The good news is that the used vehicle market will almost certainly crash around 2022/2023 as new vehicle production catches up with demand. Currently, my 2020 used car with 30K miles can be sold for more than the MSRP for the 2022 model with identical trim. And it can even be sold for slightly more than actual quotes I've gotten for the 2022 model from dealers. There's obviously a supply shortage going on that will subside.
The bad news is that the new vehicle and food price increases are almost certainly sticky.
Energy is the big tricky question mark. The big worry post-pandemic was about US shale production never returning, but it's starting to look like we'll hit the 2019 highs in US domestic production some time in the next year or so. I suspect we're past the peak in terms of rate of growth, but it's hard to say if the new prices are sticky or if we'll see a meaningful decline in the next year or two.
(I've started to build a strategy for selling off my energy holdings and I'm still on the fence about what to do with Ford and GM.)
New vehicle prices are almost certainly not sticky. Competition between dealers and OEMs is normally fierce, and will revert to normal once we exit this supply-constrained environment.
Food price is also highly cyclical and related to supply constraints of pure commodities which always correct.
I guess I should've clarified. Vehicle prices for equivalent vehicles probably aren't sticky, but the statistic reported here is sticky.
Electrification will increase average sale price. But the amortization schedule will lengthen, operating cost will decrease, and maintenance will plummet. So might still be a win for consumers.
But I don't think avg sale price will come down meaningfully. You'll see a big shift from ICE to E, though, and yes, ICE prices will come down a lot.
> Food price is also highly cyclical and related to supply constraints of pure commodities which always correct.
Suffice it to say that I'm not betting on commodities in either direction but I've got a huge position in Tyson.
I never see any electric cars on the road other than Tesla. To me, that means no other automaker has produced a compelling electric option yet, so I would not bet on significant ICE to E within the next few years (other than the increasing numbers of Teslas).
In the Bay Area, there are many Chevy Bolts, VW ID.4, and Ford Mach-E. They are more competitive economically than their ICE counterparts when you include minimal operating expenses for energy and maintenance, and their possible 7.5k tax credit.
Bolts were going for ~$25k at ~250 miles range.
2023 ID.4 is an SUV/Crossover with probably ~240 mile range rumored for ~35k (and $7.5k off tax credit)
Mach-E is an SUV/Crossover with ~250 mile range for ~$44k (and $7.5k off tax credit)
Seems these days you're getting a good deal if you pay MSRP for a new car *. You're getting a fantastic deal if you pay anything less, and it's not uncommon to be paying some kind of markup.
I wonder if that's the new normal, or if haggling will make a comeback?
* excluding some undesirable makes/models that would have sold poorly without huge incentives pre-pandemic anyways.
I'll believe it when I see it. People have been so wrong about these supply chain issues that I am starting to think the whole thing is just permanently busted.
It doesn't help that the fed is literally lying out of its teeth and realistically will do everything they can to AVOID raising interest rates. They are all corrupt as hell, secretly trading stocks under our noses.
When & where have "they" been wrong about the supply chain issues? Everyone's talking about corrections this year and next. We're only 12 days into this year.
I bought a used Tesla in August 2020 from Tesla.com; I turned it in last month to get a longer range one from them. The trade in value was the same as the price I paid originally.
Exactly. That's clearly not sustainable. Either new car prices will keep going up or used car prices will plummet. I think the latter is much more likely.
Newer vehicles have more DRM and more integrated systems, so they cost more to service and are therefore worth less than older vehicles. So these numbers make sense..
If you had any stocks or equity the continuing bubble dwarfs inflation. Lower and upper class both did great in 2020-2021.
Only people that got screwed were a thin band of middle class small bussiness owners. Fuck them they're leaches anyways on what has been too-cheap unskilled labor for decades.
Absolutely. Anyone who goes around saying the solution to the housing crisis is to get low-income families into homes so they can build wealth, which is every American politician without exception, is talking out both sides of their mouth.
Isn't the value of a home that you get to live in it though? It seems ass backwards that we buy a house as an investment. Someone could move into a brand new house, smash all the walls up and rip out the copper pipes while squatting in it for 5 years, that doubles its value!
In December my lease renewal offer included a 35% rent increase. I attempted to bargain them down to a lower increase, but the leasing office never even got back to me. At least according to the subreddit for my area, most apartment buildings here seem to be trying to increase rent 20-40%.
The question is really -- what was the rent for your unit before the pandemic began and the rental market in many cities became depressed. It's difficult to answer because plenty of people had just started a lease before the pandemic began, and had to endure that for a year as others may have received great deals on rent.
Crystal City is filled with landlords and building owners that feel like they are entitled to price increases ever since Amazon decided to build their HQ2 there. I was there before and after the announcement and the real estate prices doubled based on pure speculation that Amazon employees would come through flush with cash, wanting their 700k+ one bedroom apartments.
My friend who lives in Chinatown area says his condo value is still down from Pre-Covid. So he thinks city prices in general are down, not up like the rest of the U.S.
You know what makes my blood boil? My apartment complex is currently leasing me a 700 sq.ft. one bedroom for $940 a month. I decided to move because the rent is being raised to a whopping $1,524 a month before other fees. Parking used to be free but now they are charging a flat $10 for an unreserved stall, $30 for a reserved one. Oh, and they added "Valet Waste" where we are forced to pay $30 a month for someone to pick up trash at our doorway. There are no doubt other fee increases I'm not aware of yet.
What's worse is that the complex is full of unoccupied and newly vacated units. You can tell because the lights are kept on 24/7 and they installed new LED bulbs. This makes me wonder why they would treat current tenants so badly by raising rents so much when so many of those units that are being vacated remain empty?!? Surely it would be better to be less aggressive and have a higher occupancy, no?
If they raised the rent successfully on 2/3rds of the units to just over 3/2’s of its old value, then it seems like they could afford to keep 1/3 of units vacant and available for new tenants who are willing to pay that higher rent. (They’re no worse off on a cashflow basis and they have vacant inventory that represents possible upside.)
I don’t think the second condition is even needed. As long as you can raise the rent by over 50%, you can keep 1/3 of units vacant and be better off than last year; that’s probably only possibly if overall vacancies are low.
companies that profit well in high inflation environments are studied in some business schools. Part of the equation you describe is the (assumed) constant demand, and the ability to adjust frequently compared to life of the asset.
It’s only better to have high occupancy when you care about cash flow. Low/negative cost of capital means you only care about theoretical cash flow for valuation purposes. Given the rate at which home prices have been increasing landlords will make more money from appreciation than from rent.
Rental management companies are accepting offers for leases that are hundreds of dollars/month more than asking price and in some cases expecting you to make that sort of offer, which is insane.
This happened to us as well, but I know it happened all over our city. pretty standard for everyone who got a new lease during COVID times. I don't attribute any of it to inflation. Luckily, our new rent is still much lower than what they're charging new tenants, though.
You gotta know how to negotiate with these crystal city buildings - mainly by just moving from one to another yearly. Sometimes just changing apt in the same building with the new lease is cheaper than staying in current one.
In this situation (identical apartment, different floor, 25% lower rent than my renewal offer), I asked my building manager to match the rent in my offer and they did. I made a simple argument that it would be wasteful not to (I spend money for movers, they spend for cleaners). I feel lucky now.
> I attempted to bargain them down to a lower increase, but the leasing office never even got back to me.
Do you live in a large complex owned by a big company? In my experience large companies don't even attempt to negotiate.
I've tried in the past at two different complex and never got a response until I walked my ass to the front desk and then was told "we don't do that". My buddy tried that same thing at his complex right at the height of covid when everyone was moving out of the city and still got no response. Two months later they sent him an email asking why he left and what they could do to get him back. I think big companies send any attempts at negotiation straight to the trash.
Stuff you learn when you start interacting with the petite investment property class...
Contact your city councilperson and state rep/senator. Public policy doesn't need to punish this sort of behavior, but we should at least stop rewarding property owners who do this sort of thing.
Rents will continue to increase as long as people continue to pay the increased rent.
A 35% increase is far above average, but if people are paying it and it’s not enough to get people to move out, then it’s really just market rate.
On the other hand, if it’s high enough that people start moving out and the new vacancies are hard to fill, those rents will come down very quickly.
One of the strangest things about rent increases in my area is that everybody complains about them, but few people ever bother moving out. The even stranger thing is that most of the people I knew who went remote chose to move to more expensive cities, because that’s where they decided they wanted to live. I suspect rents will continue to rise sharply in hot areas until people are actually willing to vote with their feet.
> On the other hand, if it’s high enough that people start moving out and the new vacancies are hard to fill, those rents will come down very quickly.
Unfortunately, this is unlikely. We’re in an era where building owners would rather let their properties sit empty for years than consider even a modest reduction in price.
> One of the strangest things about rent increases in my area is that everybody complains about them, but few people ever bother moving out.
Why would they move out when everyone is increasing rents?
It's a net neutral result. If you're upset that rent is going from $1200 to $1500, then voting with your wallet and moving somewhere else doesn't work when rent is $1500 everywhere.
Apartment complexes don't compete on price. They don't have to, since every basically needs a place to live, and so they will charge as much as they possibly can. If minimum wage goes up $2, you can bet the landlords will be salivating over how they'll be able to increase rents by $300/month and capture the money, and renters will be stuck paying it because the alternative is to go homeless.
Uh, rental properties absolutely compete in price. That is in fact why prices are so relatively consistent- no sane tenant on the market is going to pick a more expensive apartment when the complex a couple blocks away costs less, so they end up about the same.
That’s different then your assertion that a minimum wage increase would be disproportionately taken up by housing- that’s probably true, but that’s not due to a lack of competition on price, it’s due to more money chasing the same supply. And it’s quite possible that a minimum wage increase could see new entrants chasing rising prices on the low end side- perhaps enabling more people to rent houses as a multi family household rather than apartments.
What we are seeing is an underlying demand shock (the effects of stay at home orders and WFH causing people to want to consume more housing on per person basis, combined with more money from changed consumption patterns and government programs ) that combined with a supply issue (historically low housing construction after the 2008 recession combined with global supply and labor issues) that has created a situation of historic demand chasing historically little supply inventory. If we finally see sufficient housing construction then you’ll see prices stabilize and possibly even come down, because those new units compete with the existing units.
> That is in fact why prices are so relatively consistent- no sane tenant on the market is going to pick a more expensive apartment when the complex a couple blocks away costs less, so they end up about the same.
It's a reasonable assertion, but I'm a bit more cynical. I don't think prices are consistent due to competition based on price, I think it's consistent because they've all figured out what the maximum rent is the market will bear. Again, the important thing to remember is that people need housing. The sellers of housing are taking advantage of that and will charge the absolute highest price they can.
There's no reason to compete on price when you're essentially guaranteed a customer.
> If we finally see sufficient housing construction then you’ll see prices stabilize and possibly even come down, because those new units compete with the existing units.
I've seen first-hand people arguing against construction of new housing. They try to frame it as worrying about traffic, but the quiet part is that they know the higher supply could cause their home value to level off.
We need to stop looking at real estate as a form of investment. It creates extremely perverse incentives that result in housing scarcity for the lower classes.
Same issue here, paying $1200 for for a 600sq ft rental and new owners, made zero improvements and raising to $1500 because some complex down the road is charging that.
a 25 percent increase for me, I would buy but I don't want to hassle with a home bidding and don't plan on living in this state much longer.
Depending on where you are, your lease might automatically convert to month to month. This exact situation happened to a friend of mine in NYC, they didn't sign the lease and didn't move out, and are just paying the old rent. They are legally month to month and are entitled to 60 days notice if the landlord wants them out or raise the rent (landlord hasn't said anything yet). A lease renewal != notice of a rent increase on a month to month tenant.
Homes aren’t Just housing anymore. There are investment funds that scan listing and will tender cash offers within a couple hours of real estate being posted on the MLS listing service.
Although inflation is global, some countries have it pretty low. For example, Portugal is at 1.16%. Two years ago it was negative. Another point is that Portugal is actively moving to renewable energy. Currently I believe they are at 28% or more.
Theoretically, spending that is funded by new taxes shouldn't cause inflation as the money is not "new". The deficit spending of the stimulus checks under both administrations was "new" money chasing substantially fewer products (supply line shortages).
If anything, taxes could have a cooling effect and lower demand.
The programs for spending the money are slated to last as little as a single year, while the taxes to balance the spending are expected to do so over 10 years. It absolutely is inflationary, particularly if any of these shorter than 10 year programs get extended without new taxes to pay for them.
> The programs for spending the money are slated to last as little as a single year
What does this mean? Are you saying that there exists a program in this package that will take less than a year, or are you saying that all of the programs in this package could be wrapped up within a single year? If the latter, fine. If the former, you're using careful phrasing to be intentionally deceptive, which is not a way to argue with people you're trying to convince.
If there are 10 programs that will all be paid for by 10 years of tax increases and one program’s spending happens all in a year and the others across a range of times, none longer than 10 years, that line of argument is convincing to me that there is short-term spending in excess of taxation married to pay for it, even if no programs overrun their budget or get extended without new taxes to cover the extension.
Yes, the former. For instance, the Expanded Child Tax Credit, is extended for 1 year at a estimated cost of $190M if this were expanded to the 10 years the bill is supposed to be payed for, it would be larger than the entire bill is supposed to be.
Do not think raising interest rates would help in the pandemic disruption supply side issues that are the cause of this.
https://twitter.com/M_C_Klein/status/1480538926398029824 consumer spending is down, this flat-out rules out "too much money chasing too little goods" as the root cause, for surely then sellers would lower prices to sell enough more more volume to raise back consumer spending and increase total profit.
The spending from the ARA and covid relief makes up a relatively tiny contribution to the CPI rising. It really has to do with supply chains and energy prices as the economy continues to improve "post"-COVID, as the article states.
I was unable to build last summer due to soaring prices, and feel like I will be unable to again in the spring. Biden inexplicably doubled the tariffs on imported lumber too. The situation genuinely hurts.
The silver lining here is that most households in the U.S. own their home, so they're either shielded from a significant portion of inflation, or their mortgages are getting cheaper in real terms.
Sucks for everyone else though. Especially with the artificial housing shortage.
This isn’t what most people would term a “silver lining.” Inflation is a giant and nearly impossible-to-manage wealth transfer that afflicts everyone productive.
I’m trying to find a way out/ hedge our economy (Canada, similar to U.S. except we can’t print money to get out of it). I have a sinking feeling that either the idiots over leveraging themselves on bubble priced homes will get bailed out or the idiot banks who facilitate them will get bailed out… probably both. Which ironically makes me the idiot for not participating in the idiocy.
Maybe I’m just getting old, but when I look around at our economy, housing, the crypto fascination, etc. it all looks like scams, hype, and fomo to me.
When the big bailouts happen, I’m gonzo. Just don’t know where to yet. Maybe I’ll live on a sailboat to try and minimize the impact of the insanity.
As one of those people that bought a bubble priced house (rental stock in the town I live in just doesn’t exist for the type of place I wanted) I’m pretty impressed with how much Canada can bury its head in the sand about the problem. I think in 4-5 years when all these mortgages get refinanced at (presumably) higher rates some weird shit is going to happen.
The root issue as far as I can tell is supply is incredibly poorly managed. When I was living in Vancouver, there was a lot next to us that was waiting for permission for 2 years to build a low rise, mixed use building in an area already zoned for it. Don’t get me started on “historic” homes in dense areas.
They are stress tested to up to 5.5% interest, so it will take huge moves to cause insolvency. This isn't like the US subprime issue, these borrowers can afford the higher rates.
Right, but don’t ignore the knock on effects of housing payments sucking up more cash, reducing consumer spending. And it won’t be fun refinancing at a higher rate and finding out your house is worth less than when you bought it.
I don’t think our government will let interest rates go up. It should have happened a decade ago, but they kept lowering them instead (and watched the bubble grow). It’s political suicide at this point to do it in any meaningful amount.
Not at all what I’ve been reading. We have a record high 2.5 trillion in mortgage debt, and a lot of that debt (especially in the last year) is high risk.
Both banks and credit unions are required to perform the stress test. The biggest source of fraud is likely loans from parents marked as gifts, but it doesn't change the borrowers have to show evidence they can handle 5% interest rates on the mortgage portion.
>I have a sinking feeling that either the idiots over leveraging themselves on bubble priced homes will get bailed out or the idiot banks who facilitate them will get bailed out… probably both. Which ironically makes me the idiot for not participating in the idiocy.
This is the case for all forms of money making in the last couple years. It's quite depressing that actually being protective, smart and risk adverse to this idiocy is the worst situation to be in.
It's like everyone is playing with fake money and you're standing there saying it's not real, but they keep finding new ways to convince themselves it is. Meanwhile your real money is getting old and dusty.
About 2/3 of people own a home, which is a lot, but I'm not sure I'd call it "most people". And for the 1/3 that do not own a home, often already at a disadvantage in ability to build wealth, they will continue to fall further and further behind as rents rise and their wages lose value. It's a bad situation.
The poor and creditors. The poor, because they have less discretionary income and it isn't inflating to cover their inflating necessary expenditures. The creditors, because their assets are depreciating. The debtors in the middle see their debt, the creditors' asset, deflating.
wages counts in inflation. The poor may be better off or not based on what is stickier.
We all know labor is weak, so we start expecting wages to rise last, but that is not what happened this time, for there was a genuine tightening of the labor market.
I'm not worried about my bank, my credit card company, or my personal loan company - something tells me they'll come out of this OK, if history is any indication. If they don't, I'll be taken down many moons before them.
How long will that shield hold? There are strong generational, economic, and social divides In who owns homes and who benefits from rising prices.
If only retirees, and highly paid professionals are shielded from housing increases I’d expect all other prices to become correlated with housing as workers demand commensurate wage increases or start refusing to work for negative earnings.
It is hard to break that shield. House payments stay the same with inflation. So if you were paying $1000/month and inflation doubles the price of everything you still pay $1000/month. Your income is likely to double in this situation, and while everything else goes up in price you still have that extra $1000/month in your pocket ($500 after accounting for inflation). Or you can do a cash our refinance to get a lot more cash and bring your payments up to $2000/month.
Note that while this is happening bad things happen. It often is the case that you have to live on less real purchases for a few months until your wages go up. However as a homeowner the mortgage not changing means it only takes one or two rounds to get ahead of this forever (that is before you never revert to worse than when you bought the house - you can go backward in purchasing power but not that much), while as a renter your rent will increase yearly and that is often a big hit against your wages that won't increase at the same time (and often not at the same rate - it will balance out in 5 year but that is a long time to live)
Don't read the above as a rant against renting. There are other pros of renting. You need to make the right decision for your personal situation.
I assume you mean that while homeowners are protected from rising rents, they're soon going to be paying out the nose for other goods, as the prices of goods & services produced by renters rise to match the new cost of living?
That's already happening. IMHO you have the causality backwards - prices started rising in 2020, and then some workers have captured some of that surplus by switching jobs, and now landlords are trying to capture the workers' surplus by raising rents. Rents follow wages, which follow profits, which follow prices, and then prices follow rents & wages again in the wage/price spiral. Homeowners have an advantage because their biggest cost of living is fixed, while rents generally rise to capture all available wage surplus.
The folks who really get screwed are the ones with fixed incomes but variable expenses, either a renting retiree or someone who plans to stay at the same employer for a lifetime. You should be aggressively changing jobs and going where the money is to capture some of the large amounts of money that are floating around. People who do that usually do better than average.
The landlord incurs an opportunity cost for not selling their property either as a condo conversion or single family depending on the local market. The property price at sale is directly influenced by prevailing interest rates. The landlord will then charge rents in line with some return horizon that ensures its worth their time to not just sell and take the cash.
Thank god the homeowners are protected from this. I was worried the >100% increase in home value they have seen in the last 5 years might be pulled back a little.
Speaking as a homeowner, an increase in home value does nothing for me.
I plan on living in this house until I croak. If I do happen to move for whatever reason, the increased value doesn't help since likely, ALL houses have gone up. My $300K house being worth $600K doesn't really help when the house I'll need to buy is also now $600K.
Additional equity in a home is useful for a lot more than buying another home, which (assuming all homes inflate equally), you are correct that it is of not much value for.
If you don't have descendants/heirs, an increase allows you to withdraw a massive amount of equity. If you do have heirs, a value increase will do tons for them (further increase inequality in the next generation) if it does nothing for you.
If you plan to live in the home until you die, an increase in home value can be tapped via a reverse mortgage to pay for in home caregivers if you are sick near the end of your life.
> The silver lining here is that most households in the U.S. own their home, so they're either shielded from a significant portion of inflation
Unless something has changed since the recent reports of the inflation surge, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)
> The silver lining here is that most households in the U.S. own their home, so they're either shielded from a significant portion of inflation
Unless something has changed since the recent reports of the inflation surge on the non-energy side, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)
"""The pandemic has seen extraordinary growth in home values... Because of the way shelter costs enter into the CPI, these increases in owned home and rental costs have not yet contributed much to overall inflation.""" - The U.S. White House
It's not that housing prices aren't up, it's that CPI can't (yet) capture the change.
Even if you bring a wheelbarrow of C-notes to the closing to pay for your house, you still never own a house the way you own a ham sandwich. If you fail to pay your property taxes, the government can kick you out and auction your house to repay itself.
At least the vast majority of those mortgages are fixed rate so that the monthly payment doesn't vary. Renting means your monthly payments can continually rise - those with mortgages are shielded from that.
Someone who owns their home by taking out a mortgage (in some sense) loves inflation because they're paying back their loan of, say 2010 dollars in 2020 dollars. Whether the interest rate on the mortgage (the cost of the mortgage) is high or low doesn't matter when it comes to this effect.
Purely from the perspective of their mortgage it is at worst neutral. Sure it sucks that other goods will be increasing in cost relative to the mortgage but even if you got no raises at all over the lifetime of your mortgage and during that period there was positive inflation you are in real terms not paying any more on your mortgage than you were when you got it.
* Assuming a fixed interest rate of course. Don't put that evil on anyone.
Owning your own home doesn't shield you from rent increases, because you're still paying rent, since as a owner you're not getting paid the rent thay you would otherwise receive had you rented your property out. This means you are paying that rent out of your own pocket. This may sound like creative accounting to some, but it's not. The cost is very real, despite not being observable in terms of cash flows.
This makes no sense. Owning a home is not paying rent. Paying a mortgage comes with the expectation of accruing equity in the home. Renting does not. You’re comparing renting with being a landlord.
This is completely backwards! Yes, you get value from owning a house, and you can measure that in dollar terms by looking at comparable rents, but this isn't a cost; it's more like a dividend.
This makes no sense. If you are living in the house you own, you can't simultaneously rent it out. Any rent you might theoretically receive would be essentially canceled out by needing to rent another place to live in.
Shelter is a necessity. If you rented out your primary residence, you would then need to rent yourself, so if rent goes up everywhere then increase in rent prices is a wash.
> Owning your own home doesn't shield you from rent increases, because you're still paying rent,
Yes it does shield you fron rent increases. Specifically because by owning a home you have also purchased an income producing asset that perfectly hedges your rent increase. For every dollar that rent goes up and you have to pay more, you also get an additional dollar in income from that increased rent. Ie shielding you from the affect of any increase.
It's the same thing as buying a stock, and then shorting that same stock (or buying a put). Yes the stock may go down, but for every bit it does, your other investment up down meaning you are now shielded from (or hedged against) any changes in stock price.
Renters headed about 36% of the nation’s 122.8 million households in 2019, the last year for which the Census Bureau has reliable estimates. Because certain demographics – young people, racial and ethnic minorities, and those with lower incomes – are more likely to rent, those groups likely will be disproportionately affected when evictions resume[0].
I suspect what ProfessorLayton means is that they specifically own a house and so sucks for the rest of us.
My comment was not intended to be read as "FU, got mine". I was only pointing out that most households in the U.S. are somewhat shielded from these high inflation numbers, especially since shelter is typically the biggest expense.
I vehemently agree that those who don't own appreciating assets are worse off, which is why I said it "sucks", because it does. But it isn't most households.
Lastly, young people in particular are also less likely vote at all, let alone for their own interests. Before the pandemic, the housing shortage was entirely artificial, and the main reason housing keeps skyrocketing is political. There just isn't enough supply to keep up with demand, yet people without homes don't show up at their local council meetings demanding more housing supply the same way NIMBY homeowners show up demanding less.
Unless you're selling your house to downsize or leave the country, raising home prices isn't a good thing. You have to live somewhere. Higher home values means higher property taxes (in many cases, almost paying for your whole house again, and now at inflated rates).
Raising home prices have much worse effect of kicking away the ladders for the new generation to own their own home, while doing nothing for those who already have a home to live in and desire to keep doing so (other than possibly raising their property taxes).
Fiend of mine bought a luxury home for 500K a few years ago in Phoenix he was paying 7,000 in property taxes annually Now that these 4 bedroom shacks go for 500,000 I can't wait to see what happens when their their property taxes double.
What is likely to happen in America is that all states adopt some form of California's Prop 13, capping taxes for existing homeowners and crippling future generations
How are wages usually managed in the US on scenarios like these? From the outside, it looks like there are no unions to push for wage inflation raises, is that correct?
I wish we had only 7% inflation here... (Argentina)
I wasn't old enough to be employed the last time the US had inflation this high but I can tell you that my current employer has stated that we aren't getting cost of living adjustments despite the high inflation. Instead they're claiming that raises will be based on each employees contribution to the company. Which would be great if they actually meant it since all of us engineers would be getting very significant raises. What will actually happen is that all of us will get about 2% raises, a bunch of people will quit because the job market for developers is great right now, and then the company will hire in a bunch of junior devs for higher wages than the current junior devs are getting.
The companies I've worked for have had periodic (every 6 or 12 months) performance evaluations with associated pay adjustments. The pay adjustment would be broken out into a cost-of-living increase (notionally tracking inflation) and a performance increase (or decrease I guess) based on the employee's performance evaluation. I'm sure it varies by employer, but this seems to be common in my area and industry at least.
We do have unions in the US, though I've not worked in a union shop before. Union contracts vary, but I get the idea it's not uncommon for them to include pay adjustments based on inflation.
In competitive industries like software engineering, you quit and get a new job and then they pay you 10-20% more. In monopsony industries like government, you suck it up and get a 3% cost-of-living increase while gradually falling behind on inflation. In unionized businesses (there aren't many left), your union fights for a 7% pay increase and you basically stay awash with inflation. In competitive small businesses, you try to quit to get that big raise but then find that no other small business has the money to pay you, so you spend your nights, weekends, and downtime on the job doing a data science bootcamp and then quit for a 10x salary boost.
It was the same in the 1970s. My mom (teacher) said that when she entered the workforce in the late 60s, teachers were paid about 20-30% less than professional occupations like doctors, lawyers, and engineers. By the early 1980s, the latter were making 2-3x more but teacher salaries had barely budged. By the time I entered the workforce in the mid-00s, software engineer starting salaries were about the same as teacher pre-retirement salaries, mid-career was 2-3x more, and the top end was 10x+ more.
I think it's because of supply chains inadequate to supply surging demand from people flush with cash. It's the toilet paper drought spread out across the entire economy.
This is a really bad measure of inflation for monetary policy This is a supply shock. This kind of inflation should not heavily impact your monetary policy.
This exactly why fixed inflation targeting is a bad idea and Market Monetarist advocated NGDP Level targeting and New Keynesians simply want the Central bank to do that correctly manually.
Consumer Price Level measures might be useful for other things, but not at input for your central banking function.
> Consumer Price Level measures might be useful for other things, but not at input for your central banking function.
It's not about being useful, but about the fact that the mob is growing more unhappy every day because their buying power is dwindling, which in turns makes elected politicians quake in their boots.
And as much as everyone would like to claim or even in some case believe that central banks are independent entities, this is a complete pipe dream, they are - at the very least - subject to influence peddling like everyone else.
The major lesson of the Fed’s QE policy has been that QE does not put dollars into the economy evenly. Certain asset classes and professions get first crack at the newly printed dollars, and over time firms and industries specifically designed to capture printed money evolve e.g. wework.
It’s not a surprise that we’ll hear tons of information saying that printing money isn’t a bad thing, or that it isn’t the cause of any current monetary outcomes.
There was plenty of money that went to individuals as well and I imagine that's driving retail stocks and now consumer prices. 68% of unemployed workers who received benefits were eligible for payments that are greater than their lost earnings:
> As a result, though, many people may now be eligible for substantially more money while unemployed than they made while they were working. A new analysis by Peter Ganong, Pascal Noel and Joseph Vavra, economists at the University of Chicago, uses government data from 2019 to estimate that 68 percent of unemployed workers who can receive benefits are eligible for payments that are greater than their lost earnings. They also found that the estimated median replacement rate — the share of a worker’s original weekly salary that is being replaced by unemployment benefits — is 134 percent, or more than one-third above their original wage. A substantial minority of those workers, particularly in low-wage professions like food service and janitorial work, may end up receiving more than 150 percent of their previous weekly salary.
I suspect these amounts are ultimately a pittance compared to the 20% annual price gain in housing. A common theme of those choosing to no longer work is that housing makes many jobs cost prohibitive to do.
Not sure I get the argument here— federal enhanced unemployment benefits have been over since September, so there is no longer a monetary benefit to remaining on unemployment in almost all cases.
Are you arguing people aren’t relocating or something to that effect?
My argument is that government spending on unemployment insurance and direct payments to individuals is tiny relative to money printed by the Fed and stashed in assets via QE
I keep hearing this talking point brought up but I just don’t get it. If you’re making more on unemployment, you’re poor and need money for essentials. It’s unlikely you’re investing in stocks. Also, unemployment doesn’t last forever (mine ran out in less than a year). What am I missing?
>you’re poor and need money for essentials. It’s unlikely you’re investing in stocks
I used to think this way as well, but after browsing /r/wallstreetbets I am not at all convinced you need to have wealthy or responsible to invest/trade/gamble in the stock market. And unemployment abuse is a larger more complex topic.
Consumer spending has gone down. Too many dollars cannot be the problem if they aren't being spent!
You might say "oh, well the rich are bidding up gas and food prices, poor people can't afford and ummmm drive and eat less". It sounds silly and it should but even if that were happening, and was the sole causal factor, it would mean the food and gas markets were not clearing, and that is clearly also not happening.
And even if that were happening the sellers would be being irrational. For surely they would lower prices after the rich were fed and gassed up so they could sell the remainder of their goods, and make more money. (the profit rate would go down but the total profits would go up.)
No matter how you cut it, the Monetarist story is false and ridiculous given the evidence.
Overprinting money causes massive economic distortion. For instance, the rich who get the money first are buying up all the houses, turning the US into a nation of renters.
Another example--the federal government enables "easy money" as higher education loans, which has enabled universities to massively overcharge for mostly low quality education.
The monitarists' conception of inflation is a temporary distortion where all the money stock and flows pick up. What you are describing is a spacial distortion where certain people / goods get unfair treatment. The latter is indeed quite dubious, but it's not the same as the former!
Conventional monetary policy is lame and fairly ineffective, but I have seen claims that raising rates is better at destimulating than lowering is at stimulating. What a tough nuance to convey!
I wish it were true, because single family house homeownership is an unsustainable 1950s meme. Better we take the red pill asap and get on with appartments.
https://twitter.com/M_C_Klein/status/1480538926398029824 See clarification tweet that this is about cumulative spending not the current rate of spending. That makes sense since my argument was about total profits vs profit rate and similar.
Now it could catch up, or Omicron could blow over and we continue fixing supply chain issues.
The traffic jam is just the echo of the initial accident, remember.
The prices of most of the (inflation measure) inputs have been increasing, with different delays and magnitudes; it's not just one or two of the inputs. At what point do you acknowledge that there has been a general increase in the price level? If you agree that there has been an increase, when do you think it counts as 'inflation'?
Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years. When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
The big numbers ARE driven by only one or two inputs though. Without used cars and housing, the supply of which took a huge hit for Covid related reasons, the print would be much lower.
Perhaps we should also swap rent increases for living with additional roommates, clearly consumers are choosing more communal living situations and we can thus discount rent price increases as well. Just like we took home prices out of CPI
/s
If we get to choose which categories get excluded from CPI after every bad report it ceases to be a good metric.
CPI is a survey-based methodology and captures how people actually spend their money. If something becomes rare and expensive and people curtail their consumption of it, that is itself a useful signal. If something becomes common and inexpensive and people buy a lot more of it as a result, also a useful signal.
Home purchase price was taken out of CPI-U in 1983 (and CPI-W in 1985) and replaced with an owner-equivalent rent measure that gets at the cost of consumption of shelter (the service that housing provides).
Tl;dr: Housing expenses were not removed; house purchases were (and replaced with a rent-equivalent measure).
The accusation is that OER is a terrible way to measure rent increases. OER is determined by surveys asking homeowners "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"
It's a crazy way to measuring housing inflation for most people. Especially since there are statistics that directly just measure rent increases and the BLS could use those.
Well there are only a few main groups, and if we generally expect that some will respond faster than others, I'd say two or three going up would be quite indicative of general inflation. It seems like food, energy, and commodities (less food and energy) have gone up at different rates. The only major group that's been relatively stable (still about 4%) is services, and it seems likely that it's because many of them have been made illegal/unattractive for many recent months.
It's perfectly normal for supply chain issues to radiate out and diffuse from the initial bottle neck.
> At what point do you acknowledge that there has been a general increase in the price level? If you agree that there has been an increase, when do you think it counts as 'inflation'?
Inflation is an rise an average of prices. It is a symptom, not a single disease.
Monitarists might say there is "the" inflation where all the prices go up, and no good "real activity" excuse to point the finger that. That's like...just their theory, man.
Until the panic is clearly done and production is clearly stabilized, occam's raiser says don't worry about such spooky stuff.
I really don't care about inflation measures. Its simply not the right input tool.
Its not about 'acknowledging' increases in the price level, The price level CPI measure is just a measure, if it goes up, I do 'acknowledge' that.
However, what and if monetary policy should be, should not be guided by CPI inflation.
> Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years.
This is true for a very long time ago but has not been used like that for many decades.
Bringing that point up is really a non issue, even in the 70s people were not using it like that. Basically no modern economics has ever viewed it like that.
This is just a confusing point and argument about language. Yes, if you use that definition inflation has been high, but that does not actually change the policy response at all.
> When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
Again, you seem to be not at all understanding what I am arguing. I am not arguing that inflation doesn't exist.
CPI Inflation simply doesn't mean what people think it means in terms of central bank policy.
I have made no statement about what central bank policy should be, I have not actually studied the numbers in detail.
If it's -only- a supply shock, then prices would eventually come down, right? Well, we are finding that to be less and less true. So something else is going on beneath the surface.
Then in 4-5 years prices would revert, unless it's not just a supply shock and is instead monetarily lead. Prices haven't gone up as much in other countries. The US has one of the highest inflation rates coming out of the pandemic.
As I understand it we're still dealing with supply issues and will be for a long while still. Chips are still incredibly hard to source and that naturally affects a giant range of consumer products.
If prices are up 30%-100% in some instances, and stay up 50% despite the supply chain recovery, then it's not only because of the supply chain. The US has one of the highest inflation rates coming out of the pandemic. Japan essentially has had no inflation.
>That's fine. We have ways to do monetary policy while accepting whatever else is going on.
That assuming you think the Fed won't make a major policy mistake or hasn't already. You act like monetary policy is simple, it's not. I think MMTers have ruined a lot of people's perception on the complexity of monetary policy.
Note that the Market Monetarists have been increasingly vocal recently about central banks overdoing it (after a decade of criticizing for under stimulating). NGDP seems to also be overshooting.
Yes, they tend to be right. A stable long term trend in NGDP fixes pretty much all of these issues. Inflation and Real growth can figure themselves out independently.
If there is a supply shock, you will have lower real growth but monetary policy will not react to that because its a real signal.
Market Monetarists were very active training to tell people that the Fed in 2008 were actually deflationary. That I think is what eventually will be the consequences, just like it is with the Central Bank.
I tend to think you are right here and that worries me. Because if we cannot get back to “normal”, inflation is going to keep rising. At some point the virus is going to kill the economy, too.
Keep in mind that there were 48% more US dollars in existence in November 2021, than in January 2019. That's a 15.0% increase per year. Most of this happened in March–May 2020. https://fred.stlouisfed.org/series/M2SL
Ah but just wait, there is an entire horde of people on HN that will more than happy to explain how what you just said and inflation are entirely uncorrelated phenomenons.
Rates will have to rise to cut inflation. But EM countries will be the ones to pay the price in the end.
I understand most people on HN likely enjoyed a great run in tech bubble but you have to admit speculation here is simply mind boggling (even after the recent SaaS crash).
Its funny how inflation is happening across the whole world, but people want to blame U.S. money printing which got us through the pandemic without an outright DEPRESSION.
This. The entire global economy ran into a solid brick wall all at once and we came out of it with single-digit inflation and a shockingly mild recession. Thus far, modern economic policy seems to have had a big win here.
This doesn't make much sense. Inflation erodes debt and is largely driven by wage increases among low income workers.
>"For example, rank-and-file workers in leisure and hospitality — the lowest-paying sector of the U.S. economy — got a nearly 16% raise in 2021, to $16.97 an hour. That means the average employee at a bar, restaurants and hotel saw pay rise more than two times faster than inflation, amounting to a net 9% increase in annual pay.
Similarly, rank-and-file workers in transportation and warehousing saw their annual pay rise 8.4%, to $25.04 an hour in December. Retail workers got a 7% increase to $19.20. These either exceeded or matched inflation."
Your dollars being worth less is bad for people who have a lot of dollars. Which by definition isn't people at the bottom. You're seeing prices go up because people at the bottom of the American food-chain have been getting paid more as covid has impacted supply chains and the workforce.
Those aren't mutually exclusive. Beef seems to be one of the things that have gone up substantially, but beef is a small fraction of most people's food budget. I'm currently paying about $0.65 per bell pepper which is something like 20% cheaper than they were when prices peaked in 2011, if you trust The Fed[1]
Honest question from someone truly ignorant on these things:
To what extent might this affect Bitcoin (or other proof-of-work) mining?
I've heard that PoW mining is notoriously energy hungry. Does a big increase in energy prices merely slow the mining down, or is there some tipping point that could make PoW-based crypto markets crash and die?
The Bitcoin network is a global energy buyer with properties unlike any other. It will continue to bid for stranded and excess energy that cannot be used for other applications. With last year's Chinese mining ban the network has become more distributed than ever and is likely to be very resilient to US domestic energy-price swings.
PoW is the solution to an important set of interconnected problems, and as long as the network has value, PoW will keep bidding for energy to secure that network.
It's been said, correctly IMHO, there is only Proof-of-Work and obfuscated Proof-of-Work. Rephrased, nothing is cheaper than Proof-of-Work: https://www.truthcoin.info/blog/pow-cheapest/
Quick look suggests that bitcoin energy consumption is a small fraction of world energy consumption. For me, it's hard to guess the effect on pricing. Bitcoin mining seems to be an arbitrage: Turning energy that's priced in one market, into money that can be spent in another market. This would seem to equalize energy prices across markets, while also discouraging countries from subsidizing energy.
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[ 2.7 ms ] story [ 331 ms ] threadNew vehicles: 11.8%
Used cars and trucks: 37.3%
The bad news is that the new vehicle and food price increases are almost certainly sticky.
Energy is the big tricky question mark. The big worry post-pandemic was about US shale production never returning, but it's starting to look like we'll hit the 2019 highs in US domestic production some time in the next year or so. I suspect we're past the peak in terms of rate of growth, but it's hard to say if the new prices are sticky or if we'll see a meaningful decline in the next year or two.
(I've started to build a strategy for selling off my energy holdings and I'm still on the fence about what to do with Ford and GM.)
Food price is also highly cyclical and related to supply constraints of pure commodities which always correct.
I guess I should've clarified. Vehicle prices for equivalent vehicles probably aren't sticky, but the statistic reported here is sticky.
Electrification will increase average sale price. But the amortization schedule will lengthen, operating cost will decrease, and maintenance will plummet. So might still be a win for consumers.
But I don't think avg sale price will come down meaningfully. You'll see a big shift from ICE to E, though, and yes, ICE prices will come down a lot.
> Food price is also highly cyclical and related to supply constraints of pure commodities which always correct.
Suffice it to say that I'm not betting on commodities in either direction but I've got a huge position in Tyson.
Bolts were going for ~$25k at ~250 miles range.
2023 ID.4 is an SUV/Crossover with probably ~240 mile range rumored for ~35k (and $7.5k off tax credit)
Mach-E is an SUV/Crossover with ~250 mile range for ~$44k (and $7.5k off tax credit)
I wonder if that's the new normal, or if haggling will make a comeback?
* excluding some undesirable makes/models that would have sold poorly without huge incentives pre-pandemic anyways.
It doesn't help that the fed is literally lying out of its teeth and realistically will do everything they can to AVOID raising interest rates. They are all corrupt as hell, secretly trading stocks under our noses.
I've got one I'll sell you for $15K over its 2020 purchase price. Perfect condition at only 20K miles.
So companies did not know they had pricing power, and they just realized that? All of them? They all had the same epiphany at the same time?
Only people that got screwed were a thin band of middle class small bussiness owners. Fuck them they're leaches anyways on what has been too-cheap unskilled labor for decades.
35% does seem steep, but it doesn't seem fair to compare against last year's rent when it was likely heavily discounted due to COVID.
What's worse is that the complex is full of unoccupied and newly vacated units. You can tell because the lights are kept on 24/7 and they installed new LED bulbs. This makes me wonder why they would treat current tenants so badly by raising rents so much when so many of those units that are being vacated remain empty?!? Surely it would be better to be less aggressive and have a higher occupancy, no?
It’s all about appreciation. Rent is nice but tenants are a hassle.
Do you live in a large complex owned by a big company? In my experience large companies don't even attempt to negotiate.
I've tried in the past at two different complex and never got a response until I walked my ass to the front desk and then was told "we don't do that". My buddy tried that same thing at his complex right at the height of covid when everyone was moving out of the city and still got no response. Two months later they sent him an email asking why he left and what they could do to get him back. I think big companies send any attempts at negotiation straight to the trash.
Contact your city councilperson and state rep/senator. Public policy doesn't need to punish this sort of behavior, but we should at least stop rewarding property owners who do this sort of thing.
A 35% increase is far above average, but if people are paying it and it’s not enough to get people to move out, then it’s really just market rate.
On the other hand, if it’s high enough that people start moving out and the new vacancies are hard to fill, those rents will come down very quickly.
One of the strangest things about rent increases in my area is that everybody complains about them, but few people ever bother moving out. The even stranger thing is that most of the people I knew who went remote chose to move to more expensive cities, because that’s where they decided they wanted to live. I suspect rents will continue to rise sharply in hot areas until people are actually willing to vote with their feet.
Unfortunately, this is unlikely. We’re in an era where building owners would rather let their properties sit empty for years than consider even a modest reduction in price.
Why would they move out when everyone is increasing rents?
It's a net neutral result. If you're upset that rent is going from $1200 to $1500, then voting with your wallet and moving somewhere else doesn't work when rent is $1500 everywhere.
Apartment complexes don't compete on price. They don't have to, since every basically needs a place to live, and so they will charge as much as they possibly can. If minimum wage goes up $2, you can bet the landlords will be salivating over how they'll be able to increase rents by $300/month and capture the money, and renters will be stuck paying it because the alternative is to go homeless.
That’s different then your assertion that a minimum wage increase would be disproportionately taken up by housing- that’s probably true, but that’s not due to a lack of competition on price, it’s due to more money chasing the same supply. And it’s quite possible that a minimum wage increase could see new entrants chasing rising prices on the low end side- perhaps enabling more people to rent houses as a multi family household rather than apartments.
What we are seeing is an underlying demand shock (the effects of stay at home orders and WFH causing people to want to consume more housing on per person basis, combined with more money from changed consumption patterns and government programs ) that combined with a supply issue (historically low housing construction after the 2008 recession combined with global supply and labor issues) that has created a situation of historic demand chasing historically little supply inventory. If we finally see sufficient housing construction then you’ll see prices stabilize and possibly even come down, because those new units compete with the existing units.
It's a reasonable assertion, but I'm a bit more cynical. I don't think prices are consistent due to competition based on price, I think it's consistent because they've all figured out what the maximum rent is the market will bear. Again, the important thing to remember is that people need housing. The sellers of housing are taking advantage of that and will charge the absolute highest price they can.
There's no reason to compete on price when you're essentially guaranteed a customer.
> If we finally see sufficient housing construction then you’ll see prices stabilize and possibly even come down, because those new units compete with the existing units.
I've seen first-hand people arguing against construction of new housing. They try to frame it as worrying about traffic, but the quiet part is that they know the higher supply could cause their home value to level off.
We need to stop looking at real estate as a form of investment. It creates extremely perverse incentives that result in housing scarcity for the lower classes.
a 25 percent increase for me, I would buy but I don't want to hassle with a home bidding and don't plan on living in this state much longer.
Then rent those homes out at a substantial profit
https://www.washingtonpost.com/business/interactive/2021/inv...
If anything the subsidies for renewable energy (build out and research) would give fossil fuels more competition.
If anything, taxes could have a cooling effect and lower demand.
What does this mean? Are you saying that there exists a program in this package that will take less than a year, or are you saying that all of the programs in this package could be wrapped up within a single year? If the latter, fine. If the former, you're using careful phrasing to be intentionally deceptive, which is not a way to argue with people you're trying to convince.
https://twitter.com/M_C_Klein/status/1480538926398029824 consumer spending is down, this flat-out rules out "too much money chasing too little goods" as the root cause, for surely then sellers would lower prices to sell enough more more volume to raise back consumer spending and increase total profit.
But to be clear, if this is deficit driven, it is driven by the tax cuts from the previous congress.
Maybe we should keep the taxes in the new bill and get rid of the new spending
Sucks for everyone else though. Especially with the artificial housing shortage.
Maybe I’m just getting old, but when I look around at our economy, housing, the crypto fascination, etc. it all looks like scams, hype, and fomo to me.
When the big bailouts happen, I’m gonzo. Just don’t know where to yet. Maybe I’ll live on a sailboat to try and minimize the impact of the insanity.
The root issue as far as I can tell is supply is incredibly poorly managed. When I was living in Vancouver, there was a lot next to us that was waiting for permission for 2 years to build a low rise, mixed use building in an area already zoned for it. Don’t get me started on “historic” homes in dense areas.
Not at all what I’ve been reading. We have a record high 2.5 trillion in mortgage debt, and a lot of that debt (especially in the last year) is high risk.
This is the case for all forms of money making in the last couple years. It's quite depressing that actually being protective, smart and risk adverse to this idiocy is the worst situation to be in.
It's like everyone is playing with fake money and you're standing there saying it's not real, but they keep finding new ways to convince themselves it is. Meanwhile your real money is getting old and dusty.
edit: 89% of US homes are occupied. Of these, 58% are owner occupied. https://www.census.gov/housing/hvs/files/currenthvspress.pdf
https://newsilver.com/the-lender/millennial-home-buying-stat...
https://www.forbes.com/sites/eriksherman/2021/10/27/the-futu...
We all know labor is weak, so we start expecting wages to rise last, but that is not what happened this time, for there was a genuine tightening of the labor market.
If only retirees, and highly paid professionals are shielded from housing increases I’d expect all other prices to become correlated with housing as workers demand commensurate wage increases or start refusing to work for negative earnings.
Note that while this is happening bad things happen. It often is the case that you have to live on less real purchases for a few months until your wages go up. However as a homeowner the mortgage not changing means it only takes one or two rounds to get ahead of this forever (that is before you never revert to worse than when you bought the house - you can go backward in purchasing power but not that much), while as a renter your rent will increase yearly and that is often a big hit against your wages that won't increase at the same time (and often not at the same rate - it will balance out in 5 year but that is a long time to live)
Don't read the above as a rant against renting. There are other pros of renting. You need to make the right decision for your personal situation.
That's already happening. IMHO you have the causality backwards - prices started rising in 2020, and then some workers have captured some of that surplus by switching jobs, and now landlords are trying to capture the workers' surplus by raising rents. Rents follow wages, which follow profits, which follow prices, and then prices follow rents & wages again in the wage/price spiral. Homeowners have an advantage because their biggest cost of living is fixed, while rents generally rise to capture all available wage surplus.
The folks who really get screwed are the ones with fixed incomes but variable expenses, either a renting retiree or someone who plans to stay at the same employer for a lifetime. You should be aggressively changing jobs and going where the money is to capture some of the large amounts of money that are floating around. People who do that usually do better than average.
I plan on living in this house until I croak. If I do happen to move for whatever reason, the increased value doesn't help since likely, ALL houses have gone up. My $300K house being worth $600K doesn't really help when the house I'll need to buy is also now $600K.
Unless something has changed since the recent reports of the inflation surge, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)
Unless something has changed since the recent reports of the inflation surge on the non-energy side, housing hasn't been a big part of it (used auto prices were, IIRC, the single biggest component—which also doesn't hit most people regularly...)
It's not that housing prices aren't up, it's that CPI can't (yet) capture the change.
Everyone is ahead but small bussiness owners without bubble-worthy assets who just relied on too-cheap labor to make a profit.
For some definition of "own".
Most do have some amount of equity in their home and have a big fat mortgage to repay.
I am sorry, but that's not exactly "ownership" in my book.
As to your second point (inflation up => cost of mortgage down), only true if wages go up, which, unless I am mistaken ...
Yes, agreed. You are merely renting land from the govt.
That is not the case everywhere, btw, IIRC.
Ireland (I believe, to be verified) and China don't have things like property taxes.
In a more ideal world, we want mortgages to get more expensive (so that housing itself would get cheaper).
* Assuming a fixed interest rate of course. Don't put that evil on anyone.
I am a homeowner and don't want my home value to double when real income has barely moved in the same period. That's not sustainable.
Even if I could sell without repurchasing, to pocket the cash, there's another generation behind me that's going to need a place to live.
You can't just have entire generations of homeless people without it affecting society.
Inflation is the best thing that can happen to you if you owe highly leveraged debt on appreciating assets. The more debt the better.
Your debt payments stay stable, the asset price goes up, your wages go up, and within a few years the payments are negligible compared to your salary.
Compare this to a renter - your rental payments go up, your wages go up.
Yes it does shield you fron rent increases. Specifically because by owning a home you have also purchased an income producing asset that perfectly hedges your rent increase. For every dollar that rent goes up and you have to pay more, you also get an additional dollar in income from that increased rent. Ie shielding you from the affect of any increase.
It's the same thing as buying a stock, and then shorting that same stock (or buying a put). Yes the stock may go down, but for every bit it does, your other investment up down meaning you are now shielded from (or hedged against) any changes in stock price.
I suspect what ProfessorLayton means is that they specifically own a house and so sucks for the rest of us.
0: https://www.pewresearch.org/fact-tank/2021/08/02/as-national...
I vehemently agree that those who don't own appreciating assets are worse off, which is why I said it "sucks", because it does. But it isn't most households.
Lastly, young people in particular are also less likely vote at all, let alone for their own interests. Before the pandemic, the housing shortage was entirely artificial, and the main reason housing keeps skyrocketing is political. There just isn't enough supply to keep up with demand, yet people without homes don't show up at their local council meetings demanding more housing supply the same way NIMBY homeowners show up demanding less.
Raising home prices have much worse effect of kicking away the ladders for the new generation to own their own home, while doing nothing for those who already have a home to live in and desire to keep doing so (other than possibly raising their property taxes).
The inflation from the stimulative policies in effect today won't even show up for six months
I wish we had only 7% inflation here... (Argentina)
Labor shortage -> real worker power -> solidify gains with unions
Trying to boost unions when labor is on the ropes is foolish preaching from vicarious onlookers.
We do have unions in the US, though I've not worked in a union shop before. Union contracts vary, but I get the idea it's not uncommon for them to include pay adjustments based on inflation.
In competitive industries like software engineering, you quit and get a new job and then they pay you 10-20% more. In monopsony industries like government, you suck it up and get a 3% cost-of-living increase while gradually falling behind on inflation. In unionized businesses (there aren't many left), your union fights for a 7% pay increase and you basically stay awash with inflation. In competitive small businesses, you try to quit to get that big raise but then find that no other small business has the money to pay you, so you spend your nights, weekends, and downtime on the job doing a data science bootcamp and then quit for a 10x salary boost.
It was the same in the 1970s. My mom (teacher) said that when she entered the workforce in the late 60s, teachers were paid about 20-30% less than professional occupations like doctors, lawyers, and engineers. By the early 1980s, the latter were making 2-3x more but teacher salaries had barely budged. By the time I entered the workforce in the mid-00s, software engineer starting salaries were about the same as teacher pre-retirement salaries, mid-career was 2-3x more, and the top end was 10x+ more.
And don't let anybody tell you otherwise:
This is totally because of fiscal deficit.
I think it's because of supply chains inadequate to supply surging demand from people flush with cash. It's the toilet paper drought spread out across the entire economy.
This exactly why fixed inflation targeting is a bad idea and Market Monetarist advocated NGDP Level targeting and New Keynesians simply want the Central bank to do that correctly manually.
Consumer Price Level measures might be useful for other things, but not at input for your central banking function.
It's not about being useful, but about the fact that the mob is growing more unhappy every day because their buying power is dwindling, which in turns makes elected politicians quake in their boots.
And as much as everyone would like to claim or even in some case believe that central banks are independent entities, this is a complete pipe dream, they are - at the very least - subject to influence peddling like everyone else.
The supply shock you need to be worried about is the shocking oversupply of new dollars competing for the same resources.
It’s not a surprise that we’ll hear tons of information saying that printing money isn’t a bad thing, or that it isn’t the cause of any current monetary outcomes.
> As a result, though, many people may now be eligible for substantially more money while unemployed than they made while they were working. A new analysis by Peter Ganong, Pascal Noel and Joseph Vavra, economists at the University of Chicago, uses government data from 2019 to estimate that 68 percent of unemployed workers who can receive benefits are eligible for payments that are greater than their lost earnings. They also found that the estimated median replacement rate — the share of a worker’s original weekly salary that is being replaced by unemployment benefits — is 134 percent, or more than one-third above their original wage. A substantial minority of those workers, particularly in low-wage professions like food service and janitorial work, may end up receiving more than 150 percent of their previous weekly salary.
https://fivethirtyeight.com/features/many-americans-are-gett...
Are you arguing people aren’t relocating or something to that effect?
I used to think this way as well, but after browsing /r/wallstreetbets I am not at all convinced you need to have wealthy or responsible to invest/trade/gamble in the stock market. And unemployment abuse is a larger more complex topic.
You might say "oh, well the rich are bidding up gas and food prices, poor people can't afford and ummmm drive and eat less". It sounds silly and it should but even if that were happening, and was the sole causal factor, it would mean the food and gas markets were not clearing, and that is clearly also not happening.
And even if that were happening the sellers would be being irrational. For surely they would lower prices after the rich were fed and gassed up so they could sell the remainder of their goods, and make more money. (the profit rate would go down but the total profits would go up.)
No matter how you cut it, the Monetarist story is false and ridiculous given the evidence.
Another example--the federal government enables "easy money" as higher education loans, which has enabled universities to massively overcharge for mostly low quality education.
The monitarists' conception of inflation is a temporary distortion where all the money stock and flows pick up. What you are describing is a spacial distortion where certain people / goods get unfair treatment. The latter is indeed quite dubious, but it's not the same as the former!
Conventional monetary policy is lame and fairly ineffective, but I have seen claims that raising rates is better at destimulating than lowering is at stimulating. What a tough nuance to convey!
The data doesn’t seem to support this, at least not yet. The owner occupancy of units has been increasing since 2016 and increased after 2020.
The increase in housing prices has been extraordinary, but seems in large part due to people who actually intend to live in that housing.
See: https://fred.stlouisfed.org/series/EOWNOCCUSQ176N
https://fred.stlouisfed.org/series/RHORUSQ156N
It did go down. Now its back to normal.
https://fred.stlouisfed.org/graph/fredgraph.png?g=KOBi
Source?
This is what I could find: Personal Consumption Expenditures
Also savings rate has gone back down after a spike that coincided with stimulus payments
https://fred.stlouisfed.org/series/PCE
https://fred.stlouisfed.org/series/PSAVERT
Now it could catch up, or Omicron could blow over and we continue fixing supply chain issues.
The traffic jam is just the echo of the initial accident, remember.
Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years. When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
/s
If we get to choose which categories get excluded from CPI after every bad report it ceases to be a good metric.
Home purchase price was taken out of CPI-U in 1983 (and CPI-W in 1985) and replaced with an owner-equivalent rent measure that gets at the cost of consumption of shelter (the service that housing provides).
Tl;dr: Housing expenses were not removed; house purchases were (and replaced with a rent-equivalent measure).
The accusation is that OER is a terrible way to measure rent increases. OER is determined by surveys asking homeowners "If someone were to rent your home today, how much do you think it would rent for monthly, unfurnished and without utilities?"
It's a crazy way to measuring housing inflation for most people. Especially since there are statistics that directly just measure rent increases and the BLS could use those.
https://www.bls.gov/news.release/pdf/cpi.pdf
> At what point do you acknowledge that there has been a general increase in the price level? If you agree that there has been an increase, when do you think it counts as 'inflation'?
Inflation is an rise an average of prices. It is a symptom, not a single disease.
Monitarists might say there is "the" inflation where all the prices go up, and no good "real activity" excuse to point the finger that. That's like...just their theory, man.
Until the panic is clearly done and production is clearly stabilized, occam's raiser says don't worry about such spooky stuff.
Its not about 'acknowledging' increases in the price level, The price level CPI measure is just a measure, if it goes up, I do 'acknowledge' that.
However, what and if monetary policy should be, should not be guided by CPI inflation.
> Inflation originally meant 'an increase in the money supply' (what we now call m1), which is what we've seen over the past two years.
This is true for a very long time ago but has not been used like that for many decades.
Bringing that point up is really a non issue, even in the 70s people were not using it like that. Basically no modern economics has ever viewed it like that.
This is just a confusing point and argument about language. Yes, if you use that definition inflation has been high, but that does not actually change the policy response at all.
> When the governments enacted their responses to COVID, many predicted 'inflation', and some denied it would happen. Does this count? What would 'count'?
Again, you seem to be not at all understanding what I am arguing. I am not arguing that inflation doesn't exist.
CPI Inflation simply doesn't mean what people think it means in terms of central bank policy.
I have made no statement about what central bank policy should be, I have not actually studied the numbers in detail.
Not necessarily.
> Well, we are finding that to be less and less true. So something else is going on beneath the surface.
That's fine. We have ways to do monetary policy while accepting whatever else is going on.
If you target NGDP Levels your demand function already balances supply and demand correctly by itself.
>That's fine. We have ways to do monetary policy while accepting whatever else is going on.
That assuming you think the Fed won't make a major policy mistake or hasn't already. You act like monetary policy is simple, it's not. I think MMTers have ruined a lot of people's perception on the complexity of monetary policy.
If there is a supply shock, you will have lower real growth but monetary policy will not react to that because its a real signal.
Market Monetarists were very active training to tell people that the Fed in 2008 were actually deflationary. That I think is what eventually will be the consequences, just like it is with the Central Bank.
I'd think that the root supply issues were easing over last year, so much of what we are seeing is still an echo what's already come.
If omicron blows through as fast as it arose, I'd say things are looking up. Still team transitory.
If they are not hitting targets its just bad leadership.
So never fall into the trap of thinking the central bank has not 'teeth'. They could hit almost any target they wanted.
The only thing that needs to change is the mind of people on the control board.
I understand most people on HN likely enjoyed a great run in tech bubble but you have to admit speculation here is simply mind boggling (even after the recent SaaS crash).
For anyone who isn't, it's a huge loss or at the very least, a huge widening of the gap.
>"For example, rank-and-file workers in leisure and hospitality — the lowest-paying sector of the U.S. economy — got a nearly 16% raise in 2021, to $16.97 an hour. That means the average employee at a bar, restaurants and hotel saw pay rise more than two times faster than inflation, amounting to a net 9% increase in annual pay.
Similarly, rank-and-file workers in transportation and warehousing saw their annual pay rise 8.4%, to $25.04 an hour in December. Retail workers got a 7% increase to $19.20. These either exceeded or matched inflation."
Your dollars being worth less is bad for people who have a lot of dollars. Which by definition isn't people at the bottom. You're seeing prices go up because people at the bottom of the American food-chain have been getting paid more as covid has impacted supply chains and the workforce.
https://www.cnbc.com/2022/01/12/higher-pay-eclipses-inflatio...
This isn't a comment against inflation, it's a comment against printing lots of money to protect investments at the top.
housing and rent here havent gone up here in india.
usa asset bubble seems a bit insane from outside.
Inflation being a side-effect of not having a depression is still inflation. The blame doesn't just suddenly evaporate.
The US caused most of the world's inflation.
https://www.nytimes.com/2020/12/10/business/european-central...
https://www.wsj.com/articles/chinas-central-bank-cuts-reserv...
>The blame doesn't just suddenly evaporate.
>The US caused most of the world's inflation.
The world follows the US in nearly all cases when there's a problem with the economy. That's what being a lead economy in the world means.
This doesn't jive with this at all.
Meat, poultry, eggs jumped 12-13% and seems like that isn't coming down anytime soon.
[1]: https://fred.stlouisfed.org/series/APU0000712406
To what extent might this affect Bitcoin (or other proof-of-work) mining?
I've heard that PoW mining is notoriously energy hungry. Does a big increase in energy prices merely slow the mining down, or is there some tipping point that could make PoW-based crypto markets crash and die?
Disclaimer: I'd like to buy a new GPU in 2022.
PoW is the solution to an important set of interconnected problems, and as long as the network has value, PoW will keep bidding for energy to secure that network.
It's been said, correctly IMHO, there is only Proof-of-Work and obfuscated Proof-of-Work. Rephrased, nothing is cheaper than Proof-of-Work: https://www.truthcoin.info/blog/pow-cheapest/