Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

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

yarn.pranshum.com

Post reply on HN
Print view View original

151–160 of 550 posts

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

#151

Post by merely-unlikely »

go_elmo wrote: post #115
sometimeshuman wrote: post #98

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…

Afaik inflation devaluates stock relative to bonds and its small 101 of economics but Im no expert

Depends on the sector. You would expect consumer staples (ie food stuffs) to perform well since higher prices can easily be passed to consumers who can't cut back (hence inflation). You would expect money losing tech stocks to suffer as interest rates (and thereby discount rates) rise.

You would also expect bonds to perform poorly as their prices need to decline to make their yields competitive with those of new bonds issued at higher interest rates. Term loans should outperform since their interest rates are variable, making them safer in a regime of raising/fluctuating interest rates.

Conversely, sometimes US treasuries will outperform if investors are fleeing to a safe haven against potential recision risks. There's always another variable.

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

#152

Post by zie »

WalterBright wrote: post #99
zie wrote: post #28

Earlier quoted context omitted.

This is a very simplistic viewpoint. One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed. The US govt has been on a spending spree as of late, but hasn't yet bothered to mention how they are going to pay for it. In 2008/2009, the US govt was also on a spending spree, but did promise to pay the bill eventually. Inflation didn't spike in 2008/20…

> perhaps it's more correct than your version. My version has lots and lots and LOTS of history backing it up. Did you know that the US had inflation when on the gold standard during the California and Yukon gold rushes? Did you know that Spain experienced massive inflation during the period when they were shipping the silver in S. America across the Atlantic? I could go on and on. > One could also argue that Inflati…

I agree that there is lots of data that shows your version has some merit, but that doesn't mean it's 100% correct. I know of at least one instance where your version was incorrect(2008/2009). Again, I'm not arguing my version is correct, and I'm not even arguing that your version is completely wrong, because we literally do not know.

Read some John Cochrane[0] if you want a more academic defence of my version(which is where I got it from, I'm certainly not smart enough to have come up with it myself).

0: https://www.justicenewsflash.com/2022/01/03/the-grumpy-econo...

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

#153

Post by mrep »

wahern wrote: post #135
go_elmo wrote: post #115

Earlier quoted context omitted.

Afaik inflation devaluates stock relative to bonds and its small 101 of economics but Im no expert

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…

I like your thought process on the "rate of change in inflation" but BND and VTI are both down 15% in the past year when inflation has had the greatest change in decades.

I would have thought BND would have fallen a lot harder considering how much higher new bonds are paying but maybe the market is pretty good at pricing bonds based on their associated risk per length of bond time with inflation?

IDK, what do you think?

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

#154

Post by landemva »

jollybean wrote: post #67
rnernento wrote: post #45

Earlier quoted context omitted.

I mean it's pretty straightforward right? There are now more dollars in play all after the same amount of goods, each dollar has less purchasing power. Why are you so quick to throw out the simplest explanation?

Because the 'simple straight forward explanation' doesn't make much sense. As economies grow and expand, they need more money supply to keep prices stable. If you're using 100 tons of Gold as your 'fixed money supply' then you run into deflationary problems. Also, if there is a crisis in which people get really anti-liquid and tend to hoard and do other bad things, and/or the system needs to allocate resources somewh…

> you run into deflationary problems.

Deflation means people who save increase their purchasing power without gambling on stonks. The savers mentality is called low time preference.

Any problems from less consumerism would be felt by junk producers: plastic spinner toys, yet another streaming service, iGadget yearly upgrades. High time preference people are the market for short-lived trash. A currency with disappearing value encourages such consumption because it does not hold value.

Due to technology and manufacturing advances, price decreases (deflation) are natural.

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

#155

Post by merely-unlikely »

sbf501 wrote: post #145
WalterBright wrote: post #122

Earlier quoted context omitted.

> Inflation occurs because the owners need to remain wealthy, hence prices go up everywhere. The fun thing about HN is I hear all sorts of unique economic theories not found in any econ book. P.S. If the wealthy (or everyone else) needs more money, and just raising prices will work, why don't they do that anyway? The answer is Supply & Demand, it's the Law, and is in every econ textbook.

> why don't they do that anyway? Ever heard of a company called Apple? They raise prices all the time because they can. Same with AT&T, or banks ATM Fees, or gas prices. Right now gas prices are at an all time high, and so are gas profits. > The answer is Supply & Demand, it's the Law, and is in every econ textbook. Also, that's Econ 101. Which isn't quite reality, it's idealized for simplicity because it is an intro…

> Right now gas prices are at an all time high, and so are gas profits

Definitely not an all time high, but yes a rapid increase. According to a quick quarterly chart I pulled up, a barrel of oil was last over $100 in June 2014. It spent most of the period 2010-2014 above $80 (it's currently $86). I remember paying > $5/gallon at the pump back then. I see a peak in June 2008 at $140.

Profits are also now coming down, at least according to Exxon's report today:

"(Bloomberg) - Exxon Mobil Corp. gave an early snapshot of its earnings for the third quarter, during which refining margins shrank while profits from natural gas kept climbing. "The largest US energy company said in a filing Tuesday that margins within its energy-products segment, which includes oil refining, were as much as $2.9 billion lower compared with the second quarter. That segment posted $5.3 billion in net income in the three months through June."

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

#156

Post by zie »

compumike wrote: post #17

It may also help to see the cumulative inflation picture: 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 curren…

I haven't dug into everything you are doing, but the biggest flaw I see seems to be that you assume Cash returns 0% nominal, i.e. that there is no return for holding cash. That is only true if you hide it under your mattress(and no deflation happens). Most people do not hide money under their mattress anymore, especially if they have large amounts of it. They put it in a bank account or in a MMF or some other interest producing place.

Since 1972, Cash has a real return of 0.53% (inflation adjusted):

https://www.portfoliovisualizer.com/backtest-asset-class-all...

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

#157

Post by zie »

jnwatson wrote: post #65
zie wrote: post #28

Earlier quoted context omitted.

This is a very simplistic viewpoint. One could also argue that Inflation happens when people don't trust that their government will pay back all the money borrowed. The US govt has been on a spending spree as of late, but hasn't yet bothered to mention how they are going to pay for it. In 2008/2009, the US govt was also on a spending spree, but did promise to pay the bill eventually. Inflation didn't spike in 2008/20…

We have very educated guesses. The primary difference between 2008 and now with respect to monetary policy is money velocity. Increasing money supply is a necessary but insufficient condition for inflation. In 2008, much of that money sat uninvested, so it didn’t impact the price of goods. In 2020, most of it got used to buy and invest.

We do have educated guesses, The OP and my comment are 2 of them. There are more of them for sure.

It wasn't un-invested, it just didn't much make it out to buy consumer goods(at least not as directly as in 2020).

Like all things the devil is in the details, which get stupidly complicated.

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

#158

Post by mrep »

Syonyk wrote: post #142
mrep wrote: post #129

Earlier quoted context omitted.

Where are you at? I ask because I have 2 mortgages and a car loan in the US and 2 are fixed rate for the entire lifetime of the loan and 1 I have 10 years until the ARM starts applying so I'm laughing all the way to the bank. 90% of US mortgages are fixed for the entire loan.

I'm in the US. I certainly could do something like that. I just won't. I hope it works for you. That's a level of debt-based risk that neither myself nor my wife have any interest in. There have been a lot of people throughout history who thought similar arrangements were "sure things," and they were, up until they weren't and it all came down around their ankles. We live in a very modest ( manufactured, gasp! ) home…

2/3 of my debt payments are a sure thing as they are fixed and inflation is also a sure thing as deflation is catastrophic so governments won't allow it and deflation is trivially easy to fix with helicopter money.

The only thing that isn't a sure thing are wages but they have over the long term gone up [0] and when they do go down it is usually only for a few years.

The last one is a risk but I think it is well worth the risk.

[0]: https://fred.stlouisfed.org/series/MEPAINUSA672N

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

#159

Post by senectus1 »

mrep wrote: post #129
Syonyk wrote: post #21

> 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 t…

Where are you at? I ask because I have 2 mortgages and a car loan in the US and 2 are fixed rate for the entire lifetime of the loan and 1 I have 10 years until the ARM starts applying so I'm laughing all the way to the bank. 90% of US mortgages are fixed for the entire loan.

In Australia I don't think I've ever seen an ability to fix 100% of a mortgage.

We tend to fix about 75% and variable the remaining.

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

#160

Post by senectus1 »

WalterBright wrote: post #106
wpietri wrote: post #86

Earlier quoted context omitted.

> History teaches us that inflation will continue as long as the government keeps printing fiat money with no backing. You do realize that the US has had fiat money for decades, right? Including our longest period of low inflation, a run of nearly 4 decades. So it would seem history teaches us the opposite. "For every complex problem there is an answer that is clear, simple, and wrong." -- H. L. Mencken

> You do realize that the US has had fiat money for decades, right? Yes, since 1914 when the US switched to fiat money. > Including our longest period of low inflation, a run of nearly 4 decades The US had zero net inflation from 1800 to 1914. How much net inflation do you think happened in those 4 decades? What would a 1914 US dollar be worth today? I'll help you out. $29.92 https://www.usinflationcalculator.com/

yes but in August 15, 1971 the US stopped using the gold standard.

Ever since then when the Fed needs more money they just printed it.

Reminds me of that scene in Douglas Adams Hitchhiker Guide to the Galaxy

"“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. [...]

"But we have also," continued the management consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying on ship's peanut." [...] "

One wonders when the defoliation stage is going to hit.

Post reply on HN