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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?

#41

Post by mise_en_place »

Inflation favors the debtor, while deflation favors the saver. Obviously the world's largest debtor (US govt) will consider inflation to be desirable and necessary. Otherwise it would lead to a sovereign debt crisis if there are positive real interest rates leading to a US govt default.

Keep an eye on the Fed, especially before the midterm elections. The Biden administration will put an extreme amount of pressure to continue quantitative easing, even if the Fed is signaling that rate hikes are coming soon.

Re: Have we been thinking about inflation all wrong?

#42

Post by BenoitEssiambre »

kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

This is mostly wrong. Inasmuch as there is a grain of truth, it might be that inflation is a tax on savings that are held as government paper. If inflation is predictable, private assets are not affected. Some times back, I tried to explain intuitively here: https://medium.com/@b.essiambre/the-world-deserves-a-pay-rai...

Re: Have we been thinking about inflation all wrong?

#43

Post by GeekyBear »

efdee wrote: post #16
aaa_aaa wrote: post #14

Earlier quoted context omitted.

Current administration created gazillions of dollars out of thin air, far more than previous ones. They deserve the credit.

[citation needed]

The enormous increase in money creation is very real, but it started in the last year of the Trump administration.

https://fred.stlouisfed.org/series/M1SL

Re: Have we been thinking about inflation all wrong?

#44

Post by pdonis »

TameAntelope wrote: post #23
aaa_aaa wrote: post #14

Earlier quoted context omitted.

Current administration created gazillions of dollars out of thin air, far more than previous ones. They deserve the credit.

If the cost of preventing additional hundreds of thousands of dead Americans is a year or two of substantial inflation increases, this administration did right by me.

> preventing additional hundreds of thousands of dead Americans

But it hasn't. We have gotten the worst of both worlds: huge economic damage and lots of dead Americans. More Americans have died of COVID since the current administration took office than before that. And since governments around the world have demonstrated that they cannot stop COVID, the least they could have done was refrain from inflicting the economic damage as well.

Re: Have we been thinking about inflation all wrong?

#45

Post by NovemberWhiskey »

sneeze-slayer wrote: post #33

Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and…

>The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans.

I mean they could also just stop subsidizing corn production quite so much; that would probably be preferable to providing a larger subsidy to grow other things.

Re: Have we been thinking about inflation all wrong?

#46

Post by jbluepolarbear »

kkoncevicius wrote: post #34
forgetfulness wrote: post #26

Earlier quoted context omitted.

The people hurt in most tangible ways are the ones who don't have the capacity to save; if you were spending all your salary each month, living hand to mouth, inflation now means fewer and less quality goods and services. And that can be eating less nutritious food, having to use more worn down clothes, having to postpone medical/veterinary expenses further, etc. Now, it happens that in the US the people working the…

The things is that markets adapt but lag behind. For a while the old prices are still in place while the money is being printed. Then, slowly, the market "notices" that the amount of money increased so the prices readjust. While the prices readjust - everything becomes more expensive. Your haircut is more expensive - so the hair stylists salary catches up. Your bread becomes more expensive so the farmers that produce…

That’s not true at all. Salaries aren’t increasing at the same rate that food, goods, and services. Stuff gets more expensive at a greater rate than wages increase.

Re: Have we been thinking about inflation all wrong?

#47

Post by bigodbiel »

kkoncevicius wrote: post #34
forgetfulness wrote: post #26

Earlier quoted context omitted.

The people hurt in most tangible ways are the ones who don't have the capacity to save; if you were spending all your salary each month, living hand to mouth, inflation now means fewer and less quality goods and services. And that can be eating less nutritious food, having to use more worn down clothes, having to postpone medical/veterinary expenses further, etc. Now, it happens that in the US the people working the…

The things is that markets adapt but lag behind. For a while the old prices are still in place while the money is being printed. Then, slowly, the market "notices" that the amount of money increased so the prices readjust. While the prices readjust - everything becomes more expensive. Your haircut is more expensive - so the hair stylists salary catches up. Your bread becomes more expensive so the farmers that produce…

And that’s how profit is made!

Re: Have we been thinking about inflation all wrong?

#48

Post by randomsilence »

kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

It is not only a tax on savings but also on wages.

>If inflation were allowed to run a bit higher, it could deliver a long-overdue win for young people who have had to face a combination of stagnant wages and rising housing costs.

That's a bold statement. Why should the adjustment be proportionally more when there is more inflation? Isn't it more likely that pay is merely adjusted to the previous level and the time of increased inflation just reduces the net income even more?

Re: Have we been thinking about inflation all wrong?

#49

Post by xyzzyz »

sneeze-slayer wrote: post #33

Rampant inflation is a problem. The inflation seen now in many places is not quite there. 7% is higher than we would like, but if the alternative is to have shrinking GDP and massive unemployment, I would rather have some inflation. In the US at least, a lot of the raise in the US CPI is due to rising energy costs (predicted months ago due to cold winter in Asia), used and new cars (the infamous chip shortages), and…

> The US federal government could subsidize farmers that grow real vegetables, not just corn and soybeans.

You can’t subsist on “real vegetables”. Vegetables form important supplement to the diet, but they are not basis of it, nor they ever been (people used to eat much more grain and much less meat and vegetables than they do now). Governments are subsidizing staples, because it is by far most effective way to ensure food security.

Re: Have we been thinking about inflation all wrong?

#50

Post by sleepingadmin »

kkoncevicius wrote: post #21

The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

>The best one-sentence description of inflation I've heard is: inflation is a hidden tax on savings. People who save money are hurt the most. It's as if the newly printed money is generated by taking a bit from anyone according to how much cash he/she has stored away.

Who are the people who save money? Or rather, more specifically are either holding cash or in bonds whose real-yields are very negative?

Tourists, downpayments, and retirees.

Flipside, who is benefiting the most right now? People who are leveraged the most. Jeff Bezos and amazon isn't building all these warehouses out of pocket. These are all being financed and amortized for 25 years at tremendously low rates with real yields in the negatives. Or rather Jeff Bezos is being paid HUGE money to take on debt.

Retirees are getting poorer by the day giving their money to Bezos.

High inflation disproportionally benefits the ultra rich by huge degrees.

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