28 ms·

Inflation is at a 40 year high. What can history teach us?

198 points by pranshum 4y ago

5350-uiop-1130 4y ago
i'm pretty tired of living in a world where the cost of everything is constantly going up, and everything is going further and further out of reach this has been the norm pretty much 20 years, i hope we will get some kind of reset to level the playing field
seydor 4y ago
Weren't the high inflation years also some of the most progressive, with some of the lowest inequality in recent decades?
- missedthecue 4y ago
  Who wants the poor to be poorer so long as the rich are a little less rich? How is that a good thing?
  - seydor 4y ago
    Is that meant to be ironic or not? It is a fact that [real] incomes have not risen for decades, and now , at least in europe, we are facing catastrophic consequences https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts https://www.newyorker.com/news/john-cassidy/pikettys-inequal...
    - baggy_trough 4y ago
      It is by no means whatsoever a fact.
    - boole1854 4y ago
      > It is a fact that incomes have not risen for decades Is this a fact? I just checked the data from the US Census Bureau [1]. Here is what I see (all numbers inflation-adjusted to 2021 equivalent [2]). Note: I chose 1994 as the comparison year since that was as far back as the Census data I looked at goes. 1994 median individual income: $44,618 2021 median individual income: $60,008 1994 mean individual income: $58,005 2021 mean individual income: $83,039 [1] Source: https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc-01.html https://www.census.gov/data/tables/time-series/demo/income-p... . I used the 'Worked Full-Time, Year-Round' data since that was available for both 1994 and 2021. [2] Using the PCE inflation index, which includes energy and food prices: https://fred.stlouisfed.org/series/PCEPI https://fred.stlouisfed.org/series/PCEPI -- I used January 1994 and January 2021 as the reference points.
      - seydor 4y ago
        https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
        boole1854 4y ago
        I have spot checked the data cited there to compare with the Census data... The 'median' earnings data they cite comes from the BLS 'usual weekly earnings' release. One can check that release on the bls.gov website. It is labeled "Series Id: LES1252881500". I compared Q1 1994 to Q1 2021, inflation adjusted using the PCE index: 1994: $750 2021: $983 That is an increase of 31.1%. The Census data which I cited previously is annual earnings, not weekly, but it seems relatively consistent with the BLS data, as the Census data showed a growth rate of 34.4%. In short, both sets of data show relatively consistent income growth over that period.
        seydor 4y ago
        no increase in purchasing power though. what good is more money if you can't buy more things
        boole1854 4y ago
        Both the Census and BLS data I cited above is adjusted for purchasing power differences between 1994 and 2021.
- lazide 4y ago
  I personally didn’t get that from the highlight reels of the mid 70’s and early 80’s. Mostly it was the total chaos, riots, and unrest. They were also immediately followed by Reagan, who wasn’t exactly a shining beacon of progressivism. But there were a lot of changes during that time, many that could be considered progressive, mixed in with (or perhaps the reason behind?) the chaos. A lot of folks don’t like change, after all.
  - seydor 4y ago
    > total chaos, riots, and unrest looks like we come full circle
    - gumby 4y ago
      Not really. We don't have the assassinations. The national guard doesn't shoot people; that's been democratized to police and private citizens. The big violent demonstrations are gone. What passes for it these days is a pale shadow. One "benefit" of the increased inequality is that people making less than the median are too exhausted to demonstrate, much less rebel. Rebellion has always been the act of those who belong, and by excluding more of society there is "peace". Scare quotes used in case it's not obvious that I don't approve.
      - deleted 4y ago
        [deleted]
      - whoooooo123 4y ago
        > The big violent demonstrations are gone. Um... didn't the biggest riots in American history just happen two years ago?
        gumby 4y ago
        Not even close.
        4y ago
- deleted 4y ago
  [deleted]
- mc32 4y ago
  I gotta say, I should not be surprised at people advocating for inflation. But I am. High inflation has been the boogeyman, foe and underminer of economies world-wide, left-leaning and right-leaning, so I didn't see it coming. But here we are, people advocating for the erosion of purchasing power! But, if it were a wining combination I guess we can expect Biden to embrace Inflation, Advocate for it and pronounce that he will redouble efforts to accelerate inflation so that we can all look forward to a better economy and better future with High Inflation. This is WILD. I can't believe my eyes. Despite the Zimbabwe, Brazil, Turkey, etc., experience, people are making the case FOR inflation? My word.
  - avgcorrection 4y ago
    You are not saying anything.
    - mc32 4y ago
      What is there left to say when someone advocates for something so far outside common understanding? It defies belief. But, if most economists are wrong and Biden is right, well, we can look forward to his administration proudly proposing higher inflation.
      - Alupis 4y ago
        Perhaps I'm too cynical - but I think we're going to see that boogeyman trotted out in full swing if the election doesn't go a certain way. What interesting times we live in... even inflation has been politically weaponized now.
      - avgcorrection 4y ago
        I gotta say, I should not be surprised at someone treating economics like a religion. And I am not.
        mc32 4y ago
        Ok. Show me economies that did well with high inflation. Where did that work, where is it working today? Are economists wrong to treat it as an electric third rail?
nsxwolf 4y ago
Print lotsa money, get lotsa inflation.
- ForHackernews 4y ago
  Yes, but why now? They have been printing money for a long time. This is a question I have never seen these inflation hawks answer: If printing money triggers inflation, why is there a 14 year lag on that effect?
  - bsaul 4y ago
    It took a bit of time to compensate the destruction of value that occurred in 2008.
  - joycian 4y ago
    Balance of payments.
  - Syonyk 4y ago
    > This is a question I have never seen these inflation hawks answer: If printing money triggers inflation, why is there a 14 year lag on that effect? The argument I've heard, though am not well enough equipped to fully analyze, is that the created money was going into overseas accounts as various nations tried to accumulate the global reserve currency - dollars - to purchase oil and other products that were generally traded in dollars. As long as that remained the case, an awful lot of dollars could be printed, spent, and ended up squirreled away elsewhere not really having an impact (velocity of money and such). Now, though, that arrangement is ending - in no part due to the US abusing our financial system to control what everyone else can or can't do (see Visa's opinions about what industries they'll serve for an example, also SWIFT, global sanctions, etc). So other countries are making other arrangements that don't involve dollars - I'm pretty certain dollars aren't involved in the Russian oil sales to various other countries in their sphere anymore. And any reasonable country that isn't heavily tied to the US has to be figuring out how to move off dollars. So now those all come home to roost, and combined with the lack of things to buy, we see the nasty inflation we're getting. I'm not certain how well it holds up if you really dig into it, but there are certainly people answering your question if you actually go looking for how it's being answered.
DoingIsLearning 4y ago
Is there a historic precedent for Quantitive Easing? Is there a historic precedent for Quantitive Tightening? We have been at it since 2008 that means there is little historic data to draw any preemption from, we are on unchartered waters at this point.
- joycian 4y ago
  Not that uncharted, perhaps. You can look up the Amsterdam banking crisis of 1763. https://en.m.wikipedia.org/wiki/Amsterdam_banking_crisis_of_1763 https://en.m.wikipedia.org/wiki/Amsterdam_banking_crisis_of_...
- pphysch 4y ago
  A major aspect of QE is creating artificial demand for USTs (the Fed becomes a buyer), i.e. price support in the wake of the GFC. That is intimately related to the USD as global reserve currency, which is not something there is much historical precedent for. In the past, reserve currencies died for many compounding reasons. QE is a novel scheme to prolong the USD's life as a reserve currency, and is only possible due to modern financial technology. It's definitely not sustainable and can only prolong the inevitable crash in demand for USTs as faith in Washington continues to wane globally. Kicking the can down the road.
- blevin 4y ago
  It depends on your admissible vintages for historic precedents. The Bank of Japan has been doing Quantitative Easing for over 20 years and has also extended it to include ETF share purchases.
- deleted 4y ago
  [deleted]
- Rury 4y ago
  QE and QT aren't really anything new. They're mostly just modernish terms given to old ways of doing things. What is unprecedented is hitting 0% interest rates nearly everywhere worldwide. When things hit this point, economies are forced to deleverage, to which economists refer to as an 'economic deleveraging'. National economies have gone through deleveragings in the past, and has so far played out in 3-4 ways: -a period of high inflation (which sometimes lead to the collapse of the currency) -a period of deflation (either via a bear market, or a rapid crash) -a long period of almost 0 economic growth (stagnation - AKA 'the soft landing'). -some degree and combination of the above 3 scenarios.
WalterBright 4y ago
History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the Law of Supply & Demand. The more currency there is flooding the economy, the less value that currency has.
- foobarian 4y ago
  > History teaches us that inflation will continue as long as the government keeps printing fiat money. Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say raising interest rates was a pretty good start, if a bit late in the game.
  - kelseyfrog 4y ago
    Why are interests rates as a money sink preferable to the more direct approach of simply sinking money out of supply via tax? They seem to amount to the same thing at the end of the day - siphoning dollars out.
    - bombcar 4y ago
      Because you don't have to subject it to a vote. People vote against taxes, they kinda ignore moderate interest/inflation.
    - merely-unlikely 4y ago
      That is also a valid approach but I'm not sure it is more direct. Tax policy is generally only set once a year and only affects tax payers. Interest rates can be tweaked more frequently and (I think) directly impact a larger subset of economic players. That and the Fed doesn't determine tax rates.
compumike 4y ago
It may also help to see the cumulative inflation picture: https://totalrealreturns.com/s/USDOLLAR?normalize=end https://totalrealreturns.com/s/USDOLLAR?normalize=end (disclosure: my side project) The 1974 and 1980 peaks from the article correspond to the steeper slope regions in those same years on my graph. (I'm plotting 1/[CPI-U price level], while the article is plotting d/dt [CPI-U price level]) On my y-axis is the purchasing power of a US dollar, relative to current level. So when the y-axis shows 9.813 on 1962-10-04, this means that sixty years ago, a one-dollar bill would buy a basket of goods that today would cost $9.813. It certainly "feels scary" when the purchasing power is eroding quickly (i.e. a fast-declining slope on my purchasing power graph, or a peak on the article's year-over-year derivative graph). All data from BLS: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm
- rdtwo 4y ago
  Yeah but that’s not the whole picture… in 1962 the ford truck was $2000 now is around 40,000 so while a new one is better you still have to earn 2x as much to get the most basic one available
  - zeckalpha 4y ago
    They also last much longer
    - taftster 4y ago
      Or we are forced to make them last longer.
      - scarecrowbob 4y ago
        That doesn't match my experiences; IME cars do last longer now. I have owned and spent substantial time driving a 1978 Buick Regal and a 1968 Westphalia VW van. I don't think that you're gonna see 200K miles out of either of those vehicles. The Buick had about 120K on it and was clearly on its last legs. It's likely been scrapped. The VW only runs because I sold it to a mechanical engineer who wanted to have a project to work on with his children, and it's now a "vintage" toy instead of my daily driver. I am at about 180K on my 2014 Tacoma and I expect to get at least another 120k out of it before I sell it.
Syonyk 4y ago
> But if the main driver of inflation is the demand side, or inflation expectations, history indicates that a painful recession could be the only way to curb inflation. That's certainly the expected path forward, at least in the circles I associate with. "When the tide goes out, you find out who's swimming naked" seems a reasonable guess as to what's going to happen. Both at larger bank/investment firm scale and at the individual level. At an individual level, just how much slack and flexibility do you have in your spending, your finances, your general way of living? If you're a high earner (there are certainly plenty here that would qualify), are you spending that on lots of monthly payments of assorted luxury and stretch items (house, cars, all the other crap you can get loans for)? You're probably going to be in a world of hurt - there's no income so high you can't outspend it, and it's really hard to adjust those payments when the value of money goes down and you need more for the living expenses. Also, those payments don't go away if your job is eliminated. If you're comfortably pulled back, with either a high savings rate or a high "optional spending" rate, then you should be in far better shape to adapt - and I'll suggest that using some of those resources to help others around you would be useful. Even just coordinating bulk buys of food and other resources is helpful. But the key here is that this allows for flexibility. It's good to be rich, and all that - so don't be stupid about it. I think, collectively, we're in for a world of hurt. Inflation is high, and energy costs seem to be staggering back up. Europe is going to be a frozen wasteland this winter if it's anything but a warm winter, and the energy costs are already eating businesses alive out there. That's before you get to a possibility this winter, in which money doesn't help, because there's simply no energy to deliver. If the natural gas pipeline to your place are empty, welp. Doesn't help to be able to afford the energy when there's none to buy. That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well. The last couple years have broken a lot of things. And we're only just beginning to learn how much is broken, how badly.
- DoingIsLearning 4y ago
  >That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well. By backup you mean for heating? Can you safely burn kerosene indoors? I thought you would have all sort of pollutants on top of monoxide?
jrm4 4y ago
I'm no crypto fanboy by any means, but it's hard to not think that, if crypto doesn't completely die out this bear market, it's likely to be at least a somewhat significant factor in all of this. Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.
- groby_b 4y ago
  Why? What would make it more valuable than other stores of value? Bitcoin is roughly at end-of-2020 valuation. So is the NASDAQ. So is the S&P500. So is the Dow. In fact, for most other stores of value, "dies out in this bear market" isn't even a consideration - the statement is reflective of a (perceived?) higher volatility of the crypto market. If this is showing anything, it's that crypto currencies are just as vulnerable to monetary policy as other assets.
  - jrm4 4y ago
    The thing that makes anything valuable, which is people who believe that it's valuable? Markets aren't rational. Like I said, I'm not using recent past performance to try to make predictions. I'm more considering first principles et al.
- wpietri 4y ago
  If you compare the volatility of common cryptocurrencies with the volatility of pretty much any major currency, crypto is way worse. (E.g., GBP and US inflation are around 9%, this year, but Bitcoin and Ethereum are down by 70%). The most important thing for a store of value is that it actually holds value, but crypto has a poor track record there.
  - jrm4 4y ago
    Sure. I'm less going by "history" and more by "first principles." Crypto provably does what it says on the tin to some degree, even if that degree is low. I wouldn't use recent past performance as a strong predictor of immediate future performance; thinking more long term possibilities.
ospzfmbbzr 4y ago
That previous inflation highs were also created intentionally?
sbf501 4y ago
Nothing. The people that understand history aren't in a position of power, and the people in a position in power--most of them, anyway--don't need to remember, it works against them.
beerdoggie 4y ago
In California, people fitting certain economic criteria are now being issued $1000 checks for inflation relief. This is beyond ludicrous. We have printed so much money, the only solution is to... print more? It's almost like it is all a sneaky backdoor to letting the government redistribute wealth without real oversight...
- groby_b 4y ago
  Given that California can't print money, why do you think those checks are "printing money"? And no, it's not a "sneaky backdoor". It's the government doing what it should do, tighten financial inequality gaps. And preventing unnecessary suffering. We're still a society, we occasionally take care of the weaker people amongst us. (Frankly, not often enough) And "without real oversight" is... you're aware this is going through the normal process of fund allocation, is reported widely in the press, and is part of the data that voters can take into account next round, no? It has just as much oversight as any other government spending. (Arguably more than some federal programs) I get that fiscally conservative folks might disagree with this, and we can certainly debate merits. But "printing money" and "without oversight" are empty slogans without basis in fact.
  - petilon 4y ago
    They may not be printing money, but they are propping up inflation by giving people free money for compensating for inflation.
    - anon291 4y ago
      Right. One way to combat inflation is to save money. The fed encourages this by increasing the interest rate. If california truly wanted to reduce inflation, it would simply retain those $1000 checks. Taking money out of supply reduces inflation.
      - groby_b 4y ago
        California doesn't want to reduce inflation. (It would be of at least questionable legality, too. Because monetary policy lies with the federal government - Article 1, Section 8) What California does want to do is ensure poorer people aren't bearing the load disproportionately. Also, while we can certainly argue if this is the best use of those funds, a quick reminder that the size of the US money supply is almost 22 trillion. We're about $6T above 2019 levels. California retaining $10B is not going to have any measurable impact on inflation.
IncRnd 4y ago
A good working definition of inflation is a general increase in prices and a fall in the purchasing value of money. There will generally be inflation when there are fewer goods to purchase or when the money supply increases. History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, and many businesses closed. At the very least, the supply of many goods dropped, and people were at home all shopping online for the same goods - causing prices to rise - inflation. History also teaches us that the government increases the money supply by printing more money. It's not an accident that both of those are caused by the government. These are the masses' reasons to have lower regulation, not to give handouts to some but to stop government interference. Not to favor winners and losers but to have just enough regulation - without printing stupid amounts of money to save the economy in the short-term. Unfortunately, history also shows us that government interference, though possibly well-intended, results in price controls that also cause the same problem - inflation.
- merely-unlikely 4y ago
  A good example of unintended consequences is the proposed ban of US exports of gasoline. The intuition is that will boost supply in the US market, but that intuition fails for large chunks of the country. The East Coast is heavily dependent on imports due to a lack of pipeline capacity and US flagged ships (see Jones Act). So if exports are banned then international market prices go up, and East Coast imports become more expensive. Pockets located near refiners might get cheap gas but most of the population ends up worse off.
- jollybean 4y ago
  I'm wary that this is a problematic articulation. The government rarely if ever controls markets to the point where it causes material price increase for things. The US government has not taken measures to materially affect the cost of goods imported from China, or gas, for example. Yes, the Central Bank sometimes creates more liquidity than is required for a given economic cycle, but in most cases, this is due to economic calamity i.e. banking collapse, pandemic, war etc. in which case the resulting inflation is the 'accounting adjustment' made to accomodate for that 'external factor' (i.e. factor external to the regular economy). A pandemic, banking failure, getting invaded etc. can be the result of government action (I mean, especially if the nation is 'choosing to go to war', as in Vietnam) but not necessarily. Finally, and importantly, the Central Bank is not the 'government' rather, part of 'governance' - they are very different things and act for different reasons. If the 'government' did control the money printing we would all be in trouble!
sebow 4y ago
Most people talk about the printing money aspect, and while that's definitely true, it needs to be bought into the context of the covid19 policies that exacerbated the downfall of the economy. Printing money is one thing, but doing that to "cover costs" while also de facto slowing down to the point of stopping the economy is on another level. Add to this the fact that the white collar jobs that "seamlessly" moved to remote positions for people to work from home were kind of a bubble that kept of inflating with no corrections (especially crypto pyramids with no added value in the economy), you end up with this. From there to this day it was basically a matter of inflation spiraling out of control, because the reality is that a lot of green policies, monetary decisions, >new< regulations in the west make it really hard to do anything that's not part of the mentioned bubble.(Which hasn't fully bursted in my opinion, hoping i'm wrong) And yes, let's also mention the stimulus checks that had more of a bad psychological impact on the working middle class. The total number wasn't that big though, compared to other gov. expenses. Let's not forget, US & Western european countries still have the "luxury" that their economies is more largely composed of industries that functioned during the lockdowns(IT, Entertainment,etc). With the exception of eastern asia, the rest of the world [where most of manufacturing & shipment takes place] did not.
JohnJamesRambo 4y ago
What I’m seeing here is three spikes caused or exacerbated by fossil fuels. I wish we would get past the “burning stuff” era.
Madmallard 4y ago
I'm disabled and in California. I don't exactly have the physical means to manual labor. Am I just screwed in coming years?
- deleted 4y ago
  [deleted]
- missedthecue 4y ago
  Why is manual labor your only option?
  - Madmallard 4y ago
    I mean if the disability stuff gets killed by inflation and chaos ensues and people need subsistence
sometimeshuman 4y ago
Unfortunately I leaned on history to make investment decisions during this period of rising inflation. Gold, stocks, and real estate were historically good hedges against inflation and cash holdings should be minimized. But that conventional wisdom has been a bad strategy this time. As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there's a $10k annual deposit limit.
- go_elmo 4y ago
  Afaik inflation devaluates stock relative to bonds and its small 101 of economics but Im no expert
  - voisin 4y ago
    I think you have this opposite. Bonds have a fixed nominal return, so if inflation picks up unexpectedly, that nominal return erodes in real (inflation adjusted) terms, so investors flee bonds. That said, stocks don’t tend to perform well either because of expectations over interest rates increasing to combat inflation and an ensuing recession.
  - wahern 4y ago
    The Econ 101 is the complete opposite. Bonds usually have fixed rates, whereas stock prices are in principal tied to revenues, and nominal revenues should increase with inflation--companies increasing prices is literally how most people experience inflation. But Econ 101 also suggests that in the short term things will be more complex than all that because price adjustments won't be instantaneous. Fear and volatility will create demand for bonds, which could offset to some extent the clearly diminishing nominal value of fixed-rate bonds. Note that a key factor here isn't inflation, per se, but the rate of change in inflation. From an Econ 101 perspective 2% inflation is no different than 20% inflation if things are otherwise steady-state. Stocks are the better bet because in principal they should respond more quickly to changes in the inflation rate. If inflation is steady, bonds in principal are the simpler, cheaper instrument.
jelliclesfarm 4y ago
1. we should gently force a recession. 2. reduction in money supply. 3. this can be achieved through higher interest rates. 4. there will be higher unemployment rates. 5. home prices will fall down and speculation will cool. 6. inflation should be capped as soon as possible. I am sure America is on the job. For all it's shortcomings, noone had to starve due to bad economic policy in this country and not for decades. Having to file for bankruptcy and living less grand is not the same as starvation death level poverty. And this, btw..still exists in many countries around the world. In America(not speaking about other economies), we'll be fine. It will be weird ride for the next decade, but this isn't bad for America. If we were a corporation, we have sufficient moat.
major505 4y ago
As a brazilian, history teaches that inflation is a pain in the ass. I lived in hyperinflation when I was a kid. I rememore that my parents would receive and run to the market in the same day, and buy everything in bulk, because next day, their money would be worth half. Markets would tag products once or twice a day. I remember buying an X-men comic that was worth something like 1000 BRC. Monthly inflation would be beetween 50% - 80%. Also a lot of the commerce was informal and using barter.
- bruce511 4y ago
  It's something of a pity that hyper-inflation, and inflation, share more-or-less the same name. Hyper-inflation is bad, and ultimately makes local-money such a poor store of value as to make it useless. People will revert to non-money approaches to trade, or use a different currency for money. So yeah hyper-inflation is really bad, and (I suspect) what most Americans think of when the word "inflation" is used. By contrast regular inflation, say in the 3% to 6% band has significant upsides. It promotes exports, leverages borrowings, and so on. Equally it devalues income for those on a fixed-value pension (probably an excellent lesson to current generations of the value of inflation-linked investments and income) and that sucks. The solution though is not 0% inflation for ever, the solution is better pension plans. Yes, inflation is "high" at the moment, but it's several orders of magnitude away from hyper-inflation. And the counter to inflation, higher interest rates, is starting to happen.
  - major505 4y ago
    Inlflation is bad. Specially because is a "tax" that affects the poorest population, that this days the origin is not rare, because the state prints money like crazy, to achieve its goals in the short term.
michaelcao 4y ago
Mark Twain once said that “History never repeats itself, but it does often rhyme. We should use the bottom up approach for investing stocks. I don't believe that macro prediction is useful. Nonetheless, we should prepare for the worst because the recession is looming.
- lowercased 4y ago
  I'm not sure Mark Twain actually said all that... :)
  - michaelcao 4y ago
    I mean Mark Twain said “History never repeats itself, but it does often rhyme".
    - lowercased 4y ago
      To quote Mark Twain, "I know. It was a joke.
- bushbaba 4y ago
  Let's be real. We are currently IN a recession.
deleted 4y ago
[deleted]
galaxyLogic 4y ago
There's two causes for inflation I think everybody agrees, too little supply and too much demand. The demand-caused inflation would seem to be self-correcting problem: When things cost more, people buy less of them. Then suppliers will have to lower their prices or at least stop increasing them, if nobody buys their product because of too high prices. In other words if people having too much money causes inflation, people will soon NOT have too much money, because it is used up by the higher prices. So the real problem to focus on would seem to be supply-side inflation. How can we produce more cheaper and distribute the products to people cheaper? Isn't that the problem governments should be trying to solve, to get rid of inflation?
- Helmut10001 4y ago
  > How can we produce more cheaper and distribute the products to people cheaper? Please replace cheaper with sustainable, otherwise the world will be flooded with even more plastic.
- xapata 4y ago
  > There's two causes for inflation I think everybody agrees, too little supply and too much demand. Price increases aren't always inflation. As the Federal Reserve Bank of Cleveland published, "Strictly speaking, inflation refers only to a drop in the purchasing power of money that results when a central bank creates more money than its public wants to hold. Inflation manifests itself as a rise in all prices and wages—not just some subset of prices. ... relative-price changes—no matter how uncomfortable they are for consumers or producers—transmit vital information necessary for the efficient allocation of resources throughout any market economy. Inflation, by contrast, contributes no information useful to our consumption, production, or labor choices. If anything, inflation can temporarily distort vital relative-price signals ..." https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2008-economic-commentaries/ec-20080601-rising-relative-prices-or-inflation-why-knowing-the-difference-matters.aspx https://www.clevelandfed.org/en/newsroom-and-events/publicat...
  - galaxyLogic 4y ago
JohnSmitty32 4y ago
mise_en_place 4y ago
It's very much a tale of two dollars, however. The dollar price index plummeted after abolishing the gold standard. Now it has risen substantially, as it did in 2008, to become the safe haven currency that all other countries are hoarding, due to inflation in their own countries. At some point this house of cards will collapse, specifically if the Fed capitulates in its fight against inflation and stops raising interest rates.
- sumedh 4y ago
  > to become the safe haven currency that all other countries are hoarding Probably because most of the oil is traded in dollars.
entropicgravity 4y ago
History teaches us, don't let interest rates go below 2.5%.
perryizgr8 4y ago
> Print trillions and trillions of dollars. I wonder whatever could have caused this unprecedented inflation?
dandare 4y ago
One thing I would like to understand is how much is this related/cause by the 2008 financial crisis and the quantitative easing policies.
mrjin 4y ago
The only thing we learnt from history was that *we learn nothing from the history*. For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of course, there was no inflation as the design of CPI, the indicator of indicator, was flawed. CPI does not consider price of assets, otherwise sky would be the limit. There were crisis simply because the money went to the people who didn't it that much. Printing much made things worse as most of the printed money went to those didn't need it much, but nonetheless had postponed them a lot. Such pretending to be dumb game could have being played a lot longer if not the pandemic which made them had no choice but printing money and sending them to those in need. And all of a sudden, those who needed the money most had so much cash they had never imaged before? What were they going to do? For sure spending them all. Now here is the long *expected* inflation, what are central banks planning to deal with it? Increasing interest rate to where it should be? Seems too hard, let's print more money!
- gitfan86 4y ago
  At this point the fed seems to be saying that those days are over, they will continue to increase rates until inflation hits 2%. Obviously this cannot go on forever because it becomes impossible to service the debt and you have to print money to pay it off. But it gives you more time and prevents hyper-inflation and we can hope that by then AI and other technological advances have made what we consider "economics" mostly irrelevant.
  - diordiderot 4y ago
    > because it becomes impossible to service the debt Those companies should have made more responsible financial decisions.
    - weberer 4y ago
      *governments
anonu 4y ago
Inflation is high 'cause China. We are more interconnected and globalized than anytime in the past, thus the past is not a good model. China is still in lockdown and their output isn't as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs. Until China decides to open back up, prices will continue to increase. And until then rates will continue to go up to try to incentivize people to save. I see this alleviating in 2nd half of 2022, thanks to China relaxing Covid restrictions.
- ericmay 4y ago
  That’s certainly one of many factors but the other big one is energy cost due to Russia’s invasion of Ukraine and subsequent sanctions levied by major economies on Russian energy exports.
- DiogenesKynikos 4y ago
  > China is still in lockdown and their output isn't as high as pre-pandemic levels. The vast majority of China is not in lockdown, and Chinese output is above pre-pandemic levels. China has had one of the highest growth rates of any large economy since the start of the pandemic (2.3% in 2020, when most large economies shrank, and 8.1% in 2021).
dkrich 4y ago
The most dangerous thing that can happen to an advanced economy is credit markets grinding to a halt. It was the panic of 1907 that created the federal reserve in the first place. Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the knowledge of the fed being able to just print and buy any debt and that they would do so caused major crises to be avoided (2008 and 2020). The problem recently has been that this fed is simply incompetent. They do not form their own opinions and simply follow what the prevailing narrative dictates. If it’s consensus that rates should not be lifted, they just coast through those meetings towing the same line and continuing to buy bonds. Then one day the narrative shifts and concern starts to grow over fed policy. So the fed suddenly reverses course and announces sudden rate hikes. When it turns out that cpi moves slower than the fed hoped, the pressure to intervene grows. Now the consensus is that the fed should be making multiple 75-100 bps hikes so that’s what they do. The question now is will the narrative shift fast enough for them to not end up going too far the other way. I sincerely hope the next fed chair is someone who understands the relationship between credit markets and the economy and the need at times for the fed to be the lender of last resort, but also understands that the fed should be an independent entity capable of forming its own policy and having the courage to ignore what market pundits say should be done. The Fed’s mandate is not to make Wall Street happy.
- drchiu 4y ago
  This is perhaps one of the best explanation of the dynamics between the fed and the market as it actually happens. If I recall, those fed chairs tend to be Wall St alumni unfortunately.
- blagie 4y ago
  I'm kind of inclined to agree. We want to avoid structural damage: Lost jobs, bankrupt businesses, lost mortgages, and so on. Structural damage leads to loss of real productivity, and real harm to people's lives. The only way I knew to get through COVID shutdowns was to devalue currency by about as much as we've done. I didn't mind the short-term money printing, and I expected inflation to result. The inflation is painful, but the alternative is much more painful. My income buys less than it did two years ago, but I'm thankful I have a job. I was even more thankful when jobs were easy to come by. If my employer went under or I lost my job, I'd be profoundly unhappy. The right approach now would be to accept a dollar is worth less than it was before, and to give an honest estimate of how much less. Aggressively trying to control inflation by raising interest rates is a lost cause, and will do a lot of real harm. The outcome here seems to be that rather than mitigating the harm of COVID shutdowns, we've delayed them, and did a lot more harm along the way.
davidork 4y ago
war is probably coming.
pulketo 4y ago
do not mess with the russians?
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WizzyWezzy 4y ago
Corporate profite is at a 50 year high. What does that teach us?

198 points by pranshum 4y ago

i'm pretty tired of living in a world where the cost of everything is constantly going up, and everything is going further and further out of reach this has been the norm pretty much 20 years, i hope we will get some kind of reset to level the playing field

seydor 4y ago

Weren't the high inflation years also some of the most progressive, with some of the lowest inequality in recent decades?

missedthecue 4y ago
Who wants the poor to be poorer so long as the rich are a little less rich? How is that a good thing?
- seydor 4y ago
  Is that meant to be ironic or not? It is a fact that [real] incomes have not risen for decades, and now , at least in europe, we are facing catastrophic consequences https://www.newyorker.com/news/john-cassidy/pikettys-inequality-story-in-six-charts https://www.newyorker.com/news/john-cassidy/pikettys-inequal...
  - baggy_trough 4y ago
    It is by no means whatsoever a fact.
  - boole1854 4y ago
    > It is a fact that incomes have not risen for decades Is this a fact? I just checked the data from the US Census Bureau [1]. Here is what I see (all numbers inflation-adjusted to 2021 equivalent [2]). Note: I chose 1994 as the comparison year since that was as far back as the Census data I looked at goes. 1994 median individual income: $44,618 2021 median individual income: $60,008 1994 mean individual income: $58,005 2021 mean individual income: $83,039 [1] Source: https://www.census.gov/data/tables/time-series/demo/income-poverty/cps-pinc/pinc-01.html https://www.census.gov/data/tables/time-series/demo/income-p... . I used the 'Worked Full-Time, Year-Round' data since that was available for both 1994 and 2021. [2] Using the PCE inflation index, which includes energy and food prices: https://fred.stlouisfed.org/series/PCEPI https://fred.stlouisfed.org/series/PCEPI -- I used January 1994 and January 2021 as the reference points.
    - seydor 4y ago
      https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us-workers-real-wages-have-barely-budged-for-decades/ https://www.pewresearch.org/fact-tank/2018/08/07/for-most-us...
      - boole1854 4y ago
        I have spot checked the data cited there to compare with the Census data... The 'median' earnings data they cite comes from the BLS 'usual weekly earnings' release. One can check that release on the bls.gov website. It is labeled "Series Id: LES1252881500". I compared Q1 1994 to Q1 2021, inflation adjusted using the PCE index: 1994: $750 2021: $983 That is an increase of 31.1%. The Census data which I cited previously is annual earnings, not weekly, but it seems relatively consistent with the BLS data, as the Census data showed a growth rate of 34.4%. In short, both sets of data show relatively consistent income growth over that period.
        seydor 4y ago
        no increase in purchasing power though. what good is more money if you can't buy more things
        boole1854 4y ago
        Both the Census and BLS data I cited above is adjusted for purchasing power differences between 1994 and 2021.
lazide 4y ago
I personally didn’t get that from the highlight reels of the mid 70’s and early 80’s. Mostly it was the total chaos, riots, and unrest. They were also immediately followed by Reagan, who wasn’t exactly a shining beacon of progressivism. But there were a lot of changes during that time, many that could be considered progressive, mixed in with (or perhaps the reason behind?) the chaos. A lot of folks don’t like change, after all.
- seydor 4y ago
  > total chaos, riots, and unrest looks like we come full circle
  - gumby 4y ago
    Not really. We don't have the assassinations. The national guard doesn't shoot people; that's been democratized to police and private citizens. The big violent demonstrations are gone. What passes for it these days is a pale shadow. One "benefit" of the increased inequality is that people making less than the median are too exhausted to demonstrate, much less rebel. Rebellion has always been the act of those who belong, and by excluding more of society there is "peace". Scare quotes used in case it's not obvious that I don't approve.
    - deleted 4y ago
      [deleted]
    - whoooooo123 4y ago
      > The big violent demonstrations are gone. Um... didn't the biggest riots in American history just happen two years ago?
      - gumby 4y ago
        Not even close.
        4y ago
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mc32 4y ago
I gotta say, I should not be surprised at people advocating for inflation. But I am. High inflation has been the boogeyman, foe and underminer of economies world-wide, left-leaning and right-leaning, so I didn't see it coming. But here we are, people advocating for the erosion of purchasing power! But, if it were a wining combination I guess we can expect Biden to embrace Inflation, Advocate for it and pronounce that he will redouble efforts to accelerate inflation so that we can all look forward to a better economy and better future with High Inflation. This is WILD. I can't believe my eyes. Despite the Zimbabwe, Brazil, Turkey, etc., experience, people are making the case FOR inflation? My word.
- avgcorrection 4y ago
  You are not saying anything.
  - mc32 4y ago
    What is there left to say when someone advocates for something so far outside common understanding? It defies belief. But, if most economists are wrong and Biden is right, well, we can look forward to his administration proudly proposing higher inflation.
    - Alupis 4y ago
      Perhaps I'm too cynical - but I think we're going to see that boogeyman trotted out in full swing if the election doesn't go a certain way. What interesting times we live in... even inflation has been politically weaponized now.
    - avgcorrection 4y ago
      I gotta say, I should not be surprised at someone treating economics like a religion. And I am not.
      - mc32 4y ago
        Ok. Show me economies that did well with high inflation. Where did that work, where is it working today? Are economists wrong to treat it as an electric third rail?

nsxwolf 4y ago

Print lotsa money, get lotsa inflation.

ForHackernews 4y ago
Yes, but why now? They have been printing money for a long time. This is a question I have never seen these inflation hawks answer: If printing money triggers inflation, why is there a 14 year lag on that effect?
- bsaul 4y ago
  It took a bit of time to compensate the destruction of value that occurred in 2008.
- joycian 4y ago
  Balance of payments.
- Syonyk 4y ago
  > This is a question I have never seen these inflation hawks answer: If printing money triggers inflation, why is there a 14 year lag on that effect? The argument I've heard, though am not well enough equipped to fully analyze, is that the created money was going into overseas accounts as various nations tried to accumulate the global reserve currency - dollars - to purchase oil and other products that were generally traded in dollars. As long as that remained the case, an awful lot of dollars could be printed, spent, and ended up squirreled away elsewhere not really having an impact (velocity of money and such). Now, though, that arrangement is ending - in no part due to the US abusing our financial system to control what everyone else can or can't do (see Visa's opinions about what industries they'll serve for an example, also SWIFT, global sanctions, etc). So other countries are making other arrangements that don't involve dollars - I'm pretty certain dollars aren't involved in the Russian oil sales to various other countries in their sphere anymore. And any reasonable country that isn't heavily tied to the US has to be figuring out how to move off dollars. So now those all come home to roost, and combined with the lack of things to buy, we see the nasty inflation we're getting. I'm not certain how well it holds up if you really dig into it, but there are certainly people answering your question if you actually go looking for how it's being answered.

DoingIsLearning 4y ago

Is there a historic precedent for Quantitive Easing? Is there a historic precedent for Quantitive Tightening? We have been at it since 2008 that means there is little historic data to draw any preemption from, we are on unchartered waters at this point.

joycian 4y ago
Not that uncharted, perhaps. You can look up the Amsterdam banking crisis of 1763. https://en.m.wikipedia.org/wiki/Amsterdam_banking_crisis_of_1763 https://en.m.wikipedia.org/wiki/Amsterdam_banking_crisis_of_...
pphysch 4y ago
A major aspect of QE is creating artificial demand for USTs (the Fed becomes a buyer), i.e. price support in the wake of the GFC. That is intimately related to the USD as global reserve currency, which is not something there is much historical precedent for. In the past, reserve currencies died for many compounding reasons. QE is a novel scheme to prolong the USD's life as a reserve currency, and is only possible due to modern financial technology. It's definitely not sustainable and can only prolong the inevitable crash in demand for USTs as faith in Washington continues to wane globally. Kicking the can down the road.
blevin 4y ago
It depends on your admissible vintages for historic precedents. The Bank of Japan has been doing Quantitative Easing for over 20 years and has also extended it to include ETF share purchases.
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Rury 4y ago
QE and QT aren't really anything new. They're mostly just modernish terms given to old ways of doing things. What is unprecedented is hitting 0% interest rates nearly everywhere worldwide. When things hit this point, economies are forced to deleverage, to which economists refer to as an 'economic deleveraging'. National economies have gone through deleveragings in the past, and has so far played out in 3-4 ways: -a period of high inflation (which sometimes lead to the collapse of the currency) -a period of deflation (either via a bear market, or a rapid crash) -a long period of almost 0 economic growth (stagnation - AKA 'the soft landing'). -some degree and combination of the above 3 scenarios.

WalterBright 4y ago

History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. For a historical example, the Confederacy had high inflation. The printing press was in Richmond. When Richmond was threatened with a siege, the Confederacy hustled the printing press out to get it to a new, safer location. Confederate inflation paused during the move. The reason is pretty simple - the Law of Supply & Demand. The more currency there is flooding the economy, the less value that currency has.

foobarian 4y ago
> History teaches us that inflation will continue as long as the government keeps printing fiat money. Of course, that is almost a tautology. The devil is in the details. No inflation is bad because the economy stops. High inflation is bad because of erosion of purchasing power and negative impact on nearly every participant in the economy. So what do you do to get that sweet spot of about 1-2% inflation? I'd say raising interest rates was a pretty good start, if a bit late in the game.
- kelseyfrog 4y ago
  Why are interests rates as a money sink preferable to the more direct approach of simply sinking money out of supply via tax? They seem to amount to the same thing at the end of the day - siphoning dollars out.
  - bombcar 4y ago
    Because you don't have to subject it to a vote. People vote against taxes, they kinda ignore moderate interest/inflation.
  - merely-unlikely 4y ago
    That is also a valid approach but I'm not sure it is more direct. Tax policy is generally only set once a year and only affects tax payers. Interest rates can be tweaked more frequently and (I think) directly impact a larger subset of economic players. That and the Fed doesn't determine tax rates.

compumike 4y ago

It may also help to see the cumulative inflation picture: https://totalrealreturns.com/s/USDOLLAR?normalize=end https://totalrealreturns.com/s/USDOLLAR?normalize=end (disclosure: my side project) The 1974 and 1980 peaks from the article correspond to the steeper slope regions in those same years on my graph. (I'm plotting 1/[CPI-U price level], while the article is plotting d/dt [CPI-U price level]) On my y-axis is the purchasing power of a US dollar, relative to current level. So when the y-axis shows 9.813 on 1962-10-04, this means that sixty years ago, a one-dollar bill would buy a basket of goods that today would cost $9.813. It certainly "feels scary" when the purchasing power is eroding quickly (i.e. a fast-declining slope on my purchasing power graph, or a peak on the article's year-over-year derivative graph). All data from BLS: https://www.bls.gov/news.release/cpi.nr0.htm https://www.bls.gov/news.release/cpi.nr0.htm

rdtwo 4y ago
Yeah but that’s not the whole picture… in 1962 the ford truck was $2000 now is around 40,000 so while a new one is better you still have to earn 2x as much to get the most basic one available
- zeckalpha 4y ago
  They also last much longer
  - taftster 4y ago
    Or we are forced to make them last longer.
    - scarecrowbob 4y ago
      That doesn't match my experiences; IME cars do last longer now. I have owned and spent substantial time driving a 1978 Buick Regal and a 1968 Westphalia VW van. I don't think that you're gonna see 200K miles out of either of those vehicles. The Buick had about 120K on it and was clearly on its last legs. It's likely been scrapped. The VW only runs because I sold it to a mechanical engineer who wanted to have a project to work on with his children, and it's now a "vintage" toy instead of my daily driver. I am at about 180K on my 2014 Tacoma and I expect to get at least another 120k out of it before I sell it.

Syonyk 4y ago

> But if the main driver of inflation is the demand side, or inflation expectations, history indicates that a painful recession could be the only way to curb inflation. That's certainly the expected path forward, at least in the circles I associate with. "When the tide goes out, you find out who's swimming naked" seems a reasonable guess as to what's going to happen. Both at larger bank/investment firm scale and at the individual level. At an individual level, just how much slack and flexibility do you have in your spending, your finances, your general way of living? If you're a high earner (there are certainly plenty here that would qualify), are you spending that on lots of monthly payments of assorted luxury and stretch items (house, cars, all the other crap you can get loans for)? You're probably going to be in a world of hurt - there's no income so high you can't outspend it, and it's really hard to adjust those payments when the value of money goes down and you need more for the living expenses. Also, those payments don't go away if your job is eliminated. If you're comfortably pulled back, with either a high savings rate or a high "optional spending" rate, then you should be in far better shape to adapt - and I'll suggest that using some of those resources to help others around you would be useful. Even just coordinating bulk buys of food and other resources is helpful. But the key here is that this allows for flexibility. It's good to be rich, and all that - so don't be stupid about it. I think, collectively, we're in for a world of hurt. Inflation is high, and energy costs seem to be staggering back up. Europe is going to be a frozen wasteland this winter if it's anything but a warm winter, and the energy costs are already eating businesses alive out there. That's before you get to a possibility this winter, in which money doesn't help, because there's simply no energy to deliver. If the natural gas pipeline to your place are empty, welp. Doesn't help to be able to afford the energy when there's none to buy. That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well. The last couple years have broken a lot of things. And we're only just beginning to learn how much is broken, how badly.

DoingIsLearning 4y ago
>That does imply that you might consider some backup energy solutions for the winter. I'm a fan of kerosene lately. Less annoying to use than propane, and stores almost as well. By backup you mean for heating? Can you safely burn kerosene indoors? I thought you would have all sort of pollutants on top of monoxide?

jrm4 4y ago

I'm no crypto fanboy by any means, but it's hard to not think that, if crypto doesn't completely die out this bear market, it's likely to be at least a somewhat significant factor in all of this. Not saying it will save us all, but it seems like alternate stores-of-value are likely to be, well, valuable.

groby_b 4y ago
Why? What would make it more valuable than other stores of value? Bitcoin is roughly at end-of-2020 valuation. So is the NASDAQ. So is the S&P500. So is the Dow. In fact, for most other stores of value, "dies out in this bear market" isn't even a consideration - the statement is reflective of a (perceived?) higher volatility of the crypto market. If this is showing anything, it's that crypto currencies are just as vulnerable to monetary policy as other assets.
- jrm4 4y ago
  The thing that makes anything valuable, which is people who believe that it's valuable? Markets aren't rational. Like I said, I'm not using recent past performance to try to make predictions. I'm more considering first principles et al.
wpietri 4y ago
If you compare the volatility of common cryptocurrencies with the volatility of pretty much any major currency, crypto is way worse. (E.g., GBP and US inflation are around 9%, this year, but Bitcoin and Ethereum are down by 70%). The most important thing for a store of value is that it actually holds value, but crypto has a poor track record there.
- jrm4 4y ago
  Sure. I'm less going by "history" and more by "first principles." Crypto provably does what it says on the tin to some degree, even if that degree is low. I wouldn't use recent past performance as a strong predictor of immediate future performance; thinking more long term possibilities.

ospzfmbbzr 4y ago

That previous inflation highs were also created intentionally?

sbf501 4y ago

Nothing. The people that understand history aren't in a position of power, and the people in a position in power--most of them, anyway--don't need to remember, it works against them.

beerdoggie 4y ago

In California, people fitting certain economic criteria are now being issued $1000 checks for inflation relief. This is beyond ludicrous. We have printed so much money, the only solution is to... print more? It's almost like it is all a sneaky backdoor to letting the government redistribute wealth without real oversight...

groby_b 4y ago
Given that California can't print money, why do you think those checks are "printing money"? And no, it's not a "sneaky backdoor". It's the government doing what it should do, tighten financial inequality gaps. And preventing unnecessary suffering. We're still a society, we occasionally take care of the weaker people amongst us. (Frankly, not often enough) And "without real oversight" is... you're aware this is going through the normal process of fund allocation, is reported widely in the press, and is part of the data that voters can take into account next round, no? It has just as much oversight as any other government spending. (Arguably more than some federal programs) I get that fiscally conservative folks might disagree with this, and we can certainly debate merits. But "printing money" and "without oversight" are empty slogans without basis in fact.
- petilon 4y ago
  They may not be printing money, but they are propping up inflation by giving people free money for compensating for inflation.
  - anon291 4y ago
    Right. One way to combat inflation is to save money. The fed encourages this by increasing the interest rate. If california truly wanted to reduce inflation, it would simply retain those $1000 checks. Taking money out of supply reduces inflation.
    - groby_b 4y ago
      California doesn't want to reduce inflation. (It would be of at least questionable legality, too. Because monetary policy lies with the federal government - Article 1, Section 8) What California does want to do is ensure poorer people aren't bearing the load disproportionately. Also, while we can certainly argue if this is the best use of those funds, a quick reminder that the size of the US money supply is almost 22 trillion. We're about $6T above 2019 levels. California retaining $10B is not going to have any measurable impact on inflation.

IncRnd 4y ago

A good working definition of inflation is a general increase in prices and a fall in the purchasing value of money. There will generally be inflation when there are fewer goods to purchase or when the money supply increases. History teaches us that the government, often through good intentions, decreases the supply of available goods. There are many reasons this happens. Recently, people were told to stay at home, and many businesses closed. At the very least, the supply of many goods dropped, and people were at home all shopping online for the same goods - causing prices to rise - inflation. History also teaches us that the government increases the money supply by printing more money. It's not an accident that both of those are caused by the government. These are the masses' reasons to have lower regulation, not to give handouts to some but to stop government interference. Not to favor winners and losers but to have just enough regulation - without printing stupid amounts of money to save the economy in the short-term. Unfortunately, history also shows us that government interference, though possibly well-intended, results in price controls that also cause the same problem - inflation.

merely-unlikely 4y ago
A good example of unintended consequences is the proposed ban of US exports of gasoline. The intuition is that will boost supply in the US market, but that intuition fails for large chunks of the country. The East Coast is heavily dependent on imports due to a lack of pipeline capacity and US flagged ships (see Jones Act). So if exports are banned then international market prices go up, and East Coast imports become more expensive. Pockets located near refiners might get cheap gas but most of the population ends up worse off.
jollybean 4y ago
I'm wary that this is a problematic articulation. The government rarely if ever controls markets to the point where it causes material price increase for things. The US government has not taken measures to materially affect the cost of goods imported from China, or gas, for example. Yes, the Central Bank sometimes creates more liquidity than is required for a given economic cycle, but in most cases, this is due to economic calamity i.e. banking collapse, pandemic, war etc. in which case the resulting inflation is the 'accounting adjustment' made to accomodate for that 'external factor' (i.e. factor external to the regular economy). A pandemic, banking failure, getting invaded etc. can be the result of government action (I mean, especially if the nation is 'choosing to go to war', as in Vietnam) but not necessarily. Finally, and importantly, the Central Bank is not the 'government' rather, part of 'governance' - they are very different things and act for different reasons. If the 'government' did control the money printing we would all be in trouble!

sebow 4y ago

Most people talk about the printing money aspect, and while that's definitely true, it needs to be bought into the context of the covid19 policies that exacerbated the downfall of the economy. Printing money is one thing, but doing that to "cover costs" while also de facto slowing down to the point of stopping the economy is on another level. Add to this the fact that the white collar jobs that "seamlessly" moved to remote positions for people to work from home were kind of a bubble that kept of inflating with no corrections (especially crypto pyramids with no added value in the economy), you end up with this. From there to this day it was basically a matter of inflation spiraling out of control, because the reality is that a lot of green policies, monetary decisions, >new< regulations in the west make it really hard to do anything that's not part of the mentioned bubble.(Which hasn't fully bursted in my opinion, hoping i'm wrong) And yes, let's also mention the stimulus checks that had more of a bad psychological impact on the working middle class. The total number wasn't that big though, compared to other gov. expenses. Let's not forget, US & Western european countries still have the "luxury" that their economies is more largely composed of industries that functioned during the lockdowns(IT, Entertainment,etc). With the exception of eastern asia, the rest of the world [where most of manufacturing & shipment takes place] did not.

JohnJamesRambo 4y ago

What I’m seeing here is three spikes caused or exacerbated by fossil fuels. I wish we would get past the “burning stuff” era.

Madmallard 4y ago

I'm disabled and in California. I don't exactly have the physical means to manual labor. Am I just screwed in coming years?

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missedthecue 4y ago
Why is manual labor your only option?
- Madmallard 4y ago
  I mean if the disability stuff gets killed by inflation and chaos ensues and people need subsistence

sometimeshuman 4y ago

Unfortunately I leaned on history to make investment decisions during this period of rising inflation. Gold, stocks, and real estate were historically good hedges against inflation and cash holdings should be minimized. But that conventional wisdom has been a bad strategy this time. As a reminder one ~sure bet is iBonds (the i is for inflation). Last I checked the yield is little shy of 10% and your money only needs to be locked up for 1 year. Too bad there's a $10k annual deposit limit.

go_elmo 4y ago
Afaik inflation devaluates stock relative to bonds and its small 101 of economics but Im no expert
- voisin 4y ago
  I think you have this opposite. Bonds have a fixed nominal return, so if inflation picks up unexpectedly, that nominal return erodes in real (inflation adjusted) terms, so investors flee bonds. That said, stocks don’t tend to perform well either because of expectations over interest rates increasing to combat inflation and an ensuing recession.
- wahern 4y ago
  The Econ 101 is the complete opposite. Bonds usually have fixed rates, whereas stock prices are in principal tied to revenues, and nominal revenues should increase with inflation--companies increasing prices is literally how most people experience inflation. But Econ 101 also suggests that in the short term things will be more complex than all that because price adjustments won't be instantaneous. Fear and volatility will create demand for bonds, which could offset to some extent the clearly diminishing nominal value of fixed-rate bonds. Note that a key factor here isn't inflation, per se, but the rate of change in inflation. From an Econ 101 perspective 2% inflation is no different than 20% inflation if things are otherwise steady-state. Stocks are the better bet because in principal they should respond more quickly to changes in the inflation rate. If inflation is steady, bonds in principal are the simpler, cheaper instrument.

jelliclesfarm 4y ago

1. we should gently force a recession. 2. reduction in money supply. 3. this can be achieved through higher interest rates. 4. there will be higher unemployment rates. 5. home prices will fall down and speculation will cool. 6. inflation should be capped as soon as possible. I am sure America is on the job. For all it's shortcomings, noone had to starve due to bad economic policy in this country and not for decades. Having to file for bankruptcy and living less grand is not the same as starvation death level poverty. And this, btw..still exists in many countries around the world. In America(not speaking about other economies), we'll be fine. It will be weird ride for the next decade, but this isn't bad for America. If we were a corporation, we have sufficient moat.

major505 4y ago

As a brazilian, history teaches that inflation is a pain in the ass. I lived in hyperinflation when I was a kid. I rememore that my parents would receive and run to the market in the same day, and buy everything in bulk, because next day, their money would be worth half. Markets would tag products once or twice a day. I remember buying an X-men comic that was worth something like 1000 BRC. Monthly inflation would be beetween 50% - 80%. Also a lot of the commerce was informal and using barter.

bruce511 4y ago
It's something of a pity that hyper-inflation, and inflation, share more-or-less the same name. Hyper-inflation is bad, and ultimately makes local-money such a poor store of value as to make it useless. People will revert to non-money approaches to trade, or use a different currency for money. So yeah hyper-inflation is really bad, and (I suspect) what most Americans think of when the word "inflation" is used. By contrast regular inflation, say in the 3% to 6% band has significant upsides. It promotes exports, leverages borrowings, and so on. Equally it devalues income for those on a fixed-value pension (probably an excellent lesson to current generations of the value of inflation-linked investments and income) and that sucks. The solution though is not 0% inflation for ever, the solution is better pension plans. Yes, inflation is "high" at the moment, but it's several orders of magnitude away from hyper-inflation. And the counter to inflation, higher interest rates, is starting to happen.
- major505 4y ago
  Inlflation is bad. Specially because is a "tax" that affects the poorest population, that this days the origin is not rare, because the state prints money like crazy, to achieve its goals in the short term.

michaelcao 4y ago

Mark Twain once said that “History never repeats itself, but it does often rhyme. We should use the bottom up approach for investing stocks. I don't believe that macro prediction is useful. Nonetheless, we should prepare for the worst because the recession is looming.

lowercased 4y ago
I'm not sure Mark Twain actually said all that... :)
- michaelcao 4y ago
  I mean Mark Twain said “History never repeats itself, but it does often rhyme".
  - lowercased 4y ago
    To quote Mark Twain, "I know. It was a joke.
bushbaba 4y ago
Let's be real. We are currently IN a recession.

deleted 4y ago

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galaxyLogic 4y ago

There's two causes for inflation I think everybody agrees, too little supply and too much demand. The demand-caused inflation would seem to be self-correcting problem: When things cost more, people buy less of them. Then suppliers will have to lower their prices or at least stop increasing them, if nobody buys their product because of too high prices. In other words if people having too much money causes inflation, people will soon NOT have too much money, because it is used up by the higher prices. So the real problem to focus on would seem to be supply-side inflation. How can we produce more cheaper and distribute the products to people cheaper? Isn't that the problem governments should be trying to solve, to get rid of inflation?

Helmut10001 4y ago
> How can we produce more cheaper and distribute the products to people cheaper? Please replace cheaper with sustainable, otherwise the world will be flooded with even more plastic.
xapata 4y ago
> There's two causes for inflation I think everybody agrees, too little supply and too much demand. Price increases aren't always inflation. As the Federal Reserve Bank of Cleveland published, "Strictly speaking, inflation refers only to a drop in the purchasing power of money that results when a central bank creates more money than its public wants to hold. Inflation manifests itself as a rise in all prices and wages—not just some subset of prices. ... relative-price changes—no matter how uncomfortable they are for consumers or producers—transmit vital information necessary for the efficient allocation of resources throughout any market economy. Inflation, by contrast, contributes no information useful to our consumption, production, or labor choices. If anything, inflation can temporarily distort vital relative-price signals ..." https://www.clevelandfed.org/en/newsroom-and-events/publications/economic-commentary/economic-commentary-archives/2008-economic-commentaries/ec-20080601-rising-relative-prices-or-inflation-why-knowing-the-difference-matters.aspx https://www.clevelandfed.org/en/newsroom-and-events/publicat...
- galaxyLogic 4y ago

JohnSmitty32 4y ago

mise_en_place 4y ago

It's very much a tale of two dollars, however. The dollar price index plummeted after abolishing the gold standard. Now it has risen substantially, as it did in 2008, to become the safe haven currency that all other countries are hoarding, due to inflation in their own countries. At some point this house of cards will collapse, specifically if the Fed capitulates in its fight against inflation and stops raising interest rates.

sumedh 4y ago
> to become the safe haven currency that all other countries are hoarding Probably because most of the oil is traded in dollars.

entropicgravity 4y ago

History teaches us, don't let interest rates go below 2.5%.

perryizgr8 4y ago

> Print trillions and trillions of dollars. I wonder whatever could have caused this unprecedented inflation?

dandare 4y ago

One thing I would like to understand is how much is this related/cause by the 2008 financial crisis and the quantitative easing policies.

mrjin 4y ago

The only thing we learnt from history was that *we learn nothing from the history*. For the past decades, what were the central banks all over the world doing? Nothing but printing money. Whenever there was a (economical) crisis, the only measure was printing money, *nothing but printing money*. Were the problems resolved ever? Never!!. They event pretended to be innocent by asking "why there were no inflation". Of course, there was no inflation as the design of CPI, the indicator of indicator, was flawed. CPI does not consider price of assets, otherwise sky would be the limit. There were crisis simply because the money went to the people who didn't it that much. Printing much made things worse as most of the printed money went to those didn't need it much, but nonetheless had postponed them a lot. Such pretending to be dumb game could have being played a lot longer if not the pandemic which made them had no choice but printing money and sending them to those in need. And all of a sudden, those who needed the money most had so much cash they had never imaged before? What were they going to do? For sure spending them all. Now here is the long *expected* inflation, what are central banks planning to deal with it? Increasing interest rate to where it should be? Seems too hard, let's print more money!

gitfan86 4y ago
At this point the fed seems to be saying that those days are over, they will continue to increase rates until inflation hits 2%. Obviously this cannot go on forever because it becomes impossible to service the debt and you have to print money to pay it off. But it gives you more time and prevents hyper-inflation and we can hope that by then AI and other technological advances have made what we consider "economics" mostly irrelevant.
- diordiderot 4y ago
  > because it becomes impossible to service the debt Those companies should have made more responsible financial decisions.
  - weberer 4y ago
    *governments

anonu 4y ago

Inflation is high 'cause China. We are more interconnected and globalized than anytime in the past, thus the past is not a good model. China is still in lockdown and their output isn't as high as pre-pandemic levels. Everything China makes pervades into everything we do in developed society. From high-tech chips to low-tech plastic stuffs. Until China decides to open back up, prices will continue to increase. And until then rates will continue to go up to try to incentivize people to save. I see this alleviating in 2nd half of 2022, thanks to China relaxing Covid restrictions.

ericmay 4y ago
That’s certainly one of many factors but the other big one is energy cost due to Russia’s invasion of Ukraine and subsequent sanctions levied by major economies on Russian energy exports.
DiogenesKynikos 4y ago
> China is still in lockdown and their output isn't as high as pre-pandemic levels. The vast majority of China is not in lockdown, and Chinese output is above pre-pandemic levels. China has had one of the highest growth rates of any large economy since the start of the pandemic (2.3% in 2020, when most large economies shrank, and 8.1% in 2021).

dkrich 4y ago

The most dangerous thing that can happen to an advanced economy is credit markets grinding to a halt. It was the panic of 1907 that created the federal reserve in the first place. Over the ensuing decades there was a very awkward path to eventually figuring out that at the moments where a complete halt to credit markets looks imminent, the fed should step in and release the jam. What we’ve learned is that just the knowledge of the fed being able to just print and buy any debt and that they would do so caused major crises to be avoided (2008 and 2020). The problem recently has been that this fed is simply incompetent. They do not form their own opinions and simply follow what the prevailing narrative dictates. If it’s consensus that rates should not be lifted, they just coast through those meetings towing the same line and continuing to buy bonds. Then one day the narrative shifts and concern starts to grow over fed policy. So the fed suddenly reverses course and announces sudden rate hikes. When it turns out that cpi moves slower than the fed hoped, the pressure to intervene grows. Now the consensus is that the fed should be making multiple 75-100 bps hikes so that’s what they do. The question now is will the narrative shift fast enough for them to not end up going too far the other way. I sincerely hope the next fed chair is someone who understands the relationship between credit markets and the economy and the need at times for the fed to be the lender of last resort, but also understands that the fed should be an independent entity capable of forming its own policy and having the courage to ignore what market pundits say should be done. The Fed’s mandate is not to make Wall Street happy.

drchiu 4y ago
This is perhaps one of the best explanation of the dynamics between the fed and the market as it actually happens. If I recall, those fed chairs tend to be Wall St alumni unfortunately.
blagie 4y ago
I'm kind of inclined to agree. We want to avoid structural damage: Lost jobs, bankrupt businesses, lost mortgages, and so on. Structural damage leads to loss of real productivity, and real harm to people's lives. The only way I knew to get through COVID shutdowns was to devalue currency by about as much as we've done. I didn't mind the short-term money printing, and I expected inflation to result. The inflation is painful, but the alternative is much more painful. My income buys less than it did two years ago, but I'm thankful I have a job. I was even more thankful when jobs were easy to come by. If my employer went under or I lost my job, I'd be profoundly unhappy. The right approach now would be to accept a dollar is worth less than it was before, and to give an honest estimate of how much less. Aggressively trying to control inflation by raising interest rates is a lost cause, and will do a lot of real harm. The outcome here seems to be that rather than mitigating the harm of COVID shutdowns, we've delayed them, and did a lot more harm along the way.

davidork 4y ago

war is probably coming.

pulketo 4y ago

do not mess with the russians?

deleted 4y ago

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WizzyWezzy 4y ago

Corporate profite is at a 50 year high. What does that teach us?