Why is Jerome Powel and all the Fed members who said inflation is transitory last year still running the show? Oh let me guess these unelected bureaucrats and economist experts run the show without any consequences.
And for that matter, if honest journalism’s existed Janet Yalen who echoed the same thing would be having a rough time now. But none of these people have any accountability. And here we are.
Would you rather have elected officials running the backbone of the entire economy? Officials who have to campaign and constantly worry about the next election cycle? Officials who will care much more about the short-term at the expense of the long-term since that is what keeps them elected?
Neither system is ideal, but there are certainly reasons for the system being set up the way it is.
Since you decided to bring up the issue, what would your proposed solution be? How should the FED system be set up in regard to officials, appointments, elections, etc. Genuinely curious as to what your thoughts are since I haven't been able to dream up an ideal scenario in my own mind.
Because that’s how democracy is supposed to work. Ultimately democracy is not about bringing the most competent people around. It’s so peoples voice matters so when push comes to shove, we don’t become like Sri Lanka. Also I am not convinced Fed is apolitical.
The proposed solution would be to go back to gold standard and Fed not have the power to seize it like Roosevelt did. So we need no fake money and fake policies around it.
I'm pretty sure the gold standard is seen as a joke but the vast majority of economists. During the great depression countries who went off gold standard first recovered more quickly. Roosevelt did the right thing
I'm always confused at how there's such a seemingly large mismatch between on one hand people trivially dismissing the gold standard as a joke and on the other the fact that the gold standard seemingly worked well enough for this country for hundreds of years. It was the system that powered the country over the majority of its history, for the vast majority of its expansion and rise to power. But it's so obviously a joke of a system?
It didn’t work well at all. We had frequent economic panics all through the 1800s and early 1900s.
When the US rose to power (1930s to 1940s) gold was mostly not used in practice due to international traffic being mostly blocked (due to nationalist impulses during the Depression) or under heavy credit (during WW2). There’s a decent argument to be made gold caused the Great Depression or at least exacerbated it.
The “gold standard” system that started under Breton Woods (1944-1971) was basically a polite fiction, and when someone called the fiction it died.
A gold standard would be totally unworkable for today’s trade. It barely served the fledgling globalism of the 1920s.
>worked well enough for this country for hundreds of years.
If I remember my numbers from an economics course right, from 1776-1912, there were major runs on banks in the US an average of every 12 years. While the US didn't leave the gold standard until 1933, the fed, after it learned not to drastically raise interest rates quickly in 1929, has kept things pretty stable for almost a century.
There was deflation pre WW1, then there was hyperinflation in Germany leading to Hitler's failed coup, finally there was deflation once again and Hitler got to power.
These constant economic cycles just drive fear and populism and if people are desperate they also become more receptive of fascism.
The way currencies are designed forces their inevitable collapse so why not keep the party going for as long as possible ala Keynes? You don't lose anything from building a better society and then resetting the money system Vs not doing anything and then resetting it.
There is this thing called Says Law and it basically postulates that if money is neutral, a market economy has a tendency to go towards full employment on its own. The fact that we have to mess with the currency to get a semblance of something that should happen automatically is pretty damning.
I.e. even if you think Keynesian deficits are stupid the entire point of them is that doing them brings you closer to equilibrium than not doing them. If you just stop them without replacing them with something else e.g. debt jubilees, expiring money or negative interest rates then you basically get a worse economy for no benefit whatsoever.
> So we need no fake money and fake policies around it.
I mean...not to be too reductionist, but this whoooole thing we're doing is all just calvinball with higher stakes and more serious people. I don't see "go back to the gold standard" as any less silly than what we do today.
>The proposed solution would be to go back to gold standard
That won't solve the inflation or deflation problem. It is a non solution and will result in an even worse economy where pointless unemployment problems persist.
It also unfairly rewards people who disrupt the economy over those who keep it running while completely missing the goal of price stability.
>So we need no fake money and fake policies around it.
Yeah because distorting free markets with another form of bad money is a good thing.
I’d prefer to have technocrats with accountability like generals in the military. Having said that, WW2 was the last time that we fired brass for incompetence.
We spent 20 years toiling in wars in Iraq and Afghanistan. Multiple operational and strategic failures throughout, up to and including the “withdrawal” from Kabul.
No one was fired for this incompetence, but McChrystal was fired for bad mouthing the president to a journalist.
Not only is there no individual accountability, but there is also no entity cleansing function. If a company ran the way the government runs the economy it may not exist. Poor government policies are replaced by more radical policies designed to keep the ship from going under.
Tbf Jerome Powell et all had 0 control over the trillions in stimulus spending. How much can you fault them for trying to appease the lunatics in Congress?
Ok now what? Are you going to reduce the money supply? I don't think so.
Nobody wants to reduce the money supply because that would be theft or expropriation or whatever convenient excuse. So instead there is inflation/expansion of the money supply.
What if they are right? If it's 12-18 months of 8-9% inflation, it's probably fair to call it transitory. We just had 12 months of inflation during a wicked supply chain storm after a pandemic, and a war which has further squeezed energy prices.
Notice when it last went above 5%? When oil hit 140+ back in 2008. Energy prices ripple through a lot of categories. If energy tanks, and it always has, we might fly back to 0% inflation in a hurry.
Powell might not have a crystal ball, but he's no dummy.
"Mark Zandi, chief economist of Moody's Analytics, analyzed consumer price index components following the May 2022 report that showed an 8.6% inflation rate. He found that the 2022 Russian invasion of Ukraine was the principal cause of higher inflation, comprising 3.5% of the 8.6%. He said oil and commodities prices jumped in anticipation of and response to the invasion, leading to higher gasoline price"
The fed can only reduce demand. Raising interest rates won't lower inflation if there are still massive disruptions to the supply chain. This is especially true for food and gas where people don't have much choice beside buy it or starve.
In the case of the recent wildly sharp increase in consumer prices is caused by lower supply of goods... not by increase of money supply.
If the demand stays the same, the supply goes down... then the price will go up.
It's pretty common sense if you think about supply and demand, but I am perplexed at the amount of people that don't practice any critical thought, let alone skepticism.
what confuses me is... take median household that makes about $67k/yr in America
median implies that's about 50% of the working population and below household wise, right?
if they are having to pay more for energy/rent/food, they're "struggling" more compared to when CPI was lower, right?
so... where is all of this excess demand coming from? exclusively from households that make more than $67k/yr? i wonder where the threshold is. obviously high networth individuals aren't affected super adversely by high gas prices. i just don't know what has the higher impact on "demand" (demand for what honestly, i have no clue):
>so... where is all of this excess demand coming from?
It's not new demand - it's less supply.
Less goods coming from overseas due to labor and delivery costs, less oil due to regional conflicts, and less workers due to an imminent demographic tightening are all converging to make it harder to get things on shelves.
Prices will continue to rise until demand is crushed (by us or supply/demand) and we settle in a new, temporary optimum of worldwide complexity.
There's not much anyone can do about it.
If you want to buy something nice, expensive, complicated, and which takes an international supply chain the door may be closing.
could you give an example of what kind of goods still have strong "demand"? i'm just trying to call out that, in my interpretation, there's a constantly conflicting/competing narrative being passed around with inflation
it's "people are hurting because everything costs more" but "everything costs more because there's still high demand for goods/services", aka, people wanting to blow extra cash they have on stuff
demands for necessities won't go away obviously. i know CPI is tracked per category. you can trace "ok, this specific good cost more in 2022 because of XYZ reasons in its supply chain", most of them oil backed/related
i just don't know how to digest anything related to cost increases other than "it's probably oil" and i'm curious what else there is
>digest anything related to cost increases other than "it's probably oil"
I think Oil is a large part for sure, probably larger than the others, but I have no way of diving into how each affects prices. Energy costs have grown the most dramatically of the factors I listed, so "it's probably oil" doesn't seem too far off at the moment.
This labor crunch will slowly squeeze in many places and make international goods more of a hassle to produce. It also has a destabilizing effect on the QoL in many countries (see Russia) which will provoke them to drastic moves that make global shipping even more of a pain (more expensive).
Right now we still import lots from China, maybe someone else can find something better than this chart of nominal trade values with China per month: https://www.census.gov/foreign-trade/balance/c5700.html but I don't know if the dollar amount reflects the total volume accurately. I would wager we import less goods overall compared to 2019.
As for why I think demand is the same, take a look at the number of workers in the USA: https://fred.stlouisfed.org/series/PAYEMS. It's about where it was in 2019 and we managed to provide every service we needed just fine back then - goods have to be more expensive due to some sort of gap in supply, not due to a new outsized growth in demand (in my opinion at least).
> exclusively from households that make more than $67
Energy use is proportional to spending, so above median households - regardless how they spend money - contributes far more to demand than below median households. Food and other things can be considered enhanced/transformed forms of energy.
The demand for energy needs to be adjusted in line with supply.
CPI crossed the 2% threshold in March 2021, meaning we've only just barely had 1 year of >2% CPI. If inflation were to nosedive over the next 6-9 months, it would be pretty easy to argue that the inflation was transitory.
I'm not taking sides in the "inflation is transitory" debate, merely saying that it is too early to tell.
Plus, look at the correlation between energy prices and CPI (not just the energy category) and you see energy ripple through everything... It can go down fast, pulling CPI with it.
Would be super curious to learn how cost of living is affecting other countries. I do understand that hn demographics skew higher income, but I feel like here in Germany almost no one is fully insulated.
For me, my expenses after rent and health insurance jumped almost 75%. I don't own a car and generally don't spend much outside of good food and drinks. Things like beef mince is 3 times the price it was a year ago. Cheese and similar products rose by something like 50% at least. Now there's talks about heating bills (often times around 5% of income) rising 7-fold... I'm still quite safe myself, but increasingly feel like this is going to destroy a lot of lives around here, and have major consequences for everyone.
This is exactly my experience. My expenses rose >75% even though I'm living a lot more frugally compared to 2021. I live in Boston and everything is just SO F'ING EXPENSIVE! I make ~$130k, I used to save ~$2000 every month before ~March 2022 and I'm now living close to paycheck to paycheck. I understand that there are things I can do better, but life is truly more expensive now.
I live in a similar place and I'm with you. I knew it was inflation but I almost started to believe I just started eating out more or something. But it's a very noticeable jump
I agree with you. These 7-8-9-10% increases are actually much more than that, in my opinion. I understand they need to make an average, but well, it looks like we need maybe other indicators as well?
I think just alone the groceries have increased about 20-25% but I might be wrong, though.
Yes, the war in Ukraine is hitting Germany (and Europe at large) twofold, because energy prices are exploding and some key components for agriculture like fertilizer are also getting scarce.
The other big issue are the major "cash printing" programs, first due to covid, now due to the war on european soil. Our government, and the governments of the other member states, have been handing out a lot of cash, and this of course hits inflation with some delay.
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[ 3.4 ms ] story [ 150 ms ] threadAnd for that matter, if honest journalism’s existed Janet Yalen who echoed the same thing would be having a rough time now. But none of these people have any accountability. And here we are.
Neither system is ideal, but there are certainly reasons for the system being set up the way it is.
Since you decided to bring up the issue, what would your proposed solution be? How should the FED system be set up in regard to officials, appointments, elections, etc. Genuinely curious as to what your thoughts are since I haven't been able to dream up an ideal scenario in my own mind.
The proposed solution would be to go back to gold standard and Fed not have the power to seize it like Roosevelt did. So we need no fake money and fake policies around it.
When the US rose to power (1930s to 1940s) gold was mostly not used in practice due to international traffic being mostly blocked (due to nationalist impulses during the Depression) or under heavy credit (during WW2). There’s a decent argument to be made gold caused the Great Depression or at least exacerbated it.
The “gold standard” system that started under Breton Woods (1944-1971) was basically a polite fiction, and when someone called the fiction it died.
A gold standard would be totally unworkable for today’s trade. It barely served the fledgling globalism of the 1920s.
If I remember my numbers from an economics course right, from 1776-1912, there were major runs on banks in the US an average of every 12 years. While the US didn't leave the gold standard until 1933, the fed, after it learned not to drastically raise interest rates quickly in 1929, has kept things pretty stable for almost a century.
These constant economic cycles just drive fear and populism and if people are desperate they also become more receptive of fascism.
The way currencies are designed forces their inevitable collapse so why not keep the party going for as long as possible ala Keynes? You don't lose anything from building a better society and then resetting the money system Vs not doing anything and then resetting it.
I.e. even if you think Keynesian deficits are stupid the entire point of them is that doing them brings you closer to equilibrium than not doing them. If you just stop them without replacing them with something else e.g. debt jubilees, expiring money or negative interest rates then you basically get a worse economy for no benefit whatsoever.
I mean...not to be too reductionist, but this whoooole thing we're doing is all just calvinball with higher stakes and more serious people. I don't see "go back to the gold standard" as any less silly than what we do today.
> The proposed solution would be to go back to gold standard and Fed not have the power to seize it like Roosevelt did.
Isn’t that a bit of a contradiction? Roosevelt, if I remember correctly, was democratically elected. A few times.
That won't solve the inflation or deflation problem. It is a non solution and will result in an even worse economy where pointless unemployment problems persist.
It also unfairly rewards people who disrupt the economy over those who keep it running while completely missing the goal of price stability.
>So we need no fake money and fake policies around it.
Yeah because distorting free markets with another form of bad money is a good thing.
I don't think this is true. Two examples that immediately spring to mind because they've been in the news:
- In 2014, Michael Flynn was fired from the DIA: https://en.wikipedia.org/wiki/Michael_Flynn#Defense_Intellig...
- In 2017, the Navy removed a rear admiral and a captain when a destroyer collided with a civilian tanker: https://en.wikipedia.org/wiki/USS_John_S._McCain_and_Alnic_M...
No one was fired for this incompetence, but McChrystal was fired for bad mouthing the president to a journalist.
Right, the fed injected trillions into the economy via monetary policy. Sources to start:
https://www.reuters.com/article/us-health-coronavirus-federa...
https://markets.businessinsider.com/news/stocks/fed-repo-tri...
https://www.investopedia.com/government-stimulus-efforts-to-...
I don't have a final number but please stop spreading disinformation, whether in bad faith or not.
Nobody wants to reduce the money supply because that would be theft or expropriation or whatever convenient excuse. So instead there is inflation/expansion of the money supply.
Here is a chart from bls:
https://www.bls.gov/charts/consumer-price-index/consumer-pri...
Notice when it last went above 5%? When oil hit 140+ back in 2008. Energy prices ripple through a lot of categories. If energy tanks, and it always has, we might fly back to 0% inflation in a hurry.
Powell might not have a crystal ball, but he's no dummy.
https://en.wikipedia.org/wiki/2021%E2%80%932022_inflation_su...
"Mark Zandi, chief economist of Moody's Analytics, analyzed consumer price index components following the May 2022 report that showed an 8.6% inflation rate. He found that the 2022 Russian invasion of Ukraine was the principal cause of higher inflation, comprising 3.5% of the 8.6%. He said oil and commodities prices jumped in anticipation of and response to the invasion, leading to higher gasoline price"
Inflation is not the only force at work in our economy.
The fed can only reduce demand. Raising interest rates won't lower inflation if there are still massive disruptions to the supply chain. This is especially true for food and gas where people don't have much choice beside buy it or starve.
If the demand stays the same, the supply goes down... then the price will go up.
It's pretty common sense if you think about supply and demand, but I am perplexed at the amount of people that don't practice any critical thought, let alone skepticism.
can you give an example of what specific types of goods?
median implies that's about 50% of the working population and below household wise, right?
if they are having to pay more for energy/rent/food, they're "struggling" more compared to when CPI was lower, right?
so... where is all of this excess demand coming from? exclusively from households that make more than $67k/yr? i wonder where the threshold is. obviously high networth individuals aren't affected super adversely by high gas prices. i just don't know what has the higher impact on "demand" (demand for what honestly, i have no clue):
millions of lower networth households
or
more concentrated higher networth households
It's not new demand - it's less supply.
Less goods coming from overseas due to labor and delivery costs, less oil due to regional conflicts, and less workers due to an imminent demographic tightening are all converging to make it harder to get things on shelves.
Prices will continue to rise until demand is crushed (by us or supply/demand) and we settle in a new, temporary optimum of worldwide complexity.
There's not much anyone can do about it.
If you want to buy something nice, expensive, complicated, and which takes an international supply chain the door may be closing.
it's "people are hurting because everything costs more" but "everything costs more because there's still high demand for goods/services", aka, people wanting to blow extra cash they have on stuff
demands for necessities won't go away obviously. i know CPI is tracked per category. you can trace "ok, this specific good cost more in 2022 because of XYZ reasons in its supply chain", most of them oil backed/related
i just don't know how to digest anything related to cost increases other than "it's probably oil" and i'm curious what else there is
I think Oil is a large part for sure, probably larger than the others, but I have no way of diving into how each affects prices. Energy costs have grown the most dramatically of the factors I listed, so "it's probably oil" doesn't seem too far off at the moment.
However in the near term, looking at China's labor force (https://data.worldbank.org/indicator/SL.TLF.TOTL.IN?location...) you can see that it's begun its downward trend (https://www.populationpyramid.net/china/2020/), which means that labor costs in China necessarily have to rise as supply falls, which will affect prices very soon (if not already).
This labor crunch will slowly squeeze in many places and make international goods more of a hassle to produce. It also has a destabilizing effect on the QoL in many countries (see Russia) which will provoke them to drastic moves that make global shipping even more of a pain (more expensive).
Right now we still import lots from China, maybe someone else can find something better than this chart of nominal trade values with China per month: https://www.census.gov/foreign-trade/balance/c5700.html but I don't know if the dollar amount reflects the total volume accurately. I would wager we import less goods overall compared to 2019.
As for why I think demand is the same, take a look at the number of workers in the USA: https://fred.stlouisfed.org/series/PAYEMS. It's about where it was in 2019 and we managed to provide every service we needed just fine back then - goods have to be more expensive due to some sort of gap in supply, not due to a new outsized growth in demand (in my opinion at least).
Open to other ideas and opinions
Iirc, it is true that fossil fuel production peaked in 2019.
However, it is still very close to 2018 levels. Demand, measured in currency units, has increased by a lot since then.
Energy use is proportional to spending, so above median households - regardless how they spend money - contributes far more to demand than below median households. Food and other things can be considered enhanced/transformed forms of energy.
The demand for energy needs to be adjusted in line with supply.
I'm not taking sides in the "inflation is transitory" debate, merely saying that it is too early to tell.
Hindsight is 2020, but it seems like the Fed has put themselves in a reactive situation and are now playing catch-up.
For me, my expenses after rent and health insurance jumped almost 75%. I don't own a car and generally don't spend much outside of good food and drinks. Things like beef mince is 3 times the price it was a year ago. Cheese and similar products rose by something like 50% at least. Now there's talks about heating bills (often times around 5% of income) rising 7-fold... I'm still quite safe myself, but increasingly feel like this is going to destroy a lot of lives around here, and have major consequences for everyone.
I think just alone the groceries have increased about 20-25% but I might be wrong, though.
The other big issue are the major "cash printing" programs, first due to covid, now due to the war on european soil. Our government, and the governments of the other member states, have been handing out a lot of cash, and this of course hits inflation with some delay.