[HN Gopher] Consumer Prices in U.S. Increase by Most Since 2009
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Consumer Prices in U.S. Increase by Most Since 2009
Author : simonpure
Score : 160 points
Date : 2021-05-12 13:11 UTC (9 hours ago)
(HTM) web link (www.bloomberg.com)
(TXT) w3m dump (www.bloomberg.com)
| Nbox9 wrote:
| Demand for goods are at an all time high at the same time there
| are new serious challenging in producing more goods.
| lettergram wrote:
| I think this is just the beginning and I don't think there's
| anything they can do...
|
| Current issues:
|
| 1. Illegal immigrants driving down wages
|
| 2. Paying citizens to stay home
|
| 3. Remove the need to pay rent
|
| 4. To get workers companies hire illegals or pay higher wages
|
| 5. Oil / energy prices increase -> higher delivery costs and
| prices
|
| 5. Wages increase leading to price increases
|
| 7. Biden proposed expanding federal debt by 50%, people don't
| want to buy our bonds
|
| 8. Pushing students home for the year, keeping more people out of
| the work place (further creating scarcity of workers)
| imtringued wrote:
| > I think this is just the beginning and I don't think there's
| anything they can do...
|
| What prevents the government from eliminating Trump's trade war
| tarrifs and increasing immigration?
|
| Yes, there are unorthodox ways to defeat inflation.
| axiosgunnar wrote:
| > illegal immigrants driving down wages
|
| > people staying home reducing workforce
|
| these two should cancel each other out no?
| whydoibother wrote:
| > 1. Illegal immigrants driving down wages > 4. To get workers
| companies hire illegals or pay higher wages
|
| Seems to me number 4 invalidates number 1. The companies who
| refuse to pay a livable income are driving down wages.
| [deleted]
| redm wrote:
| There is a good breakdown of the CPI on the US BLS Site:
|
| https://www.bls.gov/charts/consumer-price-index/consumer-pri...
|
| Highlights that explain the overall 4.2% jump:
|
| * Used cars and trucks 21.0%
|
| * Gasoline (all types) 49.6%
|
| * Airline fare 9.6%
| throwaway4good wrote:
| I betcha all those things are going to go down again.
| seriousquestion wrote:
| On what timeline?
| throwaway4good wrote:
| Used cars and gasoline? Maybe a year or so ... flights not
| quite sure.
| bko wrote:
| Here are the components and their respective increases
|
| Table A. Percent changes in CPI for All Urban Consumers
| (CPI-U): U.S. city average
| Seasonally adjusted changes from
| preceding month
| Un-
| adjusted
| 12-mos. Oct. Nov. Dec.
| Jan. Feb. Mar. Apr. ended
| 2020 2020 2020 2021 2021 2021 2021 Apr.
| 2021 All items.................. .1 .2 .2
| .3 .4 .6 .8 4.2 Food......................
| .2 .0 .3 .1 .2 .1 .4 2.4 Food at
| home............. .1 -.2 .3 -.1 .3 .1 .4
| 1.2 Food away from home (1).. .3 .1 .4 .3
| .1 .1 .3 3.8 Energy.................... .6
| .7 2.6 3.5 3.9 5.0 -.1 25.1 Energy
| commodities....... .7 .5 5.1 7.3 6.6 8.9 -1.4
| 47.9 Gasoline (all types).... .7 .5 5.2 7.4
| 6.4 9.1 -1.4 49.6 Fuel oil (1)............ .7
| 3.3 10.2 5.4 9.9 3.2 -3.2 37.3 Energy
| services.......... .5 .9 .2 -.3 .9 .6 1.5
| 5.4 Electricity............. .6 .3 .4 -.2
| .7 .0 1.2 3.6 Utility (piped) gas
| service.............. .4 3.0 -.4 -.4 1.6 2.5 2.4
| 12.1 All items less food and
| energy................. .1 .2 .0 .0 .1 .3
| .9 3.0 Commodities less food and energy
| commodities.... .0 .0 .1 .1 -.2 .1 2.0
| 4.4 New vehicles............ .3 .0 .4 -.5
| .0 .0 .5 2.0 Used cars and trucks.... .9
| -1.4 -.9 -.9 -.9 .5 10.0 21.0
| Apparel................. -.9 .7 .9 2.2 -.7 -.3
| .3 1.9 Medical care commodities
| (1)...... -.7 -.4 -.2 -.1 -.7 .1 .6 -1.7
| Services less energy services.............. .1
| .2 .0 .0 .2 .4 .5 2.5
| Shelter................. .1 .1 .1 .1 .2 .3
| .4 2.1 Transportation services .2 1.3 -.6
| -.3 -.1 1.8 2.9 5.6 Medical care services...
| -.3 -.1 -.1 .5 .5 .1 .0 2.2
|
| https://www.bls.gov/news.release/cpi.nr0.htm
| account4mypc wrote:
| maybe a coincidence, but it seems like there's a correlation
| between cpi and carbon emissions. energy and transportation
| seem to be the most affected.
| answer42rgb wrote:
| Shelter inflation 2.1%. What a joke these numbers are.
| mcfly1985 wrote:
| "Shelter -- 2.1%" hahaha...what a joke these stats are.
| merricksb wrote:
| Another version of this story discussed earlier:
|
| https://news.ycombinator.com/item?id=27123086 (102 points/175
| comments)
| listenallyall wrote:
| Not a dupe. That story links to the March release, this story
| links to a summary of the April release.
| [deleted]
| frankbreetz wrote:
| Isn't this last month's report?
| boatsie wrote:
| Can someone ELI5 why inflation causes the markets to go down
| rather than up? Wouldn't cash lose more ground during
| inflationary periods than equities? The equity in the underlying
| companies should be more resistant to inflation since the
| companies can and will raise prices to account for the inflation.
| And future earnings will also increase due to inflation lowering
| their P/E ratios. All this seems to point to increasing stock
| market exposure.
|
| If there's a market sell off due to inflation, where are those
| dollars going?
| [deleted]
| justinzollars wrote:
| Sure, think of it as a systems problem.
|
| the moves today are in relation to the move in the 10 year
| yield spike. Tech stocks are inversely correlated to increases
| in this yield and more specifically the steepening of the yield
| curve.
|
| The bond market is very large and moves in stocks can be
| understood with the yield curve:
| https://www.investopedia.com/terms/y/yieldcurve.asp
|
| Gold went down today for a similar reason, it is strongly
| correlated to the real yield of a bond. Negative real yields
| favor gold.
| omalleyt wrote:
| There's something called the equity risk premium. This is
| essentially the extra rate of return investors want to get in
| order to hold stocks rather than Treasury bonds. When inflation
| is high, the yield on Treasury bonds goes up. This means that,
| for the same equity risk premium, investors require a higher
| rate of return from stocks. Rate of return is approximately E/P
| (i.e. the inverse of P/E). So therefore, P/E must go down.
|
| This is called P/E compression. It's why stocks don't perform
| as well during inflationary periods as physical assets (such as
| gold, silver, real estate, etc.)
| bijant wrote:
| If Inflation Markers are up, that increases pressure on the
| Federal Reserve to reduce QE and eventually even increase
| rates. When that happens liquidity will be removed from equity
| markets reducing valuations. If there were a smaller increase
| in Consumer Prices then the flow of liquidity into equities
| could continue unabated. That was the expectation. The markets
| are adjusting to these new facts on the ground.
| nine_zeros wrote:
| > Can someone ELI5 why inflation causes the markets to go down
| rather than up?
|
| It's only going down relative to previous highs because
| institutional investors are expecting to be able to get better
| returns by lending instead of by investing in equity.
|
| The reason they expect to get better returns by lending is
| because they expect the FED to react to rising CPI by raising
| interest rates.
|
| > If there's a market sell off due to inflation, where are
| those dollars going?
|
| Anything that returns more. Mostly towards lending to humans,
| businesses, funds, countries what have you.
|
| Maybe also towards commodities which are essential and people
| will continue to pay for them (oil, copper)
|
| Inflation hedges such as gold and more recently, crypto which
| is turning out to be an excellent hedge against US Dollar.
|
| All of this still sucks for anyone being payed in cash. We are
| all just puppets in financial games.
| anewaccount2021 wrote:
| The market is driven by cheap debt. Take away the cheap debt...
| nostrademons wrote:
| The primary driver right now is the expectation that interest
| rates are going to have to rise in a couple years to combat
| inflation. The theoretical value of a stock is the discounted
| value of all future cash flows, right? If interest rates go up
| to 15% in 2 years because inflation is 10%, then you have to
| discount the cash flows (boosted by 10% because of inflation)
| at 15%, rather than the current 0%. In theory rates go down
| when inflation does, but investors don't know by how much, and
| in the 80s (our last historical example) they were still
| running ~8% even when inflation went to 3%.
|
| This is why growth stocks like tech have taken more of a
| beating than value stocks like food, oil, or defense. The
| former rely heavily on the expectation of _future_ cash flows,
| often far off in the future, and if there 's an incidence of
| extremely high interest rates between now and then, the value
| of those cash flows is significantly reduced even if their
| absolute amount increases because of inflation.
|
| If the Fed does not raise rates or is unable to control
| inflation, then it behaves as you describe: stocks become
| _much_ more attractive than cash, and the rational price point
| for a stock becomes infinite. This is how the stock markets in
| Venezuela and Zimbabwe have behaved: they increase
| exponentially, measured in their native currencies, as the
| currencies depreciate exponentially.
|
| In other words, investors are pricing in rate hikes in response
| to inflation, and assuming that this will be "controlled"
| inflation that raises price levels a finite amount and then
| disappears. If either of these assumptions proves to be false,
| stocks are significantly undervalued.
| nostromo wrote:
| The absurdity of our modern markets in a nutshell: the only
| thing that matters is the Fed.
|
| "Largest miss of jobs numbers in history" = "Stocks hit new
| highs as traders expect long term low interest rates"
|
| "Largest increase in inflation in many years" = "Stocks sink
| as traders fear Fed tightening"
|
| Things are so bonkers now that bad news about the economy
| pushes stocks up, rather than down, because it means the
| money printing will continue.
| BenoitEssiambre wrote:
| Well, this is sort of what the fed is trying to get away
| from because it is mostly true when inflation is too low
| and interest rates are stuck at zero which causes gridlocks
| in the private markets. In the current situation, signs of
| these gridlocks worsening or improving cause large swings.
|
| Once inflation is high enough that we can get away from the
| zero lower bound, government paper becomes less of a
| desirable asset and stops being hoarded and displacing and
| blocking investment in the private markets. It's a return
| to markets having room to breath instead of being dominated
| by monetary actions.
|
| As long as it doesn't go too far the other way...
| omalleyt wrote:
| Except now the US gov't has so much debt, it can't afford
| to ever get back to normal
| benlivengood wrote:
| > This is why growth stocks like tech have taken more of a
| beating than value stocks like food, oil, or defense. The
| former rely heavily on the expectation of future cash flows,
| often far off in the future, and if there's an incidence of
| extremely high interest rates between now and then, the value
| of those cash flows is significantly reduced even if their
| absolute amount increases because of inflation.
|
| I thought that the value of many tech stocks was heavily
| based on growth. E.g. it's not worth waiting 10 or 20 years
| for a tech stock to start paying 3% dividends if the price
| stays the same; start earning 3% or more right now instead.
| In that sense, selling stock due to the risk of inflation is
| betting both that the company won't grow as fast inflation-
| adjusted as it did in the past (essentially the company can't
| perform as well under inflation) and that inflation will
| still be high when the stock starts paying dividends.
|
| I am definitely not a financial analyst, just confused.
| nostrademons wrote:
| That's true but misses an important factor: competition
| from other assets.
|
| The cash flow stream from most tech companies usually looks
| like 5 years of large cash infusions (often from VCs); a
| decade or two of zero cash spun off as the company
| reinvests all profits in growth; and then a few years to a
| decade of _massive_ cash being spun off for investors. For
| a historical example, see Apple - didn 't pay a dividend
| for about 15 years from Steve Jobs's return until 2012, and
| now regularly returns tens of billions to investors in
| buybacks. For a current example, see Salesforce, which
| makes effectively zero GAAP profit but is growing massively
| as they reinvest that into product development and sales.
|
| If competing investments - say Treasuries - are yielding
| zero now, there's no reason why you _wouldn 't_ buy
| Salesforce stock now and lock in those future dividends
| even though they're 15 years off. But if the 10-year
| Treasury is going to go up to 15% in 2 years - why wouldn't
| you sell your Salesforce stock when rates go up, buy a
| 10-year Treasury, quadruple your money over those 10 years,
| then buy 4x as much Salesforce stock right before they
| actually start spinning off cash as a dividend?
|
| The 1970s actually looked like this. There was a big stock
| run-up in the late 60s, and then a very large stock market
| crash (~50%) in 1973 when the Fed started raising interest
| rates to combat inflation. Stocks continued to trade
| sideways during the high-inflation, high-interest period of
| the 1970s, and then they really took off in the late 80s
| once inflation was under control and rates started
| dropping.
| tcbawo wrote:
| The Fed is unlikely to intervene in the short term because they
| have acknowledged that undershooting their 2% average inflation
| target means they have to allow it to overshoot from time to
| time. We're still working out supply shortages and imbalances.
| But, I expect they're only going to start tightening once we've
| exceeded 3% or more on an annualized basis.
| zozin wrote:
| Why would they intervene? Increased inflation was one of the
| reasons for passing so much stimulus. Several years of 3-5%
| inflation means the government's debt is 20-25% smaller
| relatively speaking. The Fed has been trying to get to 2% for
| nearly a decade and they're on the record saying that +2%
| inflation (read 3-5%) is okay by them for an extended period of
| time since that would make up for the lack of inflation during
| the 2010s.
| Jeema101 wrote:
| Because if banks have underwritten fixed-rate mortgages to
| people at 3% APR and inflation goes above 3%, then banks
| begin to lose money. Nobody wants banks to become insolvent.
| imtringued wrote:
| The Fed's job is hitting 2% inflation because that is
| basically what a healthy economy needs over the long term.
| The Fed has no obligation to help the US government shrink
| its debts.
|
| Inflation is caused by demand exceeding supply. 2% inflation
| means demand is exceeding supply by exactly 2% and that is a
| good thing because it means there is wiggle room for people
| to find jobs, there is wiggle room to let the economy shift
| from one industry to another, it means there is demand for
| technology that increases productivity.
| BozeWolf wrote:
| Maybe I do not understand you correctly, but the 4.2% is YoY.
| frankbreetz wrote:
| They are considering this "Transitory" meaning they think it
| will drop with no changes to the Fed's behavior. Yes, 4.2% is
| high inflation, but it has been lower then target for years
| now, so you might consider this "reflation", or higher then
| normal inflation in order to catch up to normal after years
| of lower then normal inflation.
|
| Also, as another comment points out most of this increase
| comes from increases in used automobiles, gasoline, and
| airline fares. This can all be explained by supply issues and
| large drop in those item last year at this time. The Fed's
| behavior have minimal effects on that.
| dragonwriter wrote:
| > Yes, 4.2% is high inflation, but it has been lower then
| target for years now, so you might consider this
| "reflation"
|
| That's not really an argument that it factually _is_
| transitory, and I don't think there is any real good reason
| to think "catch-up" inflation is any better than the
| regular kind.
|
| (OTOH, the context of the COVID rebound _is_ a strong
| reason to think it is likely transitory.)
| dragonwriter wrote:
| Its YoY but its still viewed as transitory. Given that the
| period also saw the economic rebound from the COVID sharp
| drop, including the fastest quarter of economic growth _ever
| recorded in the US_ , followed by two more unusually strong
| growth quarters, it's not hard to see why. Unless that's a
| sustained trajectory rather than just a rebound from one-time
| impairment, you wouldn't expect strong demand-pull inflation
| to continue.
| jacob2484 wrote:
| Scary part is the Biden administration seems in denial of any
| inflation risks: https://www.reuters.com/world/us/treasurys-
| yellen-interest-r...
| bryanlarsen wrote:
| Do you have the right link? She says that the Fed will raise
| rates if necessary to combat inflation. That's not denial.
| dghlsakjg wrote:
| also, The Fed is supposed to act as an independent body not
| under the control of the executive or legislative branch.
| anewaccount2021 wrote:
| They can't. If the ten year note even reverted to the
| historical average of 4.9%, it would require 30% of the
| present budget just to service the interest.
|
| Rates will never appreciably rise, they can't or all
| borrowers will be crushed
| frockington1 wrote:
| The Fed used to say they would target 2% and just recently
| changed it to "an average of 2%". It's less denial and more
| of a changing in definition.
| [deleted]
| JumpCrisscross wrote:
| Sure, but that's the Fed. It's odd to pin this in the Biden
| administration when it's a Trump appointee running the Fed
| while a Biden Treasurer (and former Obama Fed chairwoman)
| raises and retracts the spectre of rate increases.
| neximo64 wrote:
| If you're more familiar with it its part of the job.
| bko wrote:
| Unfortunate that the article mentions nothing about policymakers
| approving $12+ trillion in monetary and fiscal support to deal
| with covid. To put that to perspective, the US GDP is $21
| trillion and Chinese GDP is $14 trillion
|
| https://www.covidmoneytracker.org/
| ineedasername wrote:
| It's not just about 12+ trillion added to spending, real costs
| of business have increased, driving up prices, such as the need
| to retrofit work environments and provide PPE, production
| slowdowns due to the need to rotate staff or when an outbreak
| occurs: Meat prices spiked very high when significant portions
| of of the meat processing industry went offline, and those
| prices haven't gone down. The entire supply/demand curve for
| many product classes have changed as a result of people staying
| home and buying different things.
|
| Yes, Pumping this much money into the economy it's hard to
| avoid inflation, but there's more factors to it than just that
| variable.
| klmadfejno wrote:
| I was curious about meat prices because this didn't match my
| personal experience: https://www.ers.usda.gov/data-
| products/meat-price-spreads/
|
| Looks like meat prices spiked in Q2, peaking around
| June/July, and have fallen again. They're still elevated from
| this time two years ago, but they did go down.
| lostapathy wrote:
| As anecdata, I saw several local restaurants raise price a
| buck or two on burgers last year when supplies were crunched,
| and they promptly lowered them a handful of months later.
| ericmay wrote:
| According to that tracker, only $6.9 trillion has been
| dispersed, not the full $12 trillion.
|
| I think my ad blocker doesn't jive with the site, as I can only
| see the first part that shows the three summary bars in the bar
| chart. Apologies if I'm missing something.
|
| You also have to keep in mind a few things:
|
| 1. Liquidity - how much of this (probably most of federal
| reserve spending) has gone to maintaining liquidity in the
| global financial system? That's not going to contribute too
| much to inflation. If you have the reserve currency, and nobody
| is willing to lend because they're in fear of going bankrupt or
| running out of cash while the economies of the globe were shut
| down, then you wind up having to inject tons of cash into the
| global economy to keep it liquid. The alternative is
| armageddon.
|
| 2. Low interest rates. When the U.S. government borrows money
| it pays an interest rate. While the $6 trillion number (or $12
| trillion for that matter) may seem very high, it matters how
| much the U.S. is paying in interest on these loans. Can the
| U.S. government meet it's debt obligations? Yes? Good to go
| then. GDP (which sucks anyway) will rise and past debt will be
| inflated away. Similar to everyone rushing to buy a house, low
| interest rates are an opportune time for the government to
| borrow money too. Republicans are hemming and hawing about it,
| but if Trump was president they'd be doing the same deal.
|
| 3. It also matters what ROI you get for spending. Nobody seems
| to be talking about that. If the government borrows $100 at
| 0.4% interest or maybe even 0% interest and then turns that
| into a larger investment in the broad American economy, that's
| almost surely a good use of money even if it increases the
| overall debt load if it's actually increasing GDP.
|
| I wish I could find it again, and maybe some enterprising HN
| reader will have it available, but there was an blog post I
| found interesting regarding how much the U.S. could borrow.
| They argued it was probably an unlimited amount of money. If
| nothing else it's just an interesting take.
|
| We should be sensitive to government spending and actions of
| the Federal Reserve, but we need to do so smartly. Everyone
| running around screaming inflation! inflation! are missing the
| mark. My default in the financial space is when everybody is
| saying something is true, it's likely not. There's a lot of
| money to be made convincing lots of people of the truth of
| something that isn't true and while they're distracted you take
| lots and lots of profits at the institutional scale (hedge
| funds, etc.).
| 1_person wrote:
| Yeah, the economy is going so great we've only had 2 armed
| uprisings in as many years with 2 orders of magnitude growth
| in housing cost versus wage growth or housing cost versus
| population growth while over half of the usable land area of
| the country is zoned for non-poors
|
| I thank God for the Republicrats printing a third of the
| national debt and mailing checks directly to their cronies
| every time I open Zillow and realize I have effectively
| earned negative income for a lifetime of labor
| frankbreetz wrote:
| It does mention it. It doesn't harp on it.
|
| >>trillions of dollars in government economic stimulus
| bko wrote:
| I'm sorry, you're correct. This is the phrase
|
| > While Federal Reserve officials and economists acknowledge
| the temporary boost, it's unclear whether a more durable
| pickup in inflationary pressures is underway against a
| backdrop of soaring commodities costs, trillions of dollars
| in government economic stimulus and incipient signs of higher
| labor costs.
|
| I still have issue with the characterization. It's "against
| the backdrop of ... trillions of dollars" as though increased
| price levels and increasing the money supply by 25% are
| unrelated.
|
| Many times these articles write about stimulus and people
| think its the $1600 checks some people received. But what
| doesn't get reported is what the lion share of the money
| actually went to, buying up financial assets from banks.
| JumpCrisscross wrote:
| > _what doesn 't get reported is what the lion share of the
| money actually went to, buying up financial assets from
| banks_
|
| Fiscal stimulus is more powerful than the monetary kind.
| When the Fed buys a bond, at the end of the day, it's
| _buying up bonds_. Someone must give up 80 to 99.99999C/ of
| wealth for $1 of liquidity. When Congress spends $1, it's
| creating money. It may have to tax or borrow down the road,
| but that's then, not now.
|
| Also, not sure how one can say monetary policy isn't
| reported. It receives nearly weekly attention on even non-
| financial forums like Hacker News, and features far more
| prominently in financial, economic and crackpot rags.
| dragonwriter wrote:
| > I still have issue with the characterization. It's
| "against the backdrop of ... trillions of dollars" as
| though increased price levels and increasing the money
| supply by 25% are unrelated.
|
| No, its explicitly providing relevant context, which is the
| polar opposite in every respect to implying that they are
| umrelated.
| pjc50 wrote:
| There's an important message here: the money expands by that
| much and inflation is .. 4%?
|
| That shows the limits of a single number. It also shows up the
| "transmission mechanism" has been damaged; it doesn't affect
| wages or prices largely because so much effort has been
| expended over the last 40 years to prevent wages going up at
| all.
| JPKab wrote:
| I studied applied economics in college. It's actually how I
| got into professional programming, due to coding for
| simulations as part of my major.
|
| It is way, way too early, based on my experience, to make any
| formal claims about why a given number is X instead of Y
| based on Z theory.
|
| People who are claiming there is going to be runaway
| inflation don't have enough data to suggest this, and your
| assertion is equally lacking in data to justify it.
|
| As always, economics gets contaminated by political biases,
| because so many prominent economists, including a hero of
| mine in college, Paul Krugman, have followed the profitable
| path of becoming full time political hacks. Likewise for
| Lafferty on the right and many others.
|
| Inflationary pressures typically, in historical terms and
| yes, in the simulations I used to model, have a lag and then
| start to build upon each other. We haven't had nearly enough
| time to properly assess any of this.
|
| Rest assured, if/when it does manifest, each side will have
| very firm talking points blaming the other, informing their
| sycophants exactly how to talk out of their rear ends about
| how it's the other team, and how their policies would have
| prevented it.
| bko wrote:
| I would argue that much of the money expansion went to asset
| prices. Just look at the stock market, which is up 30% from
| PRE-covid levels. If you factor in reduced reduced demand
| from lockdown measures, then the market increase is even more
| astonishing. I wrote about the asset price increases before
| [0]
|
| This is unfortunate since it's essentially helping relatively
| wealthy asset holders as opposed to those most likely to be
| affected negatively by covid.
|
| [0] https://mleverything.substack.com/p/where-did-
| the-12-trillio...
| ObserverNeutral wrote:
| > I would argue that much of the money expansion went to
| asset prices
|
| It can't possibly go to asset prices. For every buyer there
| has to be a seller.
|
| It's stuck in bank reserves
| jraby3 wrote:
| Don't forget about real estate prices. They've skyrocketed
| as well and are a very common way to park money.
| simonsarris wrote:
| "The FAAMGs reported aggregate 1Q sales of $321 billion,
| some $24 billion or 8% above consensus, for year/year
| growth of 41%." (zerohedge)
|
| What if the stock market is up because revenue and growth
| are up?
| listenallyall wrote:
| What if revenue and growth are up because people received
| free money from the government?
| boplicity wrote:
| Money has to go somewhere. When the economy is shut down,
| there are few places to _put_ money outside of the stock
| market. In short, people are willing to pay more for
| stocks, because the alternatives are not there at the same
| levels they used to be. Supply & Demand, basically.
| listless wrote:
| I agree. The economy is complex. You can't tie 12 trillion
| of spending directly to inflation. Negative side effects
| manifest in ways we don't expect. In this case, drastically
| increasing wealth inequality.
|
| It's interesting to me that software developers don't
| intrinsically realize this more than your average person.
| Nobody knows better than us that making changes to a
| complex system can have catastrophic downstream effects and
| has to be extensively tested first.
| tachyonbeam wrote:
| From what I've seen, there are a lot of people in tech
| circles expressing anti-capitalist sentiment. However,
| very few of these people know or care how the economy
| works. This is very unfortunate, because I think it's
| useful to try and understand how the system works if you
| want to have any hope of improving it. Or at least, if
| you understand how things are trending, you might be able
| to better prepare and protect yourself and your
| friends/family.
|
| The average person doesn't understand what inflation is,
| why it happens, how it affects them and how the
| government uses inflation to reduce the significance of
| its debt. The average person also tends to believe
| government inflation numbers which, IMO, are manipulated
| and do not represent what is actually happening in the
| world. For instance, home prices (and thus rents) are
| rapidly increasing, and housing costs, for most people,
| are the biggest expense they have to think about,
| accounting for sometimes more than 50% of their take home
| pay.
| dragonwriter wrote:
| > From what I've seen, there are a lot of left-wing
| people in tech circles expressing an opposition to
| capitalism. However, very few of these people know or
| care how the economy works.
|
| From what I've seen, there are a lot of right-wing people
| in tech circles expressing a support for capitalism.
| However, very few of these people know or care how the
| economy works.
|
| (A particular subgroup understands finance/trading pretty
| well, and mistakes understanding weather for
| understanding climate.)
| ChainOfFools wrote:
| > (A particular subgroup understands finance/trading
| pretty well, and mistakes understanding weather for
| understanding climate.)
|
| now this is just downright seductive. bravo
| tachyonbeam wrote:
| > From what I've seen, there are a lot of right-wing
| people in tech circles expressing a support for
| capitalism. However, very few of these people know or
| care how the economy works.
|
| Fair point. Most people don't know or care how the
| economy works, left or right. My main point was: it's to
| your advantage to know how the system works, and it's
| maybe even more important to understand how it works if
| you hope to change it.
|
| If you don't understand what is inflation and its impact,
| or basic economics, then politicians can take advantage
| of your lack of knowledge, in the same way a shady car
| mechanic can take advantage of uninformed customers. They
| might pretend that certain policies will help lower-
| income people when what they are doing is most beneficial
| to the ultra-rich.
| dragonwriter wrote:
| > They might pretend that certain policies will help
| lower-income people when what they are doing is most
| beneficial to the ultra-rich.
|
| Sure, like, for instance, they might pretend that
| reducing fiscal stimulus that both redistributes wealth
| downward and fuels inflation (but does the former more
| than the latter) helps the lower-income by reducing
| inflation when it really lowers their real post-transfer
| income while raising it for those in the higher income
| classes that benefit less or not at all from the transfer
| but are still effected by price levels.
| bko wrote:
| Most people assume that economics is like a washing
| machine where you have a few dials and knobs. Sometimes
| you need to tighten a screw here, apply some grease
| there, etc.
|
| But in reality, economics is more akin a complex
| biological system. We have a very rudimentary
| understanding of how it actually works. Sure, we can
| create drugs that calm us down or excite us, but we have
| very limited understanding of the underlying biological
| system. For instance, we still can't agree what the
| optimal diet for humans is with wildly contradictory
| regiments.
| ethbr0 wrote:
| It's a great analogy, especially since at the end of the
| day economic shifts are rooted in... illogical meatbags
| (us).
|
| Economists like to pretend it's a science, and there are
| certainly scientific and experimentally-valid findings,
| but the innermost terms and interactions will always be
| obsfuscated. Like psychology, except with higher stacks
| of layered complexity.
|
| It's not as bad as steel deciding to change its tensile
| strength on a whim (because it heard other steel say
| so!), but it's not far off.
| tryonenow wrote:
| Or the 4% number is bullshit and we are in worse shape than
| the government and an overly sympathetic media would like to
| admit. Time will tell. Meanwhile if you look at individual
| commodities, some of them are quietly skyrocketing in price.
| Copper, steel, lumber, and a number of others.
|
| It's also possible that there's simply a long delay between
| flooding a struggling economy with cash and seeing the
| resulting tax on the middle class that we call inflation.
| throwaway0a5e wrote:
| > There's an important message here: the money expands by
| that much and inflation is .. 4%?
|
| I doubt this comment will age well. Macroeconomic effects
| don't happen instantly.
| JPKab wrote:
| Absolutely. I studied applied economics.
|
| It's been maddening watching economists whom I respect
| making proclamations (one way or the other) with high
| degrees of confidence that inflation is or isn't a problem.
| They have no idea, because anyone who actually knows what
| they are doing knows that there isn't enough data yet.
| pjc50 wrote:
| I could go for absolute worst case 5, maybe 6 by this time
| next year? By which point the central bank will have raised
| interest rates.
| MagnumOpus wrote:
| A monetary expansion of similar magnitude happened after
| the GFC, and inflation didn't rise above this level for a
| decade... There just isn't that much of a relationship
| between base money and CPI as Friedman imagined 50 years
| ago.
|
| (Because banks also control credit supply and only give it
| to creditworthy borrowers... The Fed can drop rates to zero
| and give banks limitless money and they still won't lend it
| out to deadbeats.)
| ObserverNeutral wrote:
| It's a 2 way street. Fed can drop rates to zero but still
| people are too risk averse and have a negative outlook so
| they won't seek to submerge themselves with debt.
| missedthecue wrote:
| 2008 GFC is not comparable because QE (buying long term
| bonds to push down interest rates) does not result in a
| noticeable increase in the supply of money.
|
| Printing money and sending it to people does. Refer to
| the chart below.
|
| https://i.imgur.com/G35HlC9.png
| 542458 wrote:
| This is why a single chart on imgur is bad and you should
| go to real sources. The way M2 was calculated changed in
| May 2020, a fact that should be on every reputable page
| containing that graph.
|
| https://www.federalreserve.gov/releases/h6/current/defaul
| t.h...
|
| Also in a lot of ways M2 on its own is meaningless (money
| sitting under a mattress not being used doesn't affect
| the economy) - velocity of money is more useful. Of
| course, inflation is complex and multicausal so this
| isn't the whole picture, but it's more useful than raw M2
| supply.
|
| https://fred.stlouisfed.org/series/M2V
| imtringued wrote:
| Most QE immediately after 2008 was just filling bank
| reserves. It helps banks but the money is only available
| to those who borrow.
|
| >Printing money and sending it to people does.
|
| That money wasn't printed, it was borrowed because the
| Fed cannot do that. Only the US government can do that.
| The Fed may have bought treasury bonds but those still
| have to be paid back.
| missedthecue wrote:
| The Fed balance sheet increased by trillions during covid
| because they were "printing" money to buy treasuries in
| order to keep interest rates low.
|
| That is new money. Trillions of it.
| dlubarov wrote:
| > The Fed may have bought treasury bonds but those still
| have to be paid back.
|
| Do you mean that when securities owned by the Fed mature,
| the Fed will destroy the money that it had created to buy
| them?
|
| In practice, I don't think that has really been
| happening. They have just been reinvesting proceeds in
| new securities (at least the principal; they send some
| (all?) interest to the Treasury).
|
| This may change at some point, but so far the Fed has
| periodically increased its balance sheet while never
| substantially reducing it [1]. If that continues long
| term, the Fed's "temporary" money is effectively
| permanent.
|
| [1] https://fred.stlouisfed.org/series/WALCL
| seriousquestion wrote:
| GFC was a tiny blip in comparison, it hardly registers;
|
| https://fred.stlouisfed.org/series/M2SL
| YinglingLight wrote:
| For the next couple weeks we are going to hear nothing but the
| word 'inflation'. This mantra is an excuse to raise interest
| rates and crash the economy. Expect crazier and crazier events
| to happen in a short time.
| ineptech wrote:
| See, that sounds scary. But isn't "we printed a whole lot of
| money and didn't get high inflation" equivalent to "if we
| hadn't printed all that money, we would've had deflation"?
|
| (This is not a rhetorical question meant to imply you're wrong,
| I genuinely am not sure. It seems crazy that we could run the
| money printer like we have and not cause dire problems, but it
| also seems like that's what's happening.)
| lend000 wrote:
| Deflationary periods and natural recessions hurt in the short
| term, but they are also the most consistent periods in
| American history where wealth inequality decreases as the
| economy corrects and reallocates capital [0]. Staving them
| off at all costs for the last few decades via easy monetary
| policy is arguably one of the greatest contributors to the
| rise in wealth inequality, alongside poorly graduated income
| tax brackets and (to a lesser degree) automation.
|
| Charts: [0] https://www.federalreserve.gov/releases/z1/datavi
| z/dfa/distr... https://fred.stlouisfed.org/series/WFRBST01134
| ineptech wrote:
| At a high level I agree, but monetary policy isn't the only
| way to affect wealth inequality either. And the question
| I'm wrestling with is not, "Was/is two decades of
| _relatively_ easy money a bad policy? " but "Why hasn't the
| last year or two of _very_ easy money caused huge problems?
| ".
|
| And for bonus points, the follow-up question is: could we
| have done this anytime? Did the Covid economic downturn
| necessitate these drastic measures, or could we have
| adopted 2020 monetary policies in, say, 2018 or 2014 with
| the same results (skyrocketing stock market, skyrocketing
| inequality, but relatively stable inflation) and we never
| did it before because we never had a good excuse?
| lend000 wrote:
| > Why hasn't the last year or two of very easy money
| caused huge problems?
|
| See the other comment I posted on this article.
| Commodities have skyrocketed. But the price of the beef
| in your Big Mac was negotiated years ago, so consumer
| prices lag raw materials as multi-year supply chain
| contracts are updated.
|
| > could we have adopted 2020 monetary policies in, say,
| 2018 or 2014 with the same results (skyrocketing stock
| market, skyrocketing inequality, but relatively stable
| inflation) and we never did it before because we never
| had a good excuse?
|
| The economic shock of the pandemic no doubt slowed the
| velocity of money for a time, which further slowed the
| consumer inflationary effect. But that velocity has
| increased amongst lockdown fatigue and reopening in the
| US, while the money printed is still here. We're seeing
| it manifest in real estate, stocks, and commodities. "The
| everything bubble" is just a way of saying (wealth
| inequality x inflation).
| dannyw wrote:
| Inflation reduces wealth inequality. inflation is good.
| azinman2 wrote:
| It also depletes savings of the poor.
|
| You can't say inflation or deflation is universally good
| or bad. They have many effects.
| pessimizer wrote:
| The poor don't have savings, they have debts.
| azinman2 wrote:
| Not always. My grandparents were poor, but lived within
| their small means. I remember them telling me how
| horrible it was to live through the 1970s inflation that
| decimated the small amount of savings that they had.
|
| But like I said about the no universally good or bad,
| inflation is good for effectively reducing debt.
| variaga wrote:
| Inflation helps debtors (because the real value of the
| nominal debt is reduced by inflation - debtors borrowed
| "high value" money and later, after inflation, can pay it
| off with "low value" money) and hurts creditors (same
| reason, just the effect is reversed).
|
| Rich people are (mostly) creditors. Poor people are
| (mostly) debtors. Inflation tends to hurt rich people
| (creditors) and help poor people (debtors). The people
| who run the economy are almost universally rich, and are
| (coincidentally, I'm sure /s) almost universally opposed
| to any increase in inflation.
|
| Side note: assets (real estate, gold, ...) are mostly
| inflation-neutral since their prices go up at the same
| rate as the prices of everything else.
|
| Where poor people _do_ get hurt is when consumer prices
| go up and wages don 't _but that 's not inflation_ -
| inflation is when the price of _everything_ goes up,
| _including labor_ i.e. wages.
| azinman2 wrote:
| You can have debt (a car bill) and still have savings
| ($500 in the bank). That savings is often an emergency
| fund, and when the effectiveness of that fund is reduced,
| so is your ability to respond to an emergency.
|
| All of these things can be true simultaneously.
| batty_alex wrote:
| And really, it's all a balancing act. Inflation is good
| sometimes and bad at other times. It's... complicated, yo
| nly wrote:
| The poor have no savings
| lend000 wrote:
| Not sure if this is tongue in cheek, but no. Inflation
| relatively benefits those who have a higher percentage of
| their net worth in assets than cash (i.e. the rich). It
| also benefits those who have a lot of debt. Before the
| Fed got into the habit of keeping artificially low
| interest rates as a means to originate inflation (and
| fund Congress), this might have benefited the poor (at
| least those credit-worthy enough to take on meaningful
| debt). But now, the depreciation of debts in an
| inflationary environment also tends to disproportionally
| benefit the wealthy, who have easy access to cheap credit
| and frequently use it.
| matthewdgreen wrote:
| "The annual CPI figure surged to 4.2%, the most since 2008 though
| a figure distorted by the comparison to the pandemic-depressed
| index in April 2020. This phenomenon -- known as the base effect
| -- will skew the May figure as well, likely muddling the ongoing
| inflation debate."
|
| We're coming off of years of missing the 2% inflation target,
| combined with a pandemic that crashed everything through the
| floor. Seems like we have some room to let the economy re-open
| and wait for supply chains to settle out, before the Fed moves in
| and crushes things to give us another five years of missed
| inflation targets.
| listenallyall wrote:
| > "crushes things"
|
| LOL, a 50 or even 100 BP rate hike (neither of which is in the
| current realm of possibility) would be a minor speed bump, it
| certainly wouldn't "crush" anything. Most long treasury yields
| could double and they would still be well below historical
| averages.
|
| https://www.macrotrends.net/2521/30-year-treasury-bond-rate-...
| lumost wrote:
| Given the increased debt loads on most projects, a 100 bps
| increase from ~0% to 1% could have just as much impact as a
| 100 bps increase from 5->6%. In fact the effect may be larger
| as a 0.25% -> 1% increase is a 4x relative increase in
| interest rates vs. a 20% increase.
|
| It's possible that the only way out of the current situation
| is a steady inflation which reduces the nominal debt load.
| [deleted]
| jerf wrote:
| Yeah, I don't think the "base effect" is relevant here. These
| aren't employment percentages or something. Inflation is
| cumulative. How low or high it was last year isn't really
| relevant; 4.2% is simply high, full stop. I don't care if it's
| an "improvement" from 20% last year, it would still be high. I
| don't care if it was 1% last year, it would still be high.
| Comparing it to last year might be relevant for other things,
| of course, but it's not at all the "base effect" where a
| company claiming 30% growth year-over-year isn't really getting
| 30% because there's just a "base effect" of seriously depressed
| revenue last year... 4.2% inflation is just 4.2% inflation,
| full stop.
| JumpCrisscross wrote:
| > _4.2% is simply high, full stop. I don 't care if it's an
| "improvement" from 20% last year, it would still be high_
|
| Big part of that is gasoline and cars, both of which had non-
| monetary supply chain issues.
|
| Oversimplifying monetary policy is nice for dinner tables and
| political grandstanding. That is why independent central
| banks have the track record they do.
| imtringued wrote:
| The problem with the usual more money = more inflation
| argument is that you would have to restrict yourself to a
| certain subset of the monetary supply that is relevant to
| inflation but everyone wants to talk about the broadest
| definition of monetary supply that also encompasses a
| subset that is completely irrelevant to inflation.
| MagnumOpus wrote:
| The base effect _is_ relevant. The consumer price index is
| 267 right now, 256 a year ago and 255.5 two years ago.
|
| So the average inflation over two years is 4.5% or 2.2%
| annualised -- a quite normal pace of price inflation.
|
| The main reason why inflation was near-zero in 2020-04 and
| too high in 2021-04 is oil prices dropping from $70 to $0,
| and then recovering back to $70, with the corresponding
| effects on gasoline prices. Had oil prices staid stable at
| $70, year-over-year CPI figures would have fluctuated much
| less and would now be 1-2 percentage points lower. That is
| the base effect.
| jerf wrote:
| When a company in 2021 reports revenue growth of 30%, it's
| not _really_ 30% growth, with all the conclusions about the
| company you 'd normally come to based on that data, and
| calling "base effect!" on it is reasonable. The number has
| no real use.
|
| This inflation is real. The base effect doesn't make it
| less real. Prices have _really_ gone up, in the relevant
| time period. Your choice to average it out across a
| particular two year window isn 't invalid on its own terms,
| but it starts raising a lot of other questions about which
| years you pick and how much data massaging you can do by
| picking your choice of start and end and all that other
| sort of stuff, and it produces numbers that may also be
| real, but are different numbers.
|
| By contrast, if the company reports _absolute_ revenue in
| 2021, the base effect does nothing to that number. The
| revenue is the revenue.
|
| Likewise, the inflation measurement is perfectly valid.
| Inflation, as defined by the measure (since by no means
| would I claim that it's somehow the only option or the
| objectively best option) really is what it is.
|
| What conclusions you come to based on that, well, we'd be
| arguing about that regardless of whether there's a "base
| effect" or not anyhow. But I'm generally underwhelmed by
| argumentation that appears to be trying to explain away,
| rather than explain. Start with the brute facts and move
| out from there, rather than immediately cutting to trying
| to argue away the brute facts.
|
| (To be clear, I'm not making any particular implicit
| argument. I don't currently have a solid opinion on this
| matter; it is still a fairly large range of possibilities
| to me. In general, usually some space and time is needed to
| even begin to "explain" any economic fact.)
| matthewdgreen wrote:
| The question is not what you call it, but what you do
| about it. If we had a temporary pandemic-induced price
| crash and then everything returned to pre-pandemic
| normal, then the answer is probably "not much". But some
| people are concerned that this is the start of a crisis
| and want the Fed to raise interest rates. Deciding
| between those two _very different_ policy outcomes is the
| important thing here, not quibbling about semantics.
| anewaccount2021 wrote:
| And as usual, HN will dedicate the comments to debunking or
| diluting the inflation data that has been anecdotally obvious for
| some time
| cute_boi wrote:
| This is what happens when printers work too much
| bfrog wrote:
| Pressure on the value of a greenback is mounting on all fronts.
| Hyperinflation seems a small stone's throw away.
| redm wrote:
| The "stimulous" checks increase demand for goods, not services,
| which, combined with supply chain issues drives inflation. When
| you get that "free" money, people are buying that new tv they
| have wanted and not thinking about a haircut. Credit card debt is
| also falling rapidly.
| dragonwriter wrote:
| > The "stimulous" checks increase demand for goods, not
| services
|
| It increases both; consumers receiving them but both goods and
| services, after all.
| mbg721 wrote:
| Maybe not a haircut, but at least anecdotally there's more
| demand for services like home repairs. People have been home
| all the time to be annoyed by whatever's broken, and they don't
| have to take a whole day off work to meet the repair person.
| redm wrote:
| There is more demand for homes and home improvements, but
| again, thats what's driving goods, like lumber, cement, etc.
| I would argue those are as much goods as services.
| dragonwriter wrote:
| lumber and cement are goods. The contractor I pay to
| convert them into home improvements is a service. Stimulus
| checks increase demand for both.
| holoduke wrote:
| Not only in the US. Everywhere. If you look at prices for raw
| materials (metals, food, wood etc) there is a large increase
| visible. In combination with huge amounts of extra printed money
| leads to a significant inflation globally.
| postpawl wrote:
| The spike in wood prices is likely due to high demand from new
| building and housing renovations + a number of reasons for a
| supply shortage: https://www.vox.com/22410713/lumber-prices-
| shortage
| imtringued wrote:
| Inflation is just a different way of saying high demand. The
| question is will that demand persist or will the supply side
| start expanding?
| throwaway0a5e wrote:
| Exactly. The prices of a handful commodities that underpin the
| economy have jumped. But all commodities are tied to all other
| commodities to some extent. We're gonna see those increases
| disperse into the rest of the economy.
|
| The trillion dollar question is which increases will persist
| and to what extent.
| paulpauper wrote:
| THis is like a calculus problem. We're talking tiny differentials
| of a differential of a small number to begin with.
| jonnycomputer wrote:
| Most informed economic commentary I've read fully expected a
| brief spike in inflation, but does not expect any kind of runaway
| inflation over the medium and long-term. I'm just not worried,
| especially with the twin biases of news reporting: sensationalism
| and favorable coverage of the views of big finance.
| eplanit wrote:
| You forgot a bias: consistently favorable reporting on the
| Biden administration.
| omginternets wrote:
| >favorable coverage of the views of big finance
|
| I'm horrifically ignorant of economics. Why is the "runaway
| inflation" story favorable to big finance?
| patrickk wrote:
| My guess is that those who run large financial institutions
| came of age when inflation was much higher and a difficult
| beast to tame. Therefore they see the inflation boogeyman
| around every corner even though it hasn't been like that in a
| long time. (That's not to say high inflation won't come at
| some point, but so far the doom and gloom merchants have been
| wrong for decades).
|
| You see this inflation mania most clearly with the ECB, which
| essentially is controlled by Germans. They fear a Weimar
| Republic-style hyperinflation above all else. So some of the
| policies coming out of the 2008 crisis reflected this,
| instead of being flexible enough to cope with the actual
| conditions and challenges of the day.
| NoOneNew wrote:
| Yea, but let's metaphor the boogey man issue to driving a
| car. When you drive, you're often avoiding collisions.
| Mostly passively. If you drive faster than the car in front
| of you, you will crash. If you dont brake at a red light,
| you will crash. Most people dont crash most of the time
| because they respect the threat. You cant just go, "you
| know, I haven't crashed in 5 years. I dont have to brake at
| this red light." Sure, inflation issues aren't that
| prevalent in the past few decades. Doesn't mean you stop
| assuming it's not a possibility. You do things to avoid it.
| The longer you do that, the longer you avoid problems. You
| cant stop your precautions just because it's been a while,
| then whine why the problem reemerged.
| patrickk wrote:
| I never said it's no longer a possibility. Just that for
| every news event that happens, there is an immediate
| chorus of "inflation!!!!" no matter the circumstances.
| Some economists argue that there is indeed considerable
| inflation right now- except it's in financial assets
| owned mostly by the wealthy, like the stock market
| trading at high P/Es, housing (inflated in multiple
| countries, not just the US due to easy credit). There was
| also a headline recently that VC investing is record high
| at the moment. So there's inflation, just not in consumer
| staples.
| nostromo wrote:
| The reason it is so feared is because it's next to
| impossible to contain once it starts without causing
| massive economic hardship.
|
| In fact, the Fed could likely do next to nothing about
| inflation with our country's current debt levels.
|
| Even at a historically average rate of 8%, our federal
| government would either go bankrupt, cut most spending, or
| massively raise taxes, causing a severe economic
| retraction. (Our $26T in debt would require half of the
| entire federal budget to service our debt at such rates.)
|
| Many of our largest corporations would also fold, unable to
| service their massive debts. It'd be a disaster.
|
| That's why people fear runaway inflation, even if it hasn't
| been a problem for several decades. Once you can identify
| it as a problem, it's too late.
| csomar wrote:
| Isn't it why Japan, Europe and now the USA have
| 0/negative rates? The government literally makes money to
| borrow money. They can't default with negative or zero
| rates. They are basically being bailed out by the
| "economy".
|
| It's sensible to be afraid of hyper-inflation. At some
| point the economic actors are going to be fed up with it
| and off-load their investments.
| milkytron wrote:
| I think what the original commenter meant was that news
| outlets generally echo what big finance says. Meaning that
| they favor the views of big finance (as opposed to favoring
| coverage of the views of others).
| jonnycomputer wrote:
| Yes. And they generally appear to worry over inflation
| more. Perhaps because inflation tends to favor debtors
| rather than creditors.
| igorkraw wrote:
| Invest into stocks to save yourself from inflation maybe?
| heyparkerj wrote:
| From what I've been reading (disclaimer - over the past few
| hours) the types of stocks you target during periods of
| inflation changes. You're also playing a bit of a guessing
| game, because your return will be less than other
| investments if an inflationary period does not actually
| realize.
| nightski wrote:
| This is what makes broad index funds so attractive. VTI,
| VXUS, etc...
| RosanaAnaDana wrote:
| Buy real property if you can.
| the_fire_friar wrote:
| Not sure why this is down voted. Real estate is a common
| hedge against inflation. It's just much more complex of
| an investment vehicle and you can't just jump in and out
| of real estate like you can stocks.
|
| You could opt for a REIT instead.
|
| https://www.investopedia.com/terms/r/reit.asp
| staticman2 wrote:
| While I don't know why it was downvoted "Buy real
| property if you can" is pretty crummy advice, unless you
| think an investor doesn't have to do any due diligence
| and should "just buy" stuff.
|
| How do you know what property to buy? How much property
| should you own as a percent of your net worth? What is
| the expected return of the property? What is the
| likelyhood you will lose money on the property versus the
| likelyhood you will make money?
|
| Those are all important questions not addressed by "Buy
| real property if you can"
|
| As for Reits, there's not a lot of financial advisors
| advocating high investments in Reits. For example the
| Vanguard Target Retirement fund of funds have very
| little. The Schwab Intelligent Portfolio seem to call for
| 5% REITS in an example I pulled up online.
|
| Maybe you know something Vanguard and Schwab does not,
| but again, there's that question of due diligence.
| jonnycomputer wrote:
| in the long term real estate is the winner.
| option wrote:
| more than 20% of all US dollars that ever existed were created
| in the last 2 years and there are "no worries"? I'd like to
| learn more why.
| 01100011 wrote:
| I have heard people claim that QE is disinflationary because
| the dollars are tied up and don't add velocity but I haven't
| grokked their reasons why.
| pram wrote:
| QE and the repo operations the Fed does are "providing
| liquidity" to activity that would (presumably) normally
| happen anyway. I'd assume this would be the reason. You can
| argue the activity wouldn't happen if interest rates
| weren't kept artificially low.
|
| Another thing is these security purchases are largely
| insulated from what is used to calculate inflation. These
| are exchanges between banks and funds and similar.
| ethbr0 wrote:
| Good question!
|
| Because inflation is the sum of money supply + velocity +
| consumer expectations + goods production + international
| monetary markets?
|
| Which explains why historical attempts to point to any one
| and say "Inflation is coming / not coming!" have fared
| poorly.
| zpeti wrote:
| Historical: Except in those cases most printed money went
| to banks, buying their bad loans. Which had already
| affected house prices by 2008, and only affected asset and
| commodity prices, which did rise in price since 2008.
|
| This time round you have more and more stimulus going to
| ordinary people, who will spend it on ordinary goods like
| food. That will create a different type of inflation.
|
| (I'm not endorsing either type of bailout/stimulus btw)
| RC_ITR wrote:
| Boy would you be surprised to see that food inflation is
| decelerating and has been since the stimulus started!
|
| https://fred.stlouisfed.org/series/CPIUFDSL
| zpeti wrote:
| Have you seen the Bloomberg agricultural price index
| recently?
| RC_ITR wrote:
| Do me a favor.
|
| Log into your terminal, type in 'BCOMAGSP Index'. Hit Go.
| Then hit 'Max.'
|
| Look at the spike in 2010.
|
| Then tell me about the runaway food inflation that
| happened then.
| ethbr0 wrote:
| It's a fair point. But on the other hand, we had
| substantially depressed demand in a lot of industries for
| a year+ due to the pandemic.
|
| And while some of that money found alternate outlets
| (home improvement, streaming services [0]), the uptick in
| savings indicated a lot of it pooled [1], and the
| postponed evictions and rent / loan payments resulted in
| delayed debt obligations (which are difficult to find
| numbers on, in total?).
|
| So as usual, arrows pointing both ways.
|
| [0] https://www.familyhandyman.com/article/home-
| improvement-spen...
|
| [1] https://fred.stlouisfed.org/graph/?g=DXqc (2019-2021
| savings _rate_ )
| arberx wrote:
| Because no one was/is spending:
| https://fred.stlouisfed.org/series/M2V
| jonnycomputer wrote:
| I know at least 3 households who spent all their stimulus
| dollars paying down debt. And those are the only households I
| know how they spent it, so 100%.
|
| Decreasing debt to income ratio will stimulate demand, but
| not in a shock like fashion. Most people don't want to jump
| back into debt again.
|
| People with big medical bills (because of COVID for example),
| used it to pay off their medical debts.
|
| People with big credit card debt, student loan debt, car loan
| debt, mortgages, probably used a lot of it to pay that off.
|
| Other than that, people with homes and cars might have
| deferred repairs and renovations. So some of that is going to
| where it would have gone anyway. And why price of wood
| skyrocketed.
| [deleted]
| dragonwriter wrote:
| > more than 20% of all US dollars that ever existed were
| created in the last 2 years and there are "no worries"? I'd
| like to learn more why.
|
| Because they were created to fight deflation (only barely
| successfully, as a year ago unadjusted inflation was about 0
| and within seasonal adjustment it was negative) and if there
| are signs of sustained rather than transitory inflation, the
| Fed will suck them right back up.
|
| It's like people think monetary policy either only happens in
| the past or only happens in one direction.
| jgalt212 wrote:
| > It's like people think monetary policy either only
| happens in the past or only happens in one direction.
|
| You can make a very strong argument that monetary policy
| for the last 20 years has has little effect on CPI and
| strong effects on asset prices.
| dragonwriter wrote:
| > You can make a very strong argument that monetary
| policy for the last 20 years has has little effect on CPI
| and strong effects on asset prices.
|
| If you disagree with policymakers about what the likely
| course of inflation would have been without the policy
| intervention, maybe, but I've yet to see anyone make the
| argument _for_ that disagreement, just assert it as if it
| were an undisputable fact. So, yeah, if you assume the
| deflation QE was ddsigned to fight would not have
| happened without QE, then you are forced to conclude that
| the low with-QE inflation meant QE didn't cause inflation
| beyond what would have existed without it. But that's
| largely just assuming the conclusion.
| jgalt212 wrote:
| Here's what indisputable: If you gift money to
| bondholders, bond prices will go up. If you gift money to
| food buyers, the price of food will go up.
| eloff wrote:
| You can't take the official inflation numbers at face
| value. If you look at real inflation it's been closer to
| 4-5% a year since 2009.
|
| Which means if you had $100,000 in cash under your mattress
| in 2009, you can now generally buy half as much with it.
| Less in education, healthcare. More in consumer tech. About
| half in Big Macs or housing.
|
| Source: https://www.lynalden.com/inflation/
| eloff wrote:
| It's too late to edit this now, but broad money supply
| increased at 5% per year. Official CPI says that broad
| prices rose by about 2.5% per year on average since 1990,
| while the source I linked thinks there's a good case that
| it's closer to 3% or more. In other words, prices went up
| more like 150% (2.5x) rather than 100% (2x) in total
| during that three decade compounded annual period.
|
| 4-5% annualized inflation would be crazy - but some
| things have gone up more than that. If your a young
| person starting out in need of an education and a home -
| you'll see more than 3% inflation for yourself
| personally.
| throw0101a wrote:
| > _If you look at real inflation it 's been closer to
| 4-5% a year since 2009._
|
| No, it has not:
|
| * https://awealthofcommonsense.com/2021/01/inflation-
| truthers/
|
| Given that GDP growth has averaged 2% per year, if
| inflation was 4-5% that would mean the US economy was
| having 2-3% _deflation_ in real terms.
|
| During the economic devastation of 2009 there was
| negative 0.35% inflation. Can you imagine what kind of
| economic apocalypse would occur with negative 2%?
|
| What you are saying makes no sense whatsoever.
| dragonwriter wrote:
| > Given that GDP growth has averaged 2% per year, if
| inflation was 4-5% that would mean the US economy was
| having 2-3% deflation in real terms.
|
| Pedantic, but the that would be "contraction" not
| "deflation". (Contraction = declining real output,
| deflation = declining nominal prices.)
| eloff wrote:
| Yes, sorry my memory betrayed me. It's about 3%/year over
| the last 30 years according to the source. I posted a
| correction.
| dannyw wrote:
| Most informed economics are worse than a coinflip at predicting
| the future, so you might actually want to negate their opinions
| to get closer to the truth. Or at the very least, disregard a
| speciality who consistently gets things wrong
| jonnycomputer wrote:
| Most economic predictions are not logistic, so this statement
| is, strictly speaking, not meaningful.
| uses wrote:
| This is borderline trolling because you're not really saying
| anything specific. Mainstream modern economics doesn't
| "consistently get things wrong", you just might not notice or
| care when it consistently gets things right. Because it's
| boring and well, predictable.
| NoOneNew wrote:
| To back up the commenter's statement: most well informed
| economists kept pushing that China would sell US Treasury
| Bonds pennies on the dollar to "ruin" the US economy.
|
| Anyone with a half a brain and some real world business
| knowledge would realize: Do you really want to be the guy
| who mentions, let alone put into motion, that losing
| hundreds of billions of dollars worth of receipts to make a
| negotiation situation worse, is a good idea? At that,
| selling bonds at a discount helps open up for allied
| nations to suck up those bonds to make more future money
| themselves. Thus powering the US negotiation side even
| more.
|
| And did they play the bond game? Obviously not. They're not
| stupid. "I'm going to burn my money just to piss you guys
| off!"
|
| Seriously, many public figure economists are idiots. Not
| all. The good one's public discourse gets reserved to small
| press geopolitical publications. Even then, they always
| acknowledge how fickle an economy can be and how easy it is
| to be blindsided.
|
| So yea, high inflation in the next 5-10 years is a real
| possibility, especially as the stimulus bond payments start
| to mount.
| lottin wrote:
| > most well informed economists kept pushing that China
| would sell US Treasury Bonds pennies on the dollar
|
| Who's saying that?
| NoOneNew wrote:
| So you never actually read the articles, "China's
| economic/negotiation weapon against Trump". CNN, MSNBC
| and many other news agencies were pushing that narrative.
| throw0101a wrote:
| This story has been going on for _years_ , and it's
| always been a Nothing Burger:
|
| > _Matthew Yglesias notes[1] an uptick in Very Serious
| People warning that China might lose confidence in
| America and start dumping our bonds. He focuses on
| China's motives, which is useful. But the crucial point,
| which he touches on only briefly at the end, is that
| whatever China's motives, the Chinese wouldn't hurt us if
| they dumped our bonds -- in fact, it would probably be
| good for America._
|
| * https://krugman.blogs.nytimes.com/2013/10/18/the-china-
| debt-...
|
| * https://archive.is/4Q95O
| lottin wrote:
| No, I don't watch CNN or MSNBC, because I'm European, but
| the OP was talking about "most well-informed economists",
| not media outlets, and I was curious who these economists
| are, being an economist myself.
| mattferderer wrote:
| In this case you have:
|
| * The Fed who wants 2% inflation rate
|
| * 12 months of inflation that were very low, dipping to 0.1%.
| [1]
|
| * Re-opening of much of the economy
|
| * Massive consumer spending
|
| * Lots of issues with manufacturing & shipping over the past
| few months
|
| * Drought effecting crop prices [2]
|
| I don't think that counts as a coin flip.
|
| 1 - https://www.usinflationcalculator.com/inflation/current-
| infl...
|
| 2 - https://www.drought.gov/current-conditions
| nostromo wrote:
| Don't forget the counter argument:
|
| * The largest annual increase of the money supply in the
| history of the US, far larger than even WWII, with no end
| in sight.
| throw0101a wrote:
| With a corresponding drop of velocity ( _V_ ) off a
| cliff:
|
| * https://fred.stlouisfed.org/series/M2V
|
| * https://en.wikipedia.org/wiki/Money_supply#Link_with_in
| flati...
|
| Milton Friedman and Monetarists were wrong: velocity is
| not constant, and it does affect inflation.
|
| > _Indeed, from 1982 to 1985, Friedman repeat- edly
| predicted a major revival of inflation that never
| occurred. In 1982 he predicted 8 percent inflation for
| 1983; the outcome was around 4 percent (FORT, 03 /19/84).
| In July 1983, Friedman wrote, "We shall be fortunate
| indeed if we escape either a return to double-digit
| inflation or renewed recession in 1984" (NW, 07/25/83).
| In August 1983, he said, "U.S. inflation rates will rise
| appreciably in 1984, although it's not yet determined
| where they'll go from there" (TSN, 08/30/83). In April
| 1984, Friedman said, "I believe [the CPI] will be rising
| in the neighborhood of 8 to 10 percent in 1985."33 Even
| in November 1985, Friedman said that "Inflation is not
| dead. It will emerge once again and will be higher next
| year than it is this year. We almost surely are currently
| at the bottom of this inflationary episode and are likely
| to be starting up again" (NYDN, 11/13/85). Defying these
| predictions, inflation was consistently below 5 percent
| in every month from 1983 to 1986; moreover, apart from a
| brief uptick in early 1984, inflation continued to
| decline after 1982, and was lower in 1986 than it was in
| 1985._
|
| * PDF: https://files.stlouisfed.org/files/htdocs/publicat
| ions/revie...
| lottin wrote:
| Yeah but the money supply is an instrument of the Fed to
| control inflation. The fact that it has gone up indicates
| the Fed is attempting to increase the inflation rate,
| which makes sense because the rate is below the 2%
| target. So, I'm not sure what this argument is trying to
| tell us...
| throw0101a wrote:
| Meanwhile ten-year US bonds are 1.6%:
|
| * https://www.investing.com/rates-bonds/usa-government-bonds
|
| * https://fred.stlouisfed.org/series/DGS10
| Tangokat wrote:
| If you want to know more about inflation I recommend reading Lyn
| Aldens recent post on it:
|
| https://www.lynalden.com/inflation/
|
| Inflation is a complicated subject and is not as exact a science
| as some believe. For instance see this adjustment based on
| increase in quality:
|
| "Let's pick the Toyota Camry as a direct comparison to reduce the
| size/type changes. The starting MSRP for the automatic was
| $12,258 in 1990. The starting MSRP in 2020 was $24,425. That's a
| 100% price increase, almost exactly. That's about 2.5% per year.
|
| Certainly we can allow for a substantial amount of quality
| adjustment in the new car CPI calculation. The new Camry has
| power everything, a navigation system, better safety features,
| and better gas mileage. But is the quality/size adjustment enough
| to reduce the actual price appreciation from 100% down to just
| 22% on a quality-adjusted basis during this three-decade period,
| as official new car CPI says was the case?"
| rhinoceraptor wrote:
| The quality argument is a bit irrelevant because a 1990 Camry
| would be illegal to sell if it were made today. Obviously it's
| a good thing that safety, efficiency and emissions standards
| are going up, but those things aren't free.
| imtringued wrote:
| You can buy used cars and keep maintaining them. The car I
| bought is so cheap it barely even makes financial sense to
| repair it after 10 years, it's financially better to get the
| latest model once they hit the used car market.
| jfoutz wrote:
| I can only recall 3 forced upgrades, passive passenger
| restraints, which turned out to be airbags. Minimum MPG,
| across all cars sold (SUVs could be worse as long as other
| models improved). and crash survival, which turned out to be
| crumple zones.
|
| I wouldn't say irrelevant, but maybe "weak signal". I agree
| wholeheartedly that there are other aspects (like those
| regulations) that were not free. But a bunch of other stuff
| came along that was probably about the same price. Better
| paint. Plastic bits more resistant to being out in the sun.
| Navigation.
|
| I would claim, Corolla targeted the same market. Inexpensive
| sedan, probably a family's first car, and you could plan on
| that car being one of the kids' first car. So it probably
| targeted the same proportion of budget. On the other hand,
| the size of that market wasn't constant.
|
| There are a zillion confounding factors.
|
| I thought a little about gas itself, which I don't recall
| much regulation change around (but I might be forgetting) but
| I'd think gas in 1990 is about the same as gas in 2021. Seems
| like it was about 90 cents? just about 3 dollars now? (hand
| wavy numbers). Of course there was a war in the interim, and
| oil shale became feasible for a while. So that has its own
| confounding factors.
|
| Everything is changing all the time. Inflation seems like a
| thing, but it kinda feels like using epicycles to describe
| movements of the stars. It kinda works, but there is more
| going on in underlying system.
|
| I'm far from an expert, hell, this is mostly me relying on my
| selective memory. It feels like stuff is more expensive. but
| younger me might have had more energy and lower standards.
|
| I dunno. I guess this comment is just armchair observations.
| I think there is something going on, but it's a really
| complicated system, and I'm not Kepler.
| lostapathy wrote:
| Maybe illegal is too strong of a word, but in practice "the
| market" demands much safer cars than it did 3 decades ago,
| and that costs money.
|
| If you build cheaper cars but nobody can insure them
| economically, for example, you're not gonna get a lot of
| takers.
| throwaway0a5e wrote:
| >I can only recall 3 forced upgrades, passive passenger
| restraints, which turned out to be airbags. Minimum MPG,
| across all cars sold (SUVs could be worse as long as other
| models improved). and crash survival, which turned out to
| be crumple zones.
|
| This is a bad way to frame it. All of those things have
| dozens to hundreds of downstream effects on the rest of the
| system. Large components (say nothing of sub assemblies) of
| a 1990 car could not be used in any practical way to build
| a road legal 2021 car (without comically inefficient
| workarounds) because the design revisions needed for modern
| regulatory compliance between then and now are so
| extensive.
|
| Heck, the physical dimensions of a typical 1990 car
| probably preclude compliance with current pedestrian safety
| requirements.
|
| There were also dozens of minor revisions to the regulatory
| standards cars must meet in that time (headlight
| performance, noise emissions, etc).
| dghlsakjg wrote:
| FYI, In North America there aren't pedestrian safety
| standards from the NHTSA.
| frankbreetz wrote:
| With cars, I think it is important to factor in how long it
| lasts. If a car lasts twice as long shouldn't it have half as
| much impact on CPI? I don't think that makes it too much of a
| stretch.
| BryanBeshore wrote:
| In 2018 I bought a Jeep Wrangler for $40,050.
|
| Vroom offered me $42,722 for it today
| SilasX wrote:
| Another anecdote: my 2015 Infiniti just a few months ago was
| estimated at $15k, last weekend KBB showed $17.5k.
| dave5104 wrote:
| Doesn't that have more to do with the automotive/chip supply
| issues than inflation?
| imtringued wrote:
| Inflation is pretty much always a supply issue.
| spamizbad wrote:
| Yes and 1/3rd of the inflation is attributed to vehicle
| prices.
| paulpauper wrote:
| this makes stocks and real estate more attractive. you are not
| going to get 3-4% with cash or treasury bonds
| [deleted]
| sbelskie wrote:
| "The Labor Department's data showed a 10% surge in the cost of
| used vehicles that accounted for more than a third of the
| increase in the overall CPI."
| m3kw9 wrote:
| I hope people won't attribute 100% of that as inflation. It
| rather due to supply issues.
| omalleyt wrote:
| What factory makes used cars? It's pretty hard to say there's
| a "supply chain" for used vehicles
| redm wrote:
| The lack of new cars is driving up demand for used cars.
| Supply chain issues in new products increases used product
| value if demand is there.
| ericabiz wrote:
| New cars aren't available due to chip shortages, which
| enhances demand for used cars.
|
| That being said, if you happen to have an extra car, now is
| probably the best time to sell it in recent history.
| oflannabhra wrote:
| What happened 12 years ago? 2008 happened, and resulted in
| a decade of incredibly low new-vehicle output. Add in the
| Cash for Clunkers program, and used inventory levels are
| about as low as they've ever been. This is the same as the
| housing market, the result of a decade of underbuilding.
|
| Couple that with stimulus money making down payments easy,
| and low interest rates keeping monthly payments low, and
| you have a recipe for prices to take off like a rocket,
| from both ends of the supply-demand curve.
| omalleyt wrote:
| Right, that doesn't sound like a supply chain issue, that
| sounds like a decade of structural issues leading to a
| perfect setup for structural inflation
| mywittyname wrote:
| The USA needs to sell roughly 15 million new cars a year to
| maintain an adequate supply of used cars. Falling below
| that target will cause used car prices to rise in the
| following years.
| mc32 wrote:
| Not necessarily. Cars that go out of circulation can be
| made road worthy, if demand for them is there. Having a
| supply of new cars means old second hand cars get retired
| even if they could be made just as road worthy as any
| other second hand cars.
| mc32 wrote:
| Money supply issues?
|
| Pumping this much free money into the economy is going to
| cause prices to go up. We're seeing labor prices go up.
|
| Whether minimum wage should be 12 or 15 is tangential. We're
| seeing where people will not take a job unless it pays
| significantly more than the can draw from COVID benefits.
| Those pay premiums mean your groceries, coffee, fast food,
| then rent, then real estate, etc., etc., is going to cost
| more.
| greedo wrote:
| Did you see the article/comment from Chipotle's CEO about
| the impact of increasing wages? Going up to $15/hour would
| increase menu prices between 2-3%.
|
| Labor prices have been low forever. Businesses have been
| taking advantage of low labor costs for service jobs
| literally for decades, pocketing the profits while
| expecting the government to fill the gaps with
| welfare/SNAP/EITC etc. And a good portion of this labor
| segment has decided (after experiencing the COVID
| lockdowns) that they don't need to put up with crap wages
| for a crap job.
|
| I worked in the restaurant biz for over two decades, and it
| disgusts me how much it (and other service jobs) take
| advantage of employees. I was repeatedly told that every
| time the minimum wage went up, we'd have to lay off
| employees, or cut benefits etc. And every time, net income
| went up for every place I worked. It's just BS.
|
| https://www.restaurantdive.com/news/chipotle-
| cfo-15-minimum-...
| dv_dt wrote:
| Unfortunately "Inflation from too much money chasing too few
| goods" is often in people's mind with only a focus on too
| much money, and rarely any thought to too few goods -
| especially when we know right now it's almost certainly to a
| huge degree temporary supply dips in goods - with waves of
| covid still rising in international supply, as well as the
| logistics of companies dropping production during pandemic
| (e.g. w/ automotive chips).
|
| It's also a metrics problem - you can see inflation increases
| which are easy to equate to units of money, but I don't think
| there's as universal an index of supply. Likely some
| industrial output index over time would better quantify how
| much inflation is pandemic disruption of supply, vs money
| supply. I predict it's mostly supply disruption.
| jerf wrote:
| Inflation is a summary statistic, or, if you like, an effect
| rather than a cause. Though of course as it flows downstream
| it becomes a cause of the next round of effects. But still,
| fundamentally, it's an effect rather than a cause. All of the
| inflation has "reasons" behind it. That doesn't make it "not
| inflation".
| throwaway4good wrote:
| It is. And we are in the middle of a global transition to
| electric vehicles which ultimately will be cheaper than
| gasoline powered ones.
| frankbreetz wrote:
| Inflation is still inflation if it is caused by supply
| issues.
| matthewdgreen wrote:
| Yes but the treatment is potentially very different. Having
| the Fed use its blunt monetary tools to control a price
| increase might not make sense if that increase is caused by
| a specific supply-chain issue.
|
| "Inflation is still inflation" is like a doctor saying "a
| headache is still a headache" and ignoring the fact that
| one patient's headache is caused by an operable brain
| tumor, while the other drank too much the night before.
| neogodless wrote:
| I was considering selling my car 6 months ago, so I checked the
| KBB used car private party price/value, and it was around
| $12,500. That same report today says it is $15,500.
|
| (6 year old hatchback with top trim, very low mileage.)
| IG_Semmelweiss wrote:
| There is no runanaway inflation because it is specific to asset
| classes, and, critically we have managed to export a great deal
| on inflation abroad.
|
| Look at asset prices outside of the US. A cursory look at home
| values in specific markets within colombia, Mexico, Russia and
| Argentina tell you a lot of where things are going, post COVID
| lend000 wrote:
| Random length lumber futures are up 200% since the pandemic
| began. Copper and soybean futures are both up 60%. Industrial
| steel is up 133%. Industrial silicon is up 70%. Sunflower oil
| +114%. Wheat +20%. Platinum +29%. Gold +20%. Aluminum +32%.
| Energy futures +30%. Natural gas +42%.
|
| SPX is up 25%, despite almost certainly taking a productivity hit
| as a whole. The money is definitely flowing, and consumer prices
| will be a lagging indicator as multi-year supply chain contracts
| expire and are renegotiated on the higher raw materials prices.
| ericabiz wrote:
| https://archive.is/IKNlf
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