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This theory predicted inflation should have soared back in 2009 when QE began. The fact that it took 13 years and additional crises (pandemic, Ukr war) for infl

This theory predicted inflation should have soared back in 2009 when QE began. The fact that it took 13 years and additional crises (pandemic, Ukr war) for inflation to surface is pretty good disproof of the theory.

alangibson 4y ago
Inflation hawks are always eventually proven right because that just repeat 'inflation is right around the corner' until it finally shows up, no matter how long it takes.
choeger 4y ago
But it did, for certain assets at least. I think part of the reason for the last decade of unorthodox inflation is that demand is not as flexible as theory would require it to be (people stop buying ever more consumer goods when they get x% more money). Some areas (housing, particular services) seem to have seen quite a rapid inflation, though.
TuringNYC 4y ago
>> The fact that it took 13 years and additional crises (pandemic, Ukr war) for inflation to surface Anyone trying to save up for a home in the US could probably tell you inflation has been around since interest rates plummeted and then more-so since QE. It isnt an uncommon scenario that families would save more money each year to buy a home with a decent down-payment...only to have homes go up in price more than they saved.
- Klinky 4y ago
  It's not inflation alone that is the problem with housing. It's housing being seen as an investment. People discourage new builds or high-density due to trying to preserve their existing asset value. Quick flip schemes juice the price up, for an often shoddy asset. Then hedge funds swoop in with cash, paying above market, to then flip, rent out, AirBnB or just let houses sit idle. There's a lot of bubble-like behavior still occurring in the housing market, and easy money has likely contributed, but I don't think that it all falls in line with classical inflation. It feels more like artificially constricted/restricted supply with high demand. Housing as an investment is problematic, because it disincentivizes new builds, people want to keep seeing their asset value go up, never down, and constraining supply is an easy way to do that. Renting out can also be more lucrative than selling if you have the capital. Also the ability for markets to offer housing at commodity prices seems like it would require a drastic oversupply of a very resource intensive asset. How sustainable is that really in the long run?
  - TuringNYC 4y ago
    >> It's not inflation alone that is the problem with housing. It's housing being seen as an investment. People discourage new builds or high-density due to trying to preserve their existing asset value. You're right that the issue is multi-factor, but i'd argue that the factor at play in the past two decades specifically was ZIRP+QE. That is the new factor at play. Houses being seen as an investment has been an issue for a long time, I remember even in the 80s this was a big topic of discussion. Same for NIMBYism -- that has been an issue ever since forever (step into any home owner's shoes -- once you've put all your life savings into a house, most people dont want to dilute value.) I'll agree that the more leveraged you are to finally purchase a home, the more vehement the NIMBYism is...because now more housing is ruinous to existing owners' giant investment. The whole system is @#%!@#% I think ZIRP/QE made things worse because houses started going up in value faster than incomes. This encouraged yet more leverage and lesser house. And now we're all left with a shell of the dreams our grandparents enjoyed with normal jobs. https://www.cnbc.com/2021/11/10/home-prices-are-now-rising-much-faster-than-incomes-studies-show.html#:~:text=In%20the%20last%20decade%2C%20the,difference%20is%20even%20more%20striking https://www.cnbc.com/2021/11/10/home-prices-are-now-rising-m....

alangibson 4y ago

Inflation hawks are always eventually proven right because that just repeat 'inflation is right around the corner' until it finally shows up, no matter how long it takes.

choeger 4y ago

But it did, for certain assets at least. I think part of the reason for the last decade of unorthodox inflation is that demand is not as flexible as theory would require it to be (people stop buying ever more consumer goods when they get x% more money). Some areas (housing, particular services) seem to have seen quite a rapid inflation, though.

TuringNYC 4y ago

>> The fact that it took 13 years and additional crises (pandemic, Ukr war) for inflation to surface Anyone trying to save up for a home in the US could probably tell you inflation has been around since interest rates plummeted and then more-so since QE. It isnt an uncommon scenario that families would save more money each year to buy a home with a decent down-payment...only to have homes go up in price more than they saved.

Klinky 4y ago
It's not inflation alone that is the problem with housing. It's housing being seen as an investment. People discourage new builds or high-density due to trying to preserve their existing asset value. Quick flip schemes juice the price up, for an often shoddy asset. Then hedge funds swoop in with cash, paying above market, to then flip, rent out, AirBnB or just let houses sit idle. There's a lot of bubble-like behavior still occurring in the housing market, and easy money has likely contributed, but I don't think that it all falls in line with classical inflation. It feels more like artificially constricted/restricted supply with high demand. Housing as an investment is problematic, because it disincentivizes new builds, people want to keep seeing their asset value go up, never down, and constraining supply is an easy way to do that. Renting out can also be more lucrative than selling if you have the capital. Also the ability for markets to offer housing at commodity prices seems like it would require a drastic oversupply of a very resource intensive asset. How sustainable is that really in the long run?
- TuringNYC 4y ago
  >> It's not inflation alone that is the problem with housing. It's housing being seen as an investment. People discourage new builds or high-density due to trying to preserve their existing asset value. You're right that the issue is multi-factor, but i'd argue that the factor at play in the past two decades specifically was ZIRP+QE. That is the new factor at play. Houses being seen as an investment has been an issue for a long time, I remember even in the 80s this was a big topic of discussion. Same for NIMBYism -- that has been an issue ever since forever (step into any home owner's shoes -- once you've put all your life savings into a house, most people dont want to dilute value.) I'll agree that the more leveraged you are to finally purchase a home, the more vehement the NIMBYism is...because now more housing is ruinous to existing owners' giant investment. The whole system is @#%!@#% I think ZIRP/QE made things worse because houses started going up in value faster than incomes. This encouraged yet more leverage and lesser house. And now we're all left with a shell of the dreams our grandparents enjoyed with normal jobs. https://www.cnbc.com/2021/11/10/home-prices-are-now-rising-much-faster-than-incomes-studies-show.html#:~:text=In%20the%20last%20decade%2C%20the,difference%20is%20even%20more%20striking https://www.cnbc.com/2021/11/10/home-prices-are-now-rising-m....