I remember thinking $50k was an awesome salary when I first started working. Now I think "damn how do families survive off that kind of household income" after seeing essential goods and services cost roughly 1.5x what they were pre stimulus.
Median household income has gone up. It's currently the highest it's ever been in real terms. Households are better off today then they have ever been in their day-to-day affordability of goods.
You also can't cherry-pick a handful of things that have gone up a lot and then assume that it applies to everything. Some things have gone up in price, others haven't. Inflation is sitting at about 6%, which after a decade+ of sub-2% might seem like such a shock, but it isn't really a big deal.
Average hourly wage near me is like $12/hr. That's basically 50k in a 2 adult household. If anyone is projecting it's you thinking everyone has a middle class job...
Real wages have been stagnant since 1970s in the US. Median household incomes have only gone up because some people work in highly paid industries, like IT, plus household incomes include income from stocks and real estate AND most households now are two working adults.
It's incredible. It's the same strategy that some politicians use in Argentina: they find any kind of thing to blame for inflation, except for monetary policy.
Americans, please don't imitate Argentina, keep a healthy economy.
I know that if Red Team had won the election Blue Team would be running news stories every day about the dangers of inflation and how it is hurting the middle class. Instead, we are seeing pundits downplay inflation as either something 'transitory' or something beneficial:
"Why the inflation we're seeing now is a good thing" -MSNBC tweet that got deleted.
Edit:
"Yes, inflation is back, and you should probably be relieved if not outright happy."
People were flagged on HN just 6 months ago for mentioning inflation. There was relentless suppression on HN about inflation until media started reversing the story.
The narrative in the media would be have taken a whole another level - scare mongering, etc if it wasn’t the Blue team in the office. I don’t really trust anything but hard numbers from sites such as TradingEconomics or FT.
I have no horse in this race but Blue teams vs Red team is getting really dull and frankly annoying. Everyone seems to be wearing tinted glasses. I have higher standards for media and information that I listen and trust - opinions on HN doesn’t cut the mustard. Usually it’s safe to assume that opposite of the current HN zeitgeist is true (I only joke slightly).
It's never "transitory", thats a bullshit world the Fed is using to keep people call. The prices are never going to go back to normal even if the rise of inflation ends we don't go back to normal prices unless things deflate.
"Transitory" is a deceptively clever phrase. It implies the situation will go back to normal, or even reverse. Truthfully, it just means the increased rate of change in inflation is expected to decrease. Reminds me of a second derivative.
I don't believe used car prices will be inflated forever, once supply catches up dealer markups on new cars will go back to normal, shipping costs will likely even out, etc.
What I'm saying is there are reasons to believe it can go back to normal.
Yes, they are running stories about inflation. I think the key difference is how they're going about doing it. I sense that they are intentionally covering the situation in non-inflammatory way. This is a departure from how the NYT and WaPost will cover a story when they have an ideological axe to grind. For instance, they bring on experts to talk about inflation in an clinical and analytical way. They talk about the benefits of inflation to try an reassure people it is okay. They aren't going to some small town and taking candid shots of average Joes and Janes looking sad and worried about rising prices. While they mention rising wages, they aren't emphasizing how the rise in wages is lower than the inflation itself. In essence, I sense they are trying to avoid having people get riled up whereas if Red Team were in charge they'd be painting the picture as bleak and terrible.
> I sense that they are intentionally covering the situation in non-inflammatory way.
We want more of this though right?
I sense that many people can't understand the difference between opinions or editorials and news.
I sense that many people actually enjoy the inflammatory way news is sometimes covered unless it's different from the way they'd like to see it.
I sense that people can't understand how a single new outlet can have varying opinions and points of view on a single issue and will choose a single one out of many to make their point.
Imagine how different things would be if people were intelligent consumers of news.
I don't think you can have a news industry dependent on clicks and profits and have no sensationalism. I also don't think you can have a completely unbiased media when people, based on their consumption, don't seem to want it. It's unrealistic given the different biases and motivations that people have.
>> I sense that they are intentionally covering the situation in non-inflammatory way.
>We want more of this though right?
Yes, in principle, but with the caveat that they don't do this in a partisan and selective way. For instance the whole "Kids in Cages" phenomenon is still happening but we never hear about it anymore - in fact they're just called "Child Migrant Facilities" by the press secretary and the media is basically silent compared to the fervor they were covering the situation previously. To me at least, the fact that they calmed down isn't a consolation because I sense they're just doing it because their preferred team is in charge now.
I think journalists are masters of rhetoric and can spin a situation in so many diverse ways while still being almost entirely accurate and truthful. It all depends on what facets of the situation they want to present and the insinuations that come along with it.
There have been facilities before, but this isn’t happening the same way it was where separation was on purpose. There are stories covering the current conditions, but I think you’re overlooking the fact that the prior administration and supporters seemed to embrace and encourage that narrative because they saw it as a deterrent.
> I think journalists are masters of rhetoric
You should meet the average journalist. Just like any other industry, the vast majority are unremarkable people. They’re not rhetorical masterminds. Like most people they see and write things from their point of view.
What’s more interesting to me is how some of the biggest names in media are obviously the rhetorical masters you speak of. I’m referring specifically to the TV and YouTube stars. Some of them are incredibly good at being convincing even if often contradictory or wrong. I also think video can be effective in ways text cannot be.
This was a trending topic on Twitter last week, and some of the criticism was how the story ignored the hundreds of dollars this family would have received from the Child Tax Credit to offset the costs.
I know HN doesn't like it when you criticize the US left but I'm here with you. I didn't buy a single word out of the Biden administration pre-election. The "never Trump" people were so blinded by Trump that they didn't realize the other guy was a worse bought and paid for puppet than Hilary. Hilary at least had a functioning brain and could reign in the Dems. Biden doesn't even know it's Wednesday.
Let's avoid turning things overtly political. It's understandable that government policy will be discussed in a thread about inflation, but it does no help on HN to veer into everyday smearing.
The left spent 4 years conjuring up lies about Trump and then foaming at the mouth about their own fantasies, but here you are hiding behind some vague moral position when someone points out that we've elected a dementia patient. The man literally doesn't know that it's Wednesday. Quit policing other people's speech for one moment and own up to it.
Biden is used by the D party and allowed a little leeway when he's clear. To be fair, I'm not sure Biden is worse than Trump, who ran amok. It will take decades to recover from the damage done to parts of the country and world (eg lifting the freeze on coal-leases, lift ban on personnel landmines, judge appointments, etc).
If the party in power is the one the media outlet favors then the party can do no wrong. If the media outlet doesn't support the party then every step the party takes is wrong with no exceptions.
They are two heads of the same beast, moving back and forth very rapidly and calling it progress.
Meanwhile popular policies like universal healthcare[0] and marijuana legalization[1] are never addressed. ( To name a few, there are many more ).
And the reason is clear. Tying healthcare to employment keeps people from organizing effectively. If you have a family, and you are on strike, your employer cutting off your healthcare is a brutal move. Also, people get fat off the bureaucracy.
Similar for marijuana legalization. Need to keep the prisons fed with new "forced customers" so the gravy train keeps rolling.
I kind of wish we had near 0% inflation rate like Japan. I understand there are downsides to this, and one of the most concerning ones to me is the need to compete with China for economic dominance, since no other country really comes close to America in terms of economic power except maybe China.
Aren't more products being bought than ever despite the supposed supply chain issue? If there is more stuff and still not enough then shouldn't we assume that there is too much money? It looks like standard inflation by a devaluing of the dollar to me.
> Aren't more products being bought than ever despite the supposed supply chain issue? If there is more stuff and still not enough then shouldn't we assume that there is too much money?
This doesn't rule out a "demand spike following COVID" as mentioned by the parent. It's like a cartoon where someone (COVID) steps on the hose and a big bulge of water (demand + extra savings) forms. Now that bulge is working its way through the economy causing shortages (analogy completely falls apart here).
The snake swallowing an elephant theory of the price level would explain a one time increase in the price level, but not higher constant inflation, and certainly not an increasing rate of inflation.
Why not? It's not like there's a switch somewhere which instantly restored the entire global economy to 2019. Things like shipping or the semiconductor shortage have widespread impacts which are often not obvious if you aren't following a particular field enough to be aware of the dependency web and they can take months to resolve because that has to happen at each bottleneck and things like contractual agreements and labor shortages are not trivial to resolve.
That last part is a key one to remember: the pandemic isn't even close to over. Ignoring the people who are dead or suffering long-term health problems, there are a ton of people who either left the workforce for various reasons (childcare, health, etc.) or switched fields and/or locations. That directly increases costs to businesses which have to pay more in wages but it also will have ripple effects for years anywhere buyers are chasing a supply chain which is limited by worker shortages.
To the best of my knowledge, it's unclear whether we're looking at "higher constant inflation" at all. And we probably won't know, except in hindsight and some years hence.
A shortage somewhere takes awhile to be noticed. Once stocks deplete, this causes excess orders to start to be generated by folks to replenish (or create) their own personal stocks from suppliers with low or inconsistent supplies, which generates excess demand. As this happens more and more, you get a demand shock with excess orders and lower and lower supplies. See the ongoing and expanding chip shortage. This has happened with ammunition multiple times in the US in the last few decades, along with many other components and parts.
Eventually the panic buying slows or stops and the orders clear, but it can take years for this to happen.
Wouldn't the evidence of inflation occurring in other countries suggest that COVID is its primary driver, rather than a specific monetary policy? (though it does seem that the scale of inflation in the U.S. is a little higher than elsewhere)
US is world reserve currency. We have the ability to print unlimited dollars. All other currencies are primarily backed by US dollars. Most important commodities like oil are priced in USD. Therefore, US drives inflation globally.
No. If the GBP goes up 10% relative to USD, and oil prices go up by 10% in USD, then oil prices remained flat in countries using the GBP, but increase for those using USD.
Other countries seem to have been pursuing broadly similar monetary policy to the US, at least in the Western world - even the EU and its member states have got in on it this time around.
Edit - it's true. There's a very well established connection between inflation and money supply. Hell, the entire point of QE is to try stimulate inflation to encourage spending to encourage growth. It's not some unknown effect...
"People", in this case mostly the media I think, seem to just pick something random.
I watch the stock market which is even worse for this. Every day you'd see "Stocks down as investors weigh COVID", followed by "Stocks up as investor COVID fears wane". Which may be true, but not alternating seemingly every single day for a while.
It's like someone sees something happen, wants to write an article, and the boss says "nope, put something catchy on the title."
I'm not sure a distinction really matters at this point. Supply chain issues are complex and not within the direct control of policymakers. The money supply, on the other hand, is.
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output" -Milton Friedman
The ongoing supply-demand imbalance that is contributing to rising inflation worldwide is in my view the most pressing short-term problem that needs to be solved by hackers, engineers, and entrepreneurs today.[a] We need more people doing what Flexport's Ryan Petersen did with LA ports[a]: Figure out quick, cost-efficient ways to get our current system out of its currently degraded state and back to operating smoothly and normally so we we can go back to growing its global throughput as in the pre-pandemic past.
Large, complex, distributed, networked systems, like interconnected cloud datacenters, electric power grids, and global logistics networks, can get "stuck" in a degraded state due to a confluence of highly local bugs that are difficult to diagnose -- especially when no single entity controls the entire network end-to-end. Hoping and waiting for things to get better on their own might not be enough.
--
[a] Note: I'm not saying it's the most important problem. I'm saying it's the most pressing, in the near term, because a well-functioning global economy is a prerequisite -- a necessary condition -- for solving all important problems. Please don't attack a straw-man.
When there are supply-demand imbalances, e.g., people in France having to wait three months to get a new boiler versus 24-48 hours before the pandemic[a], the price of newly installed boilers in France tends to increase sharply. For a more general answer, see:
The market price is set so that demand and supply match. If supply of some good decreases, then the price will keep increasing until a sufficient amount of people can no longer afford it. This can range from something fairly benign, like keeping an old car around a few years longer, to something disastrous like people starving.
I completely agree with you; but it’s because this is what “the collapse” looks like. A long, slow decline into a world that most of us cannot afford. I honestly don’t think there’s much we can do to stop it at this point; it’s the result of 100 years of energy policy keeping prices artificially low by ignoring the externalities that causes.
I don’t think we’re ever going back to the pre-pandemic past. Climate change is simply becoming too disruptive to supply chain networks. This probably would have happened anyway, the pandemic just moved it up by 5-10 years.
Climate change, and how brittle the JIT-optimized global logistics system we built over the last 50 years is. We can and will need to adjust to a more flexible system to deal with the increased disruption from climate change, but that system will be more expensive and less efficient.
Couple this with the fact that we’re going to eventually have food shortages at least locally in the short-to-medium term, which will destabilize the developing world and raise global food prices as more countries have to import from “bread basket” countries like the US and China and consuming even more global logistics capacity than it does today. This long-term famine is already happening in Central America and is driving more and more migrants north every year.
Can you elaborate on how you feel climate change has recently affected this issue? It seems more likely to me that the recent pandemic is the major issue.
> This long-term famine is already happening in Central America and is driving more and more migrants north every year.
This is certainly a problem but not nearly a major reason that migrants are coming north. They're coming north because they can make their monthly salary from northern triangle countries in a few days in the US. These are economic migrants, regardless of what the news tells you, evidenced by the fact that almost none of them are accepting offers of asylum in Mexico and choosing to continue to the US.
> evidenced by the fact that almost none of them are accepting offers of asylum in Mexico and choosing to continue to the US
How is this evidence? If Mexico isn’t my home either and I already have to start my life over why wouldn’t I keep going to a place with even more opportunity?
I don't blame anyone for pursuing their self interest. I would do the same thing if I was them. But it's dishonest to say their primary motivation isn't economic. If they're fleeing something in their home country, they've successfully escaped it by getting to Mexico. Continuing to the US is an economic decision.
Economic migrants sure, but the chain to crushing poverty starts with climate change. Persistent high heat and violent tropical weather patterns have made areas of Central America near the equator effectively unfarmable. Those farmers pack up and move to the cities, where they live in poverty and at the mercy of organized crime as they are largely uneducated and lack job skills.
The cities are overcrowded and these countries have little industry outside agriculture, which is increasingly difficult and expensive thanks to climate change. So of course they flee north; and Mexico has many of the same problems with collusion between police and organized crime — particularly when targeting migrant populations.
There's a reason exactly zero of top econ journals or economists[2] are Mises.org Austrian economists - they don't have a track record of anything resembling accuracy, predictions, or theory that works.
In fact, it's hard to find much even on Google Scholar....
>they don't have a track record of anything resembling accuracy, predictions, or theory that works
Neither does academic economics; there's absolutely zero consequence for an economist who repeatedly makes incorrect predictions. The ones who actually can make predictions with statistically significant accuracy work as quants or traders, not economists, as anyone who can make accurate predictions of the future can easily make six to seven figures doing so.
That aside, the fundamental predictions in microeconomics between Austrian and neoclassical economics are pretty similar, so you can't say Austrian theory doesn't work without also saying foundational neoclassical microeconomics doesn't work.
Meh, Hayek was awarded the Nobel. The Austrian school does have a lot of useful insights. Perhaps those insights are not so amenable to the kind of economics that is a fruitful research field and can get grants, but that doesn't mean it's not fruitful for understanding the economy. The main reason why the Austrians tend to be snubbed is that their insights are primarily qualitative rather than quantitative, and thus are not the kinds of things that followers can build on to get published. That does not mean that people who do get published aren't taking inspiration from Austrian economics or learning important lessons from this field.
This is the problem with a lot of heterodox econ, btw.
Hayek got a Nobel for decidely non-Austrian work. His Austrian work was widely panned, and he moved away from it later in life. His co-winner was displeased to win a Nobel on a topic shared with someone like Hayek who early in his career pushed a lot of stuff that didn't pan out.
Hayek also never embraced all the stuff Austrians taught, such as Mises claiming neoclassical was completely flawed, whereas Hayek accepted the majority of neoclassical as correct. Hayek does not take Mises a priori approach to economics whatsoever. There's plenty more. So if your claim is that Austrian is reasonable because a big person believes it, this is not that person.
Whenever someone points out that Mises and Austrian economics is not very relevant to modern economics, and someone invariable pulls out the lone closest thing they can find, know that this is not quite true.
>The main reason why the Austrians tend to be snubbed is that their insights are primarily qualitative
There's entire subfields of well published and researched economics that do this that are not Austrian.
If you simply google "why is Austrian economics snubbed" you get a whole host of decent sources showing how it fails to match empirical evidence. That is the reason it's snubbed. It sounds pretty, appeals to Libertarians, but does not match observed evidence. That's good enough reason to stop any line of thought from being accepted science.
(Of course, when you build your entire field on rejecting empirical evidence, of course you end up with beliefs and theories that do not match empirical evidence, so no surprise there).
I've mentioned before [1] but these prices still don't seem that serious. Most prices have still not beat their highs made in 2008-2014 (crude oil, global energy price, eggs, milk, sugar, rice, chicken, pork chops). Ground beef is an outlier, however. And US price per kwh is back at its peak, though it declined in these October numbers to be below... 2014 numbers again. [2]
So while the climb up is bad, the prices themselves aren't even unprecedented. In lieu of an extraordinary global supply chain crisis, these numbers actually seem impressively low. We cocked up everything for a year and prices finally shot back to... prices from 7 years ago?
If fed policy has any effect at all, I think we owe them one for being so cool-headed and non-drastic these past two years. They're doing much better than politicians or the media, at least.
I see significant errors in your thesis. You are using global commodity prices to make claims about US consumer prices and consumer inflation. We have comprehensive data from national food retail that shows strong price inflation. Your insistence in using global commodity prices to disprove consumer inflation concerns is incorrect.
No, I have used only US commodity prices, except crude and a global energy figure, which is why I also added US kwh prices. All food prices mentioned are US-only figures.
The link you provided in your previous post is about global prices and uses global commodity data. They are certainly not US-only figures. Correcting this error would likely show you that inflation is real.
I have never said that inflation is not real, only that this price inflation has merely returned prices to 2011-2014 levels (excepting beef, which is actually at a new high).
I'm not saying food prices (even broad baskets like the this) represents inflation. The broad indexes are better for that. But it's not true to say that food prices are at the same level as a decade ago.
I would note that prices are markovian. So if something doubles over night it means something happened to affect that price. All the information about the thing and its history is represented in the current price. Having that price double overnight conveys information that something is happening. It doesn't matter that the thing cost even more 10 years ago.
Cereal I could buy for $3 and granola bars I could buy for $2 now cost $4.30 and $3.29 respectively. Detergent that was $5 is now $7.50. McDonald's cheeseburgers are $2 on their own. That is the largest jump of inflation I've ever experienced in such a short time.
That is not a lot of information, though. Processed food has been harder hit than real food and areas that are entirely dependent on trucking because of a lack of ports or rail also have seen much greater impacts.
Processed food manufactures also have a bunch of tricks up their sleeve to manage price fluctuations, since that is one of the most critical aspects of their success. Tracking price per ounce is a much more accurate measure, since most manufactures want to fix a price-point for a product.
However, what even that misses is coupons and sales.
I could go to the grocery store later today and catalog about 400 items for you that have jumped 2 or 3 dollars like that. I am telling you it's insane right now.
You don't need to do that because we have a whole team of people whose jobs it is to measure this in a more systematic way - by checking prices all over the country and in a large number of different stores and for many different goods. They report that dood prices have climbed from 260 to 277 over the last year (all items). Within that group, the biggest climbers were meats, poultry, fish, and eggs (+12%).
OTOH, the personal experience of individuals will be amplified in their mind due to cognitive distortions. Our brains remember the prices that have gone up, put less emphasis on the prices that haven't.
People reporting their experience will have significant distortion due to how our minds work.
Poor people, which is a large majority of the United States, can only afford processed food. You neoliberals in your whole foods crap make me nauseous.
> Over the last generation, indications are far over half experienced regular struggles.
Most people experience "regular struggles", by definition. Life is a struggle. But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else. The "large majority" of the U.S. is not poor. That's just obviously true from the income data I cited.
If that data is not enough, look at SCF wealth data here:
> Most people experience "regular struggles", by definition. Life is a struggle.
This seems obtuse. The entire thread is focused on finances. It should be self-evident my post is referring to financial struggles.
> But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else.
Different metrics aren't a different language.
> The "large majority" of the U.S. is not poor.
A narrowly crafted a declaration makes it easier to find metrics that fit. With that comes a weird assumption that those metrics are the same ones that matter to poor Americans.
For actual people - the meaningful measures of financial health are the long term security of food, housing, medicine and the resources needed to maintain them (eg:savings,transportation).
For actual people - when those things become unobtainable, a state of poverty is in play.
If preferred metrics aren't reflecting long-term or recurring conditions of poverty, maybe we should pivot to metrics that do.
You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com, whose results were released as a PR announcement meant to encourage people to open savings accounts. The "no savings" means "no money in a savings account" by those who answer the poll. You know nothing about whether these people were even in the labor force, how old they were, what money they had in checking accounts or 401Ks or money market mutual funds, and whether they were a representative sample (N=hundreds). Because an internet poll is not a study, and a marketing campaign is not scientific data.
This is clickbait. If you have a quality study not published by bankrate.com, then please cite it. And also explain why you are ignoring the US Census and the SCF, which is what everyone who studies household wealth uses.
I am citing the gold-standard academic study of household finances -- the survey of consumer finances, and the gold standard study of income as determined by the Census. This is not a situation of "different metrics", this is a situation of bad data versus good data leading to bad conclusions versus accurate conclusions.
Please look to the Census and academic studies to form your worldview of the state of US household finances rather than Bankrate.com's marketing department.
> You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com
Again, this seems obtuse. It is interesting that your inference of a single poll ignores the many (well publicized) savings studies, that are regularly conducted by a wide number of organizations.
> I am citing the gold-standard study of household finances conducted by the Federal Reserve regularly since the 1970s
That's nice. Metrics adopted in the 1970s based on data from even earlier decades doesn't universally inspire the confidence that you seem to feel. I'd offer that metrics that well reflect the ~entirety of America who faces a meaningful risk of losing housing/medicine/food would likely be the metrics that most matter to people facing those risks.
Otherwise it feels similar to hearing the unemployment rate is 4.9% while >24% of 16-64 aren't working.
> Median Household networth of 25-49.9 percentile is $58K. Also not not poor.
Hell, as a yearly income, that's poor much less a networth.
Not destitute, but definitely poor. You can't afford to live anywhere near a city and probably live in a trailer or worse (shack with limited services). The metric is by household, so no splitting with roommates.
> Hell, as a yearly income, that's poor much less a networth.
Not really, because this is primarily young people who are building savings. By retirement age, the savings are much higher even for the median household. Even in the 45-54 cohort, the median networth is 168K. By the time you reach 55-64, median HH income is $213K. Post-retirement, 65-74, median network is $266K. Then it starts to decline as people spend down their savings, so 75 and over it's $254K.
I mean, I guess you can call whatever you want "poor", but we have standard definitions for these things.
And an income of $58K is not "poor" for any age, but FYI median household income for all ages is north of $70K.
>But we have a way of defining who is poor and who isn't in terms of income
Yes, the definitions. Is it a definition or a lived experience? Politicians love to define away poverty.
These definitions are how millionaires were able to claim they are poor to get assistance during COVID.
Life is a struggle. But why? Why is it a struggle in this country, the "richest" country? Why do I have to be homeless, living in a minivan, fighting a mental illness? That is by design. This squid game we are living in is a design, it has rules, and we can change them in a second. But most people just want to be the next million/billionaire so they are afraid that changing the rules will mean they do not get the piggy bank of money they dangle over your head.
As a society we are poor. Compared to people in countries like France and Finland, we are poor, because we are always faced with these life and death decisions about jobs and healthcare. That is what it feel like to be poor; always guarding yourself, always frightened.
Most of the US is not NYC, SF Chicago, and Seattle you know. I'd be shocked if household incomes near me in the Midwest were greater than $55k yet. There are tons of people who make less than $15/hr still.
As a housecleaner I live in the SF Bay Area on between $15-20k/year. The cost of my dietary staples which are primarily vegetables, leafy greens, dairy products, and eggs has hardly budged.
Anyone who has access to a kitchen can with practice use minimal time and effort produce meals that are competitive with processed options from frozen foods, grocery store chickens, and of course fast food joints. Though cuts of meat have gone way up in price, whole chickens are still reasonably priced for those who can process a bird which is not really that hard.
I agree with this as well even as a Midwesterner. People balked at me when I told them I have gone by paying only $100/mo in food before(everything including out to eat). People don't realize that you can live without red meat. And chicken is a cheaper, healthier alternative.
It's not the prices people are necessarily scared with, it's the rate of increase. It's higher than was anticipated.
What's also concerning is that the velocity of money is really low while M2 money supply is very high. If the velocity picks up we could be in a world of hurt.
This post and its parent hit the nail on the head. Levels aren't particularly worrisome. High, sure, not scary high. However, you should still be worried. Just not about current prices.
It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.
> But you’re mistaking inflation for the rate of inflation growth.
You mean... like... a first derivative? What am I mistaken about? I literally said literally exactly this:
>> It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.
(and, in fact, it's not just the rate of inflation but also several other related rates of change and rates of rates of change and stocks of things that can fuel changes in those rates, but engaging in that nuance seems a bit fruitless given that you seem to be literally repeating my own point back to me while thinking you're disagreeing with me.)
> The rate of inflation growth is horrible right now.
Of course they would try to do it - first of all raising interest rates. However they are basically trapped now and it's questionable if they can still control situation. With current debt levels it might be extremely hard to raise rates or sell instruments they hold that were bought with printed money (to take off liquidity of the market). On top of that I would say all the rich and influential are well positioned for high inflation so it's speculation but I wouldn't bet that Fed will choose hard recession scenario...
No. We live in a fiat currency world where every dollar is allowed to leverage 10x. This means that every dollar defaulted on results in the destruction of 10 dollars. Even during the housing crash of 2008, the money supply didn't contract because the government was forced to keep the money supply constant, and if they did not it would lead to cascading failures that would destroy the currency entirely. Allowing the money supply, given all of the moral hazard we've shown so far, would be suicide to the economy.
The Fed's next step is to slow down this inflation, and they will do so by raising rates. The Fed's dot plots shows that they will reach the rate of the 30Y Treasury bill sometime around 2024, but with this data they might bring that up to 2023. This will, like every single other time they set the Fed Funds Rate above the 30YT, cause a recession 6 months afterwards, which will bring down the inflation pressures. Problem resolved?
That's totally standard, and not yet the true problem. The problem is after that. Once we reach that recession the Fed quickly drops the interest rate and that brings us out of the recession. But interest rates are already so low, we've already pumped so many dollars into the system, that it might not cut it. We might get cascading failures, we might get stuck in a depression. This might be the end of the long-term debt cycle.
Again, maybe dumb question, but what sense is "every dollar leveraged 10x"?
Also in 2008, it looks like money velocity decreased during the recession (as it's been doing almost monotonically since the mid 90s). It looks like after the crash, velocity increased slightly, and indeed the supply contracted just slightly at basically the exact same time.
If a dollar is defaulted, I'm not sure it's accurate to say that one dollar is destroyed (as opposed to moved), let alone ten? If the borrower defaults, it is the same as the borrower owing the depositor $1 (the bank is in a sense acting like a risk-absorbing and expertise-adding middleman between the depositor and the borrower).
And doesn't whether that dollar is "destroyed" depend on why the borrower can't pay it? If it's because someone else got ≥ $1 richer off the borrower, then it seems to me like the supply of money in the economy as a whole hasn't actually gone down.
I am waiting with my popcorn ready for the exciting show to unfold when the Fed seriously raises rates. Those in Western Europe (low or negative bank account rates) will park funds in US banks. This will increase demand for dollars and put the final nail in the euro. This will be exciting to watch.
For those curious (like I was) about the exact numbers for that I quickly found this chart [1] from the St Louis Fed that strongly demonstrates OP's point. Only partially related to this, the sustained downward trend starting with about 2006 is really interesting, I'm wondering if there are any (relatively) recent papers written about this phenomenon.
There have been some supply shocks in the past year, but I'm increasingly convinced that the disaster rhetoric around inflation is more of a political argument more than an economic one. Personally I suspect it has more to do with justifying austerity in order to curb labor's demand for more money than anything else.
> I suspect it has more to do with justifying austerity in order to curb labor's demand for more money
The problem with blowing off inflation because you think it empowers workers is that the latest round of inflation more than erased all the wage increases that were provided. In real terms, workers have been falling behind.
So perhaps to make those labor demands more real, it might be a good idea if the government wasn't competing with the private sector for goods and services.
To be clear, I think that all of the price movement we're seeing today is a result of supply chain shock and pent up demand. Arguing about inflation while the ports are still clogged seems extremely short sighted to me; of course prices rise when supply is stuck in a container in LA! Once the supply chains clear up, then we can decide what, if any level of inflation we're seeing.
Until that point in time, I will view any doomer narrative about inflation and the proposed solutions for it with extreme skepticism, especially when the proposed solution is convenient for capital and hard on labor.
the problem with this line of reasoning is that the Fed has tools to control inflation which they are not using because of it (namely, rate hike) while simultaneously the working and middle classes are feeling the worst effects since they own the fewest equities, least property, and have the most shoestring budgets
meanwhile if you're rich you prob got richer
perhaps we need to rethink how healthy inflation really is
I feel like it's Feb 2020 and people are just hearing about this new virus called 2019-nCoV (or alternatively "China Flu"). There are maybe 100 cases in the whole U.S, your chance of getting it is literally 1 in a million, and nobody has died from it yet. Tech companies are shutting down left and right and the general public is like "What's the big deal?"
The big deal is exponential growth, which both viral spread and inflation exhibit and which almost nobody has a good intuition for. 1.5% inflation over 10 years means that prices go up 16%; this is what most folks (outside of Silicon Valley) have experienced in recent memory. 5% inflation over 10 years means that prices go up 63%. Your Big Mac will cost $6.50 instead of $4. 20% inflation (like we've seen in housing, or ground beef) means that prices go up 6x. Your average house will be $2M rather than $300K.
Folks who look at the numbers and say we're doomed are plugging the data into a mental model of inflation, government debt, and the money supply and realizing that the logical conclusion is that the dollar is going to go to zero soon. Folks who look at the numbers and say there's nothing to worry about are looking at the numbers today.
CEO of Square, but also kind of a crank who's long on crypto, so he has a vested interest in convincing people to YOLO their savings into crypto so he can cash in. I take his statements with several blocks of salt.
Just wow. So he's just a crank because he likes Bitcoin now?
How easily you just brushed off the successful startup ceo of not one, but two huge tech startups (Twitter, Square).
What do you think it takes to be able to do what he did? Oh no, he's just a crank because he likes Bitcoin now, let's just brush off everything he says from now on. It's not like he's someone who's actually proven himself capable and as someone worth listening to.
> So he's just a crank because he likes Bitcoin now?
Read it as "he's a crank and also likes bitcoin".
Anyways. There's undeniably a massive PR campaign right now to get retail investors into crypto. Fucking football players and media personalities are taking paychecks in bitcoin and posting PR-drafted tweets about it.
Even if I were still long crypto, I'd be sitting the next few months out. Way too reminiscent of dotcom -- folks who know nothing about finance, investing, or crypto are "investing" in highly volatile speculative vehicles. This only ends one way.
Interest rates really should have went up a couple of years ago. Not just for the sake of stemming inflation, but what good is the tool of lower rates in bad times when they are already at bottom in good times?
If something goes wrong (or more wrong) we will have no effective economic tools available because they are constantly running as if we are in crisis already.
Nobody wants to be the next Jimmy Carter who lets the fed raise interest rates to stem inflation because it invariably triggers a recession that gets said president and his party voted out of office. So rates will stay perpetually low.
Eh, we had high interest rates in the 90s and it worked out. Also, involving politicians is a huge mistake, the Fed needs to recapture its independence so it can make tough decisions. As for the rest, we as a society have become too petulant, expecting a forever boom and doing hardly anything to mellow out the boom bust cycle. And it’s not just the USA either.
This isn’t hyperinflation, nor is it on the precipice. It’s not in the same ballpark, it’s not in the same league.
The only way the US experiences hyperinflation is if the petrodollar system completely collapses along with several other shocks to the system at the same time. Not impossible, but completely separate and distinct from current fed policy.
There are a lot of ‘if’s’ in the world. In the context of this conversation it was pretty clear that this if was indicating some level of real likelihood. My point was that it just isn’t likely at all. No more than it was before this year anyway.
This isn’t even the biggest inflation shock in the last 50 years.
A lot of the inflation we are seeing is due to base effects from last year. Oil prices literally went negative at one point and are only back to pre fracking boom levels.
The last shock in the 70’s caused large scale socio economic changes and power shifts, and the ‘currency’ was brand ‘new’ at the time (less than 20 years since Bretton Woods, still riding high on post WW2 prosperity, etc)
The demand collapse and now demand spike we’re seeing only started occurring very recently (less than 6 months ago for the spike), and we don’t know what will happen. We’ve never had anything like it occur in a modern economy at this scale.
So probably not going to end the world or anything, but we really don’t have any precedent for this situation.
Agreed. A big question in everyone’s mind i think is if this is ‘permanent’ inflation ‘catching up’ from all the QE and money printing/stimulus,
or a temporary spike as pent up demand from the drop last year unblocks and rushes for the door, and will subside afterwards as the larger deflationary (consumer price wise) trend continues afterwards.
I personally suspect it will be a 70’s style ‘step’ (down related to buying power of a given dollar, probably not visible in relation to other currencies though, and up in prices), albeit without a strong hike in interest rates that happened under Carter and caused really weird other effects. They didn’t have the overall consumer price deflation due to tech and global trade like we’ve had for awhile now.
It would be nice to have a crystal ball, but alas.
COVID, climate change, and near-term high inflation in the dollar are all system shocks that will unravel the petrodollar in pretty short order. We’re following the Argentina school of monetary policy, so it shouldn’t surprise us if we get the same hyperinflation here.
Yes, but those are generally long term structural factors, where near term fed policy isn’t the primary driver.
The petrodollar system was always going to come to an end at some point, the problem has been that we’ve governed over the last 40 years as though it was a fact of nature.
At the end of the day, the petrodollar is a geopolitical arrangement, it’s end and subsequent replacement will be drafted to reflect whatever the new geopolitical order comes to be.
Which will remain the United States as the sole superpower. China does not have a blue-water navy and won't for another decade+, which means they cannot regulate oil shipping routes worldwide like the USN. Russia can't project naval power outside their region. The entire EU collectively doesn't have close to the naval power that the US does, and does not have the resources to keep routes open.
The petrodollar is The Prize the US receives for being willing to enforce global shipping lanes across the world's oceans. Without that overwhelming force, things rapidly collapse as Iran shuts the Strait of Hormuz.
All of which only really matters to those of us on this side of the ocean. China doesn’t need to project naval power, they project economic and political power due to being physically closer and a large exporter. Belt and road is their method for controlling the transport of goods. They can get oil/gas from Russia and the Middle East over land via trucks and pipelines.
Which is why I think the next 10 years will display how little control the US military is able to exert. 20 years of pointless war have ground the US military into dusty incompetence. Do we want to protect Taiwan or our access to the Persian Gulf? We may only be able to keep one of them.
First off, oil is a global commodity, so it's not true that you can just isolate yourself from global price movements.
Second, how many soldiers in the Chinese PLA or PLAN have ever fired a weapon against a hostile force? The US has spent the better part of two decades in an active war environment. For better or worse, there's value to having actual experience with large-scale invasions. It's not being "ground into dusty incompetence", it's being battle-tested.
Third, the US military doctrine since WWII has been about fighting two wars at once. We can certainly protect Taiwan and the Persian Gulf at the same time. If we couldn't, then any intervention wouldn't be credible because the second we invade a nation, all other strategic objectives would be at risk.
What we had in the 90s wasn't that high - check out the early 80s. 15-16%+ mortgage rates iirc, think about those payments on a $1 million dollar 3 bedroom.
Not with first past the post voting and the electoral college. It was a fine voting system in the 18th century, but has not scaled well in the modern world and caused problems basically from day one.
I think that is probably naive, they can't raise rates for many reasons including the fact that it would basically immediately blow up significant parts of the economy that are only enabled/possible due to rock bottom rates
No I think it's an awful situation, but lawmakers and governments have made the bed for us by stepping in over and over to rescue and backstop failing entities and sectors time and time again which has allowed what would otherwise be insolvent and long ago bankrupted entities and business models to flourish
Trump on the one side of his mouth was trumping up "record economic growth!" but on the other side of his mouth was complaining "the economy will crash if they raise rates!"
It is crazy that the Democrats are the fiscal conservatives these days while the Republicans are much more irresponsible (though Obama and Biden are definitely nowhere near Clinton in terms of responsibility, they are way more responsible than Bush/Trump).
Corporate debt. Fed raised rates and then when it came time to roll over their debt, a lot of major corporations said "Uh, if interest rates keep going up, we are going to go bankrupt because of the higher costs of debt service." The markets had a taper tantrum (the S&P 500 dropped by about 18% in the second half of 2018), and then the Fed reconsidered and started dropping rates again.
Situation is worse now, because it's highly likely that the U.S. Government would go bankrupt if they had to roll over their debt at higher rates, given that the U.S. debt-to-GDP ratio skyrocketed from 105% in 2020 to 130% now.
Sort of. Bankruptcy means you "cannot" pay your debts. The US can get itself into a situation in which for structural reasons it "cannot" pay back its debtors because the political/social costs of the money printing or taxation required are infeasible, e.g. nobody who will do it can get elected. In that case even though it would be technically possible, it wouldn't happen and the US would refuse to pay.
You are right but they have only one tool left and that is to print money. Which is what the Fed has been doing for 18 months and why the stock market is only up and up as all this money is chasing equities. We are really about to find out what MMT can and can't do. If it can't, we could end up in a depression (not recession).
The fed funds rate is technically disconnected from, but highly correlated to, the TSY yield curve, particularly at the short end.
Our current sovereign debt-to-GDP ratio does not really permit a 10y TSY yield above about 4.5% without calling into question our ability to service the debt.
Powell is painted into a corner - he simply can't hike significantly. He faces the short term prospect of a market tantrum (which the Fed is very sensitive to), but more importantly a long term sovereign servicing crisis.
The good news is that the average maturity on the debt at 65 months means that the FRB can, if they choose, find the cajones to hike rates and then "retire for personal reasons" before the real pain hits, at which point it will be someone else's problem.
I agree. Plus if you look at 90 day credit card delinquency’s and credit card balances they’re going in the opposite direction. Delinquency’s are going down right now, but inflation can change this quickly. It’s been said that the lower delinquency rate is solely due to stimulus payments.
There is literally no point in raising rates and slowing the economy simply so that you can then lower rates and reinvigorate the economy again. That doesn't accomplish anything.
And rates can always go lower from where they are now. It's not like the Fed is out of room if they wanted to lower rates further.
the reason you should be concerned about these prices in relation to their 2008 crisis prices is because the countermeasure that resulted in 2008 relief --Quantitative Easing-- cannot be used again because we effectively never quit using it to prop up the last decade of commercial market performance.
the Federal reserve also has no leverage to modify the prime interest rate to combat this inflation, as it already sits near-zero and the fed funds rate has been agreed to stay at under a quarter of a percent. modifying any interest rates in 2021 would blow up the corporate credit bubble, so the fed is mostly just bloviating about "transient inflation" to no ones real entertainment.
finally, the bond buyback taper the Federal reserve has been touting since July 2021 but too terrified to implement is effectively meaningless as its not set to end until next July at the earliest, effectively allowing uncorrected inflation to continue another eight months. the fed hasnt announced any further countermeasures after this...they just assume a bond taper will coincide with the purported end of covid and surge of consumer confidence which never manifested in 2021. Instead the supply chain continued to fail and vaccine targets were never met.
Id conject the level of wishful thinking driving fed policy at this point should be enough to tenure Powells resignation sometime in March. the only thing combatting stagflation at this point is corporations like Amazon who know if they dont do something about real wages in the absence of effective federal policy it will start to reflect on their earnings reports, and even they seem recalcitrant to take any real steps unless the union comes a knockin.'
> the Federal reserve also has no leverage to modify the prime interest rate to combat this inflation, as it already sits near-zero
...huh? If you want to lower inflation you'd typically raise interest rates...
(These sorts of stupid-simple mistakes are pretty typical from inflation fearmongers in threads like this one... a lot of words that make it sounds like they know what they're talking about but sprinkled with incredible tells like this one.)
You can tell they're fresh because there was a big fear of inflation because of quantitative easing. Thinking of QE as a solution to inflation is really something else.
Right but with massive debts and a fairly weak economy that is show signs of continuing to slow, this is exactly why the Fed is between a rock and a hard place.
The smart mmoney is on rates staying low for a long time which shows you just how powerless the Fed is right now.
Yes,I have little doubt that the rate won't remain as low as they are now for much longer. I don't know if that will be at the next meeting or in Q1 2022 though.
> Right but with massive debts and a fairly weak economy that is show signs of continuing to slow, this is exactly why the Fed is between a rock and a hard place.
lol? whut? Stop talking about government debt, it's a stupid talking point used to beat people over the head with who want to govern by misleading voters into believing that government debt is the same as household debt.
Also, what weak economy? Economic growth is up, wages are up, unemployment is down, personal debt is down. The only thing that is currently "weak" in the US economy is our JIT supply lines, and that will work itself out eventually.
> Also, what weak economy? Economic growth is up, wages are up, unemployment is down, personal debt is down. The only thing that is currently "weak" in the US economy is our JIT supply lines, and that will work itself out eventually.
Agree with this take. The GDPNow estimate for Q4 growth is 8.5%. A lot of this seems to be getting lost in the politically obsessed back-and-forth.
>Also, what weak economy? Economic growth is up, wages are up, unemployment is down, personal debt is down.
That usually happens in the beginning stages of high inflation scenario.
Also government debt is not the same as household debt, however it still matters especially at these high levels. There is a breaking point just no one knows where it is. 300% gdp? 500%? 700%. At some point it will break down.
What would break mean? The US debt, like all debt, is somebody else's asset. This “somebody” has zero interest in collapsing the system.
The only two things that can actually make the system collapse in the next 30 years are:
- a communist revolution in the US (this is not happening anytime soon, do not worry).
- zealots with a debt fixation, who would rather collapse the entire economy because they think debt is immoral. This one is a little bit more likely, but given the strong ties between the financial sector and the political parties in the US, I really doubt these people would ever be in charge. Republican, when they don't control the White house, are prone to rant about how debt is unsustainable and should be reduced at all cost, but whenever there is a Republican president, the debt keeps rising.
What I mean by "break" is runaway inflation or hyperinflation. That doesn't mean the whole system collapses. The rising debt or money supply is not a problem - the problem is its second derivative - how fast rising increases and how connected it is with underlying economy. And this points to a kinda dire future at the moment.
Hyperinflation (or even “a little bit to high” inflation) would literally destroy billions of financial assets (public and private debt), given the enormous political power of the finance industry, it's not going to happen.
Also, there is exactly zero historical instance of hyperinflation caused by public debt labelled in a country's own currency. Zero.
There's little rational reasons to believe public debt will cause hyperinflation, and as I mentioned above there are in fact powerful effect acting in the opposite direction.
The only reason people make the link between those two is that hyperinflation is the canonical example of an economic catastrophe and because people believe debt to be immoral, it must lead to a catastrophe in the end. This is a religious/moral discourse, which has no link with the actual world.
And to conclude, keep in mind that high level of public debt is a political decision (borrow from the wealthy instead of taxing them) it would be quite straightforward to fix (with the 60s income tax level) but it's in the interest of no-one with a bit of political power.
All of the instances of inflation is linked to government debt, what are you talking about? Even kings were cutting weight of silver coins in middle ages.
TIL there were hyperinflation episodes in Europe during the middle age (not). You have never read a book of economic history (or even just history) right?
For the record: most of inflation comes from rising costs in the supply chain (from supply issues, resources scarcity and/or wage raises). This is where we are now.
There exists instances of hyperinflation related to debt (Weimar republic's for instance) but this was due to debt labelled in a foreign currency (basically gold in this case).
Not sure how Amazon can "step in" and raise wages will somehow save this. Earlier raises in the minimum wage have been largely erased by inflation already. Another round of raises just pushes prices up more.
More to the point, raising wages (caused by union contracts that pegged wages to inflation) was the root cause of 70s stagflation. OP is horribly confused about basically everything, and to the extent that he's correct about some conclusions it's entirely by accident.
Hey everyone - we need to chill out for a second. Stop buying the knee jerk reaction of the media trying to freak everyone out and get some good advertising dollars.
This is going to take until after the new year maybe Q1-Q3 timeframe to see if it is transitory.
Reminder: we had an unprecedented global supply collapse followed by shutdowns and border closures for more than a year combined with historic levels of fast moving monetary growth during that time. We now have a situation of incredible levels of built up demand, a labor shortage and supply chain issues. Not to mention significant amount of illness and deaths as a result of a pandemic.
There were bound to be second and third order effects. The system needs some time to adjust.
You miss the key point on why this is happening and will continue to get significantly worse.
What happens when the number of dollars approximately doubles in 2 years as it happened?
Do you think prices stay the same and everything is just 50% off?
Reality is that the current number is off by reality quite a bit, real number has to be much higher. It's just math and the worst part... it can't be just reversed.
We haven't doubled the money supply (not even close). The amount of misinformation in this conversation in the general public speaks to the lack of understanding of our monetary systems.
It's not a lack of understanding. There are multiple incredibly strong propaganda machines, both political (R) and business (crypto), pushing this narrative.
You're the one who made the assertion - curious on your sources. If you're simply looking at fiscal stimulus spending that's a pretty naive view of economics.
Look at the 25 year view. 2014-2019 was an anomaly where us GDP grew 22% while the money supply contracted by 25%, we are currently back to the straight line we've been on since 2008.
I predicted about 2x inflation as a best-case outcome a year ago. Worst-case outcome would have been serious structural damage, in terms of business bankruptcies, lost jobs, lost mortgages, etc.
Unless we get into a hyperinflationary cycle, we came out pretty well, economically.
Our public health response, on the other hand, was and continues to be a disaster.
I have no idea what you are saying. Also what is "just math" and why can't it be reversed? Inflation can go down, it's not a purely up percentage, you can have negative inflation.
What do you mean by "number of dollars approximately doubles in 2"?
All thing being equal. 2x monetary supply should translate to 2x price inflation. It’s literally how inflation work. The reason we don’t have that’s crazy inflation is not everything is equal. Mostly at natural the economy should deflate right now.
> What happens when the number of dollars approximately doubles in 2 years as it happened?
Do you think countries that don't use the USD will remain unaffected? People keep blaming this on the fed "printing money", but that logic only holds water when just the USA is affected.
Everyone is experiencing inflation; it's a global phenomenon. Some countries have it even worse than the USA because their local production is getting redirected to the USA, where even higher prices will be paid.
In two years, things will very likely cool down globally.
The money fed prints doesn't stay in USA. It floods the entire globe trying to find the maximum return it can. That is the reason all stock markets everywhere are at record highs and commodities are continuing to push upward. As more economies are getting heated, many have started raising their own interest rates to reduce inflation.
At some point, we need to accept that The Fed is not God of the World Economy. They can have a major impact on the country's economy, and they can influence foreign markets to a degree, but they are not responsible for everything. They just don't have that kind of power.
If commodity inflation is caused by an over abundance of USD, then there would be a whole host of side effects from this. One of which, is as I said, price inflation localized to the USA. The second would be a weakening of USD relative to most other strong currencies. So let's look at that:
USD : Euro - Slightly weaker relative to 2020, but overall, right around the average strength over the past ten years.
USD : GBP - Same as the Euro.
USD : CAD|SGD|AUD - Weaker than 2019, but much stronger than the 10 year average.
USD : JPY|INR - Very strong
USD : CNY - much weaker than 2019, better than 2018, right about at the 10 year average.
It's there, but only slightly. And only after 2-3 years of crazy strengthening.
The USD vs other currencies cannot be compared to USD vs commodities which paint a more transparent picture because no one wants their own currency to be stronger than USD due to export competitiveness getting effected. So whenever USD goes down, they buy more USD with their own currency to keep the peg contained in a range. I know all are supposedly free floats central banks do buy and sell to contain volatility. So the thing that needs to be watched is not the ratio of currency but the USD denominated forex levels which as per my understanding have raised across the board as capital leaves US shoes to these countries. I don't have data to back it up but at least in non tourism dependent economies it is the case.
> Reality is that the current number is off by reality quite a bit, real number has to be much higher. It's just math and the worst part... it can't be just reversed.
I am now starting to wonder if the unrealized gains tax is the 'reversal' and the interdemensional checkmate on hidden wealth.
Are you saying rich and powerful have grandpa checking bank accounts and just refuse to spend it? They are owning real estate, land, companies, resources - that's where their wealth it. In high inflation scenario current wealth gap will look like good old times...
Slight inflation is good, but high inflation will be troubling to a lot of regular people.
All you have to do is look at the Fed balance sheet to get an inkling of what's going on. They are monetizing the debt. Inflation is a very simple concept to understand. It's too many dollars facing too few goods. I understand no one wants a panic, but you also don't want to bury your head in the sand.
People equate the fed not hitting their 2% target with hyperinflation and it’s absolutely maddening to see the level of discourse drop to astounding lows when this happens.
It doesn't have to reach hyperinflation to have a seriously disabling influence. People look ahead for potential impediments to being able to get the goods they need. Hopefully, it won't amount to inflation, but historically, hyperinflation always tends to come out of nowhere. It's very hard to control once it gets going.
Not even as difficult as that. As the prices rise with a regular periodicity, people stock up more goods with expectation that in future their money will buy them less. Which causes more price increases and corresponding increase in stocking.
Obviously 6% won't do that but at higher levels its the complex dynamics driving inflation than good old supply demand balance. And don't think that exports will solve hyper inflation because at that point other countries will also expect devaluation in currency which becomes a self fulfilling prophecy. Again not applicable to dollar and USA for the moment but at higher inflation levels anything is possible.
Somebody has to stock up. Just-in-time delivery didn't, and that's why we're in this supply chain situation.
In the future, not only is it possible your money will buy you less, it is also possible that no amount of money, no matter how large, can obtain what you need.
For instance, anything with a silicon chip in it. For some goods, every known upstream retailer is out of stock, with no idea when it will be replenished, and the resellers are doing business at way above MSRP.
What you’re describing around consumer expectations is that the absolute price level continues to rise at a higher as consumer expectations change. It doesn’t follow however that the rate itself increases due to this dynamic. Consumer expectations tend to anchor inflation at a particular level.
This is just a fundamental misunderstanding of what causes hyperinflation.
Hyperinflation just shouldn’t be entering into this discussion. It’s not happening, it’s not close to happening.
Now, im not trying to downplay the fact that elevated inflation can cause issues, but it so so challenging to keep that nuance when every discussion devolves into “we are on the precipice of +1,000% inflation” when the inflation rate went from 1 to 6.
As I keep saying, threats of hyper inflation are fundamentally a political argument, and not a terribly convincing one at that. Hyperinflation can and does happen, but the doomsayers of such things are well into "boy who cries wolf territory" and can be ignored.
I don't exactly think people were very happy about it either. I mean look, I'm 24 years old and I don't own any of these assets. At the rate things are going now, I probably never will own these assets.
The best thing that could happen for me is major deflation. But it is too politically unpopular, I bet it will be years before we get a fed chairman who has the spine to raise rates. So I'm reduced to angrily complaining online and shaking my fist at the sky while our rulers at the fed prop up boomers and leave my generation out to dry.
I think my original point is that this isn't something to panic over much like the public narrative is trying to make hay of. I am also not saying bury your head in the sand. Watch and see and don't get caught up in the hype.
It really has to be that. There's no other logical/sane justification for it. Fed is monetizing govt deficit spending and artificially suppressing long term rates to support asset prices to make things look good in the short term.
On a risk adjusted basis, it's obviously awful policy.
The only reason he was is that Yellen was recommending a raising of interest rates in 2018 and the sitting president was worry about the optics of that going into reelection. In comes Powell, the man willing to kick that can down the road.
Raising interest rates was the right move in 2018. It's just that the economic benefits of doing such takes a few years to pay off.
It finally came back down in price for the retailers? I've been waiting for the retailers to lower their prices after they paid off the costs of the original surge in wholesale lumber. And then the wholesale price of lumber came right back to earth but the retailers still had to cover their costs of acquisition.
It would be nice if America had factories that produced things rather than having to import all of our crap from China. Maybe then there wouldn't be 100+ ships waiting to be unloaded in LA.
Inflation reduces the value of debt and an era of increased inflation stands to benefit a lot of households. Of course, it helps if wages go up alongside prices, and they have. But even without wage increases, the value of debt lost to inflation is likely worth more than the value of salary lost to inflation for many households.
> Inflation reduces the value of debt and an era of increased inflation stands to benefit a lot of households.
Maybe. The policy responses to inflation are to increase supply and/or raise interest rates. Both of those put downward pressure on housing prices. So, inflation devalues the debt you owe (good for household) but also devalues the underlying asset (bad for household).
In order for young people to have any chance at the same quality of life of their parents, the "real" value of housing needs to come down to at least 50% of the current value. The only way to accomplish this without wiping out those with mortgages is to have a large spike of inflation. It's painful, but likely necessary.
We've had significant house price inflation for years due to insufficient supply. I want CPI to increase similarly, along with wages. If housing prices stay the same as today (in dollars) the house buying power of a young person will be much higher after the wage inflation. And because the dollar price of the house doesn't drop, today's mortgage holders won't find themselves underwater. Seems to me like the best we can do for both groups given the circumstances.
To make this happen we'd have to build new homes like crazy while keeping the interest rates low.
Wait until the banks raise interest payments to compensate. They're going to make their money back somehow. You can't game economics like that. There's always a cost.
If a person's $100k salary loses 20% of its value, but their $400k in mortgage and student loans also lose 20% of their value, it will be years before the lost value from their salary outweighs their 'gain' from the reduced value of their debt. They'll then have opportunities to increase their income, usually with the help of rising wages that accompany inflation, but that reduction in the value of their debt is permanent.
Reading this article and going through these comments make me realize that while I know what these words are I have a real lack of understanding how this stuff works. This may not be the best place to ask but do any of you guys have any recommendations on where to learn more about economics? Preferably something with good historical context.
One to look into is Backhouse's The Ordinary Business of Life (2002). A good overview of the subject that incorporates ancient and modern perspectives.
I can't recommend this book highly enough. And for those with a short attention span, 30 Second Economics gives a nice overview of many economic concepts (a few paragraphs per concept).
Greg Mankiw's introductory economics textbooks (one for micro and one for macro, if you care about the sort of stuff in this thread you care about macro) are well respected and neutral. You don't have to read the latest edition, an edition from just a few years ago would be fine and should be quite cheap used on Amazon.
These primers from the Bank of England cover what money is and how it is created in the modern economy, which would give you a better understanding of the subject than 90% of posters on these articles :)
Investopedia is often where I go to find out more about particular topics, their articles are comprehensive and clear and you can dig pretty deep into most subjects. A good place to start is understanding the difference between fiscal policy (what the government does) and monetary policy (what the central bank does):
I'll go a different route and recommend that you read The Ascent of Money[1]. It's much more engaging to read vs an econ textbook and it will give you a much better understanding of money, currency, and finance by starting way back at the beginning of modern civilization. It effectively explains all of the major concepts of international finance (bonds, insurance, stocks, currency, loans, etc) through the real-world examples which created them.
It's not transitory. Prices have increased, unless there is extreme deflation, they aren't going down. Prices will continue to increase. At this rate, feds will have no control.
A main cause of inflation sticking around is public perception of inflation existing. I feel like there is solid perception that inflation exists. I would not bet on it being transitory. Even if the underlying cause goes away, it will take longer for the perception to go away because is a self reinforcing phenomenon.
I'm afraid that after the supply chain issues are resolved (in next year or a bit later), I suspect that the prices will come down. I'd wager that there is always psychological aspect to inflation. This is not to mention that if we don't see prices increased noticeably because inflation gets cool in the next year or so, we'd still be stuck with shrinkflation (the amount of goods you receive per $1 spent would be lesser). I work with a Fortune 200 CPG company and they are already planning to keep prices stable in various ways (including shrinkflation).
Why is it self reinforcing? Is it inherent to economics or is it psychological? If bacon goes back down 25%, will the local breakfast shop see those savings? Will they pass them on to their customers? Or will their supply chain or the restaurants themselves absorb the profit and keep the prices high for consumers? Even if they keep the prices heightened, if they don't raise them further, then that'd be a leveling off of inflation, right?
Does anyone know if there are more local numbers published? I’d imagine that urban vs suburban vs rural inflations are different, that there are regional differences too. It’s tough to interpret this with the US being so huge and heterogeneous.
IMO this was already evident in some goods like vehicles. We are already living in the era of the 100k pickup truck. You can hardly buy anything new that is decent under 40k nowadays.
Unless we see commensurate rises in wages we are in for some real difficulty if this continues.
There's one thing I've never quite understood. There seems to be some sort of obsession with inflation and Fed policy among the HN/Reddit demographic. Could it be the crossover with interest in Cryptocurrencies?
I could be wrong but it's just something I've noticed over the years.
HN and Reddit has a younger crowd that doesn’t have a lot of major assets (like a house, big stock portfolio) so they’re getting the worst of all worlds - the price increases from inflation without the corresponding rise of asset value.
Stocks and assets don't necessarily increase in value as inflation occurs.
During the decade of the 1970s, there was some phenomenal levels of inflation, and the S&P500 inflation adjusted returns for the decade were about -20%
If you're going to live in or use the property for a long time, possibly. I've also been looking at buying property with these mortgage rates, but it's not intended as a short term investment.
In terms of investment property or flipping, there are many factors and you might want to look at what happened historically.
For example, raising interest rates significantly like Volcker did in the 80s stopped new home building cold because new buyers could not afford mortgages. They stopped building the subdivision my family lived in for 3-4 years when this happened. In general, people who bought just before that period did not see a return on their home for a decade-plus, but the economy rebounded quickly after that period
I'm thinking of buying a condo in Chicago even if I don't want to live there forever. If you check my post history I'm very fond of the Second City. This condo would be next to public transportation and allow me to live car free. I'd rather invest my money in property vs giving it to Ford Motor Credit.
My current 401k contributions alone would cover the mortgage.
Well in many ways the supply chain crisis are economically equivalent to the Arab Oil Embargo. Add bad monetary policy akin to going off the Gold Standard and I can see how Stagflation is a real probability.
In reality it's a lot higher than 6%. You have to understand that the CPI is utter crap. They have continually adjusted the definition of it over time to make inflation seem not as bad as it actually is. It doesn't include house prices, equity prices, college tuition, etc. And the number generated from the remaining categories is dragged down by cheap software and electronics.
In reality I'd say inflation is closer to 60% than 6%.
The gaslighting is unbelievable. Now they are saying that spending trillions in ridiculous handouts will LOWER inflation!? Are you freaking kidding me?
Notwithstanding the concerns about inflation, I challenge the notion that helping people feed their families when they're poor, redistributing wealth from the tippity-top to the middle and down, providing more education, and providing more healthcare to the elderly are "ridiculous". "Handout" is a dogwhistle.
My personal opinion is that the US government is mostly incompetent, and its employment structure incentivizes laziness and waste. Any expansion of government into the lives of the people is bound to backfire. The rich would just find a new way to hide their money, the food programs would be taken advantage of, etc. I think we already spend more per student than any other country, and our public education is mostly a joke. But to each their own, I get the sentiment behind these programs.
> My personal opinion is that the US government is mostly incompetent
This is not some natural state of a affairs and more a matter of intentional policy[1] by one (and sometimes both) major parties. Consider the recent attempts to fuck up the USPS.
If you rewind ~60 years you find the US government sending people to the moon on extremely short timelines and building the foundations of the internet.
Yeah, the situation is unfortunate. I don't really see a way out though, because government salaries are just not able to compete with the private sector - how is the government going to attract good people?
Let's be honest here - our world is headed towards "Snow Crash". All you can do is hope you land in a good burbclave.
Home values are “included” in the form of rental equivalence, which is widely considered to address a number of flaws with just including house value. And contrary to popular belief, from 1983 when the switch was made until 2007, rental equivalence actually increased CPI compared to the old method.
Why would equities be included in inflation? That doesn’t make sense to me.
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[ 3.1 ms ] story [ 301 ms ] thread"supply chain" is this year's inflation lie
just how long will it take for people to accept that The Fed has debased the currency for the benefit of a select few, to the detriment of many?
Jerome Powell has the perfect solution to this conundrum - he has announced his retirement and will let someone else clean up the mess
You also can't cherry-pick a handful of things that have gone up a lot and then assume that it applies to everything. Some things have gone up in price, others haven't. Inflation is sitting at about 6%, which after a decade+ of sub-2% might seem like such a shock, but it isn't really a big deal.
This is the one aspect I feel like most people gloss over the most. Most people I graduated high school with are dual income households.
Americans, please don't imitate Argentina, keep a healthy economy.
"Why the inflation we're seeing now is a good thing" -MSNBC tweet that got deleted.
Edit: "Yes, inflation is back, and you should probably be relieved if not outright happy."
https://www.reuters.com/business/inflation-revival-is-victor...
It's not a good thing in my opinion, but who's to say it's not transitory?
The narrative in the media would be have taken a whole another level - scare mongering, etc if it wasn’t the Blue team in the office. I don’t really trust anything but hard numbers from sites such as TradingEconomics or FT.
I have no horse in this race but Blue teams vs Red team is getting really dull and frankly annoying. Everyone seems to be wearing tinted glasses. I have higher standards for media and information that I listen and trust - opinions on HN doesn’t cut the mustard. Usually it’s safe to assume that opposite of the current HN zeitgeist is true (I only joke slightly).
What I'm saying is there are reasons to believe it can go back to normal.
We want more of this though right?
I sense that many people can't understand the difference between opinions or editorials and news.
I sense that many people actually enjoy the inflammatory way news is sometimes covered unless it's different from the way they'd like to see it.
I sense that people can't understand how a single new outlet can have varying opinions and points of view on a single issue and will choose a single one out of many to make their point.
Imagine how different things would be if people were intelligent consumers of news.
I don't think you can have a news industry dependent on clicks and profits and have no sensationalism. I also don't think you can have a completely unbiased media when people, based on their consumption, don't seem to want it. It's unrealistic given the different biases and motivations that people have.
>We want more of this though right?
Yes, in principle, but with the caveat that they don't do this in a partisan and selective way. For instance the whole "Kids in Cages" phenomenon is still happening but we never hear about it anymore - in fact they're just called "Child Migrant Facilities" by the press secretary and the media is basically silent compared to the fervor they were covering the situation previously. To me at least, the fact that they calmed down isn't a consolation because I sense they're just doing it because their preferred team is in charge now.
I think journalists are masters of rhetoric and can spin a situation in so many diverse ways while still being almost entirely accurate and truthful. It all depends on what facets of the situation they want to present and the insinuations that come along with it.
There have been facilities before, but this isn’t happening the same way it was where separation was on purpose. There are stories covering the current conditions, but I think you’re overlooking the fact that the prior administration and supporters seemed to embrace and encourage that narrative because they saw it as a deterrent.
> I think journalists are masters of rhetoric
You should meet the average journalist. Just like any other industry, the vast majority are unremarkable people. They’re not rhetorical masterminds. Like most people they see and write things from their point of view.
What’s more interesting to me is how some of the biggest names in media are obviously the rhetorical masters you speak of. I’m referring specifically to the TV and YouTube stars. Some of them are incredibly good at being convincing even if often contradictory or wrong. I also think video can be effective in ways text cannot be.
https://www.marketwatch.com/story/people-are-having-a-cow-ov...
If the party in power is the one the media outlet favors then the party can do no wrong. If the media outlet doesn't support the party then every step the party takes is wrong with no exceptions.
Maybe that's how its always been.
They are two heads of the same beast, moving back and forth very rapidly and calling it progress.
Meanwhile popular policies like universal healthcare[0] and marijuana legalization[1] are never addressed. ( To name a few, there are many more ).
And the reason is clear. Tying healthcare to employment keeps people from organizing effectively. If you have a family, and you are on strike, your employer cutting off your healthcare is a brutal move. Also, people get fat off the bureaucracy.
Similar for marijuana legalization. Need to keep the prisons fed with new "forced customers" so the gravy train keeps rolling.
0: https://www.pewresearch.org/fact-tank/2020/09/29/increasing-...
1: https://www.pewresearch.org/fact-tank/2019/11/14/americans-s... 1:
This doesn't rule out a "demand spike following COVID" as mentioned by the parent. It's like a cartoon where someone (COVID) steps on the hose and a big bulge of water (demand + extra savings) forms. Now that bulge is working its way through the economy causing shortages (analogy completely falls apart here).
That last part is a key one to remember: the pandemic isn't even close to over. Ignoring the people who are dead or suffering long-term health problems, there are a ton of people who either left the workforce for various reasons (childcare, health, etc.) or switched fields and/or locations. That directly increases costs to businesses which have to pay more in wages but it also will have ripple effects for years anywhere buyers are chasing a supply chain which is limited by worker shortages.
Eventually the panic buying slows or stops and the orders clear, but it can take years for this to happen.
See for example:
UK: https://www.reuters.com/world/uk/boe-chief-economist-says-uk...
Australia: https://www.reuters.com/business/australia-core-inflation-sp...
China: https://www.reuters.com/world/china/chinas-factory-gate-infl...
Germany: https://www.reuters.com/world/europe/german-inflation-could-...
Brazil: https://www.reuters.com/article/brazil-economy-inflation/upd...
There's no magic here.
Edit - it's true. There's a very well established connection between inflation and money supply. Hell, the entire point of QE is to try stimulate inflation to encourage spending to encourage growth. It's not some unknown effect...
I watch the stock market which is even worse for this. Every day you'd see "Stocks down as investors weigh COVID", followed by "Stocks up as investor COVID fears wane". Which may be true, but not alternating seemingly every single day for a while.
It's like someone sees something happen, wants to write an article, and the boss says "nope, put something catchy on the title."
"Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output" -Milton Friedman
Large, complex, distributed, networked systems, like interconnected cloud datacenters, electric power grids, and global logistics networks, can get "stuck" in a degraded state due to a confluence of highly local bugs that are difficult to diagnose -- especially when no single entity controls the entire network end-to-end. Hoping and waiting for things to get better on their own might not be enough.
--
[a] Note: I'm not saying it's the most important problem. I'm saying it's the most pressing, in the near term, because a well-functioning global economy is a prerequisite -- a necessary condition -- for solving all important problems. Please don't attack a straw-man.
[b] https://www.inc.com/kevin-j-ryan/flexport-founder-twitter-sh...
https://en.wikipedia.org/wiki/Demand-pull_inflation
https://en.wikipedia.org/wiki/Cost-push_inflation
--
[a] https://www.connexionfrance.com/French-news/Which-products-a...
How does reduced supply lead to higher prices?
I don’t think we’re ever going back to the pre-pandemic past. Climate change is simply becoming too disruptive to supply chain networks. This probably would have happened anyway, the pandemic just moved it up by 5-10 years.
Couple this with the fact that we’re going to eventually have food shortages at least locally in the short-to-medium term, which will destabilize the developing world and raise global food prices as more countries have to import from “bread basket” countries like the US and China and consuming even more global logistics capacity than it does today. This long-term famine is already happening in Central America and is driving more and more migrants north every year.
> This long-term famine is already happening in Central America and is driving more and more migrants north every year.
This is certainly a problem but not nearly a major reason that migrants are coming north. They're coming north because they can make their monthly salary from northern triangle countries in a few days in the US. These are economic migrants, regardless of what the news tells you, evidenced by the fact that almost none of them are accepting offers of asylum in Mexico and choosing to continue to the US.
How is this evidence? If Mexico isn’t my home either and I already have to start my life over why wouldn’t I keep going to a place with even more opportunity?
The cities are overcrowded and these countries have little industry outside agriculture, which is increasingly difficult and expensive thanks to climate change. So of course they flee north; and Mexico has many of the same problems with collusion between police and organized crime — particularly when targeting migrant populations.
In fact, it's hard to find much even on Google Scholar....
[1] https://ideas.repec.org/top/top.journals.all.html
[2] https://ideas.repec.org/top/top.person.all.html
Neither does academic economics; there's absolutely zero consequence for an economist who repeatedly makes incorrect predictions. The ones who actually can make predictions with statistically significant accuracy work as quants or traders, not economists, as anyone who can make accurate predictions of the future can easily make six to seven figures doing so.
That aside, the fundamental predictions in microeconomics between Austrian and neoclassical economics are pretty similar, so you can't say Austrian theory doesn't work without also saying foundational neoclassical microeconomics doesn't work.
This is the problem with a lot of heterodox econ, btw.
Hayek also never embraced all the stuff Austrians taught, such as Mises claiming neoclassical was completely flawed, whereas Hayek accepted the majority of neoclassical as correct. Hayek does not take Mises a priori approach to economics whatsoever. There's plenty more. So if your claim is that Austrian is reasonable because a big person believes it, this is not that person.
Whenever someone points out that Mises and Austrian economics is not very relevant to modern economics, and someone invariable pulls out the lone closest thing they can find, know that this is not quite true.
>The main reason why the Austrians tend to be snubbed is that their insights are primarily qualitative
There's entire subfields of well published and researched economics that do this that are not Austrian.
If you simply google "why is Austrian economics snubbed" you get a whole host of decent sources showing how it fails to match empirical evidence. That is the reason it's snubbed. It sounds pretty, appeals to Libertarians, but does not match observed evidence. That's good enough reason to stop any line of thought from being accepted science.
(Of course, when you build your entire field on rejecting empirical evidence, of course you end up with beliefs and theories that do not match empirical evidence, so no surprise there).
So while the climb up is bad, the prices themselves aren't even unprecedented. In lieu of an extraordinary global supply chain crisis, these numbers actually seem impressively low. We cocked up everything for a year and prices finally shot back to... prices from 7 years ago?
If fed policy has any effect at all, I think we owe them one for being so cool-headed and non-drastic these past two years. They're doing much better than politicians or the media, at least.
[1] I have some commentary here, and more in a reply to user `anm89` https://news.ycombinator.com/item?id=29114086
[2] https://fred.stlouisfed.org/series/APU000072610
I have never said that inflation is not real, only that this price inflation has merely returned prices to 2011-2014 levels (excepting beef, which is actually at a new high).
I'm not saying food prices (even broad baskets like the this) represents inflation. The broad indexes are better for that. But it's not true to say that food prices are at the same level as a decade ago.
You have to look at prices on the margin.
However, what even that misses is coupons and sales.
https://www.bls.gov/news.release/cpi.t01.htm
It's fairly miserable to endlessly hear how a problem is 1x big when it's actually 4x big for most folks in your region.
People reporting their experience will have significant distortion due to how our minds work.
Median family income is 80K in 2021. The median HH income for 2021 will come out soon, but it will be north of 70K.
Over the last generation, indications are far over half experienced regular struggles.
2019 - nearly 70 percent of Americans have less than $1,000 stashed away https://www.statista.com/chart/20323/americans-lack-savings/
2021 - Firehosing cash directly to the public helped some: 25% had no emergency savings, 26% say they have some emergency savings https://www.cnbc.com/2021/07/28/51percent-of-americans-have-...
Most people experience "regular struggles", by definition. Life is a struggle. But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else. The "large majority" of the U.S. is not poor. That's just obviously true from the income data I cited.
If that data is not enough, look at SCF wealth data here:
https://www.federalreserve.gov/econres/scf/dataviz/scf/table...
Median Household networth of 50-75 percentile - what you call "large majority" - is $240K. That's not poor.
Median Household networth of 25-49.9 percentile is $58K. Also not not poor.
Median (50th percentile) networth is $121K.
I really encourage more of a reality-based approach to throwing around phrases like "the large majority of Americans are poor".
This seems obtuse. The entire thread is focused on finances. It should be self-evident my post is referring to financial struggles.
> But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else.
Different metrics aren't a different language.
> The "large majority" of the U.S. is not poor.
A narrowly crafted a declaration makes it easier to find metrics that fit. With that comes a weird assumption that those metrics are the same ones that matter to poor Americans.
For actual people - the meaningful measures of financial health are the long term security of food, housing, medicine and the resources needed to maintain them (eg:savings,transportation).
For actual people - when those things become unobtainable, a state of poverty is in play.
If preferred metrics aren't reflecting long-term or recurring conditions of poverty, maybe we should pivot to metrics that do.
You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com, whose results were released as a PR announcement meant to encourage people to open savings accounts. The "no savings" means "no money in a savings account" by those who answer the poll. You know nothing about whether these people were even in the labor force, how old they were, what money they had in checking accounts or 401Ks or money market mutual funds, and whether they were a representative sample (N=hundreds). Because an internet poll is not a study, and a marketing campaign is not scientific data.
This is clickbait. If you have a quality study not published by bankrate.com, then please cite it. And also explain why you are ignoring the US Census and the SCF, which is what everyone who studies household wealth uses.
I am citing the gold-standard academic study of household finances -- the survey of consumer finances, and the gold standard study of income as determined by the Census. This is not a situation of "different metrics", this is a situation of bad data versus good data leading to bad conclusions versus accurate conclusions.
Please look to the Census and academic studies to form your worldview of the state of US household finances rather than Bankrate.com's marketing department.
Again, this seems obtuse. It is interesting that your inference of a single poll ignores the many (well publicized) savings studies, that are regularly conducted by a wide number of organizations.
> I am citing the gold-standard study of household finances conducted by the Federal Reserve regularly since the 1970s
That's nice. Metrics adopted in the 1970s based on data from even earlier decades doesn't universally inspire the confidence that you seem to feel. I'd offer that metrics that well reflect the ~entirety of America who faces a meaningful risk of losing housing/medicine/food would likely be the metrics that most matter to people facing those risks.
Otherwise it feels similar to hearing the unemployment rate is 4.9% while >24% of 16-64 aren't working.
Hell, as a yearly income, that's poor much less a networth. Not destitute, but definitely poor. You can't afford to live anywhere near a city and probably live in a trailer or worse (shack with limited services). The metric is by household, so no splitting with roommates.
Not really, because this is primarily young people who are building savings. By retirement age, the savings are much higher even for the median household. Even in the 45-54 cohort, the median networth is 168K. By the time you reach 55-64, median HH income is $213K. Post-retirement, 65-74, median network is $266K. Then it starts to decline as people spend down their savings, so 75 and over it's $254K.
I mean, I guess you can call whatever you want "poor", but we have standard definitions for these things.
And an income of $58K is not "poor" for any age, but FYI median household income for all ages is north of $70K.
It is today and going forward, as far as anyone can tell.
https://www.oecd-ilibrary.org/docserver/45ae3dae-en.pdf?expi...
Yes, the definitions. Is it a definition or a lived experience? Politicians love to define away poverty.
These definitions are how millionaires were able to claim they are poor to get assistance during COVID.
Life is a struggle. But why? Why is it a struggle in this country, the "richest" country? Why do I have to be homeless, living in a minivan, fighting a mental illness? That is by design. This squid game we are living in is a design, it has rules, and we can change them in a second. But most people just want to be the next million/billionaire so they are afraid that changing the rules will mean they do not get the piggy bank of money they dangle over your head.
As a society we are poor. Compared to people in countries like France and Finland, we are poor, because we are always faced with these life and death decisions about jobs and healthcare. That is what it feel like to be poor; always guarding yourself, always frightened.
Anyone who has access to a kitchen can with practice use minimal time and effort produce meals that are competitive with processed options from frozen foods, grocery store chickens, and of course fast food joints. Though cuts of meat have gone way up in price, whole chickens are still reasonably priced for those who can process a bird which is not really that hard.
What's also concerning is that the velocity of money is really low while M2 money supply is very high. If the velocity picks up we could be in a world of hurt.
It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.
You mean... like... a first derivative? What am I mistaken about? I literally said literally exactly this:
>> It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.
(and, in fact, it's not just the rate of inflation but also several other related rates of change and rates of rates of change and stocks of things that can fuel changes in those rates, but engaging in that nuance seems a bit fruitless given that you seem to be literally repeating my own point back to me while thinking you're disagreeing with me.)
> The rate of inflation growth is horrible right now.
yes thanks for repeating my point for me.
It seems like having large supply is desirable/correct when velocity is low.
The Fed's next step is to slow down this inflation, and they will do so by raising rates. The Fed's dot plots shows that they will reach the rate of the 30Y Treasury bill sometime around 2024, but with this data they might bring that up to 2023. This will, like every single other time they set the Fed Funds Rate above the 30YT, cause a recession 6 months afterwards, which will bring down the inflation pressures. Problem resolved?
That's totally standard, and not yet the true problem. The problem is after that. Once we reach that recession the Fed quickly drops the interest rate and that brings us out of the recession. But interest rates are already so low, we've already pumped so many dollars into the system, that it might not cut it. We might get cascading failures, we might get stuck in a depression. This might be the end of the long-term debt cycle.
Also in 2008, it looks like money velocity decreased during the recession (as it's been doing almost monotonically since the mid 90s). It looks like after the crash, velocity increased slightly, and indeed the supply contracted just slightly at basically the exact same time.
And doesn't whether that dollar is "destroyed" depend on why the borrower can't pay it? If it's because someone else got ≥ $1 richer off the borrower, then it seems to me like the supply of money in the economy as a whole hasn't actually gone down.
For those curious (like I was) about the exact numbers for that I quickly found this chart [1] from the St Louis Fed that strongly demonstrates OP's point. Only partially related to this, the sustained downward trend starting with about 2006 is really interesting, I'm wondering if there are any (relatively) recent papers written about this phenomenon.
[1] https://fred.stlouisfed.org/series/M2V
With GDP being mostly the same trend it has been this chart is just tracking the surge in M2.
Might you tell us your approximate location?
The problem with blowing off inflation because you think it empowers workers is that the latest round of inflation more than erased all the wage increases that were provided. In real terms, workers have been falling behind.
So perhaps to make those labor demands more real, it might be a good idea if the government wasn't competing with the private sector for goods and services.
Until that point in time, I will view any doomer narrative about inflation and the proposed solutions for it with extreme skepticism, especially when the proposed solution is convenient for capital and hard on labor.
meanwhile if you're rich you prob got richer
perhaps we need to rethink how healthy inflation really is
The big deal is exponential growth, which both viral spread and inflation exhibit and which almost nobody has a good intuition for. 1.5% inflation over 10 years means that prices go up 16%; this is what most folks (outside of Silicon Valley) have experienced in recent memory. 5% inflation over 10 years means that prices go up 63%. Your Big Mac will cost $6.50 instead of $4. 20% inflation (like we've seen in housing, or ground beef) means that prices go up 6x. Your average house will be $2M rather than $300K.
Folks who look at the numbers and say we're doomed are plugging the data into a mental model of inflation, government debt, and the money supply and realizing that the logical conclusion is that the dollar is going to go to zero soon. Folks who look at the numbers and say there's nothing to worry about are looking at the numbers today.
Hyperinflation is going to change everything. It’s happening.
https://twitter.com/jack/status/1451733913961783299
How easily you just brushed off the successful startup ceo of not one, but two huge tech startups (Twitter, Square).
What do you think it takes to be able to do what he did? Oh no, he's just a crank because he likes Bitcoin now, let's just brush off everything he says from now on. It's not like he's someone who's actually proven himself capable and as someone worth listening to.
Read it as "he's a crank and also likes bitcoin".
Anyways. There's undeniably a massive PR campaign right now to get retail investors into crypto. Fucking football players and media personalities are taking paychecks in bitcoin and posting PR-drafted tweets about it.
Even if I were still long crypto, I'd be sitting the next few months out. Way too reminiscent of dotcom -- folks who know nothing about finance, investing, or crypto are "investing" in highly volatile speculative vehicles. This only ends one way.
If something goes wrong (or more wrong) we will have no effective economic tools available because they are constantly running as if we are in crisis already.
If we get hyperinflation, maybe housing will be affordable again?
Tough time for retirees and folks who put money in the bank already (and not the stock market), but what else is new.
This isn’t hyperinflation, nor is it on the precipice. It’s not in the same ballpark, it’s not in the same league.
The only way the US experiences hyperinflation is if the petrodollar system completely collapses along with several other shocks to the system at the same time. Not impossible, but completely separate and distinct from current fed policy.
I don’t know how we would even quantify in any real what odds on any of these events practically speaking. Do you?
A lot of the inflation we are seeing is due to base effects from last year. Oil prices literally went negative at one point and are only back to pre fracking boom levels.
The demand collapse and now demand spike we’re seeing only started occurring very recently (less than 6 months ago for the spike), and we don’t know what will happen. We’ve never had anything like it occur in a modern economy at this scale.
So probably not going to end the world or anything, but we really don’t have any precedent for this situation.
In retrospect, some level of inflation was going to be inevitable. The question is how to balance it with employment and growth going forward.
I personally suspect it will be a 70’s style ‘step’ (down related to buying power of a given dollar, probably not visible in relation to other currencies though, and up in prices), albeit without a strong hike in interest rates that happened under Carter and caused really weird other effects. They didn’t have the overall consumer price deflation due to tech and global trade like we’ve had for awhile now.
It would be nice to have a crystal ball, but alas.
The petrodollar system was always going to come to an end at some point, the problem has been that we’ve governed over the last 40 years as though it was a fact of nature.
The petrodollar is The Prize the US receives for being willing to enforce global shipping lanes across the world's oceans. Without that overwhelming force, things rapidly collapse as Iran shuts the Strait of Hormuz.
Someday? Probably. Now? Unlikely.
Which is why I think the next 10 years will display how little control the US military is able to exert. 20 years of pointless war have ground the US military into dusty incompetence. Do we want to protect Taiwan or our access to the Persian Gulf? We may only be able to keep one of them.
Second, how many soldiers in the Chinese PLA or PLAN have ever fired a weapon against a hostile force? The US has spent the better part of two decades in an active war environment. For better or worse, there's value to having actual experience with large-scale invasions. It's not being "ground into dusty incompetence", it's being battle-tested.
Third, the US military doctrine since WWII has been about fighting two wars at once. We can certainly protect Taiwan and the Persian Gulf at the same time. If we couldn't, then any intervention wouldn't be credible because the second we invade a nation, all other strategic objectives would be at risk.
https://www.federalreserve.gov/aboutthefed/bios/board/defaul...
https://fred.stlouisfed.org/series/FEDFUNDS
It is crazy that the Democrats are the fiscal conservatives these days while the Republicans are much more irresponsible (though Obama and Biden are definitely nowhere near Clinton in terms of responsibility, they are way more responsible than Bush/Trump).
Situation is worse now, because it's highly likely that the U.S. Government would go bankrupt if they had to roll over their debt at higher rates, given that the U.S. debt-to-GDP ratio skyrocketed from 105% in 2020 to 130% now.
Is it even possible for a sovereign nation to go bankrupt in its own fiat currency?
More like 13 years.
The fed funds rate is technically disconnected from, but highly correlated to, the TSY yield curve, particularly at the short end.
Our current sovereign debt-to-GDP ratio does not really permit a 10y TSY yield above about 4.5% without calling into question our ability to service the debt.
Powell is painted into a corner - he simply can't hike significantly. He faces the short term prospect of a market tantrum (which the Fed is very sensitive to), but more importantly a long term sovereign servicing crisis.
The good news is that the average maturity on the debt at 65 months means that the FRB can, if they choose, find the cajones to hike rates and then "retire for personal reasons" before the real pain hits, at which point it will be someone else's problem.
And rates can always go lower from where they are now. It's not like the Fed is out of room if they wanted to lower rates further.
the reason you should be concerned about these prices in relation to their 2008 crisis prices is because the countermeasure that resulted in 2008 relief --Quantitative Easing-- cannot be used again because we effectively never quit using it to prop up the last decade of commercial market performance.
https://en.wikipedia.org/wiki/Quantitative_easing#US_QE4
the Federal reserve also has no leverage to modify the prime interest rate to combat this inflation, as it already sits near-zero and the fed funds rate has been agreed to stay at under a quarter of a percent. modifying any interest rates in 2021 would blow up the corporate credit bubble, so the fed is mostly just bloviating about "transient inflation" to no ones real entertainment.
https://en.wikipedia.org/wiki/Corporate_debt_bubble
finally, the bond buyback taper the Federal reserve has been touting since July 2021 but too terrified to implement is effectively meaningless as its not set to end until next July at the earliest, effectively allowing uncorrected inflation to continue another eight months. the fed hasnt announced any further countermeasures after this...they just assume a bond taper will coincide with the purported end of covid and surge of consumer confidence which never manifested in 2021. Instead the supply chain continued to fail and vaccine targets were never met.
Id conject the level of wishful thinking driving fed policy at this point should be enough to tenure Powells resignation sometime in March. the only thing combatting stagflation at this point is corporations like Amazon who know if they dont do something about real wages in the absence of effective federal policy it will start to reflect on their earnings reports, and even they seem recalcitrant to take any real steps unless the union comes a knockin.'
...huh? If you want to lower inflation you'd typically raise interest rates...
(These sorts of stupid-simple mistakes are pretty typical from inflation fearmongers in threads like this one... a lot of words that make it sounds like they know what they're talking about but sprinkled with incredible tells like this one.)
The smart mmoney is on rates staying low for a long time which shows you just how powerless the Fed is right now.
They would LOVE to raise rates. They can't.
Yoy 6% for october. Inflation is already up. What are they waiting for? 10%? 15%?
Also Powell isn't Volker by a long shot. I don't recall the Volker pivot because a few traders weren't having a good day.
You realize that this figure was only calculated a few days ago, right? What reaction time do you expect?
lol? whut? Stop talking about government debt, it's a stupid talking point used to beat people over the head with who want to govern by misleading voters into believing that government debt is the same as household debt.
Also, what weak economy? Economic growth is up, wages are up, unemployment is down, personal debt is down. The only thing that is currently "weak" in the US economy is our JIT supply lines, and that will work itself out eventually.
> Stop talking about government debt, it's a stupid talking point
Said not a single respectable person in economics or finance ever.
There's no real alternative to stuffing money into Treasuries, so it's kind of a moot point right now.
Agree with this take. The GDPNow estimate for Q4 growth is 8.5%. A lot of this seems to be getting lost in the politically obsessed back-and-forth.
https://www.atlantafed.org/cqer/research/gdpnow
That usually happens in the beginning stages of high inflation scenario.
Also government debt is not the same as household debt, however it still matters especially at these high levels. There is a breaking point just no one knows where it is. 300% gdp? 500%? 700%. At some point it will break down.
The only two things that can actually make the system collapse in the next 30 years are:
- a communist revolution in the US (this is not happening anytime soon, do not worry).
- zealots with a debt fixation, who would rather collapse the entire economy because they think debt is immoral. This one is a little bit more likely, but given the strong ties between the financial sector and the political parties in the US, I really doubt these people would ever be in charge. Republican, when they don't control the White house, are prone to rant about how debt is unsustainable and should be reduced at all cost, but whenever there is a Republican president, the debt keeps rising.
Also, there is exactly zero historical instance of hyperinflation caused by public debt labelled in a country's own currency. Zero.
There's little rational reasons to believe public debt will cause hyperinflation, and as I mentioned above there are in fact powerful effect acting in the opposite direction.
The only reason people make the link between those two is that hyperinflation is the canonical example of an economic catastrophe and because people believe debt to be immoral, it must lead to a catastrophe in the end. This is a religious/moral discourse, which has no link with the actual world.
And to conclude, keep in mind that high level of public debt is a political decision (borrow from the wealthy instead of taxing them) it would be quite straightforward to fix (with the 60s income tax level) but it's in the interest of no-one with a bit of political power.
For the record: most of inflation comes from rising costs in the supply chain (from supply issues, resources scarcity and/or wage raises). This is where we are now.
There exists instances of hyperinflation related to debt (Weimar republic's for instance) but this was due to debt labelled in a foreign currency (basically gold in this case).
> in a low-gravity environment, everything becomes much heavier to lift
> brb hold my cryptobags
This is going to take until after the new year maybe Q1-Q3 timeframe to see if it is transitory.
Reminder: we had an unprecedented global supply collapse followed by shutdowns and border closures for more than a year combined with historic levels of fast moving monetary growth during that time. We now have a situation of incredible levels of built up demand, a labor shortage and supply chain issues. Not to mention significant amount of illness and deaths as a result of a pandemic.
There were bound to be second and third order effects. The system needs some time to adjust.
What happens when the number of dollars approximately doubles in 2 years as it happened?
Do you think prices stay the same and everything is just 50% off?
Reality is that the current number is off by reality quite a bit, real number has to be much higher. It's just math and the worst part... it can't be just reversed.
Look at 5 year view.
I predicted about 2x inflation as a best-case outcome a year ago. Worst-case outcome would have been serious structural damage, in terms of business bankruptcies, lost jobs, lost mortgages, etc.
Unless we get into a hyperinflationary cycle, we came out pretty well, economically.
Our public health response, on the other hand, was and continues to be a disaster.
What do you mean by "number of dollars approximately doubles in 2"?
I think OP was talking about monetary inflation. We nearly double the money supply so it should translate to a nearly double price inflation.
> it can’t just be reversed
I don’t know where you’ve gotten this idea from. The fed can destroy money just the same as it can create it.
You only have to look back to 2019. [1]
[1] https://www.investopedia.com/the-fed-continues-to-reduce-its...
Do you think countries that don't use the USD will remain unaffected? People keep blaming this on the fed "printing money", but that logic only holds water when just the USA is affected.
Everyone is experiencing inflation; it's a global phenomenon. Some countries have it even worse than the USA because their local production is getting redirected to the USA, where even higher prices will be paid.
In two years, things will very likely cool down globally.
If commodity inflation is caused by an over abundance of USD, then there would be a whole host of side effects from this. One of which, is as I said, price inflation localized to the USA. The second would be a weakening of USD relative to most other strong currencies. So let's look at that:
USD : Euro - Slightly weaker relative to 2020, but overall, right around the average strength over the past ten years.
USD : GBP - Same as the Euro.
USD : CAD|SGD|AUD - Weaker than 2019, but much stronger than the 10 year average.
USD : JPY|INR - Very strong
USD : CNY - much weaker than 2019, better than 2018, right about at the 10 year average.
It's there, but only slightly. And only after 2-3 years of crazy strengthening.
I am now starting to wonder if the unrealized gains tax is the 'reversal' and the interdemensional checkmate on hidden wealth.
You're a monster.
People equate the fed not hitting their 2% target with hyperinflation and it’s absolutely maddening to see the level of discourse drop to astounding lows when this happens.
Obviously 6% won't do that but at higher levels its the complex dynamics driving inflation than good old supply demand balance. And don't think that exports will solve hyper inflation because at that point other countries will also expect devaluation in currency which becomes a self fulfilling prophecy. Again not applicable to dollar and USA for the moment but at higher inflation levels anything is possible.
In the future, not only is it possible your money will buy you less, it is also possible that no amount of money, no matter how large, can obtain what you need.
For instance, anything with a silicon chip in it. For some goods, every known upstream retailer is out of stock, with no idea when it will be replenished, and the resellers are doing business at way above MSRP.
This is just a fundamental misunderstanding of what causes hyperinflation.
Now, im not trying to downplay the fact that elevated inflation can cause issues, but it so so challenging to keep that nuance when every discussion devolves into “we are on the precipice of +1,000% inflation” when the inflation rate went from 1 to 6.
Has tuition even notably increased in the last 12 months?
The best thing that could happen for me is major deflation. But it is too politically unpopular, I bet it will be years before we get a fed chairman who has the spine to raise rates. So I'm reduced to angrily complaining online and shaking my fist at the sky while our rulers at the fed prop up boomers and leave my generation out to dry.
I would confidently bet money that they raise rates in 2022.
At the end of the day, the fed has to take its queues from the fiscal policy that’s in place. This time around is very very different from 08.
It really has to be that. There's no other logical/sane justification for it. Fed is monetizing govt deficit spending and artificially suppressing long term rates to support asset prices to make things look good in the short term.
On a risk adjusted basis, it's obviously awful policy.
The only reason he was is that Yellen was recommending a raising of interest rates in 2018 and the sitting president was worry about the optics of that going into reelection. In comes Powell, the man willing to kick that can down the road.
Raising interest rates was the right move in 2018. It's just that the economic benefits of doing such takes a few years to pay off.
https://www.stlouisfed.org/on-the-economy/2017/april/us-manu...
Is there any logic behind this timeline prediction?
Maybe. The policy responses to inflation are to increase supply and/or raise interest rates. Both of those put downward pressure on housing prices. So, inflation devalues the debt you owe (good for household) but also devalues the underlying asset (bad for household).
This doesn't make much sense when rent/imputed rent are primary drivers of inflation.
To make this happen we'd have to build new homes like crazy while keeping the interest rates low.
Economics In One Lesson - Henry Hazlitt
The Rise and Fall of American Growth: The U.S. Standard of Living since the Civil War - Robert Gordon
I can't recommend this book highly enough. And for those with a short attention span, 30 Second Economics gives a nice overview of many economic concepts (a few paragraphs per concept).
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Investopedia is often where I go to find out more about particular topics, their articles are comprehensive and clear and you can dig pretty deep into most subjects. A good place to start is understanding the difference between fiscal policy (what the government does) and monetary policy (what the central bank does):
https://www.investopedia.com/ask/answers/100314/whats-differ...
[1] https://www.amazon.com/Ascent-Money-Financial-History-World/...
The markets still believe the FED knows better than you. But hey, the great thing about our system is that you're always allowed to bet against it.
Unless we see commensurate rises in wages we are in for some real difficulty if this continues.
Recommendation: Ban non-ideal conditions.
I could be wrong but it's just something I've noticed over the years.
During the decade of the 1970s, there was some phenomenal levels of inflation, and the S&P500 inflation adjusted returns for the decade were about -20%
I'd love to lock in a cheap mortgage,even if money is worth 10% less next year, my mortgage remains the same.
In terms of investment property or flipping, there are many factors and you might want to look at what happened historically.
For example, raising interest rates significantly like Volcker did in the 80s stopped new home building cold because new buyers could not afford mortgages. They stopped building the subdivision my family lived in for 3-4 years when this happened. In general, people who bought just before that period did not see a return on their home for a decade-plus, but the economy rebounded quickly after that period
https://www.cnbc.com/2019/12/09/when-volcker-ruled-fed-peopl...
My current 401k contributions alone would cover the mortgage.
Ideally when I don't live their I'd rent it out.
In reality I'd say inflation is closer to 60% than 6%.
The gaslighting is unbelievable. Now they are saying that spending trillions in ridiculous handouts will LOWER inflation!? Are you freaking kidding me?
This is not some natural state of a affairs and more a matter of intentional policy[1] by one (and sometimes both) major parties. Consider the recent attempts to fuck up the USPS.
If you rewind ~60 years you find the US government sending people to the moon on extremely short timelines and building the foundations of the internet.
[1] https://en.wikipedia.org/wiki/Starve_the_beast
Let's be honest here - our world is headed towards "Snow Crash". All you can do is hope you land in a good burbclave.
Why would equities be included in inflation? That doesn’t make sense to me.