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In Fed and Out, Many Now Think Inflation Helps

nytimes.com

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Re: In Fed and Out, Many Now Think Inflation Helps

#211

Post by clarky07 »

eli_gottlieb wrote: post #169
clarky07 wrote: post #155

Earlier quoted context omitted.

That means he was at least partly if not mostly wrong. As far as markets go, you have to be right in both direction and timing. He was 4-5 years early, and frankly 2002 prices weren't that insane. Especially compared to 2006-2007 prices. He was really early, and if bet against housing at that point, he likely went bankrupt before the crash. That's really neither here nor there though. What's the famous saying, someth…

>He was 4-5 years early, and frankly 2002 prices weren't that insane. Define "weren't that insane", please. Were they sane when compared with the incomes being leveraged to buy them? Compared with some shortage of supply that would naturally push prices up? Because the story I've heard is that the mid-late 2000s housing bubble was just the peak of a vast secular inflation in real-estate values that had little to no t…

Well, in 2002 the prices were not even remotely close to the peak, and they were lower than anything we've seen post crash to this point. I guess you could try to argue that we are still in a bubble, but I don't think most would agree. Now, suggesting things needed a correction in 2002 might have been reasonable, but it was bubble like yet.

http://us.spindices.com/indices/real-estate/sp-case-shiller-...

Re: In Fed and Out, Many Now Think Inflation Helps

#212

Post by clarky07 »

gruseom wrote: post #158
clarky07 wrote: post #155

Earlier quoted context omitted.

That means he was at least partly if not mostly wrong. As far as markets go, you have to be right in both direction and timing. He was 4-5 years early, and frankly 2002 prices weren't that insane. Especially compared to 2006-2007 prices. He was really early, and if bet against housing at that point, he likely went bankrupt before the crash. That's really neither here nor there though. What's the famous saying, someth…

That means he was at least partly if not mostly wrong. I don't agree. You'd have to look at his reasons for calling it the way he did. Your "betting" objection is a red herring. To identify a bubble does not require predicting exactly when it will pop.

Look at my comment above. Prices weren't even close to bubble levels. They were lower than anything we've seen post crash.

Also I was clearly not talking about "betting" but rather investing. It's just not useful for someone to say something is happening far before it actually is happening. Perhaps he could have said the conditions are right for a bubble to start in the near future. In which case the correct play would be to make a lot of money in housing in 2002. There was no bubble then though.

http://us.spindices.com/indices/real-estate/sp-case-shiller-...

Re: In Fed and Out, Many Now Think Inflation Helps

#213

Post by Mikeb85 »

greenyoda wrote: post #86
Mikeb85 wrote: post #31

Earlier quoted context omitted.

Inflation actually favours the middle and lower income families if they own a house, have any debt, or any investments. Which of course is most of them.

Whether it helps or hurts someone depends on how much debt they have compared to their (rising) expenses. It also assumes that the interest rate on their debt doesn't go up as inflation rises, which it certainly can (e.g., for credit card debt and variable rate mortgages). For investments, it depends on the type of investment. For example, if you own bonds, the interest rate is paid based on the purchase price of the…

This is why when you invest, if your goal is merely wealth preservation (and keeping pace with inflation), you invest in a wide portfolio and hedge your bets. A combination of bonds, equities, commodities and real assets will do that.

If you have a smaller amount of wealth, simply buying a house and investing in some index funds can be enough, maybe some short-term GICs (which will often put you on par with inflation).

Trading bonds, IMO, is best left to institutional investors.

On the other hand, if your goal is income (which is why I trade), you need to be more sophisticated, learn to time the market (to a certain degree, predicting it isn't an exact science), and to be picky...

Re: In Fed and Out, Many Now Think Inflation Helps

#214

Post by Mikeb85 »

nullc wrote: post #178
Mikeb85 wrote: post #25

Inflation encourages spending, rewards investment, and discourages hoarding of cash. Inflation leads to all the positive outcomes that economists want. Not to mention, inflation is necessary in a society with a growing population, since there needs to be enough currency to spread amongst the population, otherwise it will be held in a finite amount of hands, and increase inequality.

> and increase inequality. Because quantitative easing is totally pro-equality?

> Because quantitative easing is totally pro-equality?

Quantitative easing increases the money supply. Which does favour the lower classes more than the already wealthy (decreasing the money supply would favour the wealthy). So yes, economists would say it does favour equality. Keep in mind this is on a macro scale...

Re: In Fed and Out, Many Now Think Inflation Helps

#215

Post by Mikeb85 »

7Figures2Commas wrote: post #100
enoch_r wrote: post #53

Absolutely no discussion of inflation is complete without recognition of the fact that inflation and inflation expectations are at historically low levels [1] right now. Economists aren't arguing that we should inflate our way out of debt--they are arguing that we should return to the historical norm. Of course, it's possible that these economists are secretly just pushing inflation as the "hidden tax" we're all up i…

Here's a question: how many "professional" economists sounded the alarm about the last bubble?

It wouldn't surprise me if many did. Certainly anyone with a little common sense would have known that when housing prices rise so dramatically so quickly, it can't possibly be sustainable (even if in the long run prices return to that level).

But as is the case in all bull markets, the naysayers are always drowned out by the crowd. Voicing a contrarian opinion is always frowned upon.

Re: In Fed and Out, Many Now Think Inflation Helps

#216

Post by juhanima »

dpatru wrote: post #134
ra wrote: post #63

Earlier quoted context omitted.

"Given that the entire point of the Federal Reserve is to promote inflation" No, that's not what they do. Too much inflation is bad, but you need a little bit. So they seek to maintain a "healthy" amount of inflation. Typically around the world this is something like 2-3%. http://en.wikipedia.org/wiki/Inflation_targeting

> they seek to maintain a "healthy" amount of inflation. An ounce of gold was $21 in 1920 and $1410 in 2010. http://www.wisegeek.com/what-is-the-historical-price-of-gold...

Going from $21 to $1410 in 90 years would be about 4.8% price increase aka inflation in a year.

Re: In Fed and Out, Many Now Think Inflation Helps

#217

Post by pjc50 »

jswinghammer wrote: post #8

Given that the entire point of the Federal Reserve is to promote inflation it's probably good that they think it's a good idea-otherwise why do they think that they exist? The whole problem is that inflation is theft. You are basically having your property taken out from under you without realizing it. It's historically been very popular as a means of taxing the public without them realizing that's what you're doing.…

No, you are _not_ having your property taken away; you are suffering a loss in its market value.

For most people, a reduction in the market value of their job or house makes more difference than the market value of their cash per se. Hence the need to keep an eye on the composition of inflation, as some parts may be going up and down more than others.

Re: In Fed and Out, Many Now Think Inflation Helps

#218

Post by pjc50 »

drakaal wrote: post #26
thaumasiotes wrote: post #12

Earlier quoted context omitted.

Well, deflation sounds like it would be good for anyone with a positive net worth, but the empirics are awful.

Deflation is actually bad for people with positive net worth, it helps most the people who live pay check to paycheck because their money goes farther. People with lots of networth are usually hurt by deflation which is the reason it is seen as bad. Deflation means houses and capital assets are worth less than they were before, so people with a positive net worth are "hurt". Now if you are totally liquid, then deflat…

Other way round; if you have negative net worth, and wage deflation (i.e. your salary is reducing), then your debts stay at the same nominal value but get harder and harder to pay.

If you have a $100k job and $100k house with $100k mortgage, then 10% deflation means you have a $90k job and $90k house but $100k mortgage, which is now underwater and harder to pay off.

Re: In Fed and Out, Many Now Think Inflation Helps

#219

Post by TreyS »

tzs wrote: post #136
TreyS wrote: post #92

Earlier quoted context omitted.

"it does raise questions about why the school's arguments which seem so utterly convincing to so many people, don't manage to gain many converts among people who research the subject professionally." I think it would be easier to convince people with no physics knowledge that a bowling ball falls faster than a golf ball. Intuitively, it seems that bowling ball should fall faster. Austrian economics seems to follow a…

> I think it would be easier to convince people with no physics knowledge that a bowling ball falls faster than a golf ball. Intuitively, it seems that bowling ball should fall faster. Do you have any reason to believe that their intuition is wrong? If the bowling ball and golf ball were both spheres, so they differed only in size and mass, the bowling ball would have a higher terminal velocity. The golf ball's dimpl…

Perhaps I should have used a different example, but the main point was that Galileo's supposed Leaning Tower experiment (http://en.wikipedia.org/wiki/Galileo's_Leaning_Tower_of_Pisa...) is counter intuitive and it's harder to convince laypeople of counter intuitive ideas especially when the "competing" idea is more intuitive.

Re: In Fed and Out, Many Now Think Inflation Helps

#220

Post by nullc »

Mikeb85 wrote: post #214
nullc wrote: post #178

Earlier quoted context omitted.

> and increase inequality. Because quantitative easing is totally pro-equality?

> Because quantitative easing is totally pro-equality? Quantitative easing increases the money supply. Which does favour the lower classes more than the already wealthy (decreasing the money supply would favour the wealthy). So yes, economists would say it does favour equality. Keep in mind this is on a macro scale...

So depositing the QE money directly into Donald Trump's bank account would "favour the lower classes more than the already wealthy" because it increases the money supply? :)
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