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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

#51

Post by all2 »

dominotw wrote: post #26
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.

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 that your income/cashflow will stay the same or increase slightly during the borrowing period.

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

#52

Post by arcticbull »

recursivedoubts wrote: post #44
eldavido wrote: post #27

Earlier quoted context omitted.

> 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 o…

i don't think the fed's real mandate is price stability and full employment, those are nice to haves and they have to say that so they aren't run out of town on a rail but their real mandate is: "protect the banks" at this point, that may be changing to "protect their necks" rock and hard place, we'll see what happens

> i don't think the fed's real mandate is price stability and full employment, those are nice to haves and they have to say that so they aren't run out of town on a rail but

No that's literally their mandate.

  The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates."
[1] https://www.federalreserve.gov/monetarypolicy/monetary-polic...

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

#53

Post by eldavido »

ajsnigrutin wrote: post #24

Who would've thought that printing huge amounts of money causes inflation. (yes, I know it was not literally printed)

What matters for inflation isn't just money, but the quantity of money and credit (thanks Ray Dalio for explaining this).

The fed correctly predicted in early 2020 that there'd be a massive drop in lending (at least short-term), so eased, hard, so that money+credit would remain relatively constant (much less credit, so much more money was needed). I read last year that something like 26% of then-existing M2 (central bank + bank deposits) was created in 2020/2021. That's insane.

Yet somehow, a year later, after a major pandemic, only a bit of inflation is showing up.

People should give a fed more credit. They managed this thing pretty well. The whole thing feels like trying to adjust the temperature in the shower from 50 feet away with a long stick and a bit of string, and someone yelling "turn it up" or "turn it down". There is so much noise everywhere, it's very difficult.

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

#54

Post by yobbo »

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…

> Inflation is a good thing for people with a lot of debt

Iff their income increases faster than their interest rate.

> I'd like to add, wage growth is outpacing inflation

Only applicable if it refers to median income (not mean income.)

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

#55

Post by InTheArena »

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…

We've been pumping money into the economy with no regard to long term inflation since the Obama administration. We've gotten so use to it, we've even started to come up with financial theroies that debt spending a increasing monetary supply doesn't matter - print what you need.

Modern monetary theory ain't. Ask the Romans, the Spanish and the Germans how well that worked for them.

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

#56

Post by recursivedoubts »

pramanat wrote: post #41
naveen99 wrote: post #18

Earlier quoted context omitted.

Volatility adds a real time value of money on top of nominal interest rates.

can someone explain this?

A naive NPV calculation discounts a cash flow by a real discount rate:

https://www.investopedia.com/terms/n/npv.asp

when the discount rate is 0, the NPV is simply the sum of all payments in the series, so an infinite series of payments (e.g. rental income) is worth infinity

in reality, bad stuff happens: building burn down, renters leave, etc. so the right thing to do is to discount the payment stream by some risk function, particular far off payments

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

#57

Post by jquery »

rwj wrote: post #25
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.

Armchair financiers on HN are always full of energy. Considering what we were threatened with at the beginning of the COVID-19 pandemic (total economic meltdown), 7.5% inflation is downright relaxing.

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

#58

Post by djrogers »

eldavido wrote: post #27
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 o…

> What does matter is ... (rental affordability)

Rental affordability is 100% correlated to asset pricing.

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

#59

Post by recursivedoubts »

arcticbull wrote: post #52
recursivedoubts wrote: post #44

Earlier quoted context omitted.

i don't think the fed's real mandate is price stability and full employment, those are nice to haves and they have to say that so they aren't run out of town on a rail but their real mandate is: "protect the banks" at this point, that may be changing to "protect their necks" rock and hard place, we'll see what happens

> i don't think the fed's real mandate is price stability and full employment, those are nice to haves and they have to say that so they aren't run out of town on a rail but No that's literally their mandate. The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy "so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." [1] https:/…

Right. I know they have to say that. But I think they are lying.

many such cases

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

#60

Post by bko »

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…

I don't think this can be solved by just tweaking interest rates. The fact is there are a lot more dollars in the field chasing the same number of products. Making it marginally more expensive to borrow money won't sop up enough dollars to prevent price inflation.

Don't you love it how banks are not raising their interest rates on savings accounts? I remember in 2007 I was getting 4% on my savings accounts. There's nowhere to park your money and earn a return even approaching inflation. Why not just front-load your future purchases and further drive inflation?

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