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At what point does the massive pile of money injected into the economy translate into large price increases(i.e. inflation)? IIRC, inflation is the money suppl

At what point does the massive pile of money injected into the economy translate into large price increases(i.e. inflation)? IIRC, inflation is the money supply multiplied by the velocity of money, so if the economy slows, will we suddenly see the current asset bubble turn into a price bubble? What then? Does it all just work itself out because we devalue the currency and inflate away our debt and asset bubbles, or do we get slammed by stagflation? For those of us in the tech industry accumulating absurd salaries, what do we do to defend our wealth? Normally when inflation is coming, I'd think real estate or commodities would be a safe bet, but they're already in a bubble. It seems like jumping into them at this point might be better than nothing, and maybe that's all we can hope for at this point in the economic cycle?

deleted 7y ago
[deleted]
quotemstr 7y ago
> At what point does the massive pile of money injected into the economy translate into large price increases(i.e. inflation)? A burger at a nice restaurant in Seattle can now cost you $18-$20. Maybe we're already in an era of more intense inflation and just don't realize it yet.
- ethbro 7y ago
  Wealth inequality.
- 01100011 7y ago
  I went to buy a chocolate bar at Target yesterday. What used to be $3 for 3.5oz is now $3.98 for 3.15oz. I think it's been creeping up in some areas for a while now, but I don't see it as inevitable, across the board inflation just yet. Gas is still cheap. Utilities haven't gone up much for me. Rent is definitely up in CA, but I'm not sure how things are in the rest of the country. Generally, I haven't noticed inflation in most things I regularly purchase. Honestly, I work in tech and have a large, fixed alimony payment, so I could personally use some inflation.
  - WillPostForFood 7y ago
    How about housing?
    - 01100011 7y ago
      Definitely a bubble. I wonder though, it seems, at least in CA, that the prices are up but sales volume is down. People, perhaps, aren't converting the market increases into liquid assets. Maybe they're pulling refi's? Otherwise, a bubble in real estate may not be translating to any sort of broader economic gain?
  - ksec 7y ago
    >I went to buy a chocolate bar at Target yesterday. What used to be $3 for 3.5oz is now $3.98 for 3.15oz. Are you sure the price increase is really because of the cost of chocolate increase or the rent of Target within your area or labour of your area increased?
- JamesBarney 7y ago
  That's just caused by a lot of high earning tech people moving to Seattle. But there are tons of different groups that track inflation and all of them come up with pretty much the same answer. There isn't much inflation right now.
  - lotsofpulp 7y ago
    Based on my businesses (and household expenses), there are two USs. Certain locales have increasing costs of for just about everything every year, and certain locales are stagnant.
dharma1 7y ago
There is inflation because of the increase in money supply, but it is not in consumer goods - it is in financial assets
- thu2111 7y ago
  Yep. Inflation visible in this graph: https://www.macrotrends.net/2488/sp500-10-year-daily-chart https://www.macrotrends.net/2488/sp500-10-year-daily-chart Money is created by the central banks but it doesn't instantly appear in people's pockets as cash. That would be required to create instant consumer inflation but the path is much more winding than that. The money goes into the financial system primarily via banks and bond purchases. CBs buying up debt then gets translated into share buybacks, share buybacks push up stock prices, higher stock prices make the middle class feel more wealthy and so they spend more on middle class things like houses, pushing up house prices, higher house prices get translated into more income going to builders and builders buy things at the store. Traditional measures of inflation like bread or chocolate bar prices are at the end of a very, very long pipeline of money.
  - dharma1 7y ago
    This is the best analysis of the subject I have seen - https://news.ycombinator.com/item?id=22234042 https://news.ycombinator.com/item?id=22234042 It makes for long, but delightfully rewarding reading. Ray Dalio's thinking on the subject is also worth checking out
    - dev-ns8 7y ago
      Link to Ray Dalio write-up?
      - dharma1 7y ago
        This touches on it: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro... And you can get his free book on debt cycles here: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/
qqqwerty 7y ago
It depends on what you expect to happen and what your goals are. If you are trying to 'batten down the hatches' in preparation of a recession + a surge in inflation, then you can invest in TIPS[1]. You can also invest in safe short-term bond funds (if you live in CA, Vanguard has tax-exempt muni bond funds that might be a good solution). You aren't going to make a killing with these investments, but if they keep you ahead of inflation by a few % while all other asset classes are tanking, you would be in a pretty good spot. On the other hand, if you aren't expecting a recession and are only worried about inflation, probably better to just stay broadly exposed to the stock market (low cost index funds). And if recession is your only concern, then cash or safe bond funds would probably be the best bet. Personally, I am not too worried about inflation. If you look at where the strongest growth has happened in the last decade, it has been largely concentrated into a handful of 'super' cities (SF, Seattle, etc...) plus China. In the case of the latter, density puts downward pressure on consumption (you can only fit so much crap in a small apartment). And China's 'consumer class' has yet to really materialize. The one caveat, is that due to the wealth imbalance, I think we have seen inflation in things that wealthy people buy (real estate, stocks, art, etc...). But post-globalization, it will likely take a really broad surge in consumer demand to move the needle. [1] https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
- Ambele 7y ago
  Buying your first piece of real estate will provide you with a neutral stance on the housing market. Buying REITs like Camden, or another REIT from this REIT list also works if you don't overpay: https://www.reit.com/investing/reit-directory https://www.reit.com/investing/reit-directory. Buying a consumer goods seller like Apple stock or Target stock helps if the concerning inflation happens only in the consumer goods sector. I'm not a fan of large allocations of TIPS because the returns are so low.
JamesBarney 7y ago
Why would we have stagflation and not just stagnation? A slowing economy would only slow money velocity.
- 01100011 7y ago
  I dunno... seems if we've injected money into the economy it's out there swirling around. As long as the velocity is high, everything is fine. If the economy slows, we lose velocity and with a fixed supply of money(or an increasing supply, if QE is attempted) we see inflation as too many dollars chase too few goods. I never did well in econ though, so I'm happy to be told I'm an idiot.
weiser 7y ago
Anything with real intrinsic value will do well. For equities, that means value stocks over growth stocks.
- Double_a_92 7y ago
  Value stocks might not be what you think. They are stocks that are under-valued by the market relative to its "real" value... But that doesn't necessarily imply that those companies are inherently valuable.
henryw 7y ago
Are you saying real estate in the Bay Area are not inflated?
refurb 7y ago
Immediately post crisis, inflation was a big worry with the increase in the money supply. The concern was that the government would be too slow to turn the tap off and wed be back to the 1970’s with inflation in the teens. Incredibly the inflation has been limited to only a few assets. If we do see a spike in inflation watch out for housing prices to plummet. It won’t necessarily make them any more affordable because a mortgage payment of $3000 per month stays the same borrowing $500k at today’s rates or $200k at 10% interest (made those numbers up, but you get the point).
- throw0101a 7y ago
  > Immediately post crisis, inflation was a big worry with the increase in the money supply. Only amongst right-wing politicians and their economic lackeys. People who actually looked at the models concluded it was nothing to worry about: > Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom. * https://krugman.blogs.nytimes.com/2015/05/17/money-inflation-and-models/ https://krugman.blogs.nytimes.com/2015/05/17/money-inflation... A 2000 paper explaining Japan, monetary supply, and inflation: > Those who use Hicks's famous diagram as the point of reference for evaluating monetary policy will recall that at some low rate of interest the horizontal portion of the LM curve emanating from the vertical axis is meant to represent the lack of influence of expanding the money supply on the rate of interest; monetary policy thus does not shift the intersection of the LM curve with the IS curve that determines the equilibrium level of output. Since monetary policy has no impact on the level of output along this horizontal portion of the LM curve, debt financing of government expenditure remains the only policy capable of influencing output. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219494 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219494 In 2009 US entered the same situation Japan has been in since the 1990s ('zero' interest rates), and so the knowledge was transferable across the Pacific to those who weren't blinded by political ideology. The liquidity trap goes back to Keynes: * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap

deleted 7y ago

[deleted]

quotemstr 7y ago

> At what point does the massive pile of money injected into the economy translate into large price increases(i.e. inflation)? A burger at a nice restaurant in Seattle can now cost you $18-$20. Maybe we're already in an era of more intense inflation and just don't realize it yet.

ethbro 7y ago
Wealth inequality.
01100011 7y ago
I went to buy a chocolate bar at Target yesterday. What used to be $3 for 3.5oz is now $3.98 for 3.15oz. I think it's been creeping up in some areas for a while now, but I don't see it as inevitable, across the board inflation just yet. Gas is still cheap. Utilities haven't gone up much for me. Rent is definitely up in CA, but I'm not sure how things are in the rest of the country. Generally, I haven't noticed inflation in most things I regularly purchase. Honestly, I work in tech and have a large, fixed alimony payment, so I could personally use some inflation.
- WillPostForFood 7y ago
  How about housing?
  - 01100011 7y ago
    Definitely a bubble. I wonder though, it seems, at least in CA, that the prices are up but sales volume is down. People, perhaps, aren't converting the market increases into liquid assets. Maybe they're pulling refi's? Otherwise, a bubble in real estate may not be translating to any sort of broader economic gain?
- ksec 7y ago
  >I went to buy a chocolate bar at Target yesterday. What used to be $3 for 3.5oz is now $3.98 for 3.15oz. Are you sure the price increase is really because of the cost of chocolate increase or the rent of Target within your area or labour of your area increased?
JamesBarney 7y ago
That's just caused by a lot of high earning tech people moving to Seattle. But there are tons of different groups that track inflation and all of them come up with pretty much the same answer. There isn't much inflation right now.
- lotsofpulp 7y ago
  Based on my businesses (and household expenses), there are two USs. Certain locales have increasing costs of for just about everything every year, and certain locales are stagnant.

dharma1 7y ago

There is inflation because of the increase in money supply, but it is not in consumer goods - it is in financial assets

thu2111 7y ago
Yep. Inflation visible in this graph: https://www.macrotrends.net/2488/sp500-10-year-daily-chart https://www.macrotrends.net/2488/sp500-10-year-daily-chart Money is created by the central banks but it doesn't instantly appear in people's pockets as cash. That would be required to create instant consumer inflation but the path is much more winding than that. The money goes into the financial system primarily via banks and bond purchases. CBs buying up debt then gets translated into share buybacks, share buybacks push up stock prices, higher stock prices make the middle class feel more wealthy and so they spend more on middle class things like houses, pushing up house prices, higher house prices get translated into more income going to builders and builders buy things at the store. Traditional measures of inflation like bread or chocolate bar prices are at the end of a very, very long pipeline of money.
- dharma1 7y ago
  This is the best analysis of the subject I have seen - https://news.ycombinator.com/item?id=22234042 https://news.ycombinator.com/item?id=22234042 It makes for long, but delightfully rewarding reading. Ray Dalio's thinking on the subject is also worth checking out
  - dev-ns8 7y ago
    Link to Ray Dalio write-up?
    - dharma1 7y ago
      This touches on it: https://www.linkedin.com/pulse/world-has-gone-mad-system-broken-ray-dalio/ https://www.linkedin.com/pulse/world-has-gone-mad-system-bro... And you can get his free book on debt cycles here: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/

qqqwerty 7y ago

It depends on what you expect to happen and what your goals are. If you are trying to 'batten down the hatches' in preparation of a recession + a surge in inflation, then you can invest in TIPS[1]. You can also invest in safe short-term bond funds (if you live in CA, Vanguard has tax-exempt muni bond funds that might be a good solution). You aren't going to make a killing with these investments, but if they keep you ahead of inflation by a few % while all other asset classes are tanking, you would be in a pretty good spot. On the other hand, if you aren't expecting a recession and are only worried about inflation, probably better to just stay broadly exposed to the stock market (low cost index funds). And if recession is your only concern, then cash or safe bond funds would probably be the best bet. Personally, I am not too worried about inflation. If you look at where the strongest growth has happened in the last decade, it has been largely concentrated into a handful of 'super' cities (SF, Seattle, etc...) plus China. In the case of the latter, density puts downward pressure on consumption (you can only fit so much crap in a small apartment). And China's 'consumer class' has yet to really materialize. The one caveat, is that due to the wealth imbalance, I think we have seen inflation in things that wealthy people buy (real estate, stocks, art, etc...). But post-globalization, it will likely take a really broad surge in consumer demand to move the needle. [1] https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...

Ambele 7y ago
Buying your first piece of real estate will provide you with a neutral stance on the housing market. Buying REITs like Camden, or another REIT from this REIT list also works if you don't overpay: https://www.reit.com/investing/reit-directory https://www.reit.com/investing/reit-directory. Buying a consumer goods seller like Apple stock or Target stock helps if the concerning inflation happens only in the consumer goods sector. I'm not a fan of large allocations of TIPS because the returns are so low.

JamesBarney 7y ago

Why would we have stagflation and not just stagnation? A slowing economy would only slow money velocity.

01100011 7y ago
I dunno... seems if we've injected money into the economy it's out there swirling around. As long as the velocity is high, everything is fine. If the economy slows, we lose velocity and with a fixed supply of money(or an increasing supply, if QE is attempted) we see inflation as too many dollars chase too few goods. I never did well in econ though, so I'm happy to be told I'm an idiot.

weiser 7y ago

Anything with real intrinsic value will do well. For equities, that means value stocks over growth stocks.

Double_a_92 7y ago
Value stocks might not be what you think. They are stocks that are under-valued by the market relative to its "real" value... But that doesn't necessarily imply that those companies are inherently valuable.

henryw 7y ago

Are you saying real estate in the Bay Area are not inflated?

refurb 7y ago

Immediately post crisis, inflation was a big worry with the increase in the money supply. The concern was that the government would be too slow to turn the tap off and wed be back to the 1970’s with inflation in the teens. Incredibly the inflation has been limited to only a few assets. If we do see a spike in inflation watch out for housing prices to plummet. It won’t necessarily make them any more affordable because a mortgage payment of $3000 per month stays the same borrowing $500k at today’s rates or $200k at 10% interest (made those numbers up, but you get the point).

throw0101a 7y ago
> Immediately post crisis, inflation was a big worry with the increase in the money supply. Only amongst right-wing politicians and their economic lackeys. People who actually looked at the models concluded it was nothing to worry about: > Except that those who knew their Hicks declared that this time was different, that in a liquidity trap the rise in the monetary base wouldn’t be inflationary at all (and that the relevant history was from Japan since the 1990s and from the 1930s, which seemed to confirm this claim). And so it proved, as shown by the red marker down at the bottom. * https://krugman.blogs.nytimes.com/2015/05/17/money-inflation-and-models/ https://krugman.blogs.nytimes.com/2015/05/17/money-inflation... A 2000 paper explaining Japan, monetary supply, and inflation: > Those who use Hicks's famous diagram as the point of reference for evaluating monetary policy will recall that at some low rate of interest the horizontal portion of the LM curve emanating from the vertical axis is meant to represent the lack of influence of expanding the money supply on the rate of interest; monetary policy thus does not shift the intersection of the LM curve with the IS curve that determines the equilibrium level of output. Since monetary policy has no impact on the level of output along this horizontal portion of the LM curve, debt financing of government expenditure remains the only policy capable of influencing output. * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219494 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=219494 In 2009 US entered the same situation Japan has been in since the 1990s ('zero' interest rates), and so the knowledge was transferable across the Pacific to those who weren't blinded by political ideology. The liquidity trap goes back to Keynes: * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap