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Have we been thinking about inflation all wrong?

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Re: Have we been thinking about inflation all wrong?

#451

Post by hackerfromthefu »

specialist wrote: post #432
zozbot234 wrote: post #129

Earlier quoted context omitted.

Yup. The kernel of truth behind Austrian theories of macroeconomics/the business cycle is that interest-rate based policy setting is inherently an unstable system. If the central bank makes policy errors that fail to stabilize the underlying target (whether inflation, nominal income, exchange rates, whatever) the whole system starts spiraling away from that unstable equilibrium point, and the subsequently needed corr…

Tangentially: > unstable equilibrium point Is anyone looking at economics thru the lenses of chaos theory (complex adaptive systems), control theory, or cybernetics? I've foraged a bit, no joy, but really don't know where to start looking. I only ask because... Anthropologist David Graeber's book Debt: The First 5000 Years muses about the fragility of market based systems. Like maybe capitalism contains the seeds of…

Part of the problem is the crises occur infrequently and humans en masse tend to forget the past, in their emotions and actions if not in theory.

Another part of the problem is the governments benefit from inflation and again short term the people in power benefitting from it are unlikely to be the same ones in power when the crises eventuates, ie the problems of money printing are externalities.

But your central idea of planning ahead for the crises is actually refreshing and excellent, if it is possible to apply it.

On a personal level, anticipating and timing the crises is a form of planning for it, to reduce financial leverage before the crisis and have cash available to buy assets cheap from those that didn't anticipate the crisis.

Re: Have we been thinking about inflation all wrong?

#452

Post by hackerfromthefu »

nverno wrote: post #356
stormbrew wrote: post #353

Earlier quoted context omitted.

The thing is it wasn't flowing out, except in some specific ways, and in spite of decades of low to virtually zero interest rates. Every QE event has led to a ballooning of the stock market and asset holdings on things that can be mortgaged, which are both things that disproportionately benefit only some of 'everyone'. This is the point I'm making. Interest rates stopped being a lever a long time ago, whether by choi…

I agree, it doesn't seem to be working as well as you'd hope. I wonder how much of that is due to people not taking advantage of the opportunity for cheap money, either because they don't know about it, or have no ideas how to use it.

It's never really intended to work as advertised, that's just a narrative to push it politically. The real reason it's done this way is regulatory capture, ie corruption of the system.

Re: Have we been thinking about inflation all wrong?

#453

Post by wodenokoto »

kkoncevicius wrote: post #52
wodenokoto wrote: post #37

Earlier quoted context omitted.

The whole point of inflation is to keep people from storing money under the mattress. Savings are to be invested. If investments can’t beat inflation then you have a shrinking economy and no amount of deflation is going to get the wheels turning again. It’s not that Keynesian economists don’t understand that inflation is a tax on money, it’s that they see the purpose and reason for inflation from a completely differe…

Say we trade and I give you an apple. In return you give me a note saying "this note is a proof wodenokoto owns me one apple and can be exchange for one apple at any time". What good does making this note depreciate over time serve, except as a pressure for me to demand you return the apple as soon as possible? It acts as a mechanism which nudges me to lend less apples overall. If inflation is good, why not ramp it u…

Such a note has nothing to do with fiat currency.

Re: Have we been thinking about inflation all wrong?

#454

Post by randmeerkat »

quadrangle wrote: post #367
randmeerkat wrote: post #363

Earlier quoted context omitted.

> You might as well say that gravity has nothing to do with up and down. To be pedantic, gravity has nothing to do with “up” or “down”, it’s just the attraction of two or more masses relative to one another. “Up” or “down” is perspective. If someone on the South Pole is looking up and someone on the North Pole is looking down, an argument could be made that the person on the South Pole is actually looking down.

This is really tangential, but "up" and "down" are completely meaningless without gravity. Literally, without gravity, "up" doesn't exist. "Up" is literally just "away from the primary gravitational pull". People on either pole looking away from the planet are both looking up. That's what "up" is. It's funny to realize that two people can look "up" in opposite directions, but that's what's going on. Neither of them i…

“From our experiments, the presence of gravity appears to be a sufficient condition to evoke up/down biases in interceptive responses, at least in some subjects. It is not, however, a necessary condition. Indeed, it is thought that a network of connections involving the insulae and temporoparietal junction of the brain integrates a variety of sensory modalities to define an up/down reference frame and then tunes fast interceptive responses within that context (Indovina et al., 2005).”

https://www.jneurosci.org/content/32/6/1969

TLDR; Up and Down is just perception and has nothing to do with gravity.

Re: Have we been thinking about inflation all wrong?

#455

Post by missedthecue »

bubbleRefuge wrote: post #390
missedthecue wrote: post #264

Earlier quoted context omitted.

Lower interest rates decreases inflation? Can you explain the mechanics behind that? If interest rates went negative, I would literally borrow and spend and much money as I could.

MMT 101. The federal government is a net payer of Interest to the private sector. Thus, when interest rates are increased, Interest income to the private sector increases. Interest paid by the US treasury to the private sector is kind of printing money. When interest rates go down, interest income to the private sector decreases.

The total amount of interest paid by the government to all parties, domestic, foreign, private, and public sector was about $400 billion in 2021.

Meanwhile, America borrowed $1 trillion in new debt in the same year. Lower rates contribute to a higher money supply far more than raising interest rates adds to the interest income paid to the private sector.

Re: Have we been thinking about inflation all wrong?

#456

Post by colinmhayes »

scottiebarnes wrote: post #447
colinmhayes wrote: post #360

Earlier quoted context omitted.

I mean yea, you shouldn't be holding cash for a year. Put it in short term bonds if you want it liquid.

You realize the yield on a 1 yr US treasury bond is currently 1%, and the yield of it one year ago was 0.1%? And that bonds pay coupons denominated in dollars? The savings rate at Bank of America is 0.01% APY. A person has no risk-free ability to save, and is forced to speculate in asset markets just to keep up with inflation.

> The savings rate at Bank of America is 0.01% APY.

The government doesn't want you holding large amounts of cash. It causes problems for everyone.

> A person has no risk-free ability to save

Nothing is risk free. Yes, the government wants to force people to invest their money in order for it to keep its value over long periods of time. Hoarding money is bad. If you don't think T-bonds pay enough you're free to buy other bonds, equities, real estate, even gold if you like it so much.

Re: Have we been thinking about inflation all wrong?

#457

Post by nly »

Spooky23 wrote: post #339
e4e78a06 wrote: post #175

Earlier quoted context omitted.

Poor people are making _nominal_ income gains. Their real income is actually declining because wage gains aren't keeping up with inflation despite a red hot labor market. It's almost like rents rise to match incomes unless you build more housing. Rent control just means that the costs get offloaded to other things like the security deposit, application fees, and deferred maintenance. You can't regulate the market out…

Every student debtor is 7.5% less in debt in real terms than they were last year. Many of the poor working people have made substantial gains. Dishwashers and line cooks in my area are making $30/hr in some cases now. Nurses are a while other universe. My friends are taking a year off after one of them banked almost $400k as a visiting nurse. Our local hospital has 90% turnover in nursing and is almost exclusively ag…

In the UK student loan interest rates are contractually pegged to measures of inflation+some margin.

Most mobile phone contracts and home rental agreements also have built on clauses on measures of inflation.

Re: Have we been thinking about inflation all wrong?

#458

Post by scottiebarnes »

colinmhayes wrote: post #456
scottiebarnes wrote: post #447

Earlier quoted context omitted.

You realize the yield on a 1 yr US treasury bond is currently 1%, and the yield of it one year ago was 0.1%? And that bonds pay coupons denominated in dollars? The savings rate at Bank of America is 0.01% APY. A person has no risk-free ability to save, and is forced to speculate in asset markets just to keep up with inflation.

> The savings rate at Bank of America is 0.01% APY. The government doesn't want you holding large amounts of cash. It causes problems for everyone. > A person has no risk-free ability to save Nothing is risk free. Yes, the government wants to force people to invest their money in order for it to keep its value over long periods of time. Hoarding money is bad. If you don't think T-bonds pay enough you're free to buy o…

> The government doesn't want you holding large amounts of cash.

Government ownership of the interest rate is part of the problem. In a free market, an interest rate emerges naturally based on the supply of money from savers, and demand of money from consumers.

Any individual divides their wealth into either saving or consumption based on their individual time preferences. Some people like stuff now, some people are happy to wait and have more later. Presently, we are forced to consume, or take on riskier assets to save.

> Hoarding money is bad.

Bonds and savings accounts aren't hoarding money; you loan the money out for other people to use productively, and they pay you an interest rate.

> If you don't think T-bonds pay enough you're free to buy other bonds, equities, real estate, even gold if you like it so much.

Again, you're failing to see the consequences of t-bonds having a low interest rate and the US dollar being unable to store value. The consequence are volatile and speculative asset markets. If over time no one wants treasury bonds or USD, they become valueless.

Re: Have we been thinking about inflation all wrong?

#459

Post by Spooky23 »

watersb wrote: post #361
Spooky23 wrote: post #339

Earlier quoted context omitted.

Every student debtor is 7.5% less in debt in real terms than they were last year. Many of the poor working people have made substantial gains. Dishwashers and line cooks in my area are making $30/hr in some cases now. Nurses are a while other universe. My friends are taking a year off after one of them banked almost $400k as a visiting nurse. Our local hospital has 90% turnover in nursing and is almost exclusively ag…

> Every student debtor is 7.5% less in debt in real terms than they were last year. Because Federal Student Loan payments were deferred last year, interest free. Such loans can also be forgiven -- canceled and considered paid in full -- for borrowers which qualify for certain programs. One of the most widespread are programs for Public Service job holders, Teachers, and National Guard members. These borrowers are cre…

The point is, instead of giving investors risk free returns, inflation is effectively a tax on the people and entities hoarding wealth with no productive purpose, and it benefits debtors.

We’ve had a carnival ride of cheap debt forever, which has powered and established many really dumb businesses. IMO, we’d benefit from a few years of 5-10% inflation.

Re: Have we been thinking about inflation all wrong?

#460

Post by NovemberWhiskey »

xapata wrote: post #234
Nbox9 wrote: post #141

Earlier quoted context omitted.

Rising interest rates is likely to have a significant downward pressure on home prices. Think carefully before entering a very leveraged position (like the 3.5% down FHA loan) in the current market.

Owner-occupied real estate investments don't suffer from margin calls. If the asset price crashes, what does it matter so long as I can afford the monthly payments? If the home value is "underwater" then I can walk away and rent for 7 years, if I think that's better value.

Only if you live in a non-recourse state.
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