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.
Who's saying that?
> 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-...
* 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...
* The largest annual increase of the money supply in the history of the US, far larger than even WWII, with no end in sight.
* https://fred.stlouisfed.org/series/M2V
* https://en.wikipedia.org/wiki/Money_supply#Link_with_inflati...
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/publications/revie...
I'm horrifically ignorant of economics. Why is the "runaway inflation" story favorable to big finance?
You could opt for a REIT instead.
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.
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.
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.
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.
What's the process for containing inflation, and what's its mechanism of action?
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.
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.
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)
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)
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.
EDIT: Just to be clear on my point: Yes I agree that people are hedging inflation via commodity futures (like they do after most recessions), but that doesn't mean they're right. In the same way stock prices are often a bad indication of a company's actual value.
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.
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.
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.
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.
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.
Pedantic, but the that would be “contraction” not “deflation”. (Contraction = declining real output, deflation = declining nominal prices.)
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.