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Iamontocg, this would have been a sufficient explanation in a market with no interdependencies. Yet, the cause of the problem is not workers aiming for a living

Iamontocg, this would have been a sufficient explanation in a market with no interdependencies. Yet, the cause of the problem is not workers aiming for a living wage when the income inequality is at its all-time high. Inflation causes vary: 1) Covid business loans 2) Cost of logistics post covid 3) Corporate profits recently hit all time high 4) FX rate with EUR and GBP I agree that the vanilla solution seems to be the most effective - the knob as you called it. But that doesn't mean that it's going to be painless when credit expansion and overleveraged businesses and people are hit with the new higher rates.

lamontcg 4y ago
I don't know what made you think I suggested that this would be painless FX rates are also the result of twisting the knob, not the cause. And there's a lot of other factors in inflation, but the wage inflation is the one that has the Fed worried. The Fed knows everything else is cyclical and they weren't worried in the commodities boom and high oil prices in 2010-2014. The reason why they're so worried now is wage inflation. We haven't had wage inflation this high in 30 years and the Fed hasn't thrown on the brakes this hard since I can remember. This isn't the 25bp tightening every meeting of the Greenspan Fed.
- thunky 4y ago
  But there is no wage inflation overall. In real terms, wages are declining except for maybe the lowest earners [0]. For some reason that's unacceptable. [0] https://www.americanprogress.org/article/wages-and-employment-do-not-have-to-decline-to-bring-down-inflation/ https://www.americanprogress.org/article/wages-and-employmen...
  - lamontcg 4y ago
    > In real terms Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way. > For some reason that's unacceptable. I'm not the Fed, I don't support what they're doing, I'm just explaining it. EDIT: research from the Fed: https://www.frbsf.org/economic-research/publications/economic-letter/2022/september/wage-growth-when-inflation-is-high/ https://www.frbsf.org/economic-research/publications/economi... Wage growth is over 6%. The fact that inflation overall has been running higher than that so real wage growth has been negative doesn't mean there's been no wage inflation. Inflation is just the rise in prices. You're thinking about the overall effect on society, but that is second/third/fourth order effects. Nominal wages rising 6%, even though real wages are rising 0% still means an environment with 6% overall inflation, which exceeds the Fed's target of 2%.
    - paulmd 4y ago
      > Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way Actually you can not just analyze but neutralize it that way. If everyone agrees to a wage that is indexed to inflation, and then starts numerating prices in that inflation-indexed currency... suddenly you don't have inflation anymore. https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real Maybe the US is starting to get to the "inertial inflation" situation, with workers demanding wages accounting for expected future increases and companies starting to structure costs along those expectations as well.
      - thunky 4y ago
        Yeah, just because wages are a component of inflation doesn't mean we can't talk about them in real terms. Same for housing, also a component of inflation: if house prices rise/inflate 2% while inflation is 10%, it's fair to say that housing declined 8% in real terms.
        lamontcg 4y ago
        You can talk about wages in real terms in order to see what their impact is on the actual buying power of the average worker. But if you're trying specifically to discuss and talk about the wage component of inflation it is nonsense to talk about that in real terms. Adjusting to eliminate the effect of inflation on wages is not the way to measure wage inflation. It should be intuitively obvious that is nonsense.
        thunky 4y ago
        I guess I'm not thinking like an economist then. It's still not clear to me why "wage inflation is the one that has the Fed worried". We've seen absurd asset inflation (equities, housing, crypto!) due to easy money, and the Fed just sat on their hands. So now, wages are going up and workers are finally getting a raise? No, because their wage increases aren't keeping up with their higher expenses. But wages are going up, in nominal terms, so now the Fed jumps up and rings the alarm?
landemva 4y ago
For your item 1, those loans became gifts. And point 5 could be ever-increasing federal spending beyond federal taxation.

lamontcg 4y ago

I don't know what made you think I suggested that this would be painless FX rates are also the result of twisting the knob, not the cause. And there's a lot of other factors in inflation, but the wage inflation is the one that has the Fed worried. The Fed knows everything else is cyclical and they weren't worried in the commodities boom and high oil prices in 2010-2014. The reason why they're so worried now is wage inflation. We haven't had wage inflation this high in 30 years and the Fed hasn't thrown on the brakes this hard since I can remember. This isn't the 25bp tightening every meeting of the Greenspan Fed.

thunky 4y ago
But there is no wage inflation overall. In real terms, wages are declining except for maybe the lowest earners [0]. For some reason that's unacceptable. [0] https://www.americanprogress.org/article/wages-and-employment-do-not-have-to-decline-to-bring-down-inflation/ https://www.americanprogress.org/article/wages-and-employmen...
- lamontcg 4y ago
  > In real terms Nominally they are increasing, that is a component of inflation. Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way. > For some reason that's unacceptable. I'm not the Fed, I don't support what they're doing, I'm just explaining it. EDIT: research from the Fed: https://www.frbsf.org/economic-research/publications/economic-letter/2022/september/wage-growth-when-inflation-is-high/ https://www.frbsf.org/economic-research/publications/economi... Wage growth is over 6%. The fact that inflation overall has been running higher than that so real wage growth has been negative doesn't mean there's been no wage inflation. Inflation is just the rise in prices. You're thinking about the overall effect on society, but that is second/third/fourth order effects. Nominal wages rising 6%, even though real wages are rising 0% still means an environment with 6% overall inflation, which exceeds the Fed's target of 2%.
  - paulmd 4y ago
    > Inflation-adjusting the nominal rise of prices that are causing inflation just hides the inflation. You can't analyze it that way Actually you can not just analyze but neutralize it that way. If everyone agrees to a wage that is indexed to inflation, and then starts numerating prices in that inflation-indexed currency... suddenly you don't have inflation anymore. https://en.wikipedia.org/wiki/Plano_Real https://en.wikipedia.org/wiki/Plano_Real Maybe the US is starting to get to the "inertial inflation" situation, with workers demanding wages accounting for expected future increases and companies starting to structure costs along those expectations as well.
    - thunky 4y ago
      Yeah, just because wages are a component of inflation doesn't mean we can't talk about them in real terms. Same for housing, also a component of inflation: if house prices rise/inflate 2% while inflation is 10%, it's fair to say that housing declined 8% in real terms.
      - lamontcg 4y ago
        You can talk about wages in real terms in order to see what their impact is on the actual buying power of the average worker. But if you're trying specifically to discuss and talk about the wage component of inflation it is nonsense to talk about that in real terms. Adjusting to eliminate the effect of inflation on wages is not the way to measure wage inflation. It should be intuitively obvious that is nonsense.
        thunky 4y ago
        I guess I'm not thinking like an economist then. It's still not clear to me why "wage inflation is the one that has the Fed worried". We've seen absurd asset inflation (equities, housing, crypto!) due to easy money, and the Fed just sat on their hands. So now, wages are going up and workers are finally getting a raise? No, because their wage increases aren't keeping up with their higher expenses. But wages are going up, in nominal terms, so now the Fed jumps up and rings the alarm?

landemva 4y ago

For your item 1, those loans became gifts. And point 5 could be ever-increasing federal spending beyond federal taxation.