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It’s mostly a demand shock, not a supply shock, and it’s everywhere

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Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#51

Post by skybrian »

mattnewton wrote: post #11
P00RL3N0 wrote: post #4

I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currently below their levels from Q2 of this year.

I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price…

Keep in mind that CPI is an average based on what people actually pay, which often lags market rate.

For housing, you might not pay market rate due to having bought a house long ago, or rent control, or some other way of getting a sweetheart deal.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#52

Post by Jensson »

boringg wrote: post #47
arthurcolle wrote: post #10

Earlier quoted context omitted.

Thank god we have crypto & NFTs to help people use all this free cash

Oh I figure he's being super sarcastic and saying that all that money went into propping up prices in NFTs and crypto that will at some point show their inherent worth. Maybe I read it wrong compared to all the other commenters

Pretty sure the poster meant "thank god people burn their cash by putting it into crypto and NFT's instead of buying more goods".

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#54

Post by RC_ITR »

bezalmighty wrote: post #48
evergrande wrote: post #29

Earlier quoted context omitted.

Actually, that's a good point. Inflation would be even worse if that cash was going into physical goods and services. The government now has an incentive to leave crypto alone aside from providing clarity.

In the macro economic sense, fiat money isn't 'used up' or 'locked away' when you buy something like crypto, it's transferred from your account to someone else's bank account. Worse, it goes through the process of fractional reserve banking and multiplies about ~10x after changing hands repeatedly.

The trickiest question in business that noone seems to get right:

Q: How much money flows into "X" market? A: None, money flows THROUGH markets.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#55

Post by hammock »

a_bonobo wrote: post #50
EdwardDiego wrote: post #40

> Further, those who left the labor force during COVID don’t seem particularly likely to come back, as most say they don’t want a job, and many are over 65 and are likely permanently retired Who was asked, and who did the asking to arrive at "most say"?

Exactly! The data makes the opposite point. https://hbr.org/2021/09/who-is-driving-the-great-resignation >Employees between 30 and 45 years old have had the greatest increase in resignation rates, with an average increase of more than 20% between 2020 and 2021. >Interestingly, resignation rates also fell for those in the 60 to 70 age group

That's not the opposite.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#56

Post by hammock »

skybrian wrote: post #51
mattnewton wrote: post #11

Earlier quoted context omitted.

I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price…

Keep in mind that CPI is an average based on what people actually pay, which often lags market rate. For housing, you might not pay market rate due to having bought a house long ago, or rent control, or some other way of getting a sweetheart deal.

Housing is not in CPI. They use "owners' equivalent rent" which is a subjective (cooked) metric.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#57

Post by nwiswell »

pishpash wrote: post #28
P00RL3N0 wrote: post #21

Earlier quoted context omitted.

You may be right on the negative real yield. My thinking was that, ceteris paribus, if expected inflation is rising I would expect interest rates to rise as well. QE has likely been playing a large role in muting this effect.

The metric you want is the breakeven rate, the difference between nominal Treasury yields and TIPS yields (which are indeed very negative). https://fred.stlouisfed.org/series/T10YIE The Fed is artificially holding real yields negative on the short end for years at a time to enable money-losing ventures to "prosper" in order to "stimulate" the economy. It gets people working and society running but the long-term misal…

It's worth noting that the breakeven rate is measuring what market participants are expecting the "official" inflation rate to be, as measured by the CPI-U. That may differ meaningfully from changes in the cost of living as experienced by the average American.

> meaning the real economy could well be full of stuff that destroys value over a 30-year horizon as a norm!

This is probably somewhat hyperbolic since companies who borrow anywhere in the ballpark of the risk-free rate (i.e., large, responsible, and generally financially conservative organizations) typically have an internal hurdle rate that is well in excess of their cost of capital.

What is true is that the hurdle rate exceeds the cost of capital mainly as a risk mitigation mechanism; it is a margin of safety. IRR projections almost invariably depend on certain assumptions about future business conditions. So artificially depressing the cost of capital can result in "more marginal" projects getting the green light, and therefore can increase the potential for financial damage in a serious recession. You can think of it as "risk leverage".

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#58

Post by paul7986 »

sdenton4 wrote: post #38
paul7986 wrote: post #23

Seems like all that free money and no one working has definitely caused a supply issue ... yet everyone has tons of money furthering pushing up demand yet supply to meet the demand has shrunk. For those who push for a universal basic income where large groups of people do not work ... do not help produce the supply only push up the demand. Why do you think UBI is still a good idea and you are perfectly fine with how…

Because the obvious response to insufficient supply is to make more stuff, thereby growing the overall real economy. Yes, it's a lagging function. But it's frankly insane to insist that today's transient supply chain issues mean that people need to be paid less than a living wage in general... It's similar to the old argument over slavery. Yes, removing slavery causes large realignments in the economic system. But ov…

Hmmm but I didn't say anything about wages which I'm very happy to pay more and do now .. tipping more then 20 percent, tipping sub makers at Jersey mikes and happy to pay up to $30 for a burger fries and drink at five guys. Going out to eat with a friend or a date is now a $60 to $100 affair at Applebees or places like it with tip. All good to me!

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#59

Post by irjustin »

paul7986 wrote: post #23

Seems like all that free money and no one working has definitely caused a supply issue ... yet everyone has tons of money furthering pushing up demand yet supply to meet the demand has shrunk. For those who push for a universal basic income where large groups of people do not work ... do not help produce the supply only push up the demand. Why do you think UBI is still a good idea and you are perfectly fine with how…

Personally, I believe UBI is a good offset for automation strength - an offset for lack of jobs.

We're no where near full automation so probably a bit early for UBI, but I do think there's an argument that if the workforce demand isn't met, automation will be used to backfill. Takes time of course, but it's a one way street.

Re: It’s mostly a demand shock, not a supply shock, and it’s everywhere

#60

Post by cronix »

mattnewton wrote: post #11
P00RL3N0 wrote: post #4

I'm honestly surprised inflation hasn't been worse than what we've already seen. 10-year treasury yields are still well below their 2019 levels and are currently below their levels from Q2 of this year.

I’m not an economist, but it’s hard to shake the feeling that the CPI is gamed somehow, or at least the official government numbers do not reflect the bubble of the US I live in. My friends and family are seeing record wages and investment growth, but when my generation cohort looks at housing and all the numbers there are proportionally even higher, and people are selling 3 year old cars for nearly the nominal price…

If they used the real inflation numbers, this problem would be even more astronomical than it is: https://crsreports.congress.gov/product/pdf/IF/IF10522

because

> Mandatory expenditures, such as Social Security, Medicare, and the Supplemental Nutrition Assistance Program account for about 65% of the budget.

The budget is about 6 Trillion US dollars (FY22). Take 65% of 6 Trillion and start multiplying it by CPI and you'll see why it's in their best interest to understate it, and understate it greatly. If it were calculated higher, they'd have to borrow more than the $1.9 Trillion that they already are. To pay for a single year.

https://www.thebalance.com/u-s-federal-budget-breakdown-3305...

If you look at the debt chart, you'll notice it basically starts growing, and growing exponentially, around 1970, when Nixon took the US off the gold standard and going to a fiat currency with no real backing other than the gov'ts word, and the people believing in it. That's waning.

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

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