Earlier quoted context omitted.
Take out some debt. I’m serious. That “free” money is there for you to take risks and invest with.
invest where though.
In the massive, bubble, err, stock market rally
U.S. Inflation Accelerates to 40-Year High
141–150 of 239 posts
Re: U.S. Inflation Accelerates to 40-Year High
#142On one hand, after decades of inflation being too low, it's nice to see that the spigot works still. But it's bizarre that interest rates are being held so low. It's unclear who it's supposed to help. I get that we need to boost the Covid economy, but if feels like the economy is currently running at every possible constraint - except for lack of money.
The Treasury pays over $0.5Trillion in interest every year against a total tax base of around $3.75T. Doubling the interest rate would be directly harmful to the government’s financial position. (They could of course “print” more, but at some point that’s adding to the problem more than alleviating it.) https://www.treasurydirect.gov/govt/reports/ir/ir_expense.ht...
But this is exactly why the Federal Reserve is detached from the rest of the government.
While they might coordinate with the executive branch, ultimately the Federal Reserve is supposed to follow their mandate and leave fiscal policy to Congress.
Re: U.S. Inflation Accelerates to 40-Year High
#143Earlier quoted context omitted.
Yes, clearly, because Covid hasn't disrupted anything else. /s I suspect that the causes are more complicated.
Armchair financiers on HN are always full of energy. Considering what we were threatened with at the beginning of the COVID-19 pandemic (total economic meltdown), 7.5% inflation is downright relaxing.
It would be easier to dismiss online commenters as "armchair" if the experts at the wheel, with all the data, the models, and the PhDs at their command, were making more accurate predictions than them.
Re: U.S. Inflation Accelerates to 40-Year High
#144Earlier quoted context omitted.
Inventory is so low, it's extremely difficult to buy even if you wanted to
inventory is building back up at a rapid pace. I see lots of construction everywhere.
I imagine there is a huge backlog after the lumber price spike in 2020 has trickled back down
Re: U.S. Inflation Accelerates to 40-Year High
#145Does anybody believe that the 7.5% figure is completely accurate and not fudged and massaged to give an answer that won't entirely spook the market? It feels like their strategy is to avoid making a choice and letting the bubble unwind as slowly as possible to avoid political fallout. Unfortunately, we learned as kids that ripping off a bandaid faster is usually best, so this might prolong pain for a while.
Inflation statistics have been rigged for decades [1]. [1]: http://www.shadowstats.com/alternate_data/inflation-charts
I bought into the shadowstats guy for a long time, until he admitted he makes up his numbers. It's all bogus.
Re: U.S. Inflation Accelerates to 40-Year High
#146The price increases at the grocery store whether it be shrinkflation or price jumps, will never come back down. This is going to squeeze a lot of people.
> will never come back down.
That's how inflation works, effectively the currency (and hence debt) is devalued in real terms.
Re: U.S. Inflation Accelerates to 40-Year High
#147Earlier quoted context omitted.
We've been pumping money into the economy with no regard to long term inflation since the Obama administration. We've gotten so use to it, we've even started to come up with financial theroies that debt spending a increasing monetary supply doesn't matter - print what you need. Modern monetary theory ain't. Ask the Romans, the Spanish and the Germans how well that worked for them.
I'm not an expert on MMT, nor a proponent. I don't have a sufficiently informed opinion to say whether it's good or bad. But, I think what the US government is doing isn't MMT. MMT proponents seem to be arguing that creating money is good if and only if you ensure it is spent on the right things - like infrastructure. Then you can get net wins for the economy. According to MMT it's bad if you, for instance, create a…
I've read up on MMT because it's politically important. The US govt is doing half of MMT (~0% interest rates), the problem is that the other half is somehow worse.
Reducing aggregate demand via discretionary interest rates to kill the demand from the gray market(i.e. non green-market). A savings account where individuals and businesses are forced to hold cash until inflation goes down. I.e. confiscation by proxy - by the time you're allowed to spend the money it will be worth much less.
Re: U.S. Inflation Accelerates to 40-Year High
#148We are in a tough spot. The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. When rates are this low, small perturbations can be catastrophic for the NPV of, well, pretty much everything. I expect a lot of chaos with the economy whipping between inflation and deflation over the next few years as the Fed tries to ride the tiger. It's a good reas…
> a good reason to never let rates get this low in the first place My brother-in-law remarked that "the fed is overdue to raise rates". My reply: asset prices don't matter to ordinary people. You already know this, but the Fed's mandate is "price stability and full employment". Full employment is going great -- the job market is tight, low-end labor is seeing lots of wage growth, everyone who wants a job is getting o…
I don't understand the assertion that asset prices don't matter to ordinary people. The price of housing is impactful to everyone, and bubbles in it destructive.
Re: U.S. Inflation Accelerates to 40-Year High
#149It'll be interesting to see how the following dynamics play out over the next few years.
I am under the impression that asset prices will decrease as we enter a cycle of increasing interest rates. Maybe someone can help out, but I can't remember the last time this kind of cycle did not end poorly i.e. a recession of some kind.
The Fed has to regain its credibility and the only way to do that (ex raising taxes, which they can't control) is to fight inflation via raising interest rates.
So can the US Government afford (politically and fiscally) a steep drop in asset prices (stocks, home values) precipitated by rising interest rates, as an entire generation (Baby Boomers) start to liquidate their retirement holdings? A large (+/-30%) drop in equities could take years to recover and would devastate many retirement plans just as people need that money and are forced to make divestments (by law) due to age. I think this is the biggest reason the Feds (both the Government and the Fed) will do everything to keep markets elevated/stable for the foreseeable future (although I haven't put any money on this).
The other thing I wonder about is, how high can rates go before the junk bond and repo markets start to price out companies, and those companies go under due to lack of short term financing.
Re: U.S. Inflation Accelerates to 40-Year High
#150Earlier quoted context omitted.
My math might be wrong, but according your source isn't the annualized month-to-month inflation 7.5%? (1+0.6/100)^12 = 1.0744. The year-to-year (multiply all seven rates and then power to 12/7) is 7.1% which is pretty close to 7.5% anyway. (Also, note that the decrease over the last two months is probably due to the Christmas peak ending. Best case scenario, pie in the sky, for inflation is 3.6% which is higher than…
If you still have a lot of time left on your mortgage it may be beneficial to refi
Sorry, I meant higher than my mortgage. Corrected.
I already had a low rate from ‘17 and we refinanced it again.