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The US government is inviting inflation

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Re: The US government is inviting inflation

#61

Post by zpeti »

jlangenauer wrote: post #37
xwdv wrote: post #22

Earlier quoted context omitted.

The poor would soon learn their one shot out of poverty is keeping their job and throwing their UBI income straight into the stock market. This would propel the prices of equities to even greater stratospheric heights, and as the investor class gets richer eventually the prices of all commodities rise to capture this easy money flowing around. So now the poor have more money but it still buys less or equal to what it…

Any UBI is not going to be "in addition to" whatever other money you might earn, but is more likely to look something like a minimum income, below which you cannot drop (even if you stop working).

Wait what? Isn't that the whole point? It's UNIVERSAL.

So we don't have to have bureaucracy to run it bla bla.

How is it UBI if I stop getting it if I'm working? Then it literally is just another form of government help to the unemployed and a massive disincentive to work.

Re: The US government is inviting inflation

#62

Post by atq2119 »

marcosdumay wrote: post #44
kyrieeschaton wrote: post #16

20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices. Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflat…

> The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Hum... Money management 101 says that if velocity goes down, you must print more money to compensate. Otherwise you get a deflationary crisis added into your real world one. (And fiscal policy should intervene increasing the velocity, but fiscal policy is a fraud everywhere, so n…

MV=PQ is popular in some circles, but it doesn't describe casual links.

You can't reason about how those quantities behave from the equation, which is a mere accounting tautology.

Both recently and in QE post-global financial crisis, V went down because M increased without any reason for why the right-hand side of the equation should change.

Re: The US government is inviting inflation

#63

Post by grey-area »

thedudeabides5 wrote: post #38
kyrieeschaton wrote: post #16

20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices. Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflat…

MMT is pretty simple. Run inflation higher than interest rates to push down the nominal value of debt. Usual example is the UK after WWII. https://fred.stlouisfed.org/series/CPIIUKA You don't need hyper inflation to inflate away your debts, just enough monetization to bring indebtedness in line. Now, does that mean the currency will retain value vs real assets, no it means the opposite. Hence the move in stocks, real…

And what happens when inflation rises and they need to control it with non-zero interest rates? Then stocks, real estate etc crash and we're back in another recession, which they try to solve with... more money and lower interest rates. We've already seen this story a few times.

Inflating away debt is fine if it is done slowly and has been done for centuries.

The extreme asset valuations we've seen after a decade of QE are unprecedented.

ZIRP and QE are not fine and are not working for the stated purpose, if anything they're making the economy more fragile. There's an interesting overview of the choices here from Lyn Alden, none are without complications but it does sound like they'll try to aim for moderate inflation and hope they can control it, but if they need to put the brakes on in a hurry the traditional methods of doing so could have extreme effects on overvalued assets:

https://www.lynalden.com/february-2021-newsletter/

Re: The US government is inviting inflation

#64

Post by [deleted] »

waheoo wrote: post #33
sovsovsod wrote: post #21

Earlier quoted context omitted.

Was he really wrong? If I gift money to an extremely over leveraged banks to save them and, with puckered sphincters (they just saw the abyss), they hold onto it then we won’t “see inflation”. It’s there, but it’s latent inflation. If I demolish wages by exporting jobs overseas, that will have a deflationary effect to counter the effect of inflation. If I replace cocoa butter with food wax, I hide inflation. If I don…

What's the argument for housing not being included thats blizzare.

[deleted]

Re: The US government is inviting inflation

#66

Post by codyb »

My impression is a bit of inflation won’t be the worst thing for Americans and the world.

It will boost our manufacturing as imports become less desirable and exports become more attractive.

It also tends to boost economic activity in the rest of the world whose businesses deal with the dollar a lot.

When we became the world’s primary reserve currency by exchanging military protection for dollar based markets with OPEC after WWII, the US economy was a whopping 40% of global GDP.

However, now we’re about 15%. This means we constantly have to buy imports in order to keep the markets running which really hurts our manufacturing base.

I used to think having a strong dollar and being the reserve currency was an unquestionably good thing for America, but now I’m less sure.

It probably is for me as a white collar worker who likes to travel, but for many Americans it may mean the loss of stable blue collar manufacturing jobs.

If that inflation also occurs by pumping greenbacks into middle and lower class Americans hands, I think I’m all for it.

Although certainly I’d be wary of promoting an inflation rate higher than five or six percent. Not because of any underlying fundamental understanding, but because things are _relatively_ stable (coup attempts withstanding) and I don’t want to necessarily live through the moment we decide to turn the cruise ship too fast.

Re: The US government is inviting inflation

#67

Post by jfengel »

giantg2 wrote: post #28
kyrieeschaton wrote: post #16

20% of all dollars were created in 2020. The only thing preventing that from translating into the broader price level is that money velocity collapsed due to the Covid shutdowns. Instead most of that has channeled into financial and property asset prices. Once velocity increases, as is the plan if you assume 2021 is the year we "recover" from Covid restrictions, the Fed will have a choice between inflation and deflat…

Considering Yellen has basically stated (and has a history of doing), she would rather do too much and deal with inflation rather than not do enough. So my take away is that we'll see inflation above 3% in the next two years.

It's already well above 3%, if you could include the stock market in the metric.

That's the problem facing Yellen: not just doing enough, but doing something that won't just end up inflating the kinds of assets owned by the wealthy. Consumer prices have been stable because despite the increase in money supply, consumers as a whole were treading water (at best) even before the pandemic.

She would be happy to do something that caused CPI to get above 3%. It would mean the Fed could finally take the punch bowl away. They've been refilling it for well north of a decade, and it drains as fast as they fill.

Re: The US government is inviting inflation

#68

Post by Majromax »

beervirus wrote: post #5

Assuming he’s right, what do I do about it? Buy gold? Buy BTC? Buy foreign equities?

Buy TIPS, which are inflation-protected bonds, and sell (go short) nominal bonds. The difference between the two is almost exactly proportional to inflation expectations, and you are not inviting cross-contamination by other market moves.

Re: The US government is inviting inflation

#69

Post by Judgmentality »

javierluraschi wrote: post #58

I find Steven Van Metre point of view interesting, see https://www.youtube.com/watch?v=iFdXR4BZ6Fw . I'm a software engineer, so not an expert in macroeconomics obviously, but here are some highlights that I think we are missing to consider when we think inflation is coming: - The USD is the reserve currency of the world, printing money does not only affect the USA but the entire world to some degree. - Money printin…

> I personally find it hard to believe that hyper-inflation will happen, but I also recognize that I'm not certain of this.

I feel like you just described the perfect storm for the worst economic depression of our lives, and your conclusion is hyper-inflation is unlikely?

Re: The US government is inviting inflation

#70

Post by peteey »

beervirus wrote: post #5

Assuming he’s right, what do I do about it? Buy gold? Buy BTC? Buy foreign equities?

Coping with inflation creates extra taxes. There is no perfect mitigation.

Use your existing dollars to buy non-volatile assets like real estate or gold requires you to pay long term capital gains. Gold mostly keeps a constant value, but the dollar value goes down, and the gold price goes up. That looks like a "profit" and you need to pay 15%, soon to be 20%. Effectively, the effect of inflation decreases by 4/5.

For example. suppose you have $100. Holding it over two years of 2% inflation effectively makes the money worth 96$ = 100/(1.02^2). Instead, if you bought $100 of gold, hold for two years, and sell it for $104, you are taxes on 20% of $4. Your loss is $0.8 instead of $4.

Your need to ask for a raise proportional to inflation, but that puts you in higher tax brackets. Your new dollars over 85k are taxes at 24% instead of 10%. Asking for a raise is very difficult for some people...

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