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All bets are off if the Fed and White House are wrong about inflation

cnn.com

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Re: All bets are off if the Fed and White House are wrong about inflation

#11

Post by whb07 »

dragonwriter wrote: post #10
whb07 wrote: post #8

Earlier quoted context omitted.

So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and j…

> The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates 400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase... > just the interest on the money owed is at $hundreds-billions yearly. Now double…

Going from 0-1% to 4-5% is massive I agree on that. But in the absolute, it’s still tiny and even a negative real interest rate.

The other stuff about the fed activities not influencing treasury rates is about as true as inflation being 2% avg for the last couple years.

Re: All bets are off if the Fed and White House are wrong about inflation

#12

Post by conro1108 »

sreekotay wrote: post #5
ixacto wrote: post #3

My early 2000s car went up in value by 30% according to credit karma last year. This should not be happening. Something is Broken.

This one (used cars) is interesting. Combination of supply limitation and a large number of start-ups/VC money in the sector. It really is true today that buying a trusted used car is WAY easier than buying a new car. This has squeezed a LOT of the previous depreciation math out of the market (read: there was a huge arbitration opportunity)

> It really is true today that buying a trusted used car is WAY easier than buying a new car.

Could you elaborate on this? Is this a recent development?

I bought a new car in November 2020 and while I certainly don’t _love_ the dealership experience and I’m probably less uncomfortable with financial negations than your average person, it didn’t strike me as a particularly painful experience.

Re: All bets are off if the Fed and White House are wrong about inflation

#13

Post by talentedcoin »

whb07 wrote: post #8
talentedcoin wrote: post #7

Earlier quoted context omitted.

Idk. I somewhat agree; but I’m not sure what to think of that because it’s a fiscal and not a monetary intervention. Minimum wages going up (whether explicitly or because unemployment benefits are competing with them) will definitely bump up demand and will also bump up costs for some industries, particularly restaurants and hospitality. Insofar as demand responds positively a little inflation is imo not a terrible p…

So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and j…

Just because the Fed is the originator of US Dollars (which it isn’t directly — banks do that by lending, but whatever), that doesn’t imply that fiscal and monetary policy are the same thing. They are decisions by different people for different goals. I think the Fed would be surprised to learn that they are responsible for fiscal policy as you assert.

Also, selling Treasuries isn’t “magic”. US Treasuries act as reserves in the banking system, that’s how modern banking works. You would be right to say that the Fed and the Treasury do indeed work together — after all, the US government is unlikely to default on any US-denominated obligation issued by itself — but the level of coordination you’re implying is a fiction.

Re: All bets are off if the Fed and White House are wrong about inflation

#14

Post by dragonwriter »

whb07 wrote: post #11
dragonwriter wrote: post #10

Earlier quoted context omitted.

> The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates 400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase... > just the interest on the money owed is at $hundreds-billions yearly. Now double…

Going from 0-1% to 4-5% is massive I agree on that. But in the absolute, it’s still tiny and even a negative real interest rate. The other stuff about the fed activities not influencing treasury rates is about as true as inflation being 2% avg for the last couple years.

> But in the absolute, it’s still tiny

No, it's not; its from the global minimum to, while not the historic global maximum, a level clear on the other side of average.

> The other stuff about the fed activities not influencing treasury rates

No one said that. The relation historically is not such that going to a 4-5% fed funds target would double or triple debt service costs.

Re: All bets are off if the Fed and White House are wrong about inflation

#15

Post by talentedcoin »

dragonwriter wrote: post #10
whb07 wrote: post #8

Earlier quoted context omitted.

So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and j…

> The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates 400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase... > just the interest on the money owed is at $hundreds-billions yearly. Now double…

For what it’s worth, the unusually large increase in inflation as measured by CPI seems to be at least partially due to base effects:

https://www.dallasfed.org/research/economics/2021/0513

Long story short, we are comparing year-on-year when last year was itself almost as unusual as can be.

Re: All bets are off if the Fed and White House are wrong about inflation

#16

Post by ganeshkrishnan »

talentedcoin wrote: post #2

They’re not. Most of these price increases (e.g. semiconductors, lumber, consumer perishables) are supply-chain related. It’s reasonable to expect them to subside as the most acute phase of the pandemic recedes. Only one I’m not sure about is the price of a meal at a restaurant …

Absolutely correct. Printing excess money does not cause inflation. Disrupting supply chain does. Especially with USD which has virtually unlimited appetite. If anything good comes out of this covid, it will be remote work and universal basic income (since we already tested that printing more money causes no major issues)

Re: All bets are off if the Fed and White House are wrong about inflation

#17

Post by ixacto »

conro1108 wrote: post #12
sreekotay wrote: post #5

Earlier quoted context omitted.

This one (used cars) is interesting. Combination of supply limitation and a large number of start-ups/VC money in the sector. It really is true today that buying a trusted used car is WAY easier than buying a new car. This has squeezed a LOT of the previous depreciation math out of the market (read: there was a huge arbitration opportunity)

> It really is true today that buying a trusted used car is WAY easier than buying a new car. Could you elaborate on this? Is this a recent development? I bought a new car in November 2020 and while I certainly don’t _love_ the dealership experience and I’m probably less uncomfortable with financial negations than your average person, it didn’t strike me as a particularly painful experience.

The costco auto program makes buying a car pretty easy. Zero haggling at least.

Re: All bets are off if the Fed and White House are wrong about inflation

#18

Post by lumost »

talentedcoin wrote: post #13
whb07 wrote: post #8

Earlier quoted context omitted.

So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain: There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and j…

Just because the Fed is the originator of US Dollars (which it isn’t directly — banks do that by lending, but whatever), that doesn’t imply that fiscal and monetary policy are the same thing. They are decisions by different people for different goals. I think the Fed would be surprised to learn that they are responsible for fiscal policy as you assert. Also, selling Treasuries isn’t “magic”. US Treasuries act as rese…

There doesn’t need to be explicit coordination if incentives are set up as they are.

The fed has a dual mandate to provide full employment and economic stability. If the Fed’s policy caused mass bankruptcies.. then the Fed would be failing part of its mandate.

IMO the scary part of this for the fed is housing. Housing is appreciating to substantial multiples of incomes due to low interest rates and restricted supply. If the FED raised rates and crushed the housing market the majority of Americans will feel the pain.

Re: All bets are off if the Fed and White House are wrong about inflation

#19

Post by ideamotor »

The biggest cause of inflation is talking about inflation. If people believe it will happen, it will. Otherwise, it won’t. So, uh, let’s not about it, OK? ;)

Also we all experience inflation differently and our past experiences influence our expectations. The things I look at are already highly inflated (electronics, cars, housing, restaurants). Those are not everything. But I bet readers of this Website most often look at those same things …

Re: All bets are off if the Fed and White House are wrong about inflation

#20

Post by imtringued »

I think there is a lot of confusion based on terminology. Even though the US failed to hit the 2% inflation goal for years that doesn't change that the Fed considers 2% inflation to be price stability i.e. the same thing as no inflation.

When they say transitory inflation they obviously mean transitory inflation above 2%. One problem with transitory is that a lot of people think the timescale is very short, maybe it will be over by the end of 2021 but nobody really knows because it all depends on how quickly the supply chains catch up.

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