Earlier quoted context omitted.
How much did they pay for that house though?
they paid more than double then what they bought it for. Interest at 11% over 30 years is larger than the principle.
They did not hold the house very long :)
U.S. Inflation Accelerates to 40-Year High
211–220 of 239 posts
Re: U.S. Inflation Accelerates to 40-Year High
#212Earlier quoted context omitted.
"To effectively solve inflation we need to attack all 4." Why do you think that? You've listed four conceivable reasons for inflation. One could probably list another 20 after a bit more thought. That doesn't mean that these are all plausible. It seems entirely possible that just one of them accounts for just about all of the inflation. You haven't made any argument against this. Of the four you list, (3) and (4) see…
> You haven't made any argument against this. If the problem is supply chain constraints, inflation will be quite varied among the sectors. And this is true, with used cars leading the way at 41%. If the problem is the money supply, inflation will be fairly even across the sectors. And while the sectoral components are quite different, they are becoming more similar over time.
Those seem like good arguments for both (1) and (2) being factors. Not definitive, though. One expects there to be some variation in price changes from sector to sector at any time, so only a greater than typical variation would be indicative of particular supply disruptions (or put another way, there are always supply chain disruptions, though maybe not of the current magnitude). Also, increased money supply doesn't immediately get distributed throughout the economy. One expects price increases to first show up in the things that tend to be bought by the people who first got the money. And I'm not sure who got the bulk of the recently-created money...
Re: U.S. Inflation Accelerates to 40-Year High
#213Re: U.S. Inflation Accelerates to 40-Year High
#214Earlier quoted context omitted.
>My reply: asset prices don't matter to ordinary people. Home values matter enormously to people. So does the value of their 401k, especially those aged 50+
I'm glad I bought my house while rates are very low. While sticker prices are very high right now, the price when factoring in very low interest rates on mortgages are much closer to a historical normal (although still elevated because of the lack of new construction over the last few years). I'm worried for new buyers in the coming years getting stick with these same high sticker prices, AND high interest rates.
But when interest rates go up, the price of homes will drop.
Sal is an average American. Sal can afford $1500/mo for a mortgage, regardless of interest rates.
Today, Sal can get a 3% rate, meaning they can afford a $440k mortgage (with 20% down payment).
If interest rates rise to 6%, Sal can now only afford a $310k mortgage for that same $1500/mo.
If Sal were the only person who had this problem, then Sal would have to settle for a cheaper house than average. But if 90%+ of buyers are in the same situation, then the housing supply will be overpriced compared to what the market is able to pay.
This drives the prices way down, and it would eventually settle to the price that the market can bear, which might be slightly more than the $310k, but probably not too much.
Re: U.S. Inflation Accelerates to 40-Year High
#215Earlier quoted context omitted.
> The Fed has held interest rates at 0 (negative, real terms) which makes all cash flows effectively infinite net present value. No, it doesn't. Net present value (NPV) of future cashflows is defined [1] as the sum over time periods of the ratio of the cashflow in the k-th period to one plus the discount rate raised to the power of k: NPV = sum_k r_k / (1 + i)^k where i is the discount rate. Note that we are dividing…
thanks right, so the net present value of, say, a rental unit (or any ongoing productive investment) is the sum of an infinite number of payments which, if my math is correct here, is infinity (regardless of the recurring payment amount) of course there is a risk discount as well, which, as I mentioned on a sibling comment, has been removed in many cases by the fed backstopping a lot of investments there's a reason w…
No, it still isn't infinite. Under reasonable assumptions the series is actually bounded from above by a geometric series [1] which is famous for having a finite sum when ratio is Perhaps we should dispose with all the math though as it should be intuitively clear that if we discount future cashflows at zero rate, i.e. if we do not discount future cashflows, then their present value should be equal to the future value. After all, discounting just means that you value future money less than today's money. If you don't discount, you value both the same, so whatever formula for discounting you use it must be true that plugging in zero rate yields NPV equal to the sum of future cashflows.
Agreed about risk discount. Perhaps what you mean by "whippy" is that as the risk-free interest rate goes to zero NPV becomes increasingly sensitive to the risk discount.
[1]: https://en.wikipedia.org/wiki/Geometric_series
[2]: See [1]. Also, as an example, recall that 1+1/2+1/4+1/8+...=2.
Re: U.S. Inflation Accelerates to 40-Year High
#216Earlier quoted context omitted.
I'm sorry, but "corporate greed" doesn't make sense. Were corporations not greedy in 2017?
Sure, but they weren't able to execute on that greed to the same extent that they were in 2017. Look at the profits of big tech in 2021 compared to 2017. In a well-functioning free market, most of the surplus is captured by the consumer rather than the producer. So excess profits are a sign of an inefficient market, and thus the drum beat for anti-trust enforcement against Google/Apple/Amazon/Facebook.
Neither Google nor Facebook make any significant profit from selling consumer profits. It's pretty tenuous to claim that their large profits are driving consumer inflation. Amazon makes virtually zero profits in consumer goods. It's high recent profits come from the B2B segments of AWS and advertising. Apple's margins have always been historically high. If anything iPhone concentration in the smartphones has declined since 2017.
The sizable bulk of consumer inflation is being driven by housing, energy, food and used cars. It's extremely tenuous to tie any of this to FAANG profits.
Re: U.S. Inflation Accelerates to 40-Year High
#217Earlier quoted context omitted.
I'm sorry, but "corporate greed" doesn't make sense. Were corporations not greedy in 2017?
https://www.nytimes.com/2021/12/27/business/beef-prices-catt... "Since the 1980s, the four largest meatpackers have used a wave of mergers to increase their share of the market from 36 percent to 85 percent...Their dominance has allowed them to extinguish competition and dictate prices." https://twitter.com/AlecMacGillis/status/1476219789899096064
How does a gradual consolidation over 40 years explain a sudden spike in meat prices in the past year? The meat industry was only barely less concentrated in 2017 than 2021.
Re: U.S. Inflation Accelerates to 40-Year High
#218As usual, take headlines about inflation with a grain of salt. Yes, the year-over-year inflation reached a new peak. But the month-over-month inflation rate has actually been declining since last October: https://www.bls.gov/news.release/cpi.nr0.htm So when organizations publish a new article every month saying inflation is "accelerating", they're being incredibly misleading.
Not that misleading. If you zoom out 5 years or more, you'll note increased slope of the CPI index over the past couple of years. https://fred.stlouisfed.org/series/CPIAUCSL It's fair to say that inflation has been at an accelerated rate over a time period that makes sense to most folks. Saying that it has decreased month-to-month is more misleading in my opinion. If you were to pick any random period in time, chance…
To be fair, you ought to select the option to put it on a (natural) log scale. The effect you note is still apparent, but the log scale makes one's tendency to compare it to the 70's more fair.
Re: U.S. Inflation Accelerates to 40-Year High
#219Earlier quoted context omitted.
I was thinking about buying a truck recently and I got this bit of advice: "a loan is a hedge against inflation". More specifically, a fixed interest rate loan is a hedge against inflation. You are borrowing at an initial dollar value of A (in terms of inflation), and servicing your debt at a fixed rate, for a fixed time. During that time the value of the dollar decreases, and you now have a value of This presumes th…
You can get very cheap car loan offers right now which might be interesting. 0 or 0.9% for 3-4 years. Given 3-7% inflation it’s a nice discount if you have the cash to take advantage of better returns
It's only a discount if you get a YoY raise equivalent to inflation. Otherwise you just lose even more money.
Re: U.S. Inflation Accelerates to 40-Year High
#220Earlier quoted context omitted.
https://www.nytimes.com/2021/12/27/business/beef-prices-catt... "Since the 1980s, the four largest meatpackers have used a wave of mergers to increase their share of the market from 36 percent to 85 percent...Their dominance has allowed them to extinguish competition and dictate prices." https://twitter.com/AlecMacGillis/status/1476219789899096064
How does a gradual consolidation over 40 years explain a sudden spike in meat prices in the past year? The meat industry was only barely less concentrated in 2017 than 2021.
Not advocating for this point of view, but I think the thinking goes that even if wasn't any less concentrated in 2017 vs. now, the pandemic provided a lot of opportunity for price increase that might have otherwise caused regulatory scrutiny.