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>which isn't really logical, since Gold is a save haven, usually. I don't know anything about anything, but it seems to me this is a logical consequence of inf

>which isn't really logical, since Gold is a save haven, usually. I don't know anything about anything, but it seems to me this is a logical consequence of inflation? Purchasing power of $ goes down, prices (of everything) go up.

dlp211 6y ago
What inflation?
- Rury 6y ago
  The inflation in asset values (e.g. equities / real estate / gold). People incorrectly assume inflation means "the price of everything goes up". The problem word here being everything. Why? Well because prices aren't merely dictated by supply, but rather supply & demand. Simply comparing inflated money supply to the good supply is naïve, as it ignores to factor in the demand for different goods. As so, for a dumb example, it's entirely possible to have inflated stock prices but not see inflated sock prices, if all the extra money is chasing stocks, and not socks...
  - layoric 6y ago
    This makes a lot of sense, thanks for the explanation!
  - UncleEntity 6y ago
    > People incorrectly assume inflation means "the price of everything goes up". Because they've spent a few generations making sure people don't understand the difference between price inflation and monetary inflation by using the two interchangeably. This whole sub-thread is a perfect example, "the Fed has been printing money like there's no tomorrow but, look, there's only 0.44% inflation".
- onlyrealcuzzo 6y ago
  CPI conveniently doesn't measure asset prices. Inflation has been "stubbornly low" for 20 years while asset prices have outperformed historical averages the entire time. Asset prices seem to have diverged from the real economy because assets are primarily funded with debt (real estate, corporate investment) which has been artificially priced lower, while goods are paid with earned income which hasn't been manipulated.
  - MiroF 6y ago
    But why is general asset inflation problematic? There's a pretty clear reason consumer good inflation is bad. > Asset prices seem to have diverged from the real economy because assets are primarily funded with debt Or maybe it's because with rising productivity, capital has become more valuable over time.
    - ClumsyPilot 6y ago
      Asset prices going up ad infinitum means you can no longer afford a place to live. In fact it would mean that the only people who can afford assets are people who already have assets. > "Or maybe it's because with rising productivity, capital has become more valuable over time." We have 0.1% interest rates, negative in some countries, that indicates a glut of capital, not "shortage of valuable capital"
      - shajznnckfke 6y ago
        The CPI does include rent. And if you check the listings, you won’t find that the money supply multiplying has led to prices multiplying. It seems like it’s just supporting current prices. If prices do start to rise too quickly they can gradually pull back that support.
- maerF0x0 6y ago
  Monetary inflation leading to shifts in trading rates for other assets. USD is down against many other currencies lately (ie I checked CAD, EURO, GBP)
  - MiroF 6y ago
    > Monetary inflation It's incorrect to refer to monetary inflation as just "inflation." If you're talking about price inflation, we're not seeing that yet - although 5 year inflation expectations are popping back up again [0] So far, it's looking like the Fed is doing as best as could be expected. [0]: https://fred.stlouisfed.org/series/T5YIE https://fred.stlouisfed.org/series/T5YIE
    - maerF0x0 6y ago
      Sure. But we are talking about inflated asset prices. Printing more money just makes the truly valuable things take more units of an inflated currency pool
      - MiroF 6y ago
        > Printing more money just makes the truly valuable things take more units of an inflated currency poo Only true if everything else holds constant. Also, wouldn't just apply to asset prices but all prices. Everything else, unfortunately, is not holding constant. [0] [0]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
        maerF0x0 6y ago
        Now this is just my conspiracy theorist side coming out, but I think the only reason the government cares about frequency of exchange is that they get a cut on each event. The more frequent the exchange, the sooner they get 100% of it back.
- andromeduck 6y ago
  CPI is inherently flawed due to basket of goods methodology and consumer substitution for cheaper/different alternatives than in the past when prices to their current basket changes. For example average housing spend could be steady while people get smaller homes and CPI would not reflect that. Likewise with lower quality food by some metric or other. So much like how the S&P/NASDAQ has a bias for growth because losers are swapped out for winners, the CPI basket has a negative price bias as expensive goods are swapped out for cheaper ones.
arcticbull 6y ago
Inflation is on track for 0.44% annualized in 2020, about 1/4 of an average year due to the reduced velocity of money caused by the downturn more than offsetting the new money being printed.
- deleted 6y ago
  [deleted]
- space_fountain 6y ago
  Is there a way in which finical assets can inflate more the basic of goods that make up inflation metrics? Is gold even part of the index? Like if all that new money isn't being used to buy things like food or even housing that factor into the inflation index than wouldn't we see something like this where gold and the stock market inflate because that's where the cash is going?
  - foobarian 6y ago
    Maybe all the new money ends up in the hands of the rich elite, who just funnel it into the stock market, so it never really ends up inflating real assets. I could totally buy that these are the types that care the most about making the slider go to the right, and don't necessarily spend much of their money (or have so much of it that they already spent it on everything they possibly could).
    - solaxun 6y ago
      Ding ding ding!
  - d10r 6y ago
    Lets assume the inflation remains contained in the financial sector. What does this mean e.g. for a young family with no inherited wealth, with average income and savings rate? How should they invest their savings? Isn't it more difficult for them to "break even" (in the sense that their capital income offsets their share of contributing to others capital incomes) than before the asset price inflation?
- 6y ago
Der_Einzige 6y ago
Not only is inflation extremely low, but we were at serious risk of a deflationary spiral without all the funny-money that the feds are pumping into the economy. Central banks introduced liqudity to make sure deflation did not happen. Foreign demand for the dollar is at all time highs. People forget this and don't think about the impact that this has on currency prices. Also, the "inflation is actually happening they just don't measure it right" crowd are delusional. Maybe they were right before covid, but they're extremely wrong now.
- quintushoratius 6y ago
  > Not only is inflation extremely low, but we were at serious risk of a deflationary spiral without all the funny-money that the feds are pumping into the economy. Was reading just the other day that inflation is actually underestimated right now. People are buying basics, like food, at far higher rates than normal, prices for those basics are rising, but the CPI hasn't adjusted the ratios. Ergo prices are higher where it counts but the index doesn't see it.
- markus_zhang 6y ago
  IMO the fed pumps money to reduce the risk of collapse of tbtf entities. It can't do much to reflate the economy as it depends on the banks to lend them out.
- davidkw 6y ago
  Inflation is low as measured by the CPI. Inflation in financial assets (higher PE ratios for stocks, lower yields on bonds, significantly increased real estate prices in attractive cities, etc) are significantly higher. In my opinion, continued inflation in financial assets will / is already partly causing inequality. It's not good for society if the middle class has trouble buying houses or real estate - it tends to lead to a lot of anger and political polarization, as we've seen.
markus_zhang 6y ago
My understanding is that gold measures the (dis)trust in fiat currencies, with the USD the biggest part of it.
- asdfasgasdgasdg 6y ago
  That is what some people think, but the only thing we know for sure about the price of gold is that you have to pay its price in ounces to get one ounce of it.

dlp211 6y ago

What inflation?

Rury 6y ago
The inflation in asset values (e.g. equities / real estate / gold). People incorrectly assume inflation means "the price of everything goes up". The problem word here being everything. Why? Well because prices aren't merely dictated by supply, but rather supply & demand. Simply comparing inflated money supply to the good supply is naïve, as it ignores to factor in the demand for different goods. As so, for a dumb example, it's entirely possible to have inflated stock prices but not see inflated sock prices, if all the extra money is chasing stocks, and not socks...
- layoric 6y ago
  This makes a lot of sense, thanks for the explanation!
- UncleEntity 6y ago
  > People incorrectly assume inflation means "the price of everything goes up". Because they've spent a few generations making sure people don't understand the difference between price inflation and monetary inflation by using the two interchangeably. This whole sub-thread is a perfect example, "the Fed has been printing money like there's no tomorrow but, look, there's only 0.44% inflation".
onlyrealcuzzo 6y ago
CPI conveniently doesn't measure asset prices. Inflation has been "stubbornly low" for 20 years while asset prices have outperformed historical averages the entire time. Asset prices seem to have diverged from the real economy because assets are primarily funded with debt (real estate, corporate investment) which has been artificially priced lower, while goods are paid with earned income which hasn't been manipulated.
- MiroF 6y ago
  But why is general asset inflation problematic? There's a pretty clear reason consumer good inflation is bad. > Asset prices seem to have diverged from the real economy because assets are primarily funded with debt Or maybe it's because with rising productivity, capital has become more valuable over time.
  - ClumsyPilot 6y ago
    Asset prices going up ad infinitum means you can no longer afford a place to live. In fact it would mean that the only people who can afford assets are people who already have assets. > "Or maybe it's because with rising productivity, capital has become more valuable over time." We have 0.1% interest rates, negative in some countries, that indicates a glut of capital, not "shortage of valuable capital"
    - shajznnckfke 6y ago
      The CPI does include rent. And if you check the listings, you won’t find that the money supply multiplying has led to prices multiplying. It seems like it’s just supporting current prices. If prices do start to rise too quickly they can gradually pull back that support.
maerF0x0 6y ago
Monetary inflation leading to shifts in trading rates for other assets. USD is down against many other currencies lately (ie I checked CAD, EURO, GBP)
- MiroF 6y ago
  > Monetary inflation It's incorrect to refer to monetary inflation as just "inflation." If you're talking about price inflation, we're not seeing that yet - although 5 year inflation expectations are popping back up again [0] So far, it's looking like the Fed is doing as best as could be expected. [0]: https://fred.stlouisfed.org/series/T5YIE https://fred.stlouisfed.org/series/T5YIE
  - maerF0x0 6y ago
    Sure. But we are talking about inflated asset prices. Printing more money just makes the truly valuable things take more units of an inflated currency pool
    - MiroF 6y ago
      > Printing more money just makes the truly valuable things take more units of an inflated currency poo Only true if everything else holds constant. Also, wouldn't just apply to asset prices but all prices. Everything else, unfortunately, is not holding constant. [0] [0]: https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
      - maerF0x0 6y ago
        Now this is just my conspiracy theorist side coming out, but I think the only reason the government cares about frequency of exchange is that they get a cut on each event. The more frequent the exchange, the sooner they get 100% of it back.
andromeduck 6y ago
CPI is inherently flawed due to basket of goods methodology and consumer substitution for cheaper/different alternatives than in the past when prices to their current basket changes. For example average housing spend could be steady while people get smaller homes and CPI would not reflect that. Likewise with lower quality food by some metric or other. So much like how the S&P/NASDAQ has a bias for growth because losers are swapped out for winners, the CPI basket has a negative price bias as expensive goods are swapped out for cheaper ones.

arcticbull 6y ago

Inflation is on track for 0.44% annualized in 2020, about 1/4 of an average year due to the reduced velocity of money caused by the downturn more than offsetting the new money being printed.

deleted 6y ago
[deleted]
space_fountain 6y ago
Is there a way in which finical assets can inflate more the basic of goods that make up inflation metrics? Is gold even part of the index? Like if all that new money isn't being used to buy things like food or even housing that factor into the inflation index than wouldn't we see something like this where gold and the stock market inflate because that's where the cash is going?
- foobarian 6y ago
  Maybe all the new money ends up in the hands of the rich elite, who just funnel it into the stock market, so it never really ends up inflating real assets. I could totally buy that these are the types that care the most about making the slider go to the right, and don't necessarily spend much of their money (or have so much of it that they already spent it on everything they possibly could).
  - solaxun 6y ago
    Ding ding ding!
- d10r 6y ago
  Lets assume the inflation remains contained in the financial sector. What does this mean e.g. for a young family with no inherited wealth, with average income and savings rate? How should they invest their savings? Isn't it more difficult for them to "break even" (in the sense that their capital income offsets their share of contributing to others capital incomes) than before the asset price inflation?
6y ago

Der_Einzige 6y ago

Not only is inflation extremely low, but we were at serious risk of a deflationary spiral without all the funny-money that the feds are pumping into the economy. Central banks introduced liqudity to make sure deflation did not happen. Foreign demand for the dollar is at all time highs. People forget this and don't think about the impact that this has on currency prices. Also, the "inflation is actually happening they just don't measure it right" crowd are delusional. Maybe they were right before covid, but they're extremely wrong now.

quintushoratius 6y ago
> Not only is inflation extremely low, but we were at serious risk of a deflationary spiral without all the funny-money that the feds are pumping into the economy. Was reading just the other day that inflation is actually underestimated right now. People are buying basics, like food, at far higher rates than normal, prices for those basics are rising, but the CPI hasn't adjusted the ratios. Ergo prices are higher where it counts but the index doesn't see it.
markus_zhang 6y ago
IMO the fed pumps money to reduce the risk of collapse of tbtf entities. It can't do much to reflate the economy as it depends on the banks to lend them out.
davidkw 6y ago
Inflation is low as measured by the CPI. Inflation in financial assets (higher PE ratios for stocks, lower yields on bonds, significantly increased real estate prices in attractive cities, etc) are significantly higher. In my opinion, continued inflation in financial assets will / is already partly causing inequality. It's not good for society if the middle class has trouble buying houses or real estate - it tends to lead to a lot of anger and political polarization, as we've seen.

markus_zhang 6y ago

My understanding is that gold measures the (dis)trust in fiat currencies, with the USD the biggest part of it.

asdfasgasdgasdg 6y ago
That is what some people think, but the only thing we know for sure about the price of gold is that you have to pay its price in ounces to get one ounce of it.