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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?

#161

Post by tharne »

foolinaround wrote: post #139
JackFr wrote: post #90

Earlier quoted context omitted.

> The US Federal debt is currently $30 trillion USD. This is never getting balanced, ever. There's only one possible eventual outcome with this system. The US debt to GDP ratio is currently slightly higher than it was at the end of WWII. It is significantly lower than that of Japan, who has a debt to GDP ration similar to those the UK ran during portions of the 19th century. There are very good reasons for government…

> the national debt is permanent and exists by design. Can you pls point me to something about its design?

If you read history books covering the time just before and after the American revolution, there was a lot of discussion of this topic at the time. A lot of the founder fathers, most notably Alexander Hamilton, believed a national debt was a good thing for the country.

The belief is/was that by carrying a substantial debt, you give the bank and financial institutions skin the game and make their success tied to the success of the country.

In the modern era it also gives individuals and other types of institutions a stake in the country's success. When people take about the U.S. national debt, much of the conversation goes to China and how much money we owe them. We owe them a lot, however, the biggest holders of U.S. debt are individual Americans with their 401ks and things like pension funds and university endowments.

Re: Have we been thinking about inflation all wrong?

#162

Post by clairity »

jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

an inherently unstable but critical element of an economic system shouldn't be allowed to float on the whims of a few humans, especially with overwhelming corruptive pressure lapping against them incessantly.

a central bank should be trying with all its might to precisely match the amount of money in the system exactly with the amount of productivity being generated. it shouldn't be trying to implement 'fiscal policy', but rather have exactly one singular (albeit complex) focus. any significant deviation should trigger immediate investigation, replacement, and (potentially) sanctions.

Re: Have we been thinking about inflation all wrong?

#163

Post by tharne »

overtonwhy wrote: post #122
scottiebarnes wrote: post #56

Earlier quoted context omitted.

> but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. This is the general problem with central banking. Politicians and governments will ALWAYS take action to "save the economy", whether that is a small downturn or a big one. There's too much pressure to not use the magic money printer. Short term election cycles incentivize everyone to just fix the problem as…

Disregard new accounts that claim the sky will be falling. The debt will always be going up and there will always be inflation. That's how fiat currencies work. Research the federal reserve and it's stated objectives to understand why.

The only problem with that is that inflation is a like a fire. When it's very small it can serve you, but once it gets bigger and you lose control of it you're f*ked.

Re: Have we been thinking about inflation all wrong?

#164

Post by NovemberWhiskey »

dnautics wrote: post #130
fennecfoxen wrote: post #126

Earlier quoted context omitted.

Don't worry, it'll be great! You'll get a 10% raise, and prices will only be up 15%.

To be frank, for a small sliver of wage:mortgage ratios this could be fucking fantastic... for "young wage-earners" who already have a house (like me! but I'm not really that young anymore). For other wage-earners, not so much, sad trombone.

If interest rates don't rise, then sure - inflation is likely to show up in higher housing costs, which means you'll deflate away that loan and your asset will appreciate.

If interest rates rise, then you have one or two problems.

If your loan isn't at a fixed rate, then you'd better hope you can still afford your mortgage. Say you paid a 20% downpayment on a home worth $375K. A $300K note at 3% is a $1,250 per month expense, but at 8% it's $2,200 a month. People forget, but mortgage rates were 8% as recently as 2000.

Even if your rate is fixed, new buyers have affordability problems due to the same phenomenon, which hits valuations. If you can afford $1,250 a month, maybe you can afford $1,500 after some inflation pads out your pay check.

But, with rates at 8%, that's only a $200K mortgage, so maybe a $375K home is only a $250K home in the new rate environment and you're in negative equity all of a sudden. If you need to sell, then you're losing the initial downpayment and you may still end up owing the bank. If you can't cover it, say goodbye to your creditworthiness.

Re: Have we been thinking about inflation all wrong?

#165

Post by scottiebarnes »

dragonwriter wrote: post #151
scottiebarnes wrote: post #142

Earlier quoted context omitted.

If the way fiat currencies work is constant devaluation in the name of increased short term spending, then it makes the currency utterly terrible to invest and save in in the long term. If this is how its supposed to work, then your money is a toxic asset which should be handed off as quickly as possible to someone else. And so if no one actually wants this asset, then it makes it valueless.

> then it makes the currency utterly terrible to invest and save in in the long term. That's why it's called “current-sy” (only slightly joking) It's for current use as a medium of exchange. For investment/savings, you go to productive assets. That's the whole point. Mixing those functions doesn't help anything.

No, money is supposed to be good at storing value as well. That's why gold evolved as the world currency over the last 8000 years, and that's why central banks still hoard it in bunkers. You can't easily devalue it by creating more of it.

You're failing to understand that treasury bond markets have an important function in the macro economy; ideally, a safe way to save and store value with low risk. And they are larger than stock markets.

Re: Have we been thinking about inflation all wrong?

#166

Post by jbluepolarbear »

kkoncevicius wrote: post #67
jbluepolarbear wrote: post #60

Earlier quoted context omitted.

That money doesn’t go to the people that need it. It goes to fuel, shipping, taxes, etc. the person stalking the shelves gets nothing, the person that works at the gas station gets nothing, the person on fixed income gets nothing, and on and on. Inflation only helps the top and the bottom gets recked.

I don't know, my hair stylist increased the price for a haircut 2 times during the past 2 years. She isn't rich by any means. People who work and can set their prices adjust fast. People who depends on salaries set by others lag behind, but eventually even the government wages catch up. What never catches up are the savings. If you had 10,000$ before inflation - that will be worth less after without any bouncing back…

Your hair stylist isn’t making more net profit. Rent went up, supply cost went, utilities went up, frequency of patrons gone down. You should ask your hair stylist if the raised prices are keeping up with their rising costs to operate.

And how much of that $10k will dwindle as your expenses go up and your income is no longer in surplus?

Re: Have we been thinking about inflation all wrong?

#167

Post by jbay808 »

clairity wrote: post #162
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

an inherently unstable but critical element of an economic system shouldn't be allowed to float on the whims of a few humans, especially with overwhelming corruptive pressure lapping against them incessantly. a central bank should be trying with all its might to precisely match the amount of money in the system exactly with the amount of productivity being generated. it shouldn't be trying to implement 'fiscal policy…

I agree. As a control theorist, I'd be much more comfortable with a PID controller running the ship, and I think it would do a better job.

Re: Have we been thinking about inflation all wrong?

#168

Post by bittercynic »

01100011 wrote: post #95

I am beginning to think that the fed will try to engineer a situation where wage gains are leading prices in a wage price spiral. Why? Because inflation solves a world of problems(i.e. unsustainable debt). It avoids cancelling the 'wealth effect' currently deluding half the population into thinking they're rich. Inflation sucks when your wages aren't rising as fast as prices. Inflation isn't so bad, I think, when you…

It's a tricky situation to be in. I try to believe that I cannot time the market, time in the market beats timing the market... but just can't bring myself to buy into it right now. It's been so long since we've had a recession, and it seems like we've forgotten the lessons of 2008. It may not be subprime mortgages this time, but lots of people seem to believe asset prices only go up, much like they did in 2007. Maybe this time really is different, but I don't believe it.

Re: Have we been thinking about inflation all wrong?

#169

Post by jbay808 »

roenxi wrote: post #153
jbay808 wrote: post #57

When it starts to get really burdensome to keep your promises, the idea of breaking them gets really attractive. But that doesn't come for free. It costs credibility. The cost of central banks breaking their inflation-control commitment when inflation starts running hot, is that the market starts pricing in their unwillingness to raise interest rates. This fuels a whole bunch of other inflation feedback loops, and th…

> It costs credibility. I enjoy the cut of the jib, but credibility isn't really that important. From memory, Argentina isn't credible. All that means is they have to pretend that they will pay high interest rates before people will lend to them. If the question is "can they pay back all their debts with real value?" angle the US position isn't credible either, the numbers have gotten too large. Doesn't mean much in…

The credibility I'm referring to is: when Jerome Powell says "we have the tools at our disposal to control inflation, and if it persists, we will not hesitate to use them", how much do you update your expectations of future inflation and interest rates?

If statements like that start to sound like a bluff and no longer cause you to update your expectations away from high inflation and low interest rates, then the Fed has lost a certain amount of credibility. And that credibility should be thought of in some sense a conserved value. It's not regained instantly, but rather only by the market being surprised to discover that the Fed wasn't bluffing. And that's an expensive surprise, because by definition, it goes beyond what the market priced in.

Re: Have we been thinking about inflation all wrong?

#170

Post by mountainriver »

jbay808 wrote: post #167
clairity wrote: post #162

Earlier quoted context omitted.

an inherently unstable but critical element of an economic system shouldn't be allowed to float on the whims of a few humans, especially with overwhelming corruptive pressure lapping against them incessantly. a central bank should be trying with all its might to precisely match the amount of money in the system exactly with the amount of productivity being generated. it shouldn't be trying to implement 'fiscal policy…

I agree. As a control theorist, I'd be much more comfortable with a PID controller running the ship, and I think it would do a better job.

Yup Denmark recently open sourced a lot of their fiscal policy and it works pretty much like this. Really great idea
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