Replace 'war' with 'pandemic', and that would also be true. That we have both in combination, means effects of one can be blamed on the other for a while yet to come.
The water level never fully recedes despite, or as a result of, society's short memory.
Edited to add: Are we likely to see an acceleration of the electrification of transport? Buy Tesla shares? Renewable energy projects double-digit percentage uptick?
While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the effect will cancel out in time. You are right that some prices are sticky - but so are wages - and so there's a built-in mechanism to address this over time. [0]
> Edited to add: Are we likely to see an acceleration of the electrification of transport? Buy Tesla shares? Renewable energy projects double-digit percentage uptick?
Investing isn't really that simple. While TSLA has notionally gone down in price per share (from $1200 to $780), the bubble has gotten bigger. It's market cap is higher than every other automaker put together, plus a bunch of utility companies, plus a few battery companies. This is about the most crowded trade on the planet. Even after Elon dumped on everyone at the peak and is under SEC investigation for doing so. [1]
Generally, you won't do much better than just investing in the S&P 500. In fact 92% of actively-managed funds underperform the S&P 500 over a 15 year period. [2] You think you can do better?
An incredibly good investment for anyone that can afford it in the USA is a house. The government subsidizes your mortgage by fixing the rate. As inflation increases rents, you pay the same amount. It’s an amazing handout for even the slightly wealthy.
It actually depends on a ton of factors. [1] How long you plan to stay there, opportunity cost of capital, annual salary, deductions, inflation, taxes, closing costs, HOAs, maintenance, etc. It can be! But it isn't always.
At some point you need to make a decision in life. I myself am self-made wealthy and I didn’t do that by putting all my money in index funds and renting.
It's interesting that you say that, I've also done quite well for myself, and I was in a position to risk more because I hadn't committed all my free capital to a down payment on a mortgage. In fact, at that time, I wouldn't have been able to afford a place I actually wanted to live in anyways. Putting down roots doesn't mean owning a property you don't want to, and being unable to then expose yourself to more interesting risks due to being house-poor.
This is of course equally anecdotal, which is why I think folks would do well to review the NYT calculator to evaluate the specifics of their situation :)
Risk is good! I'm a big fan of risk. However, a house won't go up more than a few points a year. That's never going to be life changing money. The opportunity cost of the down payment making you unable to early exercise some startup equity could on the other hand leave you pretty full of regret.
In the US you can put 5% down and lock in your monthly payment forever. This is because the government subsidizes this. It’s an incredible trade and that’s why any attempts at reform are lobbied so aggressively.
The 'trade' in all this is not the appreciation of house price. Housing is a middling performing, high maintenance cost, depreciating asset.
However, you can borrow against it cheaper than virtually any other asset in existence at absurd leverage ratios - and swap your cash flow for the ownership of the asset. So long as interest rates are at or below growth / inflation / or your salary increases - it is a good investment.
> The opportunity cost of the down payment making you unable to early exercise some startup equity could on the other hand leave you pretty full of regret.
Startup equity of the kind that produces fuck you-money returns shouldn't cost that much to early exercise since it's usually early stage, that's kind of the whole point of early exercise and filing the 83b before the imaginary value goes up in subsequent funding rounds.
When it's late stage enough for exercising to cost a pile of money, people usually don't bother with exercising and simply wait for a liquidity event to occur, assuming accelerated vesting will accompany it, and pay the exercise cost and taxes directly from the shares AIUI.
But I suppose it's nice to be able to exercise and leave if you wanted to before a liquidity event, since the options tend to expire in what... 90 days? Preserving that option with a pile of cash on hand is useful, handcuffs are annoying regardless of their color.
It's not about roots. Especially now, there's a risk the Fed may raise interest rates to counter inflation which could negatively impact asset prices.
And mortgaging a house is leverage.
If you put your money in stocks and they go down 15%, you lose 15% of your money. If you plonk a 15% downpayment on a house and the house loses 15% of its value, you get zeroed out.
No guarantee that happens right now, but it sure could.
I have a lot of investments but my property has been both a winner and something accessible to even non-wealthy people because of the socialized costs. Highly recommend property to everyone.
Shelter is something you need. If you rent, the cost rises with inflation. With the US government, taxpayers effectively pay the inflation for you. The laws of the USA subsidize your property to make it artificially cheaper. I can’t imagine a better deal for someone with enough money for a down payment.
The US subsidizes it and then artificially constrains the housing supply through zoning, so the subsidies just inflate the purchase price and go to the banks as interest on higher principal or to the people who owned property when the subsidies were first implemented.
The ROI is attributable to the supply constraint in the face of population growth, not the subsidies.
If housing supply wasn't constrained the subsidies would lower the initial cost but then it wouldn't work as an investment because the real value would never go up since if it did that would cause an increase in supply through new construction.
But that's also what makes it a pyramid scheme. More people bidding on the same amount of housing makes the price go up, but only if the population grows. Fertility rate tells a bad story there. And on top of that it's per-city; ask people who had homes in Detroit.
Someday this is all going to fall apart. I don't know when it's going to be though.
Tragedy of the commons, when you got into this game your participation in it made it much worse to everyone else: prospect house buyers, taxpayers and so on.
Not a judgment of your character or anything, it makes rational financial sense as an individual to participate in it but if everyone followed your path we'd be thoroughly fucked with housing prices. More than what it already is.
If you put 15% down and the house value drops, you still save on rent. Paying down a mortgage is paying back a loan. Paying rent is just paying someone.
I lucked out in 2007 and decided to rent rather than buy. Economy went into the shitter after and after a couple years my company had lay offs but I was lucky enough to jump to a better role in another city.
I spent $36,000 in rent over 2 years.
I had several friends who bought with $60,000 down and paid $50,000 in mortgage payments and property taxes.
When I moved I gave my landlord the keys and got my deposit back.
When they moved their house was way underwater, so they sent the bank the keys and walked away.
I spent $74,000+ less on housing than they did by renting.
It was just luck and sure an extreme example but man the lessons of 2008 have been very quickly forgotten.
>It was just luck and sure an extreme example but man the lessons of 2008 have been very quickly forgotten.
You're right, but I'd like to share with you a lesson I learned in 2020/2021. Every single leader that has been around since 2008 is terrified of "mortgage" causing 2 recessions in a row.
Seeing people rally around house prices and evections over the past two years really solidified this for me.
I’m kinda shocked youre downvoted, this is a very reasonable take.
Real estate can be a great investment, but it has very high transaction costs, is not diversified at all (real estate is entirely local), and has high maintenance costs.
Home ownership makes people poor by discouraging moves to optimize opportunities. Additionally, this prolonged period of high house price appreciation is an anomaly that cannot be sustained. House prices are supported by incomes which are not growing at the same high rates. Historically houses are depreciating assets because critical components such as the roof and essential utilities like plumbing require regular maintenance and replacement at intervals between 15-50 years depending on durability and conditions.
This diminishes your reply unfairly, and that's not my intention: I was going to try to word my way around (normal) inflation being somewhat of a solution to this, but felt it watered down my sentiment more than I'd have liked.
>You think you can do better?
I'm not a trader, and in my very (like, VERY!) low value dabbles I've invariably lost (like, apparently, 90% of amateur traders). If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Investing is always a gamble though. My meagre investments are a very high percentage in indexed funds or ETFs or whatever they're called (see, I'm a freakin' pro :)).
> If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices.
Before you buy the stock, please consider not only the fact that it is likely gonna be great but *also* the current price of the stock. You also wouldn't buy a car without knowing the price. The market cap of Tesla is currently 792 billion. Let's look at the operating cash flow since that is the money a company can sort of spend on whatever they want. Their operating cash flow for the year 2021 is about 11.5 billion. So, assuming no growth, they will need 68 of those years to be able to pay all investors back.
But, okay, let's assume some growth. Let's say 30% growth in cash flow per year which is a optimistic estimate. Few companies manage to get a 30% yearly growth; let alone for a longer period. They will need about 16 of those years (11.5 * 1.3^16 = 765 billion).
As another number, you can look at the PE Ratio. The average PE Ratio for the S&P 500 is 23.80 currently (https://www.multpl.com/s-p-500-pe-ratio). In 2011 it got as low as 14 even. Tesla sits at 156!
To form your own opinion, I can highly recommend watching a bunch of videos on YouTube with Warren Buffet, Monish Pabrai, Howard Marks and Ray Dalio and if you get the chance a (audio)book or two of some of them. Especially Warren and Charlie Munger have a great ability to put things into perspective.
While true, it's not really a problem per se. On average, wages keep pace with inflation..
If that were the case stagflation of the 1970’s wouldn’t have been a big deal, but it was. And supply shocks were also a major trigger (Arab oil embargo).
If wage increases lag inflation, then consumers pull back on spending as prices rise. This can push you into a recession or piss-poor economic growth.
It took the US over a decade to get out of the high inflation/low growth environment of the mid-70s and the pain of even higher interest rates needed to break inflation - which further depressed the economy - was a painful cure.
> While true, it's not really a problem per se. On average, wages keep pace with inflation and so if prices go up in a persistent way, so too will wages, and the effect will cancel out in time.
You forget about sequence.
Prices went up 7-8% last year. I'm hoping that my company cost of living adjustment will match that... when it shows up. It hasn't yet. In the meantime, I'm paying 7% more for things on a salary that has not yet gone up.
My wages may catch up. But in the meantime, it hurts.
Very few employers give automatic raises for anything like a "cost of living adjustment". They set salary targets by looking at what other employers are doing, and then adjust up or down based on voluntary employee turnover rates.
That's simply not true. [1, 2] They've stayed roughly flat in constant dollars since 1964 indicating that they have, in fact, kept pace with inflation. Average wage was $2.50 in 1964, and today it's about $25, in nominal terms. Wages in the US have, in fact, kept pace with inflation for decades.
They haven't kept pace with productivity growth, but that's a different matter, and one worth paying attention to.
Electrification is still difficult to predict. Communities fight tooth and nail to prevent solar farms, wind farms, and most crucially, transmission lines.
Could’ve had a line from Montreal through Maine but voters from the state killed it. Now our best hope is along the Hudson.
It’s not a technology problem, it’s a governance problem.
Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending. The other party doesn't like to balance budgets either and if the Fed even touches interest rates the market (and everyone's 401k) tanks.
> Unfortunately the party in charge right now is trumpeting the idea that inflation must be because companies are price gouging customers rather than trying to slow down domestic spending.
What is the scope of the evidence that proves that this claim (which, btw, is really not being trumpeted by anyone "in charge") is false?
The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers. Greedy companies might collude in an industry here and there, but that doesn’t cause across the board inflation.
And this grand conspiracy argument is the position, at least in part, being pushed by the Democratic Party in the US. It’s actually similar to what flailing governments in third world inflationary economies say too. It’s always the evil capitalists raising prices for no reason but to line their pockets. Ignorant drivel meant to appease ignorant people and deflect blame.
> The law of supply and demand is what sets prices across an entire economy, not some grand conspiracy by every company to overcharge consumers.
Nope. Prices are set by what the market is willing to bear. Supply and demand are loosely correlated with the final retail price of things.
Demand for a good is based on its current asking price and how the consumer values that good. If the asking price ends up pricing the good out of the market's ability to pay for it the demand will drop irrespective of the supply.
As for conspiracies to increase prices, that's just a ludicrous position. All players in the market with the same incentives can move in lockstep with zero coordination. There doesn't need to be a conspiracy when every company basically lives by "make the most money".
If you see a competitor raising prices it's the perfect time to raise your own prices irrespective of your costs. If your costs haven't increased then you get better margins for free. There's no need for direct collusion when competitors are looking at the same news and have the same overall playbook.
Except that ignores the innovation we bring to manufacturing. If a car manufacturer finds a way to use less material in a component or a furniture maker finds a way to use more of the tree in their products then that lowers the marginal cost. Their competitors will adopt the same idea or else risk going out of business.
Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.
I've heard the "it's a conspiracy to raise prices!!" point of view too. It's a very simplistic way to think about the inflation, and I wish there were a little more critical thinking around it.
However, some of the inflation is being caused by companies just being comfortable raising their prices. They are comfortable because so many companies are monopolies, and as soon as there's any slight pressure in the direction of inflation, they immediately pass it onto their customers without any punishment. The anger against companies for gouging consumers is placed correctly, but of course it's with the wrong explanations.
There is no need whatsoever for a conspiracy. The interests of those who (a) own capital and (b) sell stuff naturally align without much need for coordination.
You seem to be claiming that the price increases seen over the last (pick a number) 10 months are all driven by "actual inflation", and that the instances of companies raising prices to increase their profit margins are rare.
I haven't seen good evidence for this claim. I have seen reasonable evidence that it's the other way around: a few limited sectors have experienced "actual inflation", but most of the price increases are arbitrary and imposed by sellers.
Note: we do not have "across the board inflation" either. Quite a few things have continued to drop in price across the pandemic.
Inflation is not just driven by changes in the supply curve. It can also happen due to shifts in the demand curve. If you pump money into the elite class by printing money, they can drive the prices of education, housing, etc. higher. Eventually, those increased prices work their way down to the middle and lower classes.
The word "can" is doing a lot of work here. Real-world economics is almost infinitely more complex than this sort of simplistic analysis.
Just as one example: housing prices often rise in response to a process frequently referred to as "gentrification" (often with a somewhat disparaging tone, to put it mildly). But that process tends to start when people with very little income to spend on housing move into low cost of living neighborhoods and subtly shift their demographics and nature. So is gentrification a process driven by the "poor" (the initial influx of new tenants) or by the "rich" (developers who can carry out significant remodelling and/or new construction) ? The answer is clearly both, yet even that doesn't really cover the whole mechanism. For a start, for gentrification to become significant in driving up housing costs, existing owners need to sell. These are often neither the newcomers nor the developers. Gentrification also requires a modest but distinct influx of businesses into an area, which in turn requires businesses to either start or expand.
I'm citing this as just one single example of where bullshit simplifications drawn from "basic" economics fail to describe the real world. There are so, so many more.
Gentrification is a classic example of supply and demand from microecon. As an area becomes nicer to live in it gains more and more demand with people with high willingness and ability to pay. Supply remains fixed, because of US zoning laws, or grows more slowly than people come into the neighborhood. The price goes up because of _demand_ going up without supply going up.
Why does it gentrify in the first place? Because the initial group of "gentrifiers" took the time and money to develop the area to make it more appealing, thus increasing demand.
Economics says you can't fix it no matter how much regulation you impose because at some point all the surrounding businesses, etc. will be gentrified too and force out poor people. Even if you freeze rent, ban new businesses from coming in, etc. the existing business owners will start to cater to their new clientele simply because the demand from those customers is much higher. The only thing you _can_ do is ban people from moving to the neighborhood, at which point you've turned into the worst parts of the Soviet Union.
> Why does it gentrify in the first place? Because the initial group of "gentrifiers" took the time and money to develop the area to make it more appealing, thus increasing demand.
Wildly simplistic. The first stage of gentrification involves almost no money and almost no development. It doesn't even really involve much time. It's the result of a demographic shift (and often not a very big one at at that) between the existing residents and newcomers who are willing to trade currently less-than-ideal living conditions for lower costs.
Also, more money in the hands of the elite class(es) does not inevitably drive prices of anything other than the few goods & services for which prices are actively negotiated. The fact that your rich clientele have more money does not, in and of itself, require you to raise your prices. That's a choice you make, which is dependent upon but also independent of their disposable wealth.
It's just a domino effect. Demand for good has decreased significantly during COVID as businesses had to scale back. Inevitably suppliers had to shutdown or cut production. FED started printing money in the meantime and giving consumers handouts to stimulate economy and increase spending. Instead, that money went into a stock market frenzy and savings accounts as people were forced to stay home. When COVID restrictions eased and economy started to open up and consumers rushed to spend their savings. This caused businesses and suppliers scramble to meet demand and ultimately triggered the supply chain crisis. As a result the prices on goods have shot up as there was too much money chasing to few goods and the economy wasn't able to keep up with demand after remaining dormant for months.
Fiat money is absolutely printed out of thin air and it isn't backed by any asset. It is backed by the stability of the government that issues it. There is no amount of gold that can back a monetary system to sustain the levels of spending that we're seeing the US and other governments do, which is why most if not all modern governments are no longer on the gold standard.
If the value of a dollar doesn't depend on supply, we could print infinite amounts of it and reach infinite wealth. This false notion has caused so much misery in the last couple of centuries. Unfortunately value of money is also subject to supply.
>The value of money depends on the underlying asset
Printing more dollars does not create more 'underlying assets.' Therefore it doesn't make sense to claim there will be no effect on value of money if more money is chasing the underlying assets. It's quite possible the value of the dollar decreases.
Using your own definition, which itself is debatable, it is guaranteed the value of money will decrease if you only change the supply of money and nothing else.
What a bizarre statement. We know that supply and demand drive modern economies. It's taught everywhere in schools. It's what we rely on along with key economic metrics to have an idea where things are headed. It's an odd flex to just throw all of that out as some voodoo magic.
You claim that supply issues are the root cause, but it's certainly some combination. If monetary and fiscal policy had been tighter, we might not see the same jump when hit with a supply issue.
You're literally commenting on an article about a negative supply shock leading to increases in prices and you're concluding it has everything to do with monetary policy.
Monetary policy is the elephant in the room that no one in charge dare mention.
A quick look at the numbers makes this obvious. Consider that 80% of all dollars that exist were created in the past three years.
Now ask why Janet Yellen, Jerome Powell, and the Biden administration conveniently forget to mention even the possibility that money printing may have been a contributing factor driving inflation.
Literally everyone talks about it, including with the "money printer go brrrr" meme. They even talk about it when it is completely inappropriate like when there's a blatant negative supply shock.
It is one of those "unpopular opinions" that are actually enormously popular.
Does 'literally everyone' include those in charge including the fed board members themselves criticizing their own monetary policies? The critique wasn't that the victims of inflations mention the ballooning the money supply, it's that those in charge of the ballooning tend not to. I think you may have missed where they said 'in charge.'
Jerome Powell is not posting "money printer go brrr" memes.
We've been multiplying the money supply for decades. The fact that we are only seeing inflation now is proof that increasing money supply is by far the only factor and likely one of the smaller ones.
Um, the dollar buys 1/28th what it did prior to the Fed. The price increases have been small for a very long time. Small enough that you might only notice when buying a product you haven't bought for a few years. Couple the slow creep of inflation with efficiency gains and you might not notice the cost increase for a long time. Now the cost of continually increasing dollar supply and enormous debt is too much. If the Fed increases interest rates the economy tanks. If they create a bunch more money we get runaway inflation. There is no painless way out of this mess. The only real solution is political suicide. So, unfortunately, the dollar will die before we are out of this mess. Hope you are prepared.
And pundits have been proclaiming the end is nigh ever since the fed as well. If things get bad enough, the government can raise taxes and hold or destroy that currency. If things progress as you predict, it will become political suicide not to do so. If things get so bad that the dollar fails, there is little anyone can do in terms of financial hedging that will make much difference.
Serious question: is Powell just bad at his job or what? Doesn't everyone and their mom's knew high inflation was coming when they shut down the economy, send people checks to flip crypto and GME by running the money printer nonstop?
If they manage to get it back under control now, then we'll know if they could have gotten it under control post-pandemic. If not, we're all fucked anyway and not many people may care to research the answer to the question.
This is why the timing of the invasion is, for want of a better word, "perfect" if you're someone who wants to watch the world burn (assuming that "the world" was primarily the Western World with its heaviest dependence upon "stuff").
As the pandemic appears to be easing, the interest rate hike (first step as a reaction to the inflation problem) a month away. The timing of the invasion was both exquisite and horrendous.
Also worth noting that no one expected the US to impose sanctions of this severity. Even a month ago, President Biden himself would not have thought we would react this way. But Twitter hysteria struck again and imposing harsher and harsher sanctions—and in the private sector, voluntarily withdrawing from the Russian economy even when sanctions did not require it—became a way to demonstrate your holiness. Rational calculation and self-preservation, out the window. We live in a Twitter world order now.
You can tell this was unplanned because back in January, with the invasion looming, US officials said (even if they did not completely mean it) that sanctions would be narrowly targeted to hurt the Russian elite but not the common people. Now, the explicit goal of the sanctions is to cripple the Russian economy and cause mass suffering sufficient to collapse support for the Russian government. If this was the plan all along, we would have said so. Deterrence only works if the other guy sees it coming.
The announced US policy was yes, to let Russia as a whole mostly get away with it, but to hit the Russian elite specifically with very harsh but specifically targeted sanctions. The red line was NATO territory + de facto NATO members like Finland, not Ukraine.
Inflation has been rampant for years, it's been hidden as inflation measures inexplicably don't include cost of housing, it also doesn't include the massive subsidies provided to industries that are poorly managed like US agriculture. Finally, the claims that massive price increases were due to inflation would be much more believable if the businesses selling the "inflation impacted goods" we're making the highest profits ever, far in excess of the highest estimates of inflation.
Your claim also doesn't explain how inflation didn't balloon in countries that provided actual financial support to people - the US had two payments of next to nothing, most other countries provided continuous support, even those with far less per-capita income.
>Finally, the claims that massive price increases were due to inflation
You have this backwards. Inflation (via CPI) is based on price changes, it doesn't cause them.
>would be much more believable if the businesses selling the "inflation impacted goods" we're making the highest profits ever, far in excess of the highest estimates of inflation.
This is exactly what you'd expect when there is low supply and high demand.
Inflation is the decline in value of the currency. CPI is how we normally attempt to measure inflation since asking "How much will you pay for a dollar today?" will not yield a useful answer. You are right that the measuring is done in hindsight. But the decline in value of the currency is responsible for prices rising to compensate.
The value of a currency can decrease compared to other currencies but prices can stay the same inside a country. What happens is that you have less of everything especially for goods that depend on trade with other countries.
I am referring to the value of the currency compared to itself in the past. A dollar today is not worth the same amount as a dollar yesterday. Inflation is that decline in value over time. Less commonly, it is also possible for a currency to become worth more over time, which is what we refer to as deflation.
If, for argument's sake, a dollar halved in value, the price of a widget of constant value would double to maintain equality in the exchange. What makes things complicated is that the value of the widget isn't constant and can also change over time, so we can't just look at that widget to see how the value of the currency is changing. Instead, we try to look for price trends across a wide range of products (CPI) to try and infer what is related to currency devaluation rather than changing values of other goods and services.
There is definitely something wrong with CPI. I'm not sure what it is because on paper it seems like a reasonable measure, but anecdotally my expenses are up more like 17% vs CPI's 7%. My "personal inflation" regularly beats out CPI (although usually not by such a high margin. Housing, fuel, and food have been the biggest increases for me. I wonder if all the consumer goods are somehow over represented.
It's a common misconception that gas prices barely effect those who don't drive. Unfortunately it couldn't be further from the truth. A massive portion of the logistics of America, bringing essentials that almost everyone consumes like food, healthcare goods, building materials for maintaining housing, etc are reliant upon vehicles that consume petroleum products to reach the consumer.
I don't think so, but I could be wrong. While gas does play a role in the price in a lot of different things like you state, the percentage of the final price of that item that includes fuel is usually very, very small.
Some back of the envelope estimates:
The last mile is usually going to be the largest expenditure of fuel per dollar of product transported. A semi truck gets 5 mpg on the low end and with diesel fuel currently at $5/gallon, that means it would cost just $2,700 in fuel to ship an entire truck load from New York to Los Angeles (much farther than most products would ever be trucked). Assume the truck is loaded with a low price, low margin product like toilet paper and you might ship around 4,000 small packs of toilet paper for a total fuel cost of $0.67 per roll. So if fuel prices doubled to $10 gallon, you would be looking at an increased cost of $0.67 per pack of toilet paper that is normally, maybe $10. So you are looking at a 7-10% increase in the cost of that toilet paper due to a doubling of fuel prices.
Of course, fuel is needed for the equipment that cuts the trees and the energy to manufacture that toilet paper, the plastic it is wrapped in, etc. But, we have to remember that we are talking about an inexpensive yet bulky product that we are shipping across the entire US and the weight is low so you could probably drag two trailers of it with only a marginal decrease in fuel efficiency.
The reality is that most products are trucked much shorter distances from ports that use enormous container ships where the fuel cost per dollar shipped is vanishingly small.
The Fed's target in 2019 was 2%. 7% is high, but if it weren't for Russia and decreased in 2022, I'd argue they did a decent job. They had no idea how big of a hole lockdowns left and the price increases from supply chain issues would cause. They overshot their target, but they also wanted to overshoot rather than undershoot.
Congress and public policy is where the ball was dropped. Most of the Europe did a better job maintaining work stability by distributing subsidies through employers rather than cash to individuals. It meant that when lockdowns eased, workers were ready.
No, that's a facile understanding of how the economy and fiscal policy works. A large portion of inflation is still likely to be due to complex supply issues rather than simply everyone getting some extra cash. There is also the fact that spending on services has shifted to goods and hasn't fully shifted back. It is likely once supply chains finally catch up and spending shifts back to services and travel that much of the upward price pressure will be relieved.
And of course, those are just a few factors, there are countless more factors that make the whole situation far more complicated than anyone could possibly account for.
It's quite a coincidence that the numerous complicated factors all started causing inflation at about the same time as the government printing tons of additional money. Also a coincidence that the confluence of the ineffable complex factors had the same effect that a naive person would imagine printing a lot of money would have.
So this supply chain crunch would have still happened but people would not have noticed it while dealing with much bigger problems such as unemployment.
> this supply chain crunch would have still happened but people would not have noticed it while dealing with much bigger problems such as unemployment
Supply chain would have crunched but the demand fueling inflation would have been destroyed. Instead, we maintained both demand and production while the supply chains falter. (For the most part. Egregious stand-outs in destroyed production capacity are the automotive and rental-car industries.)
How do you mean the government doesn't create money? The Federal Reserve Bank creates money. Sometimes literally by physically printing it, but more often by crediting someone's account in their computers. When the Fed "sets interest rates" on bonds, it buys bonds on the market using computer money it credits the seller's account with which it created out of nothing.
Ordinary banks also create money when they make loans, which gets destroyed again when the loans are repaid. More money is created this way when interest rates are lower because people take out more loans then.
It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level. Still a private entity doing private things. Not the government
> Sometimes literally by physically printing it, but more often by crediting someone's account in their computers
Definitely not!
> More money is created this way when interest rates are lower because people take out more loans then.
This is the only way money is created. The previous paragraph is far from how anything works.
The Federal Reserve is the central bank of the United States. Its board is nominated by the President and confirmed by the Senate. It's the government.
Politicians sometimes like to pretend it's not so they don't get blamed for unpopular choices.
> It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level
That's what setting interest rates means.
> Definitely not!
Where do you think coins and federal reserve notes come from?
The fed is organized a bit differently than other government organizations, though similarly to how the US Postal Service is organized. But those are mostly to give it some semblance of independence from the winds of politics. But it is very much under the control of the US Government about as much as the US Military is under the control of the US Government.
From the fed's own website (notably a .gov domain):
"Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."
Yeah definitely not a huge demand drop, followed by a normalization/huge increase of demand - bottlenecking most of the supply chain and causing those willing to pay more to get delivery priority.
Like Americans couldn’t afford their $25 plastic widgets before, and now because of gubmint stimulus they’re able to finally buy those widgets. Lol.
Cars is a perfect proof of my case. They thought covid would hurt demand for awhile, didn’t book enough chips. And then boom demand spike back and they don’t have a needed input in time. Thus people go to secondary market — used prices up a ton.
It's naive to pretend that when supply goes down and demand goes up, prices don't go up as a direct result.
Printing money also causes prices to go up, as does war.
Anyone thinking that the problem was that we didn't give people enough money, hasn't taken a look at the explosion in homeless population throughout the country. People are still hurting and it is obscene ti complain that your savings account is worth slightly less when people don't have have a roof over their heads due to the worst pandemic in a century.
1982—present is within the last century and has had a death toll of 36.3 million so far. I think your position could improve from some grounding and perspective.
(You seem to be referencing the AIDS pandemic.) In terms of deaths per year, that's far smaller than COVID-19, whose death toll over two years probably lies somewhere between the 6 million official number and the over 20 million "excess deaths" counted by The Economist.
You'd possibly have a point if we were discussing long term medical research
h funding priorities. We aren't. We are discussing acute economic phenomena. It that context, covid it absolutely the worst pandemic in a century.
> It's quite a coincidence that the numerous complicated factors all started causing inflation at about the same time as the government printing tons of additional money
It's not a coincidence, both have been caused by the same pandemic that you might have forgotten about.
To provide a natural experiment that should refute the point you imply: inflation went up massively in nearly every country on earth as they were all hit by the same supply side issues. Only a small minority of these countries "printed a lot of money" let alone as much as the US of A.
Deflation is exactly what would have happened had the fed not stepped in with their money printing. It's just that they printed way too much and did it very inefficiently, with a lot going to scammers.
If the the extra money can be absorbed (economy can produce enough to meet demand), that’s fine and the economy just grows. But there were supply chain hiccups holding back the production capacity of the economy. So here we are.
More money supply likely accounts for some increase in demand. But the lockdowns themselves likely had more effect on demand than more cash. People need or want more things when they travel less and have fewer services to consume. When behavior changes in large ways, demand shifts to different things. Printing more cash didn't drive demand for n95 masks. It also didn't drive demand for things like flour and many other commodities. With the exception of those in extreme poverty, most people didn't run out and buy more toilet paper and flour because they got a stimulus check.
That's ignoring the global nature of the supply chain. If supply is constrained and you give money to your own people, they may bid up prices some, but not by the entire amount because mostly what they're doing is using the money to outbid people in other countries. Which also means your people get more of the stuff.
This cancels out if everybody does it, but not everybody can do it.
The increase in demand from people having more money may also make it economical to increase supply faster and alleviate the shortfall sooner.
Yes he is. We’ve been printing absurd amounts of money for years praying inflation didn’t show up in meaningful indicators and now that it shows up it’s some big surprise. We should have been raising rates the last 8 years or so instead of juicing the economy and stock market nonstop.
If you print a trillion and give it only to me, there is no much inflation because what could I possibly buy much more than I do? Not bread or gas. It will go in financial products and market indexes will grow.
If you give $1000 to 1 M people then you start having inflation because those money go into shops.
> We’ve been printing absurd amounts of money for years praying inflation didn’t show up in meaningful indicators and now that it shows up it’s some big surprise
They have been praying for inflation - it is the intended outcome of the policy and it has taken 23 years for it to happen.
What they wanted was inflation in wages, assets, goods, services, productivity and growth. Inflate away the notional value of debt. What they got was gamestonk, crypto, stagnant wages, gig economy and antiwork.
The Fed can't monetize the debt unless there is debt to monetize. The checks all came from Congress.
But there was simultaneous easy money policy for years, in contradiction to the Taylor Rule. This deviation from that rule was going on for years before Powell, but he continued it for years, all throughout a prolonged economic boom.
Instead of counter-cyclical policy, this is pro-cyclical policy. And resulted in the misallocation you noted, for which Congress is even more to blame.
During the monetary expansion post-2008, I recall listening to a number of experts basically predict exactly what's happening today - "the problem with expanding the money supply is that by the time you realize you need to pull back, it's too late and there will be a ton of political pressure to wait just a bit longer".
If supply falls prices rise. This is true even if a country is completely self-sufficient. World oil prices determine the price of oil in Norway just as world prices for lamb and mutton determine the price of those meats in New Zealand.
because biofuel production increases, due to governmental incentives in part, food grain production goes down.
on edit: I believe this article will probably also make some connections https://news.ycombinator.com/item?id=30681639 although have not gone into yet, David Frum arguing to decrease ethanol subsidies as they help Putin.
1. With some climate consideration, to get the yields you typically want to seed it in the fall, so unless you have a time machine it's a little late to be thinking about growing wheat now for a lot of regions.
2. Protein content is quite sensitive to the climate the wheat is grown in, so assuming you want breads and pastas rather than pastries there are even more challenges in front of you.
3. An acre planted in wheat is an acre not planted in something else, so even if you overcome all of other issues you're just pushing the problem onto another crop.
There's a significant difference. American society is largely built around the use of cars. Large parts of the US are unlivable without a car. In Europe, this is much less common.
The UK is exactly the same for people not living in the big cities. Same thing for France. Same thing for the North/East of The Netherlands (where I live).
The difference is that we also tend to drive more efficient vehicles.
The west has this weird idea that destroying its living standards is the way to support Ukraine and combat Russia. My guess: won't happen. Russia won't change its course, but I will be paying 5e per liter of gas in september, all in name of some "democracy, freedom" in Ukraine. Supremely delusional state of affairs.
I've only encountered it through two lenses: 1) non-Russian people taking offense to their land being called a "little Russia", and 2) imperialists in Russia using it to encourage invading other countries.
It might be used by some who don't consider it condescending, but many of those on the receiving end do consider it an insult. So, issuing a blanket "not condescending" can not be considered correct
>all in name of some "democracy, freedom" in Ukraine.
Sorry, but this is not some internal war between 2 political factions where some other big power intervenes to help their preferred faction. It is an actual freedom war where many people are killed, many others are forced to leave their country and if Putin wins it will not stop there, he will continue.
If you are from US I understand why you might be frustrated with wars already though, but the alternative of doing nothing is worse, is like we pay tribute to Putin and hope is enough and he won't invade half of Europe.
Or U.S. politicians could actually support the U.S. domestic oil and gas industry and the free world could have all we need. Instead we’re making the Saudis rich.
> destroying its living standards is the way to support Ukraine and combat Russia
It’s about degrading a volatile enemy. Shrinking Russia’s economy degrades its war machine. (The claim that impoverished Russians will revolt is crap. Starving, broken people don’t lead rebellions.)
If we had literally any better solution, we should take it. But we don’t. So we hope Russia weakens enough that it can’t invade Latvia while encouraging it to become a vassal of China’s.
Historically, food shortages are one of the surest routes to rebellion. Perhaps the people leading the rebellions aren't starving, but starvation is a real motivation to enlist.
That said, it seems unlikely that the sanctions will lead to starvation; the possibility of a Russian revolt or coup seems insane. (At least until it happens, and then it will be obvious.)
probability of a revolt (of the people) seems so far unlikely, but a coup led by military/government elites with support from oligarchs is a possibility
A rich Russian has offshore accounts and property in a few countries. One of their dozens of boats is expropriated and you expect them to fly to Russia and start a rebellion?
Middle-class people in the country with families to feed will not rebel and risk death; and when they become impoverished due to their government’s policies and global retaliation it will be too late.
Thankfully a commenter on HN has discovered a novel way to wage war that doesn't affect the economy. Please do share, you are about to revolutionize conflicts for the fist time in thousands of years.
Totally agreed. We're getting roped into a bullshit war that we have no reason to care about, by people who don't care one little bit about how it affects us. The grossest part is watching these quislings on the internet who have bought into the propaganda try to tell us we're the crazy ones for not going along with this whole scheme.
This always happens with Fossil fuels - they're controlled by a cartel, who - especially with the energy transition - have a vested interest in increasing the expense.
The solution is clearly to be building out a massive amount of renewable electricity whilst electrifying transport.
So in 10 years time politics in the US will not be driven by the whims of Saudi Arabia, Russia or some nut-job oil Barons in Southern states.
I think what will really blow the top off of the CPI and inflation numbers are if the dollar loses reserve currency status.
Right now inflation is relatively contained because everyone piles into USD as a safe haven asset, which allows the US to purchase a lot of imports since the dollar is strengthening when that happens.
We actually don't have all time high gas prices, at least not yet. They were higher pre-2008 crash when adjusted for inflation. Which is the only price that matters. After all, we also have all time high average income right now as well.
California is supposed to be fifth economy in the world. You can use software produced in California under sanctions by ignoring intellectual rights. This wouldn't work with physical goods. You can't replace oil from one source with oil from another. Deficit of some resource chokes production of things that depend on this resource. And it's a chain reaction.
I keep hearing this business about the US being a reserve currency and it makes no sense.
First off, lots of other currencies are valuable without being reserve currencies. Swiss franc, Japanese yen, etc. Being a reserve currency probably boosts USD a bit but it's not the only pillar holding the thing up that people imply. If you disagree show your model: You have to believe that value for the euro, GBP, JPY, Swiss Franc is determined by thing X, USA does not have thing X and instead depends on being a reserve currency.
Second, what's the alternative reserve currency? Bitcoin? Don't make me laugh. RMB? Even more ridiculous. Euro? Probably the most realistic contender but seems to have major governance problems. As with democracy, the USD is the worst reserve currency, except for all the alternatives.
USD has a variety of “thing X’s” to drive demand as well as being a destination when things seem uncertain, driving further demand.
When people move their money out of monetary unions, there are only a few places and assets to purchase in large amounts. Everything has already been stretched to insane valuations, so USD is it.
I think your pragmatic look is refreshing, but too willing to reject a notion just because its popular, you’re right on the money just incorporate the demand drivers instead of excluding them.
It's not that the dollar would have long-term instability, it's that the act of going from reserve currency to non-reserve currency would see people in other countries dumping dollars for whatever the new thing is. There would be a short period of hyperinflation in the US.
That doesn't mean it's going to happen, but if it did happen, it wouldn't be nothing.
Hyperinflation is a monetary phenomenon. USD sales by foreigners wouldn't be sufficient to cause hyperinflation. Who are they selling to, and for what?
Foreigners hold a large number of US dollars, as reserves. If the dollar stops being the reserve currency they want to stop holding it as reserves, so they trade dollars for something else. The new reserve currency, other hard currencies, real estate, stocks, whatever they can get. The market gets flooded with dollars and the dollar drops against other currencies.
Americans with mortgages and other debts are happy to take US dollars they can use to clear their debts and foreign buyers are happy to get US exports for their declining dollar holdings, so the foreign dollars would end up in the domestic market and cause hyperinflation.
The first point makes no sense. Nobody's saying the dollar would become worth zero. Central banks around the world have huge reserves of USD. The dollar ceasing to be their reserve currency en masse (which I agree is highly unlikely) would involve them selling those reserves, which would affect the dollar's value. Falling value of USD implies rising prices in the US.
To the second point, yes for most countries there's no plausible alternative to USD. However, there's no law of nature that says the world has to have a single reserve currency. AIUI rather than the entire world switching away from the dollar the real risk is of fragmentation. Yes, most countries aren't going to suddenly stop using USD as their reserve currency. But Russia has had its USD central bank assets frozen. Their reserve currency is the currency of its biggest geopolitical opponent, who have demonstrated they are willing to use that fact as a weapon. Against that, RMB isn't necessarily so bad an option. That could be the beginning of establishing RMB as a global alternative reserve currency.
Edited to add: Firstly, AFAIK this picture of RMB becoming an alternative reserve currency isn't seen as all that likely, just a possibility, and secondly I'm the exact opposite of an expert on this stuff - just disagreeing with specific points based on what I've read.
Another edit: I also agree that the idea of bitcoin as a reserve currency is completely ridiculous and insane. Everything about bitcoin is ridiculous and insane, though.
Chinese currency is already considered a reserve by virtue of being one of the five in the IMF special drawing rights basket. However it can never overtake USD or EUR for that purpose so long as currency controls remain in place.
High prices were here before the war in Ukraine (one of numerous global wars underway, despite what you'd believe if your only source of information was legacy media) which started only a few weeks ago. Our incompetent response will certainly make things worse, but soaring inflation was already here to stay regardless of the situation in Ukraine.
Prices are high all over the world except for countries where governments subsidize the price of fuel, or impose price controls. Those are populist measures which can't usually be sustained. Either the cheap fuel gets smuggled out leading to shortages, or the government runs out of foreign currency reserves.
The fed is reactive not proactive - the thing that the "everyone knew there would be inflation" crowd dont mention; everyone knew there would be runaway inflation every year since 2008 and now they are a f'ing Nostradamus for getting it right on the 14th go.
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[ 2.9 ms ] story [ 307 ms ] threadThe water level never fully recedes despite, or as a result of, society's short memory.
Edited to add: Are we likely to see an acceleration of the electrification of transport? Buy Tesla shares? Renewable energy projects double-digit percentage uptick?
> Edited to add: Are we likely to see an acceleration of the electrification of transport? Buy Tesla shares? Renewable energy projects double-digit percentage uptick?
Investing isn't really that simple. While TSLA has notionally gone down in price per share (from $1200 to $780), the bubble has gotten bigger. It's market cap is higher than every other automaker put together, plus a bunch of utility companies, plus a few battery companies. This is about the most crowded trade on the planet. Even after Elon dumped on everyone at the peak and is under SEC investigation for doing so. [1]
Generally, you won't do much better than just investing in the S&P 500. In fact 92% of actively-managed funds underperform the S&P 500 over a 15 year period. [2] You think you can do better?
[0] https://corporatefinanceinstitute.com/resources/knowledge/ec...
[1] https://www.wsj.com/articles/sec-probes-trading-by-elon-musk...
[2] https://www.cnbc.com/2019/03/15/active-fund-managers-trail-t...
[1] https://www.nytimes.com/interactive/2014/upshot/buy-rent-cal...
Have conviction - put down roots - commit.
This is of course equally anecdotal, which is why I think folks would do well to review the NYT calculator to evaluate the specifics of their situation :)
Risk is good! I'm a big fan of risk. However, a house won't go up more than a few points a year. That's never going to be life changing money. The opportunity cost of the down payment making you unable to early exercise some startup equity could on the other hand leave you pretty full of regret.
However, you can borrow against it cheaper than virtually any other asset in existence at absurd leverage ratios - and swap your cash flow for the ownership of the asset. So long as interest rates are at or below growth / inflation / or your salary increases - it is a good investment.
Startup equity of the kind that produces fuck you-money returns shouldn't cost that much to early exercise since it's usually early stage, that's kind of the whole point of early exercise and filing the 83b before the imaginary value goes up in subsequent funding rounds.
When it's late stage enough for exercising to cost a pile of money, people usually don't bother with exercising and simply wait for a liquidity event to occur, assuming accelerated vesting will accompany it, and pay the exercise cost and taxes directly from the shares AIUI.
But I suppose it's nice to be able to exercise and leave if you wanted to before a liquidity event, since the options tend to expire in what... 90 days? Preserving that option with a pile of cash on hand is useful, handcuffs are annoying regardless of their color.
And mortgaging a house is leverage.
If you put your money in stocks and they go down 15%, you lose 15% of your money. If you plonk a 15% downpayment on a house and the house loses 15% of its value, you get zeroed out.
No guarantee that happens right now, but it sure could.
At this moment we're in a housing bubble inflated by low interest rates that may or may not be about to end. The risk is different than it usually is.
The ROI is attributable to the supply constraint in the face of population growth, not the subsidies.
If housing supply wasn't constrained the subsidies would lower the initial cost but then it wouldn't work as an investment because the real value would never go up since if it did that would cause an increase in supply through new construction.
But that's also what makes it a pyramid scheme. More people bidding on the same amount of housing makes the price go up, but only if the population grows. Fertility rate tells a bad story there. And on top of that it's per-city; ask people who had homes in Detroit.
Someday this is all going to fall apart. I don't know when it's going to be though.
Not a judgment of your character or anything, it makes rational financial sense as an individual to participate in it but if everyone followed your path we'd be thoroughly fucked with housing prices. More than what it already is.
I lucked out in 2007 and decided to rent rather than buy. Economy went into the shitter after and after a couple years my company had lay offs but I was lucky enough to jump to a better role in another city.
I spent $36,000 in rent over 2 years.
I had several friends who bought with $60,000 down and paid $50,000 in mortgage payments and property taxes.
When I moved I gave my landlord the keys and got my deposit back.
When they moved their house was way underwater, so they sent the bank the keys and walked away.
I spent $74,000+ less on housing than they did by renting.
It was just luck and sure an extreme example but man the lessons of 2008 have been very quickly forgotten.
You're right, but I'd like to share with you a lesson I learned in 2020/2021. Every single leader that has been around since 2008 is terrified of "mortgage" causing 2 recessions in a row.
Seeing people rally around house prices and evections over the past two years really solidified this for me.
Real estate can be a great investment, but it has very high transaction costs, is not diversified at all (real estate is entirely local), and has high maintenance costs.
>You think you can do better?
I'm not a trader, and in my very (like, VERY!) low value dabbles I've invariably lost (like, apparently, 90% of amateur traders). If I had more money to gamble, however, I'd definitely put some on Tesla in the current environment of foreseeable-future high oil prices. Investing is always a gamble though. My meagre investments are a very high percentage in indexed funds or ETFs or whatever they're called (see, I'm a freakin' pro :)).
Before you buy the stock, please consider not only the fact that it is likely gonna be great but *also* the current price of the stock. You also wouldn't buy a car without knowing the price. The market cap of Tesla is currently 792 billion. Let's look at the operating cash flow since that is the money a company can sort of spend on whatever they want. Their operating cash flow for the year 2021 is about 11.5 billion. So, assuming no growth, they will need 68 of those years to be able to pay all investors back.
But, okay, let's assume some growth. Let's say 30% growth in cash flow per year which is a optimistic estimate. Few companies manage to get a 30% yearly growth; let alone for a longer period. They will need about 16 of those years (11.5 * 1.3^16 = 765 billion).
As another number, you can look at the PE Ratio. The average PE Ratio for the S&P 500 is 23.80 currently (https://www.multpl.com/s-p-500-pe-ratio). In 2011 it got as low as 14 even. Tesla sits at 156!
To form your own opinion, I can highly recommend watching a bunch of videos on YouTube with Warren Buffet, Monish Pabrai, Howard Marks and Ray Dalio and if you get the chance a (audio)book or two of some of them. Especially Warren and Charlie Munger have a great ability to put things into perspective.
If that were the case stagflation of the 1970’s wouldn’t have been a big deal, but it was. And supply shocks were also a major trigger (Arab oil embargo).
If wage increases lag inflation, then consumers pull back on spending as prices rise. This can push you into a recession or piss-poor economic growth.
It took the US over a decade to get out of the high inflation/low growth environment of the mid-70s and the pain of even higher interest rates needed to break inflation - which further depressed the economy - was a painful cure.
You forget about sequence.
Prices went up 7-8% last year. I'm hoping that my company cost of living adjustment will match that... when it shows up. It hasn't yet. In the meantime, I'm paying 7% more for things on a salary that has not yet gone up.
My wages may catch up. But in the meantime, it hurts.
They haven't kept pace with productivity growth, but that's a different matter, and one worth paying attention to.
[1] https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
[2] https://fred.stlouisfed.org/series/LES1252881600Q
Could’ve had a line from Montreal through Maine but voters from the state killed it. Now our best hope is along the Hudson.
It’s not a technology problem, it’s a governance problem.
If only there had been some sort of model or discipline that could have predicted this beforehand.
What is the scope of the evidence that proves that this claim (which, btw, is really not being trumpeted by anyone "in charge") is false?
And this grand conspiracy argument is the position, at least in part, being pushed by the Democratic Party in the US. It’s actually similar to what flailing governments in third world inflationary economies say too. It’s always the evil capitalists raising prices for no reason but to line their pockets. Ignorant drivel meant to appease ignorant people and deflect blame.
Nope. Prices are set by what the market is willing to bear. Supply and demand are loosely correlated with the final retail price of things.
Demand for a good is based on its current asking price and how the consumer values that good. If the asking price ends up pricing the good out of the market's ability to pay for it the demand will drop irrespective of the supply.
As for conspiracies to increase prices, that's just a ludicrous position. All players in the market with the same incentives can move in lockstep with zero coordination. There doesn't need to be a conspiracy when every company basically lives by "make the most money".
If you see a competitor raising prices it's the perfect time to raise your own prices irrespective of your costs. If your costs haven't increased then you get better margins for free. There's no need for direct collusion when competitors are looking at the same news and have the same overall playbook.
Only when supply is constrained, for example housing in leading cities. Otherwise prices tend to fall to the marginal cost of the item you are buying.
Housing however is constrained by the price of land, outside of a few small regions like the Netherlands there is no amount of innovation that will create more of it. Hence the price of housing is set by what the market will bear.
However, some of the inflation is being caused by companies just being comfortable raising their prices. They are comfortable because so many companies are monopolies, and as soon as there's any slight pressure in the direction of inflation, they immediately pass it onto their customers without any punishment. The anger against companies for gouging consumers is placed correctly, but of course it's with the wrong explanations.
You seem to be claiming that the price increases seen over the last (pick a number) 10 months are all driven by "actual inflation", and that the instances of companies raising prices to increase their profit margins are rare.
I haven't seen good evidence for this claim. I have seen reasonable evidence that it's the other way around: a few limited sectors have experienced "actual inflation", but most of the price increases are arbitrary and imposed by sellers.
Note: we do not have "across the board inflation" either. Quite a few things have continued to drop in price across the pandemic.
Just as one example: housing prices often rise in response to a process frequently referred to as "gentrification" (often with a somewhat disparaging tone, to put it mildly). But that process tends to start when people with very little income to spend on housing move into low cost of living neighborhoods and subtly shift their demographics and nature. So is gentrification a process driven by the "poor" (the initial influx of new tenants) or by the "rich" (developers who can carry out significant remodelling and/or new construction) ? The answer is clearly both, yet even that doesn't really cover the whole mechanism. For a start, for gentrification to become significant in driving up housing costs, existing owners need to sell. These are often neither the newcomers nor the developers. Gentrification also requires a modest but distinct influx of businesses into an area, which in turn requires businesses to either start or expand.
I'm citing this as just one single example of where bullshit simplifications drawn from "basic" economics fail to describe the real world. There are so, so many more.
Why does it gentrify in the first place? Because the initial group of "gentrifiers" took the time and money to develop the area to make it more appealing, thus increasing demand.
Economics says you can't fix it no matter how much regulation you impose because at some point all the surrounding businesses, etc. will be gentrified too and force out poor people. Even if you freeze rent, ban new businesses from coming in, etc. the existing business owners will start to cater to their new clientele simply because the demand from those customers is much higher. The only thing you _can_ do is ban people from moving to the neighborhood, at which point you've turned into the worst parts of the Soviet Union.
Wildly simplistic. The first stage of gentrification involves almost no money and almost no development. It doesn't even really involve much time. It's the result of a demographic shift (and often not a very big one at at that) between the existing residents and newcomers who are willing to trade currently less-than-ideal living conditions for lower costs.
The value of money depends on the underlying asset used to create this money.
Money is not created out of thin air.
And you clearly have no clue what the gold standard was.
>The value of money depends on the underlying asset
Printing more dollars does not create more 'underlying assets.' Therefore it doesn't make sense to claim there will be no effect on value of money if more money is chasing the underlying assets. It's quite possible the value of the dollar decreases.
Using your own definition, which itself is debatable, it is guaranteed the value of money will decrease if you only change the supply of money and nothing else.
I want to see the kind of mental gymnastics that people have to do fit in the false idea that government creates money out of thin air
A quick look at the numbers makes this obvious. Consider that 80% of all dollars that exist were created in the past three years.
Now ask why Janet Yellen, Jerome Powell, and the Biden administration conveniently forget to mention even the possibility that money printing may have been a contributing factor driving inflation.
It is one of those "unpopular opinions" that are actually enormously popular.
Jerome Powell is not posting "money printer go brrr" memes.
This is why the timing of the invasion is, for want of a better word, "perfect" if you're someone who wants to watch the world burn (assuming that "the world" was primarily the Western World with its heaviest dependence upon "stuff").
As the pandemic appears to be easing, the interest rate hike (first step as a reaction to the inflation problem) a month away. The timing of the invasion was both exquisite and horrendous.
You can tell this was unplanned because back in January, with the invasion looming, US officials said (even if they did not completely mean it) that sanctions would be narrowly targeted to hurt the Russian elite but not the common people. Now, the explicit goal of the sanctions is to cripple the Russian economy and cause mass suffering sufficient to collapse support for the Russian government. If this was the plan all along, we would have said so. Deterrence only works if the other guy sees it coming.
Your claim also doesn't explain how inflation didn't balloon in countries that provided actual financial support to people - the US had two payments of next to nothing, most other countries provided continuous support, even those with far less per-capita income.
You have this backwards. Inflation (via CPI) is based on price changes, it doesn't cause them.
>would be much more believable if the businesses selling the "inflation impacted goods" we're making the highest profits ever, far in excess of the highest estimates of inflation.
This is exactly what you'd expect when there is low supply and high demand.
If, for argument's sake, a dollar halved in value, the price of a widget of constant value would double to maintain equality in the exchange. What makes things complicated is that the value of the widget isn't constant and can also change over time, so we can't just look at that widget to see how the value of the currency is changing. Instead, we try to look for price trends across a wide range of products (CPI) to try and infer what is related to currency devaluation rather than changing values of other goods and services.
Housing is the biggest component in CPI: something like 40% IIRC
[0] https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-an...
I've experienced the opposite several times because I don't consume a few things that are part of the basket.
Some back of the envelope estimates:
The last mile is usually going to be the largest expenditure of fuel per dollar of product transported. A semi truck gets 5 mpg on the low end and with diesel fuel currently at $5/gallon, that means it would cost just $2,700 in fuel to ship an entire truck load from New York to Los Angeles (much farther than most products would ever be trucked). Assume the truck is loaded with a low price, low margin product like toilet paper and you might ship around 4,000 small packs of toilet paper for a total fuel cost of $0.67 per roll. So if fuel prices doubled to $10 gallon, you would be looking at an increased cost of $0.67 per pack of toilet paper that is normally, maybe $10. So you are looking at a 7-10% increase in the cost of that toilet paper due to a doubling of fuel prices.
Of course, fuel is needed for the equipment that cuts the trees and the energy to manufacture that toilet paper, the plastic it is wrapped in, etc. But, we have to remember that we are talking about an inexpensive yet bulky product that we are shipping across the entire US and the weight is low so you could probably drag two trailers of it with only a marginal decrease in fuel efficiency.
The reality is that most products are trucked much shorter distances from ports that use enormous container ships where the fuel cost per dollar shipped is vanishingly small.
Congress and public policy is where the ball was dropped. Most of the Europe did a better job maintaining work stability by distributing subsidies through employers rather than cash to individuals. It meant that when lockdowns eased, workers were ready.
This is “broken clock” logic. The only argument behind giving the Fed credit for the 7% rise in prices is “they’ve been trying really hard to do so”.
And of course, those are just a few factors, there are countless more factors that make the whole situation far more complicated than anyone could possibly account for.
What's more likely: - Prices went up because there was a short supply of tangible things that actually (somewhat) respect the supply-demand curve
OR - Prices went up because there was an "excess supply" of money from "printing" that arguably does not respect the supply-demand curve
Probably not. Instead, we’d be in a depression amidst mass unemployment and bankruptcies.
Supply chain would have crunched but the demand fueling inflation would have been destroyed. Instead, we maintained both demand and production while the supply chains falter. (For the most part. Egregious stand-outs in destroyed production capacity are the automotive and rental-car industries.)
The government doesn't create money.
Ordinary banks also create money when they make loans, which gets destroyed again when the loans are repaid. More money is created this way when interest rates are lower because people take out more loans then.
So not the government.
> When the Fed "sets interest rates" on bonds
It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level. Still a private entity doing private things. Not the government
> Sometimes literally by physically printing it, but more often by crediting someone's account in their computers
Definitely not!
> More money is created this way when interest rates are lower because people take out more loans then.
This is the only way money is created. The previous paragraph is far from how anything works.
The Federal Reserve is the central bank of the United States. Its board is nominated by the President and confirmed by the Senate. It's the government.
Politicians sometimes like to pretend it's not so they don't get blamed for unpopular choices.
> It doesn't set the interest rates on treasury bonds. They set a target and engage in the market to get the price to that level
That's what setting interest rates means.
> Definitely not!
Where do you think coins and federal reserve notes come from?
If that's your logic, it's very hard to argue with it. It's literally a separate entity even from what you described.
> Where do you think coins and federal reserve notes come from?
the federal reserve which is not the government.
If you think government can print money out of thin air why do they even have to collect taxes. Can they not print their yearly expenditures?
You should think more on this question before you reply with some circular theory
From the fed's own website (notably a .gov domain):
"Some observers mistakenly consider the Federal Reserve to be a private entity because the Reserve Banks are organized similarly to private corporations. For instance, each of the 12 Reserve Banks operates within its own particular geographic area, or District, of the United States, and each is separately incorporated and has its own board of directors. Commercial banks that are members of the Federal Reserve System hold stock in their District's Reserve Bank. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. In fact, the Reserve Banks are required by law to transfer net earnings to the U.S. Treasury, after providing for all necessary expenses of the Reserve Banks, legally required dividend payments, and maintaining a limited balance in a surplus fund."
https://www.federalreserve.gov/faqs/about_14986.htm
The Fed doesn't set interest rates on bonds, it sets target interest rates on interbank loans.
Bond rates will naturally tend to be impacted, but they aren't what Fed rate setting applies to.
Not only that: the government cannot and does not create money.
Of course gov printing had an effect, but supply chain is prob the biggest. Do you not agree?
Like Americans couldn’t afford their $25 plastic widgets before, and now because of gubmint stimulus they’re able to finally buy those widgets. Lol.
Cars is a perfect proof of my case. They thought covid would hurt demand for awhile, didn’t book enough chips. And then boom demand spike back and they don’t have a needed input in time. Thus people go to secondary market — used prices up a ton.
Printing money also causes prices to go up, as does war.
Anyone thinking that the problem was that we didn't give people enough money, hasn't taken a look at the explosion in homeless population throughout the country. People are still hurting and it is obscene ti complain that your savings account is worth slightly less when people don't have have a roof over their heads due to the worst pandemic in a century.
https://www.economist.com/graphic-detail/coronavirus-excess-...
This is the government - https://fred.stlouisfed.org/series/GFDEGDQ188S - and for anyone wondering, your party is as bad as the other party
It's not a coincidence, both have been caused by the same pandemic that you might have forgotten about.
To provide a natural experiment that should refute the point you imply: inflation went up massively in nearly every country on earth as they were all hit by the same supply side issues. Only a small minority of these countries "printed a lot of money" let alone as much as the US of A.
b) Deflation is bad but really easy to counteract. Print money and give it to people. Counteracting inflation is more expensive.
If the the extra money can be absorbed (economy can produce enough to meet demand), that’s fine and the economy just grows. But there were supply chain hiccups holding back the production capacity of the economy. So here we are.
Demand was induced with money printing. Supply was restricted with lockdowns. When demand outstrips supply, prices rise.
This cancels out if everybody does it, but not everybody can do it.
The increase in demand from people having more money may also make it economical to increase supply faster and alleviate the shortfall sooner.
If you give $1000 to 1 M people then you start having inflation because those money go into shops.
This is the lesson from the last 15 years.
They have been praying for inflation - it is the intended outcome of the policy and it has taken 23 years for it to happen.
What they wanted was inflation in wages, assets, goods, services, productivity and growth. Inflate away the notional value of debt. What they got was gamestonk, crypto, stagnant wages, gig economy and antiwork.
But there was simultaneous easy money policy for years, in contradiction to the Taylor Rule. This deviation from that rule was going on for years before Powell, but he continued it for years, all throughout a prolonged economic boom.
Instead of counter-cyclical policy, this is pro-cyclical policy. And resulted in the misallocation you noted, for which Congress is even more to blame.
Wheat? I’m to believe we can’t grow our own wheat?
because biofuel production increases, due to governmental incentives in part, food grain production goes down.
on edit: I believe this article will probably also make some connections https://news.ycombinator.com/item?id=30681639 although have not gone into yet, David Frum arguing to decrease ethanol subsidies as they help Putin.
2. Protein content is quite sensitive to the climate the wheat is grown in, so assuming you want breads and pastas rather than pastries there are even more challenges in front of you.
3. An acre planted in wheat is an acre not planted in something else, so even if you overcome all of other issues you're just pushing the problem onto another crop.
Eyeballing the historical relationship between Brent crude and gas pump prices, that would mean $9.00/gallon: https://www.macrotrends.net/2501/crude-oil-vs-gasoline-price...
is 2.30 per liter here in Europe now. don't worry, I'm sure you can pay it. we can pay it, too.
The difference is that we also tend to drive more efficient vehicles.
Greater instability has far greater risks to your pocket book than some short term concern of tiny rises in fossil fuel costs.
It might be used by some who don't consider it condescending, but many of those on the receiving end do consider it an insult. So, issuing a blanket "not condescending" can not be considered correct
Sorry, but this is not some internal war between 2 political factions where some other big power intervenes to help their preferred faction. It is an actual freedom war where many people are killed, many others are forced to leave their country and if Putin wins it will not stop there, he will continue.
If you are from US I understand why you might be frustrated with wars already though, but the alternative of doing nothing is worse, is like we pay tribute to Putin and hope is enough and he won't invade half of Europe.
It’s about degrading a volatile enemy. Shrinking Russia’s economy degrades its war machine. (The claim that impoverished Russians will revolt is crap. Starving, broken people don’t lead rebellions.)
If we had literally any better solution, we should take it. But we don’t. So we hope Russia weakens enough that it can’t invade Latvia while encouraging it to become a vassal of China’s.
That said, it seems unlikely that the sanctions will lead to starvation; the possibility of a Russian revolt or coup seems insane. (At least until it happens, and then it will be obvious.)
Rich people losing money lead them, starving people join them.
Middle-class people in the country with families to feed will not rebel and risk death; and when they become impoverished due to their government’s policies and global retaliation it will be too late.
The problem here is OPEC, not the war. There is plenty of gas and fuel to go around.
The solution is clearly to be building out a massive amount of renewable electricity whilst electrifying transport.
So in 10 years time politics in the US will not be driven by the whims of Saudi Arabia, Russia or some nut-job oil Barons in Southern states.
At least it would do something to help reduce climate change.
Right now inflation is relatively contained because everyone piles into USD as a safe haven asset, which allows the US to purchase a lot of imports since the dollar is strengthening when that happens.
How likely is that to happen this decade?
Russia just doesn’t have enough power to move global markets. Its economy is smaller than Texas’, and is rapidly shrinking.
First off, lots of other currencies are valuable without being reserve currencies. Swiss franc, Japanese yen, etc. Being a reserve currency probably boosts USD a bit but it's not the only pillar holding the thing up that people imply. If you disagree show your model: You have to believe that value for the euro, GBP, JPY, Swiss Franc is determined by thing X, USA does not have thing X and instead depends on being a reserve currency.
Second, what's the alternative reserve currency? Bitcoin? Don't make me laugh. RMB? Even more ridiculous. Euro? Probably the most realistic contender but seems to have major governance problems. As with democracy, the USD is the worst reserve currency, except for all the alternatives.
When people move their money out of monetary unions, there are only a few places and assets to purchase in large amounts. Everything has already been stretched to insane valuations, so USD is it.
I think your pragmatic look is refreshing, but too willing to reject a notion just because its popular, you’re right on the money just incorporate the demand drivers instead of excluding them.
That doesn't mean it's going to happen, but if it did happen, it wouldn't be nothing.
Americans with mortgages and other debts are happy to take US dollars they can use to clear their debts and foreign buyers are happy to get US exports for their declining dollar holdings, so the foreign dollars would end up in the domestic market and cause hyperinflation.
To the second point, yes for most countries there's no plausible alternative to USD. However, there's no law of nature that says the world has to have a single reserve currency. AIUI rather than the entire world switching away from the dollar the real risk is of fragmentation. Yes, most countries aren't going to suddenly stop using USD as their reserve currency. But Russia has had its USD central bank assets frozen. Their reserve currency is the currency of its biggest geopolitical opponent, who have demonstrated they are willing to use that fact as a weapon. Against that, RMB isn't necessarily so bad an option. That could be the beginning of establishing RMB as a global alternative reserve currency.
Edited to add: Firstly, AFAIK this picture of RMB becoming an alternative reserve currency isn't seen as all that likely, just a possibility, and secondly I'm the exact opposite of an expert on this stuff - just disagreeing with specific points based on what I've read.
Another edit: I also agree that the idea of bitcoin as a reserve currency is completely ridiculous and insane. Everything about bitcoin is ridiculous and insane, though.
Did people not notice the price of everything going up?
And expected to do so 4 more times this year.