I read this and it seems like the advice is "deal with it, don't keep a savings and live paycheck to paycheck, buy assets especially if shortages start occurring."
Seems like bloomberg is prepping the masses to live in poverty.
That said, the advice is sound if you really don't make that much money. This is the same thing the farmers do in "poor" countries after they get a "huge" (for the region) payday after the harvest.
>Seems like bloomberg is prepping the masses to live in poverty.
That's pretty much the job of the mainstream media, defend status quo and normalize anything that threatens status quo. We've gone from inflation being a conspiracy, to inflation being transitory, to inflation being around for awhile but not that bad, to the media giving advice about how to handle hyperinflation. All within the span of a few months
but don't worry inflation(which didn't exist 6 months ago and was a conspiracy) is actually a good thing, CNN will show you how to make money off it
Inflation has been around since forever and within the living memory of a lot of people, i don’t think any serious economist said that inflation is impossible and would be a conspiracy theory.
Here's Nobel Prize winner Paul Krugman saying back in June that the inflation "panic" was dead and that the Fed had everything under control. I can find 100 other articles from economists with similar credentials saying the same thing a few months back
When was "inflation a conspiracy"? Citation? The only conspiracy theory I've seen are anti-government folks claiming that the government was lying about the current inflation rate, which has been shot down repeatedly.
We've been talking about inflation since 2007 and just about everyone has been concerned for a LONG time that the fed keeping interest rates low meant there was basically no way to mitigate it. There was never a question or a debate that inflation was going to happen, what was and still is up for debate is what that inflation means for the average American. The supply chain crisis is currently a far bigger issue to the average American than inflation.
>Seems like bloomberg is prepping the masses to live in poverty.
That's what high inflation does.
The government printed significant amounts of money as per benefits during covid. They did this to prevent a housing crash and subsequent harm to the wealth of society.
The thing is... the housing crash is only 1 market. It is actually better to have housing crash relative to how poor we are about to become as a whole.
Its remarkable that the decision to blow up inflation directly benefits anyone who owns a house. Regardless of their debt owed on the house. This will effectively be the poor class paying the most to prevent rich house holders from pain.
If you aren't investing your money then you are letting the bank invest for you and they keep the proceeds. When my latest bank offered me .1% savings account I just closed it and put everything into cash management investment account. The APY on savings is so low you might as well keep it under the mattress.
Do we no longer advise people to maintain emergency funds, etc.? I don't feel comfortable, or maybe the word I am looking for is secure, without at least 6 months of expenses in a savings account.
I advise everyone to talk to a licensed financial advisor. Do you really foresee needing 6-months expenses in cash? In my case, I keep 1-months expenses in cash. And everything else is shoveled into funds, stocks, and securities. Then I have 30 days to figure out how to balance my expenses and converting stocks to cash (~2-3 days).
A .1% APY is losing money everyday in a 6% inflation economy.
I do the same, losing out on 5 months of savings gaining interest is likely to be a very significant amount of lost potential. Compared to a doomsday scenario where I might lose half of my investments and job at the same time, which would mean most of the world is suffering from the same and I would just have to buckle up for the ride, leaving as much of my investments alone as humanly possible and wait for _maybe_ a year or two for the market to recover, as a somewhat realistic worst case scenario.
If you have an unexpected large expense, like some needed home repair, it can easily be a few months of ordinary expenses. The fact that I normally live off of $3.5k/month is untethered from the cost of a roof replacement. You do pay a price for keeping the additional months of liquidity, but to some it's still worth it.
I'm trying to imagine a large unexpected home repair >$3000 that isn't covered by typical planning or insurance and nothing comes to mind. Emergency roof replacement is managed by insurance (you're paying for it). And a scheduled, expensive, non-emergency, usually involves months of planning and permit pulling.
Except for a bail money, how many high-ticket items aren't covered by insurance?
Investment accounts still have a core position where you’d probably keep that. It makes nearly nothing in interest (like being in the bank) but at least there’s less friction in getting it invested.
If you work in tech chances are you have a high six figure salary and a large line of credit. You may even have a passive income source via rental income, stock dividends or side projects.
It doesn’t really make sense to have 6 months of expenses which lose value in a bank account vs. earning you money in the market.
If something were to happen you can usually pay it off with your pay cheque/passive income source or use a credit card to bridge you over.
That mirrors what a lot of companies turned just in time manufacturing into and it really didn't hold up well over the past few years due to shocks in the system.
Maybe I’m old fashioned, but despite having a paid off HELOC that can cover 42 months of current monthly expenditures, and several zero balance credit cards…
I don’t want to be relying on that if I lose my job.
Lines of credit can be taken away, and usually at the worst time.
So I’m happy to forego some returns on a moderate sized emergency fund in exchange for peace of mind.
Not sure there is a silver bullet here other than investing everything 18 months ago.
Cash is at risk of inflation. Bonds are at risk of interest rate increases. Stocks and real estate are looking like they might be overvalued. Crypto... yeah.
Maybe the best alternative is to just spend less time on work and more on leisure + personal/professional development? Skills and memories will be valuable for a while still.
That being said if you know you're going to use the money soon/are willing to pay via inflation for security, cash/bonds make a lot of sense. If the market goes to shit and the knock-on economic effects come for you, cash is nice to have. What's worse, losing 5%/year or losing 30-50% all at once while simultaneously losing your job?
My security fund is currently in 60/40 bonds/stock portfolio for precisely this reason, even if the stocks decline by half and the bonds dip a little with them I'll still have a good margin. My 401k that still has 30+ years to run is 100% stocks.
Also my wife is pregnant, so I converted the entirety of our HSA to cash (most of it had been invested up this point) as we're going to need most of that money in the next few months (and that's just for what we can foresee) and losing half of it to potential market perturbations is unacceptable.
What is the estimation for the inflation rate in USA in 2022? Again 7% or back to 1%?
If it's going to be 1%, just negotiate a salary increase for this year of 7%, ignore the rest of the tricks, and enjoy your life.
If the expected value is close to 7% again or higher, perhaps it's time to read some tricks, but each country is different. From the article:
> Spend Your Paycheck Right Away
As the article says, "[U.S.] inflation isn’t quite high enough to warrant such a mad pay-day dash,". Even Argentinean inflation is not high enough.
Anyway, we have a bonus salary / 13th anual salary, and my family try to invest it. For example in concentrated laundry soap for one year (not 10 years) Concentrated laundry soap has a nice price/volume ratio and you are going to use it anyway. I also like tuna cans. Frozen chicken is a risk in case of a power outage. Toilette paper has a horrible price/volume ratio. Upgrading the tablet/netbook may be a good idea too.
> Borrow Lots of Money
You must guess correctly the inflation rate of the next years and get a bank that is stupid enough to take a lower interest rate. It's difficult to do it correctly, and remember to read all the fine print because you may get nasty surprises in a few years.
> Negotiate a Pay Raise -- or Two
Yep. The difference is that here all the process is more optimized because it's necessary to do it each year.
> Buy Inflation-Linked Bonds
It may work. For the amount of spare money I have it's not worth the trouble. It's important to get good advice about which bounds to buy and not invest in crap bounds.
> Buy Homes ...
Here most people own their home. Also every 10 years there is a big bank run, banks close and/or the government takes the money. So unless you want to have a very big pile of cash at home like Scrooge McDuck and risk getting robed, buying a house to live or a second house to rent is a good alternative.
> Buy ... Cars
I agree with the article that cars are not a good investment. (Unless your work depends on using the car and you must keep it updated.) A few years ago it was very difficult to invest the pesos in anything, for example you could buy a only a small amount of dollars, and perhaps the amount was not big enough to buy a house. So some people just bought a nice car. The value of the car and the cash will be reduced each year, but at least you can enjoy your car. (I don't have a car and I prefer not to have one, but each one has different preferences.)
>You must guess correctly the inflation rate of the next years and get a bank that is stupid enough to take a lower interest rate
Banks don't actually care about the long-term inflation rate is going to be since they generally resell loans quickly, with Fannie and Freddie backstopping.
Here in Argentina we had a fake number for inflation, to pay less to people that got "inflation" adjusted bonds, but the side effect was that we paid more to people with "grow" adjusted bonds. [I'm not sure about the details, but it was something like grow=GDP_change/inflation.]
> just negotiate a salary increase for this year of 7%
If even one-tenth of the country succeeded in heeding your advice then inflation is certainly not going back to 1% the next year. Wage pressure is the main one that central banks can't easily handwave away and has huge flow on effects to an economy.
That's the problem once you get 7% inflation for a few years. Everyone wants to increase the prices 7% and everyone wants to get a 7% salary raise, and it's difficult to cut the cycle.
In the ideal case get a 7% raise and everyone else gets 0%. It's case of a tragedy of the commons.
> What is the estimation for the inflation rate in USA in 2022? Again 7% or back to 1%?
1 year treasuries are currently auctioning at 0.25 percent. Obviously the fed is heavily involved in the market to the point of manipulating rates, but they're not forcing anyone to bid on these afaik.
This piece is so deeply tenuous - it's like someone in the Bloomberg office tried their best to build a link between the USA and Argentina.
None of this advice is practical for vulnerable USA consumers(a), it's useful for a country with long term runaway inflation.
(a) These people already live paycheck to paycheck, they do not have savings and certainly have nothing spare to invest in inflation-linked bonds which are device for long term savings storage. Because of the aforementioned factors they also do not have access to low interest loans, and even if they did the USA's fiscal policy would certainly respond to ongoing inflationary pressure by adjusting interest rates upwards.
One of the points in the article was to borrow lower than inflation when you can, which is definitely relevant and possible in the (see the best mortgage rates and brokerage margin rates).
It's not even close to being the same situation. Due to surging stock and real estate prices and high wages, many Americans have actually gotten wealthier on a dollar-adjusted basis and real basis despite rising CPI. In Venezuela , as well as Turkey and other countries, it is the opposite situation of people getting poorer and poorer. This shows the power of having world reserve currency status and the US dollar being the global unit of wealth.
Beware of all of the advice in this article, which boils down to:
- take on debt
- consume
For when inflation reverses course, as it likely will, those debts will become hard as a rock and you'll be paying back in a currency that relentlessly appreciates. All that stuff you bought but didn't need will fall in price. This is a good way to go bankrupt.
The US Treasury market, the gold market, the trade weighted dollar index, and eurodollar futures are all signaling lower inflation and growth ahead. Before bracing for Weimar, be sure you're ready for USA 1980.
Great comment! Can you also read the implied variance from the prices? What I mean by this is: Is the probabability of a deflation ala 1930-1933 being weighted against a Weimar hyper inflation scenario resulting in a seemingly stable mean prediction?
Gold is not showing signs of lower inflation. It is simply being abandoned as a hedge against inflation. Retail investors are piling up on crypto currencies thinking that it is the new hedge against inflation.
I wonder if people are after a "hybrid hedge" -- not just asset preservation, but appreciation.
Precious metals are sort of understood from a technical standpoint. We're unlikely to discover a 600-metre-diameter orb of pure gold in the middle of Nebraska, and, conversely, we're not going to suddenly double our industrial demand for it.
Once you strip out the "civilization will crumble and you'll have to use Krugerrands to buy ammo for your Mad Max-converted Prius" crowd, the hedge case for gold is more or less "Gold has a practical ceiling somewhere around 2000-inflation adjusted USD per ounce, and will stay near there indefinitely. Buy at 1800 today and hold it to avoid exposing yourself to dollar-denominated assets." Boring.
In contrast, crypto offers the appeal of avoiding direct dollar exposure, with the excitement of speculation. If it turns out we build the next financial ecosystem on the random token you've chosen to back, there's way more upside than just "avoiding dollar risk."
TBH, a lot of it is very stupid money chasing the moon though. A lot of people have had their risk tolerances out of whack for a long time. I suspect too-big-to-fail and the political mentality that if the S&P 500 goes down, the world ends may have reinforced this attitude, so we see people being more speculative than would be prudent.
Its hard to separate demand & supply shocks from inflation. Like energy is way up compared to last year, but last year demand was depressed due to Covid. Same with cars, appliances, furniture and so on.
Necessities like food and clothing and so on have inflated at a much more moderate rate.
USA 1980 inflation was stopped by spiking interest rates. What probability would you assign to the current Federal Reserve ever having the fortitude to do something similar? I would place that at less than 5%. The entire financial house of cards collapses before the interest rate leaves single digits.
I know everyone thinks this inflation is a short-term shock due to COVID, but every customer and supplier I've talked to is seeing insane markups in all inputs. If anyone thinks these companies are going to quickly give back those price increases after finally seeing them for the first time in forever, I have some bad news for you.
What started as a transient inflationary shock might end up being more persistent than anticipated.
Inflation of 6.8%, which isn't even that historically unusual and would mostly be termed as a moderate level of inflation, isn't remotely comparable with the current 50% inflation rate or the 20,000% rate that Argentina has experienced in recent history.
When inflation rises interest rates normally follow to try and curb it, right now this hasnt happened, which implies that this increase in prices is not going to last too long. I dont think its a particularly good idea to follow the advice from a country where high inflation is endemic.
I don't understand the reasoning here. Isn't that like saying "normally when my office gets hot the AC turns on to try and curb it. This hasn't happened, which implies that the increase in temperature is not going to last too long."
... Doesn't the lack of AC imply exactly the opposite, that the temperature rise might be more significant than usual, and perhaps the AC is broken?
Interest rates can't go up because it would risk America's ability to re-pay its debt, as well as the debt of 'zombie' corporations, which would inevitably impact the Fed's "maximum employment" mandate. If interest rates can't rise, it's going to contribute to more inflation.
This is debatable. A lot of debt is long-term debt that is at a fixed rate. When interest rates go up, long-term bond yields may fall or stay flat (this is called yield curve inversion).. It all depends on future perceptions of the economy. If the perception is that raising short-term rates to aggressively will hurt growth, the bond market will adapt accordingly and become inverted. This makes it easier for the government service debt and issue new debt.
Isn't that sort of the point of raising interest rates? Makes debt more pressing to slow down money velocity and loan creation? (Thus curbing inflation).
Sure, if you push the rates too high, you'll hit deflation, but the point would be to strike the balance before that happens.
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[ 443 ms ] story [ 2691 ms ] threadI know there's a similar site that uses Google's archive, but I can't remember the url
Seems like bloomberg is prepping the masses to live in poverty.
That said, the advice is sound if you really don't make that much money. This is the same thing the farmers do in "poor" countries after they get a "huge" (for the region) payday after the harvest.
All the money ends up flowing to the corps.
https://www.prnewswire.com/news-releases/nearly-40-percent-o...
That's pretty much the job of the mainstream media, defend status quo and normalize anything that threatens status quo. We've gone from inflation being a conspiracy, to inflation being transitory, to inflation being around for awhile but not that bad, to the media giving advice about how to handle hyperinflation. All within the span of a few months
but don't worry inflation(which didn't exist 6 months ago and was a conspiracy) is actually a good thing, CNN will show you how to make money off it
https://www.cnn.com/2021/11/24/investing/inflation-stocks-se...
You’re basically building a straw man.
https://www.nytimes.com/2021/06/21/opinion/inflation-economy...
These are the same people complaining that citizens don't trust the government and experts. Trust has to be earned
Here's an opinion piece stating just the opposite on the same site. Odd they'd publish that if they're intent on "covering it up" as you imply.
https://www.nytimes.com/2021/11/16/opinion/biden-inflation-s...
We've been talking about inflation since 2007 and just about everyone has been concerned for a LONG time that the fed keeping interest rates low meant there was basically no way to mitigate it. There was never a question or a debate that inflation was going to happen, what was and still is up for debate is what that inflation means for the average American. The supply chain crisis is currently a far bigger issue to the average American than inflation.
That's what high inflation does.
The government printed significant amounts of money as per benefits during covid. They did this to prevent a housing crash and subsequent harm to the wealth of society.
The thing is... the housing crash is only 1 market. It is actually better to have housing crash relative to how poor we are about to become as a whole.
Its remarkable that the decision to blow up inflation directly benefits anyone who owns a house. Regardless of their debt owed on the house. This will effectively be the poor class paying the most to prevent rich house holders from pain.
A .1% APY is losing money everyday in a 6% inflation economy.
Except for a bail money, how many high-ticket items aren't covered by insurance?
It doesn’t really make sense to have 6 months of expenses which lose value in a bank account vs. earning you money in the market.
If something were to happen you can usually pay it off with your pay cheque/passive income source or use a credit card to bridge you over.
Especially if you make the 6 months as necessary expenses vs typical normal expenses.
I don’t want to be relying on that if I lose my job.
Lines of credit can be taken away, and usually at the worst time.
So I’m happy to forego some returns on a moderate sized emergency fund in exchange for peace of mind.
Cash is at risk of inflation. Bonds are at risk of interest rate increases. Stocks and real estate are looking like they might be overvalued. Crypto... yeah.
Maybe the best alternative is to just spend less time on work and more on leisure + personal/professional development? Skills and memories will be valuable for a while still.
My security fund is currently in 60/40 bonds/stock portfolio for precisely this reason, even if the stocks decline by half and the bonds dip a little with them I'll still have a good margin. My 401k that still has 30+ years to run is 100% stocks.
Also my wife is pregnant, so I converted the entirety of our HSA to cash (most of it had been invested up this point) as we're going to need most of that money in the next few months (and that's just for what we can foresee) and losing half of it to potential market perturbations is unacceptable.
“There are four types of economies: Developed, developing, Japan & Argentina.”
—-
Japan in reference to deflation and Argentina to inflation.
Seriously though, buy dollar denominated risk assets, especially real estate.
If it's going to be 1%, just negotiate a salary increase for this year of 7%, ignore the rest of the tricks, and enjoy your life.
If the expected value is close to 7% again or higher, perhaps it's time to read some tricks, but each country is different. From the article:
> Spend Your Paycheck Right Away
As the article says, "[U.S.] inflation isn’t quite high enough to warrant such a mad pay-day dash,". Even Argentinean inflation is not high enough.
Anyway, we have a bonus salary / 13th anual salary, and my family try to invest it. For example in concentrated laundry soap for one year (not 10 years) Concentrated laundry soap has a nice price/volume ratio and you are going to use it anyway. I also like tuna cans. Frozen chicken is a risk in case of a power outage. Toilette paper has a horrible price/volume ratio. Upgrading the tablet/netbook may be a good idea too.
> Borrow Lots of Money
You must guess correctly the inflation rate of the next years and get a bank that is stupid enough to take a lower interest rate. It's difficult to do it correctly, and remember to read all the fine print because you may get nasty surprises in a few years.
> Negotiate a Pay Raise -- or Two
Yep. The difference is that here all the process is more optimized because it's necessary to do it each year.
> Buy Inflation-Linked Bonds
It may work. For the amount of spare money I have it's not worth the trouble. It's important to get good advice about which bounds to buy and not invest in crap bounds.
> Buy Homes ...
Here most people own their home. Also every 10 years there is a big bank run, banks close and/or the government takes the money. So unless you want to have a very big pile of cash at home like Scrooge McDuck and risk getting robed, buying a house to live or a second house to rent is a good alternative.
> Buy ... Cars
I agree with the article that cars are not a good investment. (Unless your work depends on using the car and you must keep it updated.) A few years ago it was very difficult to invest the pesos in anything, for example you could buy a only a small amount of dollars, and perhaps the amount was not big enough to buy a house. So some people just bought a nice car. The value of the car and the cash will be reduced each year, but at least you can enjoy your car. (I don't have a car and I prefer not to have one, but each one has different preferences.)
Banks don't actually care about the long-term inflation rate is going to be since they generally resell loans quickly, with Fannie and Freddie backstopping.
Keep in mind bank credit ratings in 2008. They were AAA for a LONG time!
If even one-tenth of the country succeeded in heeding your advice then inflation is certainly not going back to 1% the next year. Wage pressure is the main one that central banks can't easily handwave away and has huge flow on effects to an economy.
In the ideal case get a 7% raise and everyone else gets 0%. It's case of a tragedy of the commons.
1 year treasuries are currently auctioning at 0.25 percent. Obviously the fed is heavily involved in the market to the point of manipulating rates, but they're not forcing anyone to bid on these afaik.
https://www.treasury.gov/resource-center/data-chart-center/i...
None of this advice is practical for vulnerable USA consumers(a), it's useful for a country with long term runaway inflation.
(a) These people already live paycheck to paycheck, they do not have savings and certainly have nothing spare to invest in inflation-linked bonds which are device for long term savings storage. Because of the aforementioned factors they also do not have access to low interest loans, and even if they did the USA's fiscal policy would certainly respond to ongoing inflationary pressure by adjusting interest rates upwards.
- take on debt
- consume
For when inflation reverses course, as it likely will, those debts will become hard as a rock and you'll be paying back in a currency that relentlessly appreciates. All that stuff you bought but didn't need will fall in price. This is a good way to go bankrupt.
The US Treasury market, the gold market, the trade weighted dollar index, and eurodollar futures are all signaling lower inflation and growth ahead. Before bracing for Weimar, be sure you're ready for USA 1980.
Precious metals are sort of understood from a technical standpoint. We're unlikely to discover a 600-metre-diameter orb of pure gold in the middle of Nebraska, and, conversely, we're not going to suddenly double our industrial demand for it.
Once you strip out the "civilization will crumble and you'll have to use Krugerrands to buy ammo for your Mad Max-converted Prius" crowd, the hedge case for gold is more or less "Gold has a practical ceiling somewhere around 2000-inflation adjusted USD per ounce, and will stay near there indefinitely. Buy at 1800 today and hold it to avoid exposing yourself to dollar-denominated assets." Boring.
In contrast, crypto offers the appeal of avoiding direct dollar exposure, with the excitement of speculation. If it turns out we build the next financial ecosystem on the random token you've chosen to back, there's way more upside than just "avoiding dollar risk."
TBH, a lot of it is very stupid money chasing the moon though. A lot of people have had their risk tolerances out of whack for a long time. I suspect too-big-to-fail and the political mentality that if the S&P 500 goes down, the world ends may have reinforced this attitude, so we see people being more speculative than would be prudent.
Necessities like food and clothing and so on have inflated at a much more moderate rate.
I know everyone thinks this inflation is a short-term shock due to COVID, but every customer and supplier I've talked to is seeing insane markups in all inputs. If anyone thinks these companies are going to quickly give back those price increases after finally seeing them for the first time in forever, I have some bad news for you.
What started as a transient inflationary shock might end up being more persistent than anticipated.
... Doesn't the lack of AC imply exactly the opposite, that the temperature rise might be more significant than usual, and perhaps the AC is broken?
Sure, if you push the rates too high, you'll hit deflation, but the point would be to strike the balance before that happens.