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Inflation

lobosrul5 said:
A theory, that I just came up with out of thing air, is that in actual reality the 2010's were highly inflationary*. Its just that a huge amount of dollars were tied up into corporate stock. Most people were just holding shares, and not spending it.
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Not thin air but entirely factual.

The inflation all went to assets that don't count towards headline inflation numbers.

And now that cunning plan is coming unstuck, but as you note with housing stock alone, a dip for a year or even several, isn't going to harm that growth a great deal, nor is the Dow likely to ever see 25,000 again.
 
Solitaire said:
Apparently the spending during the 2008 recession didn't do very much,
nor does quantitative easing over the next ten years, but the spending
by the federal government in 2020 sure did.

In six years the government debt expanded by ten trillion which works out
to about half of the twenty trillion dollar economy - a clear case of rising
supply of dollars.

Slowing the extra spending or raising taxes would definitely cool the inflation.
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There are lots of variables in the equation in terms of where the inflation is coming from; my observation was intended to show it is not easy to lay the blame at Biden or Trump or Obama's door. That said, I agree with your last point but no politician is going to want to take the pain that implies and that leaves it up to the Fed to pound on the brakes.

Lawrence Summers had a piece today about how hard it is to curb 8% inflation (paywalled at the WaPo), based on data from first world countries. Basically two years of stiff rates and cutbacks in government spending gets you back to 6%.
 
Brainster said:
There are lots of variables in the equation in terms of where the inflation is coming from; my observation was intended to show it is not easy to lay the blame at Biden or Trump or Obama's door. That said, I agree with your last point but no politician is going to want to take the pain that implies and that leaves it up to the Fed to pound on the brakes.

Lawrence Summers had a piece today about how hard it is to curb 8% inflation (paywalled at the WaPo), based on data from first world countries. Basically two years of stiff rates and cutbacks in government spending gets you back to 6%.
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Very tight labor market, disruption in the energy market, gargantuan amount of wealth tied in homes**, and de-globalization because a lot of countries are distrustful of international supply chain*. De-globalization means less efficiency which means higher prices. I honestly don't expect "core" inflation to get below 4% for many many years. Fluctuating energy prices might mean headline inflation gets low here and there. I'm thinking if TIPS hit 3% fixed I'm going to allocate the majority of my retirement funds to them.

*plus there's the national security risk of depending on China for
semiconductors

**I have made something like a 300% gain in home equity in 7 years!!
 
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lobosrul5 said:
I honestly don't expect "core" inflation to get below 4% for many many years.
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4 to 6 seems to be a loose consensus. People are waking up to the fact that inflation is here to stay and there's a bit of a rush on to pick a number that it will settle down to.

I'd like to see the higher end, personally, but the world economy doesn't give a **** what I think.

I've certainly had a chuckle at banks suddenly advertising investment rates, having been a dead duck for the past decade.
 
lobosrul5 said:
Fed announced another 75bps rate hike... US markets instantly go up for reasons I don't understand.
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Arguably because it indicates that the Fed is serious about inflation, which will eventually make longer-term borrowing cheaper.
 
2% down is up?

I'm seeing 1.9 to 3% across the board, and that's even with Powell signalling a slowdown in increases.

I doubt it will go down much further, because +0.75 was already locked into prices.
 
The Atheist said:
2% down is up?

I'm seeing 1.9 to 3% across the board, and that's even with Powell signalling a slowdown in increases.

I doubt it will go down much further, because +0.75 was already locked into prices.
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Markets shot up at 2PM EDT when the number was released. Then, came down hard during Powell's remarks.
 
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The Atheist said:
The whole cause of all the economic problems is "Quantitative Easing", or as I like to call it "print money flat out and hope like christ you didn't create another Weimar Republic".
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More specifically, it is governments continuously running massive deficit budgets. Central banks are forced to QE to compensate for this.

Another reason why it should be unconstitutional for governments to run deficit budgets.
 
Brainster said:
While some of the blame can be laid at the government's door, the problem (at least in the US) is which government. The inflation of the 1970s was mostly caused by Lyndon Johnson. I suspect a lot of the inflation we are experiencing today in the US is due to the spending during the recession of 2007-2009, along with the stimulus payments made by Trump and Biden in 2020 and 2021.
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A major cause of inflation occurred when Richard Nixon decoupled the USD from gold (the alternative would be to reign in spending to avoid gold reserves being depleted).

Pricing international oil in USD is the only reason why the USD is still worth more than the Zimbabwean dollar.
 
psionl0 said:
More specifically, it is governments continuously running massive deficit budgets. Central banks are forced to QE to compensate for this.

Another reason why it should be unconstitutional for governments to run deficit budgets.
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This is backwards. Deficit spending is inflationary and central banks tighten monetary policy in response to inflation. QE is used to combat deflation.

In nearly all cases monetary policy swamps fiscal policy so all you typically get from deficit spending is a tiny increase in interest rates.
 
lomiller said:
This is backwards. Deficit spending is inflationary and central banks tighten monetary policy in response to inflation. QE is used to combat deflation.
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As usual, you are reacting rather than thinking. The government doesn't print money so the effect of borrowing to fund its deficit is higher interest rates. The Central bank has to buy back some of this government debt to counteract this and that is inflationary.
 
psionl0 said:
As usual, you are reacting rather than thinking. The government doesn't print money so the effect of borrowing to fund its deficit is higher interest rates. The Central bank has to buy back some of this government debt to counteract this and that is inflationary.
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Government borrowing does not "force" the central bank to do anything. The only reason central banks buy government bonds is to increase the money supply in order to keep inflation in the target range.

If inflation is too low the central bank buys government bonds in order to increase the money supply and increase inflation. If inflation is too high the central bank stops buying government bonds and may even sell some it already owns in order to restrict the money supply and reduce inflation. The central bank certainly does not buy government bonds to "help finance deficit spending", this simply isn't a part of the mandate of any central bank in any developed country.
 
psionl0 said:
Strawman. The central bank does what it does to counteract the effects of government borrowing.
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that presumes that government borrowing causes inflation - which it does only if the economic growth doesn't keep pace, as well as a number of other reasons.
 
The Great Zaganza said:
that presumes that government borrowing causes inflation - which it does only if the economic growth doesn't keep pace, as well as a number of other reasons.
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Government borrowing doesn't cause inflation. It puts pressure on interest rates. It is the central bank's attempts to counter the effect on interest rates (by printing money and buying government debt) that is inflationary.
 
Whatever the cause of inflation it is not wage rises. In Australia
Private sector wages rose 2.7% over the year to June quarter 2022, the highest seasonally adjusted rate of growth for the sector since September 2013. Public sector wages rose 2.4% over the year. This is the fourth consecutive quarter in which the rate of growth has increased, as adjustments to State and Federal wage policies in response to the pandemic continued to unwind.
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But if we look at inflation is it 7.3% for the year and increasing rapidly. https://www.abs.gov.au/statistics/e...consumer-price-index-australia/latest-release
 
psionl0 said:
Strawman. The central bank does what it does to counteract the effects of government borrowing.
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Counteracting the effects of fiscal stimulus means cooling the economy and reducing inflation, which is the exact opposite of what you said in your previous post.

psionl0 said:
More specifically, it is governments continuously running massive deficit budgets. Central banks are forced to QE to compensate for this.
Click to expand...
 
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