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U.S. Inflation Accelerates to 40-Year High

wsj.com

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Re: U.S. Inflation Accelerates to 40-Year High

#21

Post by ren_engineer »

newyankee wrote: post #3

This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?

>I wonder though what happens now, is hyperinflation a real possibility

It will happen if the Dollar loses global reserve currency status. China, Russia, and a few allies could pull the rug out from under the US pretty easily. A lot of countries are tired of the US exporting their inflation

Re: U.S. Inflation Accelerates to 40-Year High

#22

Post by legitster »

On 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.

Re: U.S. Inflation Accelerates to 40-Year High

#23

Post by sokoloff »

recursivedoubts wrote: post #7

We 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…

NPV is discounted by a combination of risk-free interest rate and uncertainty. For most investment/capital allocation decisions, the uncertainty term has been dominant for decades already.

Re: U.S. Inflation Accelerates to 40-Year High

#25

Post by rwj »

bko wrote: post #16

This is clearly a result of the monetary base expanding at unprecedented levels due to covid (~40% in 2 years). Around $12 trillion was allocated for covid measures and around $10 trillion disbursed. About half was legislative (income support, state local funding, loans) and another half was Fed mostly benefiting banks (asset purchases and liquidity measures). So far we've seen crazy asset inflation (weird the market…

Yes, clearly, because Covid hasn't disrupted anything else. /s

I suspect that the causes are more complicated.

Re: U.S. Inflation Accelerates to 40-Year High

#26

Post by dominotw »

marricks wrote: post #14

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage gr…

sucks for people like me with no debts though.

Re: U.S. Inflation Accelerates to 40-Year High

#27

Post by eldavido »

recursivedoubts wrote: post #7

We 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 one.

Price stability was also fine until about 6 months ago.

The thing I keep coming back to, is how incredibly little asset prices really matter, in the larger scheme of things. What does matter is things like employment, the price of milk, and whether people have a roof over their heads (rental affordability).

In the larger sense, the fed's hands are tied, unless their legal mandate is amended to include "not creating asset bubbles". The distributive and stability effects of today's monetary policy might be the longest-lasting intellectual shift to come out of all this.

Re: U.S. Inflation Accelerates to 40-Year High

#28

Post by _aavaa_ »

marricks wrote: post #14

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage gr…

What about all the other things they need to buy with their not a lot of money which have also gone up in price (say food)

Re: U.S. Inflation Accelerates to 40-Year High

#29

Post by vmception »

newyankee wrote: post #3

This was expected. I wonder though what happens now, is hyperinflation a real possibility. Is it really sensible to expect consistent positive returns from overall stock market this decade unless doing some active investments ?

If you have hyperinflation then your stock market is going to overheat and bust through the top of your chart over and over again! :))

History books focus on the bread lines, but if you dig deep enough you can find the stock market charts and they are epic! The capital class made so much bank and dipped out, just remember to actually leave because the people come for you.

Re: U.S. Inflation Accelerates to 40-Year High

#30

Post by bko »

marricks wrote: post #14

Inflation is a good thing for people with a lot of debt but not a lot of money. Think of the millions of student debt borrowers. Even if student debt isn't cancelled, it may get effectively cancelled one way or another. Which just goes to show, if WSJ or Bloomberg say something is bad, it may not actually be bad for you. Let's just hope the pressure stays up so wages keep on increasing. EDIT: I'd like to add, wage gr…

Believe it or not, but wealthy people have more debt relative to income than the poor. For instance, I have a mortgage that is several multiples above my annual income. Most other wealthy people also have debt because it makes sense due to low rates and good credit. The poor often have a tough time getting credit. If you're not making a lot of money it's tough to get debt at multiples of your annual income. That's why payday lenders are so popular (ultra short term high interest rate loans)

It also doesn't help if your income doesn't go up. You end up just paying more for everything. And the poor spend a lot higher percentage of their income on every day purchases that are being impacted.

So on net I think the poor are a lot worse off with high inflation.

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