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> In a separate report, the Labor Department said real wages after inflation fell 0.5% from September to October, the product of a 0.4% increase in average hour

> In a separate report, the Labor Department said real wages after inflation fell 0.5% from September to October, the product of a 0.4% increase in average hourly earnings that was more than offset by the CPI surge. This is the thing to watch. Inflation beaten by wage increases is sustainable. Inflation not beaten by wage increases ends with higher prices being rejected and a recession at least. Given the hyper-inflated nature of just about every asset, including housing, far worse is on deck. > Escalating inflation could cause the Fed to tighten policy more quickly than it has indicated. The central bank has indicated that it will within the next few weeks start reducing the amount of bonds it buys each month, though officials have indicated that interest rate hikes are still off in the future. The Fed has been on the transitory bandwagon since the beginning of this mess. The idea that it would act to cause a recession by either tapering or raising rates is hard to believe right now. They will talk the tough talk for now. But they will not walk the tough walk. Why not? Consider the positions at the Fed that have been vacated. Consider that Powell's term ends soon. There was already a meeting at the White House with Powell and one of his most likely successors. The last thing the administration will tolerate is a recession and asset price collapse at this point. Also consider the effect of raising interest rates on the precarious US fiscal position. The entire Build Back Better initiative is based on the availability of low interest rates. Raising them means even less money to spend into the economy, not to mention resistance within the Democratic Party. Bottom line: something is going to break. There will be massive resistance to this idea for a time. Rates will not rise. QE will not be scaled back. Asset and CPI inflation will shoot higher. Consumer prices will be rejected and to stave off the inevitable collapse, still more government transfers ("helicopter money") will be injected. The result will be something common in third-world countries which follow this playbook with boring regularity, but quite new to the US. But the IMF won't be able to fix this.

neilwilson 5y ago
Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a redistribution either away from wages towards profit, or more likely towards those workers in demand and away from those that are not. Or 'semi-inflation' as it is known. And playing around with interest rates will affect neither issue, because, as it should be clear after more than a decade, interest rates aren't actually that effective a policy tool. The economic rebalancing has to play out so that the new normal can re-establish.
- notsureaboutpg 5y ago
  Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.
- lmilcin 5y ago
  No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.
  - neilwilson 5y ago
    That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
    - lmilcin 5y ago
      I actually went to school (which included economics in its curriculum). I have also worked for many financial institutions over past 20 years including banks, brokerage houses and insurance companies. Currently for Citi Group as a tech lead for one of its risk systems. My work requires me to understand what inflation is because it has very deep impact on everything we do. Here you have other reputable source: https://www.investopedia.com/terms/i/inflation.asp https://www.investopedia.com/terms/i/inflation.asp "Inflation is the decline of purchasing power of a given currency over time."
deleted 5y ago
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WoodenChair 5y ago
> The last thing the administration will tolerate is a recession and asset price collapse at this point. It really doesn't matter what they will "tolerate." They do not have the power to stop it if it's coming, just like they don't have the power to stop the surge in inflation. The current economic situation was set in motion by policy decisions made months and over a year ago (as far back as April 2020), as well as the worst of the pandemic, that we are still feeling the effects of.
throwaway6734 5y ago
Or you're just being incredibly pessimistic. We had a massive trade war, a reduction in immigrants coming into the country, and a massive pandemic all contributing to a goods and labor shortage that will work itself out as businesses adapt to the new environment

neilwilson 5y ago

Entirely the other way around. Price rises beaten by wage increases is actual economic inflation: 'true inflation'. Price rises without wage increases is a redistribution either away from wages towards profit, or more likely towards those workers in demand and away from those that are not. Or 'semi-inflation' as it is known. And playing around with interest rates will affect neither issue, because, as it should be clear after more than a decade, interest rates aren't actually that effective a policy tool. The economic rebalancing has to play out so that the new normal can re-establish.

notsureaboutpg 5y ago
Why would this make sense? If price rises are beaten by wage inflation, or if wage increases beat price inflation, the measure of inflation is that the value of the currency weakens. If both price & wage go up, currency is losing its value either way.
lmilcin 5y ago
No, not really. Inflation refers only to the decrease in value of money, it has nothing to do with wages. "In economics, inflation refers to a general progressive increase in prices of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduction in the purchasing power of money." https://en.wikipedia.org/wiki/Inflation https://en.wikipedia.org/wiki/Inflation It says "reduction in the purchasing power of money", not "people can now buy less stuff for their salary". Inflation means you can buy less for the same amount of money, but how much money people earn is a separate matter.
- neilwilson 5y ago
  That's not an economic inflation. An economic inflation is when wages and prices go up together so nothing much changes other than numbers. If people can buy less stuff with their wages that's a redistribution away from the wage share and towards the profit share. Guess which share pays people to write the definitions on Wikipedia?
  - lmilcin 5y ago
    I actually went to school (which included economics in its curriculum). I have also worked for many financial institutions over past 20 years including banks, brokerage houses and insurance companies. Currently for Citi Group as a tech lead for one of its risk systems. My work requires me to understand what inflation is because it has very deep impact on everything we do. Here you have other reputable source: https://www.investopedia.com/terms/i/inflation.asp https://www.investopedia.com/terms/i/inflation.asp "Inflation is the decline of purchasing power of a given currency over time."

deleted 5y ago

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WoodenChair 5y ago

> The last thing the administration will tolerate is a recession and asset price collapse at this point. It really doesn't matter what they will "tolerate." They do not have the power to stop it if it's coming, just like they don't have the power to stop the surge in inflation. The current economic situation was set in motion by policy decisions made months and over a year ago (as far back as April 2020), as well as the worst of the pandemic, that we are still feeling the effects of.

throwaway6734 5y ago

Or you're just being incredibly pessimistic. We had a massive trade war, a reduction in immigrants coming into the country, and a massive pandemic all contributing to a goods and labor shortage that will work itself out as businesses adapt to the new environment