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A major difference with 2009 imo (actually which you alluded to) is inflation expectations going up or inflation getting “embedded” in public’s psychology. That

by ak_111 5y ago

A major difference with 2009 imo (actually which you alluded to) is inflation expectations going up or inflation getting “embedded” in public’s psychology. That means people start factoring it into their decision most importantly salary negotiations. It feels inflation talk is cutting through to the public much more than 2009 (am I right in this, those who were around back then?). More objectively more “serious” folks seem to flag it up as a major risk than in 2009, even some who were major supporters of 2009 QE (CEOs, Larry “secular stagnation” Summers, El-Erian) Long term this might have greater impact on prices than covid induced supply shortages. At the very least it creates second order dynamics that are hard to predict.

deleted 5y ago
[deleted]
nostrademons 5y ago
Also note that in 2009 there was a substantial minority of (generally well-educated) people that were saying "deflation, then hyperinflation". I didn't fully understand their reasoning at the time - I was like "How do you get the hyperinflation?" - but it seems like that's exactly the script the world will follow.
- mountainb 5y ago
  The key was really what the banks would do with excess reserves. If regulators and the Fed had followed Krugman type advice, they would have encouraged or pushed the banks to increase lending again on those massive reserves. Instead they encouraged the banks to sit on the reserves and so that they could pass extreme 'stress tests.' The current situation is like a permanent stress test combined with the already passed COVID relief bills encouraging aggressive lending. So they are basically following the dovish nostrum and we are getting the consequences that were warned about. It's a bit of a red herring to say that the stalled super-spending bills will push inflation off a cliff. That gun has already been fired. You would have to roll back the banking stuff in the emergency relief bills and raise rates to, uh, stuff the bullet back in the gun. The super-spending bills won't pass, but honestly both parties have an interest in obscuring their collective responsibility for the runaway inflation. Another thing that isn't mentioned much outside of FX circles is that the USD is sharply down versus the Yuan. Typically China has been criticized for enthusiastically printing Yuan to improve their export competitiveness. Instead we have record imports from China combined with a substantially more expensive Yuan.

by ak_111 5y ago

deleted 5y ago

[deleted]

nostrademons 5y ago

Also note that in 2009 there was a substantial minority of (generally well-educated) people that were saying "deflation, then hyperinflation". I didn't fully understand their reasoning at the time - I was like "How do you get the hyperinflation?" - but it seems like that's exactly the script the world will follow.

mountainb 5y ago
The key was really what the banks would do with excess reserves. If regulators and the Fed had followed Krugman type advice, they would have encouraged or pushed the banks to increase lending again on those massive reserves. Instead they encouraged the banks to sit on the reserves and so that they could pass extreme 'stress tests.' The current situation is like a permanent stress test combined with the already passed COVID relief bills encouraging aggressive lending. So they are basically following the dovish nostrum and we are getting the consequences that were warned about. It's a bit of a red herring to say that the stalled super-spending bills will push inflation off a cliff. That gun has already been fired. You would have to roll back the banking stuff in the emergency relief bills and raise rates to, uh, stuff the bullet back in the gun. The super-spending bills won't pass, but honestly both parties have an interest in obscuring their collective responsibility for the runaway inflation. Another thing that isn't mentioned much outside of FX circles is that the USD is sharply down versus the Yuan. Typically China has been criticized for enthusiastically printing Yuan to improve their export competitiveness. Instead we have record imports from China combined with a substantially more expensive Yuan.