All bets are off if the Fed and White House are wrong about inflation • Hacker News Board

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

#21

Post by imtringued » Thu, Jul 29, 2021, 7:20 AM UTC

lumost wrote: post #18

talentedcoin wrote: post #13

Earlier quoted context omitted.

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.…

The problem with housing is that people don't want to pay land value taxes. They actually love buying a house to live in, speculate with that house and then never actually sell it because they realize they don't want to speculate on housing and just live in it. So you have this hybrid speculator/owner occupation thing going on where the speculator is draining money from everyone else but not actually benefiting from it. That person will then argue for lower property taxes because he cannot afford them which will make it easier for real speculators to make money off of real estate.

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

#22

Post by imtringued » Thu, Jul 29, 2021, 7:27 AM UTC

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…

>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, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost…

Sure but this is "boring". An economy that can only support a negative interest rate can obviously not support a 4-5% interest rate. I don't see any surprise or any malice or trickery. The economy wants negative interest rates, the interest rates are at 0% so people hold onto their deposits and prevent the repayment of the debt. An economy that doesn't want to give up its deposits will obviously die if you give it even more reasons to hold onto deposits.

There is no gotcha. No criminal to catch. Interest rates want to be low, raising them for no reason will destroy the market because it wants the interest rates to be low. If there was sufficient inflation i.e. the market demanded higher interest rates you could raise interest rates with no ill effect. Before that happens you'll have to let the current inflation be here for a year. If you kill it prematurely you'll actually have to do more unconventional monetary policy.

>Why do you think theres a godly group of supremely moral and righteous humans sitting at the FED?

Because you don't want something like turkey to happen where the democratically elected president messes with monetary policy and causes double digit inflation.

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

#23

Post by imtringued » Thu, Jul 29, 2021, 7:29 AM UTC

talentedcoin wrote: post #15

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…

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.

It's kinda like the 3.5% GDP growth in Germany being celebrated by politicians. Guys... we had -5% growth last year...

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

#24

Post by imtringued » Thu, Jul 29, 2021, 7:31 AM UTC

whb07 wrote: post #9

jude- wrote: post #6

Earlier quoted context omitted.

The microchip shortage has impeded new car manufacturing, and car fleet operators are buying back fleets they sold during the pandemic to stay afloat. Give it a year.

Lol. Don’t you think it’s very linear and simple variable thinking with that comment? The car salesman won’t see the higher prices? The guy down the street won’t see the higher prices and ask for higher wages to afford the price increases?

If everyone asks for a raise the economy will support a higher interest rate. I'd be more worried if there are people who can't get a raise because we haven't reached full employment.

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

#25

Post by whb07 » Thu, Jul 29, 2021, 12:07 PM UTC

imtringued wrote: post #22

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, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost… Sure but this is "boring". An economy that can only support a negative interest rate…

There is a criminal to catch. There is no free lunch. This isn’t a “grow the pie” idea when it comes to money printing.

Imagine you had:

1/10 of all dollars.

Next year they printed 20% of money supply, so now you own:

1/12 of all dollars.

Your own wealth got siphoned off indirectly without you being cognizant of it. That’s exactly whats happening here. Every year they’ve been siphoning off 2-5% (maybe more) and now they have to ramp up further just to stay ahead of the game.

This isn’t by accident, it’s by design. So yes, there is a criminal here.

Most of the printed $100 USD bills are abroad in someone’s cabinet or mattress being used as a store of value vs their own trash currency. Most of these people still hold faith that the USD is a sound currency, and the FED takes that faith and abuses it by quietly eroding their savings.

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

#26

Post by BizarroLand » Thu, Jul 29, 2021, 11:29 PM UTC

whb07 wrote: post #4

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 …

They are… you cannot roll back wage inflation. “Oh hey Jim, I know we hired you at $25/hr.. well now that things are normalizing, well have to pay you the real rate of $12/hr” Even the PepsiCo CEO was commenting on passing higher prices and the consumer accepting them just fine.

I mean, they charge nearly $3 for a 20oz soda. I know some of that is convenience store surcharge but their prices have gone up at least 10% in the last year.

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

#27

Post by bcrl » Sat, Jul 31, 2021, 2:18 AM UTC

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 …

There's about to be a boom in overconstruction of semiconductor fabs with all the government incentives to build new fabs in the US and Europe. It will be a sad day if we go back to the days of tariffs raise on DRAM that were a regular part of the semiconductor industry 30 years ago.