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> that bond yields would never normalize. Now that they have, there is a risk free alternative to stocks. Treasury bond yields are 3%, inflation is 8.5%, so in

> that bond yields would never normalize. Now that they have, there is a risk free alternative to stocks. Treasury bond yields are 3%, inflation is 8.5%, so in real terms you are guaranteed to lose 5.5% annually if you hold bonds. Or basically instead of risk-free gain you are holding gain-free risk.

nradov 4y ago
The longer term TIPS have positive yield in real terms. https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics https://home.treasury.gov/policy-issues/financing-the-govern...
abirch 4y ago
The good news is the US Government doesn't have to pay back 5.5% of its debt. Unfortunately the spending keeps increasing.
- hackernewds 4y ago
  Yet the government keep spending like debt isn't high ($40B to Ukraine aid) and ignoring causes of inflation for political gain (Biden tweeted: it's time to for corporations to pay their share to bring down inflation)
  - abirch 4y ago
    I'm not a Bezos fan in general but his response to Biden's tweet was spot on. https://www.twitter.com/JeffBezos/status/1525309091970699265 https://www.twitter.com/JeffBezos/status/1525309091970699265
    - thawaya3113 4y ago
      I disagree with Biden’s tweet and Bezos’s tweet. I personally believe that the vast majority of the inflation we are seeing today has nothing to do with government debt/deficits, so the government reducing its deficit will have minimal impact on inflation. However, a lot of people do believe, or at least claim to believe, that inflation is almost entirely being driven by government deficits, in which case corporations paying more in taxes would certainly have an impact on inflation, so tying the two together is certainly not misinformation, and if this view is correct, then it will reduce inflation.
      - abirch 4y ago
        What was wrong with Bezos's tweet? Biden's was just wrong.
staticman2 4y ago
You are comparing treasury rates a bond will pay out over the next 10 years with inflation over the last year. This is apples and oranges.
- freediver 4y ago
  You are right, inflation may get worse ;)
  - riku_iki 4y ago
    there should be factors which drive it. For last year such factors are: - increased min wage - supply chain disruptions - China lockdowns: less goods on the market -> higher prices - increased price on commodities and energy All of this already included into current good prices, so there should be something more to push farther inflation.
    - nostrademons 4y ago
      The supply chain disruptions get worse as the China lockdowns and commodity prices make their way through the economy. When you have a supply shock on raw inputs, it takes time for that to make its way through the economy. Businesses along the way keep inventory, they've locked in forward contracts, they can eat the cost increases to avoid losing market share until they're sure the price increases are persistent. But eventually they realize that everyone else in the industry is facing similar price increases and they'll go out of business if they don't, so they raise their prices too. This eventually propagates down the supply chain as inventory runs out and new contracts are negotiated. The price increases of late 2021 were triggered by the initial shock of March 2020. The Ukraine war & China lockdown shocks of early 2022 aren't going to be seen until about 2024. By the time businesses have adapted to this round of shocks, we may be dealing with new shocks like a war in Europe or the retirement of baby boomers.
      - riku_iki 4y ago
        > The price increases of late 2021 were triggered by the initial shock of March 2020 It was the biggest shock: panic lockdowns across the world, not just initial. Chances are that supply chains have been adapted, and current localized lockdowns in China will not make significant damage. But we will see.
chrisco255 4y ago
Risk-free loss? But maybe it's better than cash, the only other risk-free alternative? Perhaps you're paying for preservation of capital as the asset bubble deflates, and maybe that's not a bad deal?
- tempsy 4y ago
  you can buy $10k in inflation protected bonds a year per person or $15k if you buy via a tax refund
  - hackernewds 4y ago
    The current returns is at 9.6%
Forgeties79 4y ago
If inflation somehow keeps rocking at 8.5% for a decade straight we have a much bigger problem on our hands than the relative yield of a treasury bond. Technically anything is possible…but I’m willing to risk saying that won’t happen.
- nostrademons 4y ago
  https://en.wikipedia.org/wiki/Appeal_to_consequences https://en.wikipedia.org/wiki/Appeal_to_consequences I'd say that yes, we have a much bigger problem on our hands than the relative yield of a treasury bond.
  - Forgeties79 4y ago
    I get what you are saying but the point of my comment - and I see why it didn’t come off this way - is that it won’t be 8.5% for a decade, so no, buying a treasury bond is not -5.5%. To emphasize this point, I said we’d have a lot worse problems because for it to be true the US would be experiencing an unprecedented economic catastrophe.
FollowingTheDao 4y ago
This is the truth. What people do not understand is that interest rates will have to rise above inflation for in inflation to slow down. I assume the FED is trying to figure out how much inflation is caused by the money supply and how much is caused by supply chain issues. But too me this means even more trouble because they are waiting when there was obvious asset inflation well before the supply chain issues. IMHO, we will not see a recession, we already are in a recession. What we will see a depression.
- mym1990 4y ago
  Can you explain why interest rates will HAVE to rise above inflation for it to slow down? CPI is already slowing down, although we have some very limited data points currently. A lot of inflation is driven by expectation, and raising interest rates is a way to tame those expectations for consumers, but I don't think the rates have to arbitrarily go above inflation to tamper it.
  - deleted 4y ago
    [deleted]
  - FollowingTheDao 4y ago
    The Taylor Rule explains it https://www.investopedia.com/terms/t/taylorsrule.asp https://www.investopedia.com/terms/t/taylorsrule.asp r = p + 0.5y + 0.5(p - 2) + 2 Where: r = nominal fed funds rate p = the rate of inflation y = the percent deviation between current real GDP and the long-term linear trend in GDP As I said, the FED is betting that inflation is being caused by supply chain issues alone. This is obviously not true. It will get worse, so much worse, because the FED is in fact acting too slowly. https://www.chicagobooth.edu/review/what-makes-it-hard-control-inflation https://www.chicagobooth.edu/review/what-makes-it-hard-contr... "interest rates sharply, and keep them high for several years, even if that causes a painful recession, as it did in the early 1980s in the United States, United Kingdom, and much of Europe. How much pain, and how deep of a dip, does it take to stop inflation and to keep inflation in check? The well-respected Taylor rule (named after my Hoover Institution colleague John B. Taylor) recommends that interest rates rise one-and-a-half times as much as inflation. So if inflation rises from 2 percent to 5 percent, interest rates should rise by 4.5 percentage points. Add a baseline of 2 percent for the inflation target and 1 percent for the long-run real rate of interest, and the rule recommends a central-bank rate of 7.5 percent. If inflation accelerates further before central banks act, reining it in could require the 15 percent interest rates of the early 1980s."
antishatter 4y ago
I don’t think you understand the purpose of treasury bonds as an asset.

nradov 4y ago

The longer term TIPS have positive yield in real terms. https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics https://home.treasury.gov/policy-issues/financing-the-govern...

abirch 4y ago

The good news is the US Government doesn't have to pay back 5.5% of its debt. Unfortunately the spending keeps increasing.

hackernewds 4y ago
Yet the government keep spending like debt isn't high ($40B to Ukraine aid) and ignoring causes of inflation for political gain (Biden tweeted: it's time to for corporations to pay their share to bring down inflation)
- abirch 4y ago
  I'm not a Bezos fan in general but his response to Biden's tweet was spot on. https://www.twitter.com/JeffBezos/status/1525309091970699265 https://www.twitter.com/JeffBezos/status/1525309091970699265
  - thawaya3113 4y ago
    I disagree with Biden’s tweet and Bezos’s tweet. I personally believe that the vast majority of the inflation we are seeing today has nothing to do with government debt/deficits, so the government reducing its deficit will have minimal impact on inflation. However, a lot of people do believe, or at least claim to believe, that inflation is almost entirely being driven by government deficits, in which case corporations paying more in taxes would certainly have an impact on inflation, so tying the two together is certainly not misinformation, and if this view is correct, then it will reduce inflation.
    - abirch 4y ago
      What was wrong with Bezos's tweet? Biden's was just wrong.

staticman2 4y ago

You are comparing treasury rates a bond will pay out over the next 10 years with inflation over the last year. This is apples and oranges.

freediver 4y ago
You are right, inflation may get worse ;)
- riku_iki 4y ago
  there should be factors which drive it. For last year such factors are: - increased min wage - supply chain disruptions - China lockdowns: less goods on the market -> higher prices - increased price on commodities and energy All of this already included into current good prices, so there should be something more to push farther inflation.
  - nostrademons 4y ago
    The supply chain disruptions get worse as the China lockdowns and commodity prices make their way through the economy. When you have a supply shock on raw inputs, it takes time for that to make its way through the economy. Businesses along the way keep inventory, they've locked in forward contracts, they can eat the cost increases to avoid losing market share until they're sure the price increases are persistent. But eventually they realize that everyone else in the industry is facing similar price increases and they'll go out of business if they don't, so they raise their prices too. This eventually propagates down the supply chain as inventory runs out and new contracts are negotiated. The price increases of late 2021 were triggered by the initial shock of March 2020. The Ukraine war & China lockdown shocks of early 2022 aren't going to be seen until about 2024. By the time businesses have adapted to this round of shocks, we may be dealing with new shocks like a war in Europe or the retirement of baby boomers.
    - riku_iki 4y ago
      > The price increases of late 2021 were triggered by the initial shock of March 2020 It was the biggest shock: panic lockdowns across the world, not just initial. Chances are that supply chains have been adapted, and current localized lockdowns in China will not make significant damage. But we will see.

chrisco255 4y ago

Risk-free loss? But maybe it's better than cash, the only other risk-free alternative? Perhaps you're paying for preservation of capital as the asset bubble deflates, and maybe that's not a bad deal?

tempsy 4y ago
you can buy $10k in inflation protected bonds a year per person or $15k if you buy via a tax refund
- hackernewds 4y ago
  The current returns is at 9.6%

Forgeties79 4y ago

If inflation somehow keeps rocking at 8.5% for a decade straight we have a much bigger problem on our hands than the relative yield of a treasury bond. Technically anything is possible…but I’m willing to risk saying that won’t happen.

nostrademons 4y ago
https://en.wikipedia.org/wiki/Appeal_to_consequences https://en.wikipedia.org/wiki/Appeal_to_consequences I'd say that yes, we have a much bigger problem on our hands than the relative yield of a treasury bond.
- Forgeties79 4y ago
  I get what you are saying but the point of my comment - and I see why it didn’t come off this way - is that it won’t be 8.5% for a decade, so no, buying a treasury bond is not -5.5%. To emphasize this point, I said we’d have a lot worse problems because for it to be true the US would be experiencing an unprecedented economic catastrophe.

FollowingTheDao 4y ago

This is the truth. What people do not understand is that interest rates will have to rise above inflation for in inflation to slow down. I assume the FED is trying to figure out how much inflation is caused by the money supply and how much is caused by supply chain issues. But too me this means even more trouble because they are waiting when there was obvious asset inflation well before the supply chain issues. IMHO, we will not see a recession, we already are in a recession. What we will see a depression.

mym1990 4y ago
Can you explain why interest rates will HAVE to rise above inflation for it to slow down? CPI is already slowing down, although we have some very limited data points currently. A lot of inflation is driven by expectation, and raising interest rates is a way to tame those expectations for consumers, but I don't think the rates have to arbitrarily go above inflation to tamper it.
- deleted 4y ago
  [deleted]
- FollowingTheDao 4y ago
  The Taylor Rule explains it https://www.investopedia.com/terms/t/taylorsrule.asp https://www.investopedia.com/terms/t/taylorsrule.asp r = p + 0.5y + 0.5(p - 2) + 2 Where: r = nominal fed funds rate p = the rate of inflation y = the percent deviation between current real GDP and the long-term linear trend in GDP As I said, the FED is betting that inflation is being caused by supply chain issues alone. This is obviously not true. It will get worse, so much worse, because the FED is in fact acting too slowly. https://www.chicagobooth.edu/review/what-makes-it-hard-control-inflation https://www.chicagobooth.edu/review/what-makes-it-hard-contr... "interest rates sharply, and keep them high for several years, even if that causes a painful recession, as it did in the early 1980s in the United States, United Kingdom, and much of Europe. How much pain, and how deep of a dip, does it take to stop inflation and to keep inflation in check? The well-respected Taylor rule (named after my Hoover Institution colleague John B. Taylor) recommends that interest rates rise one-and-a-half times as much as inflation. So if inflation rises from 2 percent to 5 percent, interest rates should rise by 4.5 percentage points. Add a baseline of 2 percent for the inflation target and 1 percent for the long-run real rate of interest, and the rule recommends a central-bank rate of 7.5 percent. If inflation accelerates further before central banks act, reining it in could require the 15 percent interest rates of the early 1980s."

antishatter 4y ago

I don’t think you understand the purpose of treasury bonds as an asset.