they say, you know what, if you're a bank,
40:34
Speaker 1: you have to have a certain percentage of your customer
40:38
Speaker 1: deposits that you don't you can't touch. You gotta leave
40:40
Speaker 1: it in there and reserve. So they can lower that
40:43
Speaker 1: requirement a little bit, meaning that in theory, more money
40:47
Speaker 1: can be in circulation because they're loaning out more or
40:49
Speaker 1: they're able to loan out more. So that's one thing
40:51
Speaker 1: they can do. Um. They can also uh, they actually
40:56
Speaker 1: buy and sell bonds. This is where it gets so
40:58
Speaker 1: crazy to me, Like this just sounds so weird, but
41:02
Speaker 1: I mean there's a whole market there that actually is
41:05
Speaker 1: basically how money gets on or off the market in
41:08
Speaker 1: the economy. There's this, there's sales of bonds where companies
41:12
Speaker 1: can buy bonds, companies can sell bonds um, and the
41:15
Speaker 1: FED will buy or sell them too. And when the
41:18
Speaker 1: FED buys bonds is putting money on the market, and
41:22
Speaker 1: when the Fed sells bonds, it's accepting money. It's taking
41:25
Speaker 1: money off the markets, treating those bonds for money, and
41:28
Speaker 1: making sure that that money isn't in circulation anymore, at
41:31
Speaker 1: least temporarily. That's what's happening today. They're going to auction
41:34
Speaker 1: off a hundred billion dollars in bonds, So a hundred
41:38
Speaker 1: billion dollars will not be in the economy tomorrow after
41:42
Speaker 1: this auction today because the Fed's taking it off the market,
41:45
Speaker 1: which was enough to um to calm those inflation warries.
41:49
Speaker 1: Everybody's at uh, the FED steppinge in, It's fine. Well,
41:52
Speaker 1: now they're like a hundred people that understand that said,
41:55
Speaker 1: oh okay, and everyone else just read the headline. T L. D.
41:59
Speaker 1: R right said all right, we're not supposed to worry,
42:02
Speaker 1: so I won't worry. But at the same at the
42:04
Speaker 1: same time, you made reference though earlier that it was
42:07
Speaker 1: like Joe Biden screwing up the economy, that they were
42:10
Speaker 1: blaming those stimulus checks for everything from people not working
42:13
Speaker 1: purposefully to um there being too much money and increasing
42:18
Speaker 1: demand for regular stuff, and the whether that's true or not.
42:23
Speaker 1: The FED stepping in and saying, well, we're just gonna
42:25
Speaker 1: get some money off the market. Another thing the government
42:27
Speaker 1: can do is the opposite of something like stimulus checks.
42:31
Speaker 1: It can actually raise taxes. And that's another way for
42:34
Speaker 1: the government rather than the FED to get money out
42:37
Speaker 1: of circulation by by taking it from people's you know,
42:41
Speaker 1: end of your account, end of your account. Uh. And
42:45
Speaker 1: then the other The final thing the Fed can do
42:47
Speaker 1: is they can lower their discount rate, which is the
42:50
Speaker 1: rate that is going to charge a bank for a
42:51
Speaker 1: short term loan. And in theory, if a bank is
42:55
Speaker 1: paying less for a loan, then they can lend at
42:58
Speaker 1: a lower rate as well. If you're going and skiing
43:00
Speaker 1: for a loan. And then lastly there's supply side economics.
43:03
Speaker 1: Another thing the government can do, which is basically deregulate
43:05
Speaker 1: industry in the hopes that it will make industry leaner,
43:09
Speaker 1: more competitive, all that stuff, and that that will cause
43:12
Speaker 1: prices to go down because businesses will become more efficient
43:15
Speaker 1: when it's dog eat dog. I think we've seen, thanks
43:19
Speaker 1: to reagonomics, that that doesn't necessarily work very well. That's
43:23
Speaker 1: what they say. That's my two cents, And hey, man,
43:26
Speaker 1: I'm just as much an economist as any economist. It
43:29
Speaker 1: sounds like it. Uh. If you want to know more
43:31
Speaker 1: about economics and inflation and stag inflation and deflation and
43:35
Speaker 1: all deflations, go do some research and it will blow
43:39
Speaker 1: your mind. And since I said that it's time for
43:41
Speaker 1: listener mail, I'm gonna call this one of the many
43:46
Speaker 1: great responses from our Girl Scout episode. Good morning, Josh
43:52
Speaker 1: and Chuck at the pleasure of listening to the Girl
43:54
Speaker 1: Scout episode. When I was sewing the badges onto my
43:57
Speaker 1: daughter's best in time for our bridging ceremony. My daughters
44:00
Speaker 1: our fourth generation Girl Scouts, and I'm a third generation leader.
44:05
Speaker 1: I love this very big family. I have the honor
44:08
Speaker 1: to service one of five leaders and a multi level
44:10
Speaker 1: troop or troop as girls from kindergarten through seventh grade,
44:13
Speaker 1: encompassing Daisy, Brownie, Jr. And Cadet levels. We formed as
44:17
Speaker 1: a multi level troop so sisters could be in the
44:20
Speaker 1: same troop. That's really sweet, and so that their parents
44:23
Speaker 1: could have one troop to keep track of. It's a
44:26
Speaker 1: great way for the older girls to practice leadership skills
44:28
Speaker 1: with the younger girls and gives the younger girls role models.
44:32
Speaker 1: This sounds great, very sweet. They should do this everywhere
44:35
Speaker 1: everyone else is doing it wrong, she said, But no
44:37
Speaker 1: Juliets are allowed. Yeah, no, Juliet. Another unique thing about
44:42
Speaker 1: our troop is that we do not charge dues. Everything
44:45
Speaker 1: our girls do from uniforms, program supplies, and activities are
44:48
Speaker 1: funded solely through cookie sales. We asked new girls to
44:52
Speaker 1: buy their first vest for the uniform and from their
44:54
Speaker 1: cookie sales take care of the rest. Uh. Caroline here
44:59
Speaker 1: leads the Daisies in their troop and says, even at
45:03
Speaker 1: the youngest levels, the emphasis is then a girl that experience.
45:06
Speaker 1: That means they choose their activities and badges, plan and
45:09
Speaker 1: run the meetings, practice leadership skills. Each chance they get
45:13
Speaker 1: takes a lot of practice and self control in the
45:15
Speaker 1: part of the leaders to give the girls space to lead,
45:17
Speaker 1: but the end result is so rewarding. I will leave
45:21
Speaker 1: you with one last lesson that I've learned in Girl
45:24
Speaker 1: Scouts and a motto that my family has always lived by.
45:27
Speaker 1: This is great. This is what everyone should do. Leave
45:30
Speaker 1: a place better than you found it. Oh yeah, whether
45:33
Speaker 1: it's cleaning up a little extra garbage at campsite or
45:35
Speaker 1: making a positive impact on the people in places you
45:37
Speaker 1: come across in life, leave it a little better than
45:40
Speaker 1: you found it. Thank you for all the many years
45:42
Speaker 1: of podcast that are brightened many a dull car ride
45:44
Speaker 1: and countless rounds and towards from my family, except for
45:47
Speaker 1: the inflation episode. That's weird. How do you know? So
45:54
Speaker 1: that is from Caroline and rich Field, Minnesota, and she's
46:00
Speaker 1: send in pictures of the daisies and the girl bridging
46:04
Speaker 1: ceremony and it's just adorable, these cute little girls in
46:08
Speaker 1: their masks doing stuff. Yeah, who is that? That's Caroline? Caroline?
46:14
Speaker 1: So I thought, thanks a lot, Caroline, was some great info.
46:17
Speaker 1: I'm glad you enjoyed that. So we enjoyed it too.
46:20
Speaker 1: Um and uh, I guess it's a hunt Chuck. Yeah,
46:23
Speaker 1: I should point out she wrote back and said, by
46:25
Speaker 1: the way, my husband is gonna be jealous. I'm getting
46:26
Speaker 1: this on listener mail. I should mention that he went
46:29
Speaker 1: through boy Scouts all the way through high school just
46:31
Speaker 1: so he could go camping. All he did was enough
46:33
Speaker 1: to get the badges so you could qualify for camping trips.
46:36
Speaker 1: It's awesome. So the rest of them, he said, we
46:39
Speaker 1: don't need no stinking badge. Uh. Well, if you want
46:43
Speaker 1: to get in touch of this, like Caroline did, you
46:46
Speaker 1: can do that via email. Send us one to stuff
46:49
Speaker 1: podcast at iHeart radio dot com. Stuff you Should Know
46:55
Speaker 1: is a production of I Heart Radio. For more podcasts
46:58
Speaker 1: my heart Radio, visit the heart Radio app, Apple Podcasts,
47:02
Speaker 1: or wherever you listen to your favorite shows. H m
47:10
Speaker 1: hm