8 ms·

Fed’s Powell expects inflation to stay hot for months

26 points by koolba 5y ago

da_big_ghey 5y ago
reminding all: inflation is large and great tax on each person. wealth tax by other name. but worse for the poorer, the persons who have no money manager and investing wisdom for the avoidance of inflation effects. inflation from monetary policy like the fed currently is a bad thing.
- pfraze 5y ago
  Inflation also decreases the value of debts, doesn’t it?
  - csunbird 5y ago
    Debts always have greater interest rates than the inflation.
    - tmountain 5y ago
      Your statement doesn't apply to long-term debt like mortgages with fixed interest rates.
    - SantalBlush 5y ago
      That doesn't matter. No matter what the nominal rate of interest is, higher inflation will result in a lower real interest rate. Edit: This is regarding debt that already exists, not newly issued debt.
    - ethbr0 5y ago
      Even the US government's?
    - dukeyukey 5y ago
      This isn't true. For example, current UK government bonds (denominated in £) have a yield of 0.674%, but inflation even before the post-covid increase was around 1.8%.
    - zie 5y ago
      While in theory what you say is mostly true, it's not really true in reality. The EU govt issued bonds that produce negative real interest rates in 2020. The US Govt let their treasuries hit 0% interest. bond/debt interest rates are usually fixed at the time of purchase. When you buy debt you know exactly what you will get at the end(provided the person/entity in debt doesn't default). You don't know what the inflation rate will be at the end of the bond when you get the principal back. You can make a pretty good guess, but you can't know. It typically doesn't ever change, so if you bought a 4% yielding bond, then inflation hits at 5%, then you WILL lose money on your bond. This is normal in a rising rates/inflationary environment. Bonds are "safe"(for some definition of safe), and you have to pay for safety. US Treasuries pay next to nothing(and generally always have) because they are the reserve asset, everyone in the world considers them safe debt. FDIC insured bank accounts similarly get away with paying basically no interest on the deposited money. Safety costs you. Holding cash means you are generally going to lose to inflation. The only exception really are TIPS, I-Bonds and other inflation protected bonds. But that's only if you how they define inflation is also how you define inflation. Right now Inflation is like 5%, but a lot of that inflation is from things like buying cars, or in the recent past lumber. If you aren't currently buying those things, then those inflationary pieces don't really apply to you. So your personal inflation rate might be 2% or .5%, it just depends on what you are buying. Anyways, bonds are complicated, and debt even more so. At the moment you can get 30yr mortgages(debt) under the current 5% inflation rate.. does that mean owning a house with inflation is a good deal.. MAYBE.
    - woofie11 5y ago
      (1) Mortgages currently have LOWER interest rates than inflation. Right now inflation is above 5%, and I know people who refinanced below 3%. (2) It doesn't matter too much in either case. If I took on a debt 5 years ago, and I'm paying $500 per month, if we see inflation will mean I'm paying half of that. Inflation is really good for people (and governments) with excessive debt. If your net worth is negative, inflation is a tax on your debtors, not on you.
    - deleted 5y ago
      [deleted]
  - da_big_ghey 5y ago
    This is depending on terms of a loan, most loans trying to price in inflation costs with higher interest rate. Maybe with surprise inflation on fixed terms loan?
  - tastyfreeze 5y ago
    Inflation does decrease the value of debts. That only matters if the borrower has a non-inflated asset to pay off their debt. Most people earn in dollars which will decrease in value at the same rate as their debt. Earning the same amount of dollars with inflation means more of earnings go to paying for life and less to go towards debts. Now, lets say you have a gold bracelet and inflation only cuts the value of the dollar in half one time. The gold bracelet can be sold for twice as many dollars that can be used to pay off debt. One halving is a mild inflation scenario. Romania in the 90s went through 14 halvings.
- jdavis703 5y ago
  They’re letting inflation run hot so workers in sectors hit hardest by the lockdown can recover. These are generally blue collar / service jobs more likely to be held by women and POC.
  - da_big_ghey 5y ago
    Already we have more $$$/liquidity than is usable for economy, see storage way up in overnight reverse repo, see investing more in junk debt... no places for to put these $$$, more $$$ no solution. > These are generally blue collar / service jobs more likely to be held by women and POC I am not understanding salience of this part?
    - jdavis703 5y ago
      Women and POC tend to be poorer on average.
      - shiftpgdn 5y ago
        Indian and Filipinos Americans earn significantly more than “white” Americans on average.
  - ethbr0 5y ago
    "Let's print more money so that more people have money." The Fed is absolutely doing this for poor workers, and not to enable sustainable deficit funding without raising taxes. /s
    - jdavis703 5y ago
      The Fed doesn’t control taxes, Biden has stated he won’t raise taxes on people making less than $400k, and the GOP has indicated that raising corporate income taxes are a no-go. Realistically what other options are there?
      - ethbr0 5y ago
- tpolzer 5y ago
  On the contrary: a large number of the "poor" have ~zero or negative net worth, so inflation (unless extreme) doesn't affect them negatively.
  - dominotw 5y ago
    > so inflation (unless extreme) doesn't affect them negatively. Don't see how rising prices doesn't affect them. My MIL is on fixed income and she says she is spending a lot more now on necessities than last year. Unless wages were adjusted for inflation( which they aren't) they will bear the brunt of inflation. Most ppl here dont' even notice grocery bills going up.
  - throwaway0a5e 5y ago
    This is a BS talking point. Inflation screws people who's money comes from wages and who's wages are inflated slower than inflation increases costs (which is always how it goes down) and living paycheck to paycheck turns into having to choose what bills to pay. Your ability to buy assets (which increase with inflation) is also depreciated so there's little hope of weathering it unscathed. The people helped by inflation are the people with marketable skills and the opportunity to job hop who also happen to be using debt to live right up to the limit of their means and who can afford to buy assets (stocks, a home, etc). Statistically these people are highly over-represented on HN vs the population as a whole.
  - engineer_22 5y ago
    Inflation affects the poor much more than it does the rich. Rich people just spend more on their necessities, their living standard doesn't change, since they have assets to dip into. OTOH poor people have to make tough choices with limited income, and meager savings. Sometimes this means paying rent instead of buying food. Fix the car to get to work, instead of buying school clothes for their children. You should really examine your framing of the situation.
  - wing-_-nuts 5y ago
    It does hurt the poor. The poor pay more for goods and services, and they don't have much cushion to begin with. Inflation definitely helps those in debt, as you're now paying down your mortgage or car loan with dollars that are worth less. People with lots of debt are not necessarily 'poor'. They use debt as leverage. Either directly or indirectly.
- pharmakom 5y ago
  Indeed. Inflation hits those who live on wages the hardest, since wage increases lag inflation. Asset wealth does not have such a lag.
- jcoq 5y ago
  I hate these oversimplifications of monetary policy. Yes, inflation can be terrible, contributing measurably to quality of life decreases. But the alternative could potentially setoff another decade of sluggish growth, or worse yet, trigger a full fledged recession. Further, much of current inflation is being driven by goods that are highly sensitive to pandemic shortages and we expect this to be transitory. Like most things, there's no clear path. Anyone who tells you different wants you to vote a certain way.
  - dominotw 5y ago
    > Like most things, there's no clear path. Anyone who tells you different wants you to vote a certain way. Then why does the govt say that there is a clear path of huge spending, low interest rates ect.
    - jcoq 5y ago
      They don't. If you paid any attention to the Fed whatsoever, then you can see they're watching the situation very closely and signalling to markets that they'll take action when needed. Monetary policy isn't some secret. It's pretty easy to follow.
      - dominotw 5y ago
        > they'll take action when needed > It's pretty easy to follow. > Monetary policy isn't some secret. What is the decision tree for 'take action'? Why do we need to use "when needed" if its so clear and straightforward .
        jcoq 5y ago
        > > they'll take action when needed > > It's pretty easy to follow. > > Monetary policy isn't some secret. > What is the decision tree for 'take action'? Why do we need to use "when needed" if its so clear and straightforward . Because I'm summarizing. Go pick up a Financial Times.
- Vaslo 5y ago
  Some of this should be taught in public schools then - unfortunately we are spending more time teaching "woke" concepts in math these days. Maybe we should return Home Economics without the "women in the kitchen" aspect.
  - xerosis 5y ago
    What are these concepts?
    - hairofadog 5y ago
      I would also like to know what "woke concepts" the parent commenter thinks are being taught in mathematics classes. After googling it quickly I found a lot of hysteria about it from right wing media outlets, but the actual documentation seems only to propose less rote learning and more application.
CountDrewku 5y ago
>Both the Fed and the Biden administration have said rapid price increases are being stoked by temporary factors, such as hiccups in the faster-than-expected reopening of the economy. Or the fact you pumped a load of unnecessary money into the economy via "stimulus" checks and "relief" packages.
- ProAm 5y ago
  The US has been printing money and dumping it into the economy since 2008
  - andrew_ 5y ago
    The existence of prior bad policy doesn't negate continuance of bad policy. If we were speaking about the prior administration, the same point would apply. This will have significant impact on several generations to come.
  - CountDrewku 5y ago
    Yep and it's stupid. That directly causes inflation. This is why people are jumping to cryptocurrencies and don't trust fiat currencies anymore. Luckily our amazing government has now decided we should tax crypto since they screwed up their own currency so badly.
  - beervirus 5y ago
    This last year is way off the charts.
- SantalBlush 5y ago
  Completely disagree that the stimulus checks were unnecessary, and I'm really curious what you think a superior solution to the COVID economy would have been. I think people take for granted that our economy could be in a much, much worse position right now given the events of 2020.
  - shiftpgdn 5y ago
    The third one went out after the vaccine was widely available. Honestly with expanded unemployment benefit we didn’t even need the second one.
rm_-rf_slash 5y ago
Bond markets seem to be shrugging off inflation concerns. Persistently low rates indicate a higher concern about sustaining growth than overheating economies.
cs702 5y ago
I'm reminded of this famous passage by Ernest Hemingway in The Sun Also Rises: > "How did you go bankrupt?" Bill asked. > "Two ways," Mike said. “Gradually and then suddenly." In other words, at all times, Mike's march to bankruptcy was always obvious, but somehow he couldn't see it, or do anything about it, until it was too late! If you read accounts about inflation in the mid to late 1970's, you'll see that by the time inflation started getting out of control, it was too late to prevent it. Inflation couldn't be brought under control until Paul Volcker aggressively raised interest rates, which was very painful for a lot of businesses and a lot of people. 10-year treasuries hit 16%/year. Mortgage rates hit 20%/year. Valuations for all kind of assets hit rock bottom. It's not too hard to imagine the following Q&A a few years from now in some congressional hearing: > Q: "How did inflation get so out of control?" > A: "Two ways. Gradually and then suddenly."
- anotherman554 5y ago
  The U.S. went off the Gold standard in 1973 and had different fed policy back then, is my understanding. I highly doubt "it was too late to prevent it" back then or that there are lessons to be learned from that incident or the fiction novel you quoted that apply today.
  - cs702 5y ago
    The US ended gold convertibility in 1971, not 1973.[a] The precipitating factor was actually OPEC's oil embargo from 1973 to 1974.[b] At the time, conventional economic wisdom was that there was a trade-off between employment and inflation, according to the Phillips Curve.[c] So, as higher inflation (and inflation expectations) started getting more and more embedded into the economy (e.g., stipulated in rent contracts), everyone could see what was happening, but everyone sort of kept waiting and hoping for things eventually to "go back to normal," so no one did anything... until Volcker came along and fought the establishment, causing a lot of pain, to get inflation under control. [a] https://www.stlouisfed.org/open-vault/2017/november/why-us-no-longer-follows-gold-standard https://www.stlouisfed.org/open-vault/2017/november/why-us-n... -- also, see tastyfreeze's comment: https://news.ycombinator.com/item?id=27833523 https://news.ycombinator.com/item?id=27833523 [b] https://www.federalreservehistory.org/essays/oil-shock-of-1973-74 https://www.federalreservehistory.org/essays/oil-shock-of-19... [c] https://www.stlouisfed.org/open-vault/2020/january/what-is-phillips-curve-why-flattened https://www.stlouisfed.org/open-vault/2020/january/what-is-p...
nimbius 5y ago
typically the US would raise interest rates to combat inflation, however the federal reserve has refused and cited this to be "transient" inflation, an assertion thats really more wishful thinking. the real reason the fed cant raise interest rates is because it never gave up quantitative easing after the 2008 housing collapse. raising interest rates would blow up the corporate credit bubble. https://en.wikipedia.org/wiki/Corporate_debt_bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble
EarthIsHome 5y ago
You can see how much the Fed has been propping up the economy in the M1 money stock chart [0]. They've been injecting so much cash... that's a lot of fucking money. I think when they slow down, the market will crash. Money needs to be in circulation, and this is the only way they can get it to circulate (although, tbh, if it were in the pockets of the people, it'll probably circulate better). You can also check the velocity of money in the M2 velocity chart [1], which shows the ratio of transactions to the M2 supply. The M2 supply is the M1 supply plus some other forms of money. What the M2 velocity chart shows is that people are holding on to their money in some form and not transacting with it as much as they have before (i.e. a slow down in the velocity of money). Like, it's getting close 1!!!! So all that cash that the Fed's been injecting hasn't been able to speed up the M2 velocity back to pre-COVID times let alone pre '08 recession times. The velocity chart doesn't look too good IMO. [0]: M1 money supply https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL [1]: M2 money velocity https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V
- caeril 5y ago
  Yeah, except a huge portion of that increase isn't even circulating. The only increase in circulating supply has occurred at the behest of the Trump and Biden administrations, via fiscal stimulus. As evidence for this, reverse repo operations (in which banks who have way too much excess reserves buy the Fed's assets overnight) are running close to a trillion dollars(1). Meanwhile, credit offered by banks appears to actually be shrinking. So Wells Fargo, for example, is over here sitting on more cash than it knows what to do with, and killing ~4% NIM consumer LOC facilities(2) while buying 0.1% NIM in overnight operations. I don't know if banks think default risk is rising above 3.9%, or if demand for credit is low. But something fucky is definitely going on since February. 1. https://fred.stlouisfed.org/series/RRPONTSYD https://fred.stlouisfed.org/series/RRPONTSYD 2. https://www.cnbc.com/2021/07/08/wells-fargo-is-shutting-down-all-personal-line-of-credit-accounts-.html https://www.cnbc.com/2021/07/08/wells-fargo-is-shutting-down...
- throw0101a 5y ago
  > You can see how much the Fed has been propping up the economy in the M1 money stock chart [0]. The change in M1 was a change in tracking rules, as explained in the Fed weblog post: * https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...
wing-_-nuts 5y ago
It's interesting to me that the bond market is so complacent about this. They view inflation as a slain dragon. Inflation stays low because people in the past expected the fed to react aggressively to the slightest sign of inflation. Bond investors refuse to demand higher yields (i.e. by not buying treasuries) because they expect inflation is temporary. Here's the thing. Does anyone think that today's fed stands ready to plunge the economy into a deep recession like the 1980's to kill inflation if it gets out of control? Anyone? I have no such faith.
- howeyc 5y ago
  I think the fed, and the market, are basically under the belief that inflation isn't going to sustain at above 2% for long. I mean, look at it from their side. They've been doing everything they can think of to hit 2% for a decade without success. Now, after the pandemic everyone is rushing back to work on a massive scale never seen before (plus some fiscal spending with additional unemployment benefits are still out there) and inflation is what, maybe 3% over two years if you are super generous with the numbers. They are basically just in "wait and see" mode to know if this inflation trajectory has staying power.
  - aggronn 5y ago
    Yeah, I am sympathetic to people concerned about inflation right now, but the basic Econ 101 explanation you give is just too compelling to alarm me (and apparently the Fed and others who do this for a living). There is a clear mismatch in demand and supply. Supply is booming and its taking time for supply chains to catch up because of the structural damage that was caused by COVID. It takes time to fix that. This is short term angst, not a monetary crisis. If there's a monetary crisis occurring (asset inflation?) its been going on for almost a decade now, and its not reflected in the CPI.
johbjo 5y ago
Consumer price inflation won't rise unless a relevant proportion of consumers get more money to spend. There should be enough slack behind all goods in the cpi basket that disruptions won't permanently affect the price of milk, bread, toilet paper, flat panel TVs and so on. It is true that there is exploding inflation in asset prices brought by central bank credit, but it won't affect the price of milk and bread.
- new_realist 5y ago
  The demand for those things is fixed. Even TVs—everyone’s already upgraded to 4K. It’s discretionary items, like cars, housing, renovations, luxury appliances, and elite schools, that will experience inflation. Human wants are infinite.
  - johbjo 5y ago
    Yes, probably true. Those (cars, housing, renovations, education) are things financed by debt and can continue rising. But I suspect they are conveniently down-weighted from the CPI. For example, if they let the CPI-entry be monthly car payments instead of cash price, then CPI inflation is flat as long as rates are falling.

26 points by koolba 5y ago

reminding all: inflation is large and great tax on each person. wealth tax by other name. but worse for the poorer, the persons who have no money manager and investing wisdom for the avoidance of inflation effects. inflation from monetary policy like the fed currently is a bad thing.

pfraze 5y ago
Inflation also decreases the value of debts, doesn’t it?
- csunbird 5y ago
  Debts always have greater interest rates than the inflation.
  - tmountain 5y ago
    Your statement doesn't apply to long-term debt like mortgages with fixed interest rates.
  - SantalBlush 5y ago
    That doesn't matter. No matter what the nominal rate of interest is, higher inflation will result in a lower real interest rate. Edit: This is regarding debt that already exists, not newly issued debt.
  - ethbr0 5y ago
    Even the US government's?
  - dukeyukey 5y ago
    This isn't true. For example, current UK government bonds (denominated in £) have a yield of 0.674%, but inflation even before the post-covid increase was around 1.8%.
  - zie 5y ago
    While in theory what you say is mostly true, it's not really true in reality. The EU govt issued bonds that produce negative real interest rates in 2020. The US Govt let their treasuries hit 0% interest. bond/debt interest rates are usually fixed at the time of purchase. When you buy debt you know exactly what you will get at the end(provided the person/entity in debt doesn't default). You don't know what the inflation rate will be at the end of the bond when you get the principal back. You can make a pretty good guess, but you can't know. It typically doesn't ever change, so if you bought a 4% yielding bond, then inflation hits at 5%, then you WILL lose money on your bond. This is normal in a rising rates/inflationary environment. Bonds are "safe"(for some definition of safe), and you have to pay for safety. US Treasuries pay next to nothing(and generally always have) because they are the reserve asset, everyone in the world considers them safe debt. FDIC insured bank accounts similarly get away with paying basically no interest on the deposited money. Safety costs you. Holding cash means you are generally going to lose to inflation. The only exception really are TIPS, I-Bonds and other inflation protected bonds. But that's only if you how they define inflation is also how you define inflation. Right now Inflation is like 5%, but a lot of that inflation is from things like buying cars, or in the recent past lumber. If you aren't currently buying those things, then those inflationary pieces don't really apply to you. So your personal inflation rate might be 2% or .5%, it just depends on what you are buying. Anyways, bonds are complicated, and debt even more so. At the moment you can get 30yr mortgages(debt) under the current 5% inflation rate.. does that mean owning a house with inflation is a good deal.. MAYBE.
  - woofie11 5y ago
    (1) Mortgages currently have LOWER interest rates than inflation. Right now inflation is above 5%, and I know people who refinanced below 3%. (2) It doesn't matter too much in either case. If I took on a debt 5 years ago, and I'm paying $500 per month, if we see inflation will mean I'm paying half of that. Inflation is really good for people (and governments) with excessive debt. If your net worth is negative, inflation is a tax on your debtors, not on you.
  - deleted 5y ago
    [deleted]
- da_big_ghey 5y ago
  This is depending on terms of a loan, most loans trying to price in inflation costs with higher interest rate. Maybe with surprise inflation on fixed terms loan?
- tastyfreeze 5y ago
  Inflation does decrease the value of debts. That only matters if the borrower has a non-inflated asset to pay off their debt. Most people earn in dollars which will decrease in value at the same rate as their debt. Earning the same amount of dollars with inflation means more of earnings go to paying for life and less to go towards debts. Now, lets say you have a gold bracelet and inflation only cuts the value of the dollar in half one time. The gold bracelet can be sold for twice as many dollars that can be used to pay off debt. One halving is a mild inflation scenario. Romania in the 90s went through 14 halvings.
jdavis703 5y ago
They’re letting inflation run hot so workers in sectors hit hardest by the lockdown can recover. These are generally blue collar / service jobs more likely to be held by women and POC.
- da_big_ghey 5y ago
  Already we have more $$$/liquidity than is usable for economy, see storage way up in overnight reverse repo, see investing more in junk debt... no places for to put these $$$, more $$$ no solution. > These are generally blue collar / service jobs more likely to be held by women and POC I am not understanding salience of this part?
  - jdavis703 5y ago
    Women and POC tend to be poorer on average.
    - shiftpgdn 5y ago
      Indian and Filipinos Americans earn significantly more than “white” Americans on average.
- ethbr0 5y ago
  "Let's print more money so that more people have money." The Fed is absolutely doing this for poor workers, and not to enable sustainable deficit funding without raising taxes. /s
  - jdavis703 5y ago
    The Fed doesn’t control taxes, Biden has stated he won’t raise taxes on people making less than $400k, and the GOP has indicated that raising corporate income taxes are a no-go. Realistically what other options are there?
    - ethbr0 5y ago
tpolzer 5y ago
On the contrary: a large number of the "poor" have ~zero or negative net worth, so inflation (unless extreme) doesn't affect them negatively.
- dominotw 5y ago
  > so inflation (unless extreme) doesn't affect them negatively. Don't see how rising prices doesn't affect them. My MIL is on fixed income and she says she is spending a lot more now on necessities than last year. Unless wages were adjusted for inflation( which they aren't) they will bear the brunt of inflation. Most ppl here dont' even notice grocery bills going up.
- throwaway0a5e 5y ago
  This is a BS talking point. Inflation screws people who's money comes from wages and who's wages are inflated slower than inflation increases costs (which is always how it goes down) and living paycheck to paycheck turns into having to choose what bills to pay. Your ability to buy assets (which increase with inflation) is also depreciated so there's little hope of weathering it unscathed. The people helped by inflation are the people with marketable skills and the opportunity to job hop who also happen to be using debt to live right up to the limit of their means and who can afford to buy assets (stocks, a home, etc). Statistically these people are highly over-represented on HN vs the population as a whole.
- engineer_22 5y ago
  Inflation affects the poor much more than it does the rich. Rich people just spend more on their necessities, their living standard doesn't change, since they have assets to dip into. OTOH poor people have to make tough choices with limited income, and meager savings. Sometimes this means paying rent instead of buying food. Fix the car to get to work, instead of buying school clothes for their children. You should really examine your framing of the situation.
- wing-_-nuts 5y ago
  It does hurt the poor. The poor pay more for goods and services, and they don't have much cushion to begin with. Inflation definitely helps those in debt, as you're now paying down your mortgage or car loan with dollars that are worth less. People with lots of debt are not necessarily 'poor'. They use debt as leverage. Either directly or indirectly.
pharmakom 5y ago
Indeed. Inflation hits those who live on wages the hardest, since wage increases lag inflation. Asset wealth does not have such a lag.
jcoq 5y ago
I hate these oversimplifications of monetary policy. Yes, inflation can be terrible, contributing measurably to quality of life decreases. But the alternative could potentially setoff another decade of sluggish growth, or worse yet, trigger a full fledged recession. Further, much of current inflation is being driven by goods that are highly sensitive to pandemic shortages and we expect this to be transitory. Like most things, there's no clear path. Anyone who tells you different wants you to vote a certain way.
- dominotw 5y ago
  > Like most things, there's no clear path. Anyone who tells you different wants you to vote a certain way. Then why does the govt say that there is a clear path of huge spending, low interest rates ect.
  - jcoq 5y ago
    They don't. If you paid any attention to the Fed whatsoever, then you can see they're watching the situation very closely and signalling to markets that they'll take action when needed. Monetary policy isn't some secret. It's pretty easy to follow.
    - dominotw 5y ago
      > they'll take action when needed > It's pretty easy to follow. > Monetary policy isn't some secret. What is the decision tree for 'take action'? Why do we need to use "when needed" if its so clear and straightforward .
      - jcoq 5y ago
        > > they'll take action when needed > > It's pretty easy to follow. > > Monetary policy isn't some secret. > What is the decision tree for 'take action'? Why do we need to use "when needed" if its so clear and straightforward . Because I'm summarizing. Go pick up a Financial Times.
Vaslo 5y ago
Some of this should be taught in public schools then - unfortunately we are spending more time teaching "woke" concepts in math these days. Maybe we should return Home Economics without the "women in the kitchen" aspect.
- xerosis 5y ago
  What are these concepts?
  - hairofadog 5y ago
    I would also like to know what "woke concepts" the parent commenter thinks are being taught in mathematics classes. After googling it quickly I found a lot of hysteria about it from right wing media outlets, but the actual documentation seems only to propose less rote learning and more application.

CountDrewku 5y ago

>Both the Fed and the Biden administration have said rapid price increases are being stoked by temporary factors, such as hiccups in the faster-than-expected reopening of the economy. Or the fact you pumped a load of unnecessary money into the economy via "stimulus" checks and "relief" packages.

ProAm 5y ago
The US has been printing money and dumping it into the economy since 2008
- andrew_ 5y ago
  The existence of prior bad policy doesn't negate continuance of bad policy. If we were speaking about the prior administration, the same point would apply. This will have significant impact on several generations to come.
- CountDrewku 5y ago
  Yep and it's stupid. That directly causes inflation. This is why people are jumping to cryptocurrencies and don't trust fiat currencies anymore. Luckily our amazing government has now decided we should tax crypto since they screwed up their own currency so badly.
- beervirus 5y ago
  This last year is way off the charts.
SantalBlush 5y ago
Completely disagree that the stimulus checks were unnecessary, and I'm really curious what you think a superior solution to the COVID economy would have been. I think people take for granted that our economy could be in a much, much worse position right now given the events of 2020.
- shiftpgdn 5y ago
  The third one went out after the vaccine was widely available. Honestly with expanded unemployment benefit we didn’t even need the second one.

rm_-rf_slash 5y ago

Bond markets seem to be shrugging off inflation concerns. Persistently low rates indicate a higher concern about sustaining growth than overheating economies.

cs702 5y ago

I'm reminded of this famous passage by Ernest Hemingway in The Sun Also Rises: > "How did you go bankrupt?" Bill asked. > "Two ways," Mike said. “Gradually and then suddenly." In other words, at all times, Mike's march to bankruptcy was always obvious, but somehow he couldn't see it, or do anything about it, until it was too late! If you read accounts about inflation in the mid to late 1970's, you'll see that by the time inflation started getting out of control, it was too late to prevent it. Inflation couldn't be brought under control until Paul Volcker aggressively raised interest rates, which was very painful for a lot of businesses and a lot of people. 10-year treasuries hit 16%/year. Mortgage rates hit 20%/year. Valuations for all kind of assets hit rock bottom. It's not too hard to imagine the following Q&A a few years from now in some congressional hearing: > Q: "How did inflation get so out of control?" > A: "Two ways. Gradually and then suddenly."

anotherman554 5y ago
The U.S. went off the Gold standard in 1973 and had different fed policy back then, is my understanding. I highly doubt "it was too late to prevent it" back then or that there are lessons to be learned from that incident or the fiction novel you quoted that apply today.
- cs702 5y ago
  The US ended gold convertibility in 1971, not 1973.[a] The precipitating factor was actually OPEC's oil embargo from 1973 to 1974.[b] At the time, conventional economic wisdom was that there was a trade-off between employment and inflation, according to the Phillips Curve.[c] So, as higher inflation (and inflation expectations) started getting more and more embedded into the economy (e.g., stipulated in rent contracts), everyone could see what was happening, but everyone sort of kept waiting and hoping for things eventually to "go back to normal," so no one did anything... until Volcker came along and fought the establishment, causing a lot of pain, to get inflation under control. [a] https://www.stlouisfed.org/open-vault/2017/november/why-us-no-longer-follows-gold-standard https://www.stlouisfed.org/open-vault/2017/november/why-us-n... -- also, see tastyfreeze's comment: https://news.ycombinator.com/item?id=27833523 https://news.ycombinator.com/item?id=27833523 [b] https://www.federalreservehistory.org/essays/oil-shock-of-1973-74 https://www.federalreservehistory.org/essays/oil-shock-of-19... [c] https://www.stlouisfed.org/open-vault/2020/january/what-is-phillips-curve-why-flattened https://www.stlouisfed.org/open-vault/2020/january/what-is-p...

nimbius 5y ago

typically the US would raise interest rates to combat inflation, however the federal reserve has refused and cited this to be "transient" inflation, an assertion thats really more wishful thinking. the real reason the fed cant raise interest rates is because it never gave up quantitative easing after the 2008 housing collapse. raising interest rates would blow up the corporate credit bubble. https://en.wikipedia.org/wiki/Corporate_debt_bubble https://en.wikipedia.org/wiki/Corporate_debt_bubble

EarthIsHome 5y ago

You can see how much the Fed has been propping up the economy in the M1 money stock chart [0]. They've been injecting so much cash... that's a lot of fucking money. I think when they slow down, the market will crash. Money needs to be in circulation, and this is the only way they can get it to circulate (although, tbh, if it were in the pockets of the people, it'll probably circulate better). You can also check the velocity of money in the M2 velocity chart [1], which shows the ratio of transactions to the M2 supply. The M2 supply is the M1 supply plus some other forms of money. What the M2 velocity chart shows is that people are holding on to their money in some form and not transacting with it as much as they have before (i.e. a slow down in the velocity of money). Like, it's getting close 1!!!! So all that cash that the Fed's been injecting hasn't been able to speed up the M2 velocity back to pre-COVID times let alone pre '08 recession times. The velocity chart doesn't look too good IMO. [0]: M1 money supply https://fred.stlouisfed.org/series/M1SL https://fred.stlouisfed.org/series/M1SL [1]: M2 money velocity https://fred.stlouisfed.org/series/M2V https://fred.stlouisfed.org/series/M2V

caeril 5y ago
Yeah, except a huge portion of that increase isn't even circulating. The only increase in circulating supply has occurred at the behest of the Trump and Biden administrations, via fiscal stimulus. As evidence for this, reverse repo operations (in which banks who have way too much excess reserves buy the Fed's assets overnight) are running close to a trillion dollars(1). Meanwhile, credit offered by banks appears to actually be shrinking. So Wells Fargo, for example, is over here sitting on more cash than it knows what to do with, and killing ~4% NIM consumer LOC facilities(2) while buying 0.1% NIM in overnight operations. I don't know if banks think default risk is rising above 3.9%, or if demand for credit is low. But something fucky is definitely going on since February. 1. https://fred.stlouisfed.org/series/RRPONTSYD https://fred.stlouisfed.org/series/RRPONTSYD 2. https://www.cnbc.com/2021/07/08/wells-fargo-is-shutting-down-all-personal-line-of-credit-accounts-.html https://www.cnbc.com/2021/07/08/wells-fargo-is-shutting-down...
throw0101a 5y ago
> You can see how much the Fed has been propping up the economy in the M1 money stock chart [0]. The change in M1 was a change in tracking rules, as explained in the Fed weblog post: * https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply/ https://fredblog.stlouisfed.org/2021/01/whats-behind-the-rec...

wing-_-nuts 5y ago

It's interesting to me that the bond market is so complacent about this. They view inflation as a slain dragon. Inflation stays low because people in the past expected the fed to react aggressively to the slightest sign of inflation. Bond investors refuse to demand higher yields (i.e. by not buying treasuries) because they expect inflation is temporary. Here's the thing. Does anyone think that today's fed stands ready to plunge the economy into a deep recession like the 1980's to kill inflation if it gets out of control? Anyone? I have no such faith.

howeyc 5y ago
I think the fed, and the market, are basically under the belief that inflation isn't going to sustain at above 2% for long. I mean, look at it from their side. They've been doing everything they can think of to hit 2% for a decade without success. Now, after the pandemic everyone is rushing back to work on a massive scale never seen before (plus some fiscal spending with additional unemployment benefits are still out there) and inflation is what, maybe 3% over two years if you are super generous with the numbers. They are basically just in "wait and see" mode to know if this inflation trajectory has staying power.
- aggronn 5y ago
  Yeah, I am sympathetic to people concerned about inflation right now, but the basic Econ 101 explanation you give is just too compelling to alarm me (and apparently the Fed and others who do this for a living). There is a clear mismatch in demand and supply. Supply is booming and its taking time for supply chains to catch up because of the structural damage that was caused by COVID. It takes time to fix that. This is short term angst, not a monetary crisis. If there's a monetary crisis occurring (asset inflation?) its been going on for almost a decade now, and its not reflected in the CPI.

johbjo 5y ago

Consumer price inflation won't rise unless a relevant proportion of consumers get more money to spend. There should be enough slack behind all goods in the cpi basket that disruptions won't permanently affect the price of milk, bread, toilet paper, flat panel TVs and so on. It is true that there is exploding inflation in asset prices brought by central bank credit, but it won't affect the price of milk and bread.

new_realist 5y ago
The demand for those things is fixed. Even TVs—everyone’s already upgraded to 4K. It’s discretionary items, like cars, housing, renovations, luxury appliances, and elite schools, that will experience inflation. Human wants are infinite.
- johbjo 5y ago
  Yes, probably true. Those (cars, housing, renovations, education) are things financed by debt and can continue rising. But I suspect they are conveniently down-weighted from the CPI. For example, if they let the CPI-entry be monthly car payments instead of cash price, then CPI inflation is flat as long as rates are falling.