This article seems to imply that people purchasing more things, and especially willing to pay more than they're worth is causing inflation. If that follows, what would be the reasons for that? Being at home, stimulus checks, or something else?
Once you're used to a certain lifestyle, it's hard to go back. My guess is that people are just willing to pay more to maintain their lifestyles... but everything has a limit.
So it’s not due to the fed printing massive amounts of money? I feel they are conveniently forgetting how we just shrank the dollars value merely months ago. The toll comes due.
First, what does "willing to pay more than they're worth" mean? (If something can be sold for $X, then it's worth $X.)
Stimulus checks is one option. Another is the end of pandemic-related uncertainty. A third is increased employment with the winding down of the pandemic. I haven't seen any numbers on any of those.
From what I've read this is almost entirely attributable to supply chain disruptions caused by the pandemic. Meaning it will clear up on its own once vaccinations are rolled out and won't require any drastic changes in monetary policy.
This is the only correct answer. The only strategy that works though tough times is diversification and holding. With low-cost ETFs and municipal funds that pay tax free dividends, there is enough to be safe and smart. People recommending bonds, gold, penny stocks, and now crypto are the same armchair investors I've been hearing squwak useless tips from the sidelines for almost four decade.
> in anticipation of a market correction is the wrong strategy
You still don't quite get it: you're playing the market with this statement. Unless you're a "Big Swinging Dick" (the Salomon Brother's term in Liar's Poker for people that did a million or more a day, which is peanuts today) or on the NYSE trade-floor it ain't gonna happen. The vast majority of people I've known who believed this failed to anticipate and should have just held. But don't let me stop you, go right ahead and gamble away.
The (US) market goes up around 70% of the time, so by being in cash you're missing a rising tide. Every day/week/month/quarter you're not in the market is a time period that you'll have to Buy High/er (instead of Buy Low/er) eventually compared to jumping in and staying in earlier.
If you want, you can perhaps hold 20% bonds to (a) reduce volatility and (b) have something you can liquidate generate cash to Buy Low on the dip.
Houses and land don't really appreciate unless there's some factor constraining supply in the face of stable high demand for example waterfront property within reasonable distance of major cities, land in a city that's full of morons who vote for regressive policies that limit development, the land has an industrial facility on it that couldn't be built today but is grandfathered in, etc. etc.
Also, housing is highly inflated right now. By buying you're buying into a bubble and betting that the inflation will outrun the pop.
I think it's less "things that appreciate" than "things you buy at today's prices and pay for over the next 30 years" that makes real estate attractive when there's inflation.
They do during inflation. Inflation is just dollars being worth less so any asset with value (typically ones that appreciate) will increase roughly in track with inflation. So the value stays the same but the number of dollars go up.
This is separate from housing prices being higher and in a bubble, etx
I’m in a neighborhood under construction. It cost about $5xxk to build one a year and a half ago. One of those homes went on the market this weekend for $750k. One day bidding war and it sold for $820k.
For an 850K home at 15% down which is 127K, you need to have about 170K saved to comfortably buy the home. Even on a relatively modest tech industry salary or with a 2-income household at a salary of 60K (120K joint) without children this is a very attainable amount of savings over say 5 years. Obviously not everyone makes this much money but it is an attainable amount, But just realize that almost nobody buys for cash and buyers are usually saddled with the debt for the rest of their lives. This is how home buying has worked in high income areas for 30 years at least.
You do know,it's why you're commenting here, it means MASSIVE inflation, there are just very few exit ramps.
I want to get out of some Bitcoin Cash right now and don't have many options. Gold and silver are compromised markets, stocks could drop any second, buying a second home is really my only option.
While it certainly provides some hedge inflation adjusted bonds don't seem that helpful when the government can pick and choose what's in the basket of goods the government uses to calculate inflation to get the number it wants.
That’s putting a lot of faith on the gov’t to correctly report CPI, when they have every incentive to underreport it.
In fact, they’ve changed the CPI methodology twice in order to report lower average inflation (under the premise that the old measures “overstated” inflation).
>In fact, they’ve changed the CPI methodology twice in order to report lower average inflation (under the premise that the old measures “overstated” inflation).
On the surface the adjustments seem pretty reasonable to me. As a thought experiment, would you want to live in the 70s just to earn 5x more? I wouldn't. https://www.youtube.com/watch?v=3dL5G4QYEhc
>Over the years, the methodology used to calculate the CPI has undergone numerous revisions. According to the BLS, the changes removed biases that caused the CPI to overstate the inflation rate. The new methodology takes into account changes in the quality of goods and substitution. Substitution, the change in purchases by consumers in response to price changes, changes the relative weighting of the goods in the basket.2 The overall result tends to be a lower CPI. However, critics view the methodological changes and the switch from a COGI to a COLI as a purposeful manipulation that allows the U.S. government to report a lower CPI.
But adjusting the basket totally makes sense from a reporting point of view. Consider the reverse. As countries have gotten richer/industrialized, so have their consumption of meats. If a country is undergoing development, should their CPI basket continue to assume that people eat meat once a week, even though most people eat meat multiple times per week?
Can you please define what/who you mean by "the government"? The CPI changed in the 1990s after a Senate Finance Committee report said it was over-estimated (i.e., too high):
IMHO this is one of the worst ways to deal with inflation. As I understand it, bond yield rates rise with inflation and so a current low interest yielding bond will drop in value when higher yielding coupons hit the market. But I’m not an expert.
What about keeping your primary residence's mortgage to something low enough that you could reasonably cover with an easily obtainable emergency fund. Then include unimproved (or improved) land with no buildings on them in your asset mix. The main thing that increases with housing is the land that the house sits on. With no house, you can hold the land without any maintenance costs. Unimproved land has lower taxes. Of course, in this case you are using land as a store of value. What is better is an asset that returns value without having to sell off pieces of it. So land with a rent-able building on it can be both a store of value and a true investment (that returns monthly dividends). But it also comes with upkeep costs and risk.
So much consensus out there on inflation, quite remarkable. Haven't seen this much consensus since the fear bottom in March 2020 when many of mine "long term index fund investor" friends told me they liquidated (some of) their holdings.
Almost as if this was the (local) inflation top. As usual, time will tell. The CPI and PPI are indeed hot, the tbond and stock markets are still calm (both will be massively damaged if inflation really is to come, and frankly even gold and Bitcoin are likely to suffer, due to the resulting liquidity drain).
Inflation dynamics are not like stock-market dynamics.
Widespread stock-market optimism is a self-denying belief. Investors reach peak optimism, fully invest, and then the market can only go down.
Widespread inflation expectations is a self-fulfilling belief. People dump dollars for physical goods, increasing the price of those goods. This causes more inflation, leading to further dumping of the dollar, and further price increases.
This is why runwaway inflation / hyperinflation occurs.
You're right but people aren't dumping their "dollars", vast majority of which aren't the base money that the Fed prints but are financial assets (it's like a 1:100 ratio[1]). Look at all asset classes, there's no selling going on.
[1] yes it's not exactly 1:100, if you feel like correcting a stranger on the internet please go on and pull the data from Fed datasets; i only meant to be accurate up to the order of magnitude.
Financial assets going up is precisely a sign of inflation. Argentina has 40% inflation and the best performing stock market (if you denominate in Argentinian currency)
Yeah but this doesn't necessarily work. I actually investigated Argentinian real estate not long ago and it's declining (in real terms, let's say in USD which experiences very low inflation), quite obviously due to it being overvalued and the real GDP decline + deleveraging.
> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.
Also, many real assets are very dependent on real rates, for example real estate or gold. Imagine the mortgage rate tripling from today's levels (definitely possible), what do you think this will do to prices? I.e. what would happen if all mortgage payments increased 3x for new mortgages?
With gold the story is actually similar, because gold is like an very long duration ultra high quality bond.
That isn't what is happening, and it says right in the article that this is a commodities boom. Those are absolutely cyclical and act as a brake on the economy similar to rising interest rates. They don't runaway.
I swear everyone has turned into a 2003-era Gold Bug blogger and sees Zimbabwe everywhere.
Eventually the average person and the average business gets overleveraged and spending contracts, then the bubble pops and deflation rips through the economy again. What we're seeing here is a lot of pent up demand due to the pandemic being unleashed. This is not runaway hyperinflation.
And eventually bitcoin is going to pop and Millennials that have been using a basketfull of cryptocurrencies as their retirement 401(k) are going to be desperate for cash.
Is inflation bad if you have debt (assuming non-usury rates like those of credit cards) ?
From a let's say personal pov, let's say I have a mortgage and student loans and those are my only debts and their interest rate is fixed.
If inflation is indeed rampant but wages track inflation (I assume) - isn't this an effective debt reduction as long as you don't incur new debt? Or do the down sides of inflation outweigh any of the benefits I assumed above?
It's all relative, but if you have assets that are keeping up with inflation like land, real estate, crypto, or anything scarce really, you're better off. I think wages don't really keep up with rapid inflation in the short term.
If you consider debt in isolation (so assume your income increases with inflation or faster so your quality of life/buying power doesn't take a hit with inflation) then yes you are correct, inflation does away with debt.
The concern comes in when your cash compensation doesn't keep pace with inflation and your effective buying power decreases. Also other general macro effects that may indirectly impact you, and I'm sure there's a whole lot more to it than that, but yeah simplistically: inflation make debt go bye bye.
In normal inflation that’s exactly what happens. The problem is that inflation, if unchecked, can increase to a point that there are meaningful month over month, or week over week, or in some historical cases, minute over minute changes in value of the currency. How quickly can wages realistically keep up?
The biggest winners during high inflation periods are those holding the largest debts.
Yes. Inflation generally favors debt holders because their debt isn't worth as much by the end of repayment as it was when the debt was first incurred.
> if inflation is indeed rampant but wages track inflation (I assume)
There's no direct mechanism that ratchets wages as a result of inflation.
Average wages increase when the labour market is tight and there is demand for workers. However that generally applies to new applicants, not people in existing posts. For them, static wages lead to purchasing-power reduction.
When I think inflation, I'm thinking wage inflation. It seems like stimulus checks have just temporarily increased demand, and supply chains have been disrupted by covid, so some manufacturers are struggling to keep up and have to raise prices. The offer a variety of anecdotes, but no solid indicators. How does one decide whether a market is inflated?
That might be, but extrapolating a few anecdotes about demand pressure (e.g., increased purchases of beds) all of which seem to be related to short term disruption caused by the pandemic, into a story about inflation seems a little sensational.
This is the second inflation story to make the HN front page in the last two days, yet I remain unimpressed by the "running rampant" claim. According to the latest CPI inflation data (https://www.bls.gov/cpi/), inflation was 2.6 percent over the last 12 months (as of April 13). This aligns with the Fed's 12-month target of 2 percent average inflation if we check historical trends (which implies that sometimes it will be over 2 percent).
The linked story looks like cherry-picked data. Of course if average prices rise 2.6% percent, some outliers will rise more. But this hardly seems like a reason to panic.
Sure, I agree that if the trend continues for a year, then we should start being concerned.
But inflation has been below 2% since December 2018, and interest rates are at zero (which gives the Fed considerable latitude for implementing inflation control). The panic here seems a bit premature to me.
To clarify, the claim I object to is that inflation is currently, at the present moment, "running rampant." I agree that if the Fed does not handle things carefully then there may be problems in the future.
> When the economy actually reopens and people start spending again, prices will go boom.
Yes, this has actually been predicted. See also 2010-11:
> Then came a few months when inflation seemed to be rising after all. Consumer price inflation reached almost 4 percent; wholesale inflation went into double digits; the average price of commodities like oil and soybeans rose almost 40 percent in a year. Soon Republicans were haranguing Ben Bernanke, the Fed chairman, suggesting that his efforts might “debase the currency.”
> But the Fed stayed its course, arguing correctly that rising prices were a temporary blip, not a harbinger of ’70s-style stagflation. Inflation soon subsided, and it has stayed low ever since.
[…]
> So what’s going to happen in the months ahead? We’ll probably see a number of transitory price increases, not just because the economy is booming, but also because the lingering effects of the pandemic have produced some unusual disruptions — for example, a global shortage of shipping containers.
> The question will be whether these price increases are a 2010-2011-type blip or something more dangerous. Smart observers will look past the headlines to measures of underlying inflation — not just the Fed’s standard “core” measure but things like the Atlanta Fed’s sticky price index as well.
There is some weird inflation going on over the last decade here in the US. The price of the "basket of goods and services" in total has remained relatively constant - but the university student that needs housing and has heart attack would do well to search out a time-machine.
Housing, Health Care and Education as profit seeking enterprises seem to expand to the point where they confiscate all the wealth of the average person. So we work in order to feed those enterprises. That kind of "inflation" is driven by the necessity of the product.
There's also another kind of inflation which comes from the 1% having too much wealth and the shift in the Gini coefficient. That makes all the things that wealthy people buy much more expensive and leads to asset bubbles. So Housing (again) along with stocks, bonds (driving the evaporation of risk premiums), the whole financial sector and art and baseball cards.
Interesting, why does profit seeking work for other necessities, like food (or pretty much anything really) but not in these 3 in particular (I would argue it also works fine in housing, if you take a median house). And how much housing do rich people really consume?
What's special about housing, health care and education compared to say food, cosmetic surgery or tech is immense amount of govt meddling that both restricts supply and boosts demand. Everything from general regulatory burden to explicit things like zoning, certificates of need and healthcare subsidies, housing subsidies, etc. The results are predictable. Nothing whatsoever to do with profit seeking.
I think barriers to entry. In other markets profits like in these 3 industries would lead to an influx of new entrants which would put compete away excess profits. But try opening a new hospital or school - years of work and regulations to fight, and new schools have a long uphill climb to achieve reputability. Housing is constructed by bullshit restrictive zoning.
Do you have a suggestion for what we ought to use instead, and why it might be preferable to CPI? As your link notes, "It is the most widely watched and used measure of the U.S. inflation rate." I have not seen a reputable measure that suggests we are seeing "rampant" inflation somehow not captured by the CPI.
Inflation has probably been double digits for a while now.
StatsCan recently responded to complaints that its inflation metric _doesn't account for housing_ and attempted to meet critics half-way; even though the new metric still didn't account for the cost of housing, the adjustment to inflation was _so alarming_ that StatsCan took the rare step of _reverting_ its change. [0]
And CNBC reported that the real inflation, using old accounting, is around 10%. [1]
If you really think inflation has been double digits annually since the last recession, you have no idea what you are talking about, sorry. Let's take the most charitable interpretation of what you said and assume it was 10% since the last recession. (Do the math with something like 15% or 20% if you want to laugh.) 10% annually would be a price increase of about 3.5x since 2008, so if bananas cost $0.63/lb now they would cost $2.20/lb, or if an average home cost $205k it would now cost $718k.
What actually happened was that time, basic goods generally got cheaper or stayed fairly similar to their 2008 prices. Bananas are actually around 10% cheaper. Bread is 1.19x its 2008 price. The median new home is $300k versus $205k, or 1.46x - one of the largest increases! That's around 3% annually. The median new car is 1.08x more expensive (and far superior to its 2008 competition.)
No, sorry, there is absolutely no way whatsoever that inflation was double digits for the last decade.
[edit: OP edited their comment to remove some things, so now this comment looks strange]
315k to 800k is 2.53x, not 3.5x. That would represent a 7.1% annual increase in 13 years. If housing is 33% of the average person's budget, and all other costs increased by 3% annually, that'd be 4.3% annual inflation. Nowhere near double digits.
(That's of course assuming a very large home price increase like you see in a few Canadian metro areas, which is way out of line with the vast majority of the US)
4.3%, like I said is making two huge overestimates: one, that home prices increased nationwide by far more than what they actually did, and two, that all other things inflated by an average of 3%. Plenty of things even saw negative year over year changes. TVs have gotten incredibly cheap. Software is basically free (whether you pay for it with your privacy or go with FOSS.) Furniture, clothes, lights, toys have gotten far cheaper than they were even a few decades ago.
Right, I agree with you entirely - higher home prices over a decade are not an indicator of "record inflation". I was just making that point in a somewhat different way to someone who does not understand the math behind inflation.
>However what you're talking about is asset prices, which has nothing to do with inflation. There's a term for rising asset pricing: asset bubble.
I would agree with your view if the bubble was isolated but when most/all scarce assets bubble simultaneously, it is the first sign that your explanation is inadequate..
I guess median numbers are a terrible metric to use since house prices on the east/west coast have ~2-3x'd since 2008.
Michael Saylor says there is now at least a 15-20% annual inflation hurdle that he has to overcome (~2019-2021). He uses 10 year treasury bond yields, house prices, healthcare, education and a few other metrics to come to his number. My calculations (~20-25%) roughly line up with his.
All things considered, I trust his calculation method more than plebs that have little real exposure to markets, very few assets under management, and no shareholders to answer to.
> Inflation has probably been double digits for a while now.
Inflation that high does not make mathematical sense:
> But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.
> If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.
> And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year[2], that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.
The numbers for Canada would be similar: if economic growth was "only" ~2-3%, then any inflation higher than that would be that we've been experiencing contraction. And if inflation was "double digits" as you claim, with 'low' (<5%) GDP growth, where's the Depression?
They gave three individual datapoints, which is a classic feature of all these "we're seeing record inflation" articles. Does anyone have any broad measures? Everyone always rallies against CPI in these threads but never provides an alternative, which is unfortunate - I imagine there must be some that support this narrative of record inflation.
The commodity index is only up 12% in the exact last 12mo because it fell sharply before that, and is up 3.99% total in the 6.76 years since July 2014. Do you really believe inflation since then has been a half a percent annually?
He's citing year-over-year? Seems to me that for some reason the economy was in the toilet this time last year but it had reason to be an aberration. I don't know, it's a real mystery.
It seems intuitive. The government has been printing massive amounts of money, there has been a direct-cash-to-taxpayers program, and material shortages have driven prices skyward for many materials. Couple all that with increases in minimum wages.
So who gets hurt?
- Poor people, who have little money to begin with. A few dollars will buy even less.
- Older people and people on fixed incomes.
Who doesn't get hurt?
- People invested in equities, generally.
127 comments
[ 3.0 ms ] story [ 178 ms ] threadStimulus checks is one option. Another is the end of pandemic-related uncertainty. A third is increased employment with the winding down of the pandemic. I haven't seen any numbers on any of those.
You still don't quite get it: you're playing the market with this statement. Unless you're a "Big Swinging Dick" (the Salomon Brother's term in Liar's Poker for people that did a million or more a day, which is peanuts today) or on the NYSE trade-floor it ain't gonna happen. The vast majority of people I've known who believed this failed to anticipate and should have just held. But don't let me stop you, go right ahead and gamble away.
* https://ofdollarsanddata.com/even-god-couldnt-beat-dollar-co...
The (US) market goes up around 70% of the time, so by being in cash you're missing a rising tide. Every day/week/month/quarter you're not in the market is a time period that you'll have to Buy High/er (instead of Buy Low/er) eventually compared to jumping in and staying in earlier.
If you want, you can perhaps hold 20% bonds to (a) reduce volatility and (b) have something you can liquidate generate cash to Buy Low on the dip.
Also, housing is highly inflated right now. By buying you're buying into a bubble and betting that the inflation will outrun the pop.
This is separate from housing prices being higher and in a bubble, etx
I’m in a neighborhood under construction. It cost about $5xxk to build one a year and a half ago. One of those homes went on the market this weekend for $750k. One day bidding war and it sold for $820k.
I have no idea what to make of this
I want to get out of some Bitcoin Cash right now and don't have many options. Gold and silver are compromised markets, stocks could drop any second, buying a second home is really my only option.
The government decided to loot the middle class and hand it to the elite, with trillions stolen in the past year.
Your children’s future was destroyed using the COVID lockdown as a pretense for the theft.
At this point, the only fix is wiping out a lot of current, ill-gotten wealth/debt.
https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
This means you will still lose money relative to inflation, just with tigher bounds.
In fact, they’ve changed the CPI methodology twice in order to report lower average inflation (under the premise that the old measures “overstated” inflation).
Source?
But adjusting the basket totally makes sense from a reporting point of view. Consider the reverse. As countries have gotten richer/industrialized, so have their consumption of meats. If a country is undergoing development, should their CPI basket continue to assume that people eat meat once a week, even though most people eat meat multiple times per week?
Can you please define what/who you mean by "the government"? The CPI changed in the 1990s after a Senate Finance Committee report said it was over-estimated (i.e., too high):
* https://en.wikipedia.org/wiki/Boskin_Commission
* https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...
If you don't like how BLS (Executive Branch) reports the CPI, perhaps talk to the Senate (Legislative Branch)?
I can't view it without being logged in.
After that point, who knows. Precious metals? Depends on how bad things get.
The biggest winners in hyper-inflation are those holding the biggest debts
Almost as if this was the (local) inflation top. As usual, time will tell. The CPI and PPI are indeed hot, the tbond and stock markets are still calm (both will be massively damaged if inflation really is to come, and frankly even gold and Bitcoin are likely to suffer, due to the resulting liquidity drain).
Widespread stock-market optimism is a self-denying belief. Investors reach peak optimism, fully invest, and then the market can only go down.
Widespread inflation expectations is a self-fulfilling belief. People dump dollars for physical goods, increasing the price of those goods. This causes more inflation, leading to further dumping of the dollar, and further price increases.
This is why runwaway inflation / hyperinflation occurs.
[1] yes it's not exactly 1:100, if you feel like correcting a stranger on the internet please go on and pull the data from Fed datasets; i only meant to be accurate up to the order of magnitude.
> Gold objects have existed for thousands of years but for many investors gold has only recently become a tradable investment opportunity. Gold has been described as an inflation hedge, a “golden constant”, with a long run real return of zero. Yet over 1, 5, 10, 15 and 20 year investment horizons the variation in the nominal and real returns of gold has not been driven by realized inflation. The real price of gold is currently high compared to history. In the past, when the real price of gold was above average, subsequent real gold returns have been below average. Given this situation is it time to explore “this time is different” rationalizations? We show that new mined supply is surprisingly unresponsive to prices. In addition, authoritative estimates suggest that about three quarters of the achievable world supply of gold has already been mined. On the demand side, we focus on the official gold holdings of many countries. If prominent emerging markets increase their gold holdings to average per capita or per GDP holdings of developed countries, the real price of gold may rise even further from today’s elevated levels. As a result investors in gold face a daunting dilemma: 1) embrace a view that “those who cannot remember the past are condemned to repeat it”, there is a “golden constant” and the purchasing power of gold is likely to fall or 2) embrace a view that “this time is different” and the “golden constant” is dead.
* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2078535
No, it is not. Inflation is the costs of goods and services that roughly correspond to cost of living.
When you start talking about asset prices rising there is another term that we already have to cover that:
* https://en.wikipedia.org/wiki/Economic_bubble
https://ritholtz.com/wp-content/uploads/1979/08/Death-of-Equ...
Also, many real assets are very dependent on real rates, for example real estate or gold. Imagine the mortgage rate tripling from today's levels (definitely possible), what do you think this will do to prices? I.e. what would happen if all mortgage payments increased 3x for new mortgages?
With gold the story is actually similar, because gold is like an very long duration ultra high quality bond.
If it happens yeah pretty likely getting real estate and preferably on mortgage will do splendidly.
I swear everyone has turned into a 2003-era Gold Bug blogger and sees Zimbabwe everywhere.
Eventually the average person and the average business gets overleveraged and spending contracts, then the bubble pops and deflation rips through the economy again. What we're seeing here is a lot of pent up demand due to the pandemic being unleashed. This is not runaway hyperinflation.
And eventually bitcoin is going to pop and Millennials that have been using a basketfull of cryptocurrencies as their retirement 401(k) are going to be desperate for cash.
From a let's say personal pov, let's say I have a mortgage and student loans and those are my only debts and their interest rate is fixed. If inflation is indeed rampant but wages track inflation (I assume) - isn't this an effective debt reduction as long as you don't incur new debt? Or do the down sides of inflation outweigh any of the benefits I assumed above?
The concern comes in when your cash compensation doesn't keep pace with inflation and your effective buying power decreases. Also other general macro effects that may indirectly impact you, and I'm sure there's a whole lot more to it than that, but yeah simplistically: inflation make debt go bye bye.
That's right, debt gets inflated away.
The biggest winners during high inflation periods are those holding the largest debts.
There's no direct mechanism that ratchets wages as a result of inflation.
Average wages increase when the labour market is tight and there is demand for workers. However that generally applies to new applicants, not people in existing posts. For them, static wages lead to purchasing-power reduction.
The linked story looks like cherry-picked data. Of course if average prices rise 2.6% percent, some outliers will rise more. But this hardly seems like a reason to panic.
That’s a 7.5% annualized rate.
But inflation has been below 2% since December 2018, and interest rates are at zero (which gives the Fed considerable latitude for implementing inflation control). The panic here seems a bit premature to me.
https://fred.stlouisfed.org/series/PSAVERT
And here’s the money velocity:
https://fred.stlouisfed.org/series/M2V
When the economy actually reopens and people start spending again, prices will go boom.
Yes, this has actually been predicted. See also 2010-11:
> Then came a few months when inflation seemed to be rising after all. Consumer price inflation reached almost 4 percent; wholesale inflation went into double digits; the average price of commodities like oil and soybeans rose almost 40 percent in a year. Soon Republicans were haranguing Ben Bernanke, the Fed chairman, suggesting that his efforts might “debase the currency.”
> But the Fed stayed its course, arguing correctly that rising prices were a temporary blip, not a harbinger of ’70s-style stagflation. Inflation soon subsided, and it has stayed low ever since.
[…]
> So what’s going to happen in the months ahead? We’ll probably see a number of transitory price increases, not just because the economy is booming, but also because the lingering effects of the pandemic have produced some unusual disruptions — for example, a global shortage of shipping containers.
> The question will be whether these price increases are a 2010-2011-type blip or something more dangerous. Smart observers will look past the headlines to measures of underlying inflation — not just the Fed’s standard “core” measure but things like the Atlanta Fed’s sticky price index as well.
* https://www.nytimes.com/2021/03/22/opinion/us-inflation-stim...
* https://archive.is/Vxj5h
We heard the same thing about printing money during the QE years. Still waiting for inflation after ~10 years.
But this is not inflation. It's a completely different issue, with different causes and possible solutions.
> But this is not inflation. It's a completely different issue, with different causes and possible solutions.
https://en.wikipedia.org/wiki/Baumol%27s_cost_disease
There's also another kind of inflation which comes from the 1% having too much wealth and the shift in the Gini coefficient. That makes all the things that wealthy people buy much more expensive and leads to asset bubbles. So Housing (again) along with stocks, bonds (driving the evaporation of risk premiums), the whole financial sector and art and baseball cards.
What's special about housing, health care and education compared to say food, cosmetic surgery or tech is immense amount of govt meddling that both restricts supply and boosts demand. Everything from general regulatory burden to explicit things like zoning, certificates of need and healthcare subsidies, housing subsidies, etc. The results are predictable. Nothing whatsoever to do with profit seeking.
I think barriers to entry. In other markets profits like in these 3 industries would lead to an influx of new entrants which would put compete away excess profits. But try opening a new hospital or school - years of work and regulations to fight, and new schools have a long uphill climb to achieve reputability. Housing is constructed by bullshit restrictive zoning.
* https://en.wikipedia.org/wiki/United_States_Consumer_Price_I...
And if you don't believe the BLS's basket of goods, you can confirm it for yourself:
* https://en.wikipedia.org/wiki/MIT_Billion_Prices_project
Past studies have generally shown the official numbers to be pretty good.
https://www.investopedia.com/articles/07/consumerpriceindex....
StatsCan recently responded to complaints that its inflation metric _doesn't account for housing_ and attempted to meet critics half-way; even though the new metric still didn't account for the cost of housing, the adjustment to inflation was _so alarming_ that StatsCan took the rare step of _reverting_ its change. [0]
And CNBC reported that the real inflation, using old accounting, is around 10%. [1]
0: https://www.theglobeandmail.com/business/article-statscan-re...
1: https://www.cnbc.com/id/42551209
The Statscan numbers (reverted or not) were all under 2%, which is certainly not anywhere near record levels.
And yes, StatsCan made a minor adjustment, and yet it was such a shock that they rolled back.
Accounting for the true increased cost of housing, market and rental, would cause Canada's inflation metric to jump considerably.
What actually happened was that time, basic goods generally got cheaper or stayed fairly similar to their 2008 prices. Bananas are actually around 10% cheaper. Bread is 1.19x its 2008 price. The median new home is $300k versus $205k, or 1.46x - one of the largest increases! That's around 3% annually. The median new car is 1.08x more expensive (and far superior to its 2008 competition.)
No, sorry, there is absolutely no way whatsoever that inflation was double digits for the last decade.
That's completely within the realm of reason in many places across Canada.
I'm not being pithy, it really is.
315k to 800k is 2.53x, not 3.5x. That would represent a 7.1% annual increase in 13 years. If housing is 33% of the average person's budget, and all other costs increased by 3% annually, that'd be 4.3% annual inflation. Nowhere near double digits.
(That's of course assuming a very large home price increase like you see in a few Canadian metro areas, which is way out of line with the vast majority of the US)
* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...
However what you're talking about is asset prices, which has nothing to do with inflation. There's a term for rising asset pricing:
* https://en.wikipedia.org/wiki/Economic_bubble
Going to US numbers, inflation-adjusted monthly mortgage payments are the lowest they've been in quite a while:
* https://awealthofcommonsense.com/2021/03/what-if-housing-pri...
Purchase price would effect downtime amounts though.
I would agree with your view if the bubble was isolated but when most/all scarce assets bubble simultaneously, it is the first sign that your explanation is inadequate..
Michael Saylor says there is now at least a 15-20% annual inflation hurdle that he has to overcome (~2019-2021). He uses 10 year treasury bond yields, house prices, healthcare, education and a few other metrics to come to his number. My calculations (~20-25%) roughly line up with his.
All things considered, I trust his calculation method more than plebs that have little real exposure to markets, very few assets under management, and no shareholders to answer to.
How Michael Saylor Defines Inflation, Risk Premiums and Hurdle Rates - https://youtube.com/watch?v=sw3kVeE1Pxg
Inflation that high does not make mathematical sense:
> But if we take away the outlier 2020 data points, the average real annual GDP growth from 2010-2019 was 2.3%. The inflation rate in that time averaged roughly 1.8% per year.
> If you’re one of the conspiracy people who believe inflation has actually been running at 5-6% per year, that would assume the economy has been contracting by 1-3% per year over the past 10 years.
> And if you’re a full tinfoil hat person who assumes inflation is actually 10-12% per year[2], that’s like saying we’ve been in a full-blown depression and the economy has lost 80% of its value.
* https://awealthofcommonsense.com/2021/01/inflation-truthers/
The numbers for Canada would be similar: if economic growth was "only" ~2-3%, then any inflation higher than that would be that we've been experiencing contraction. And if inflation was "double digits" as you claim, with 'low' (<5%) GDP growth, where's the Depression?
Commodity index up 12% year-on-year
So who gets hurt? - Poor people, who have little money to begin with. A few dollars will buy even less. - Older people and people on fixed incomes.
Who doesn't get hurt? - People invested in equities, generally.