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Comment by howmayiannoyyou | Hacker News Reader

Inflation hysteria.

Ask yourself how much of current inflation is speculative (eg. Blackrock buying single-family homes, Glencore buying copper, Zhongda Group buying aluminum). Now ask yourself what these folks are doing as they watch Fed reserve rates climb, reverse-repos skyrocket, PBOC/CCP order reduced commodity speculation, and 4 months of declining US home sales, falling lumber prices. The inflation shock is/was temporary and could well be followed by a deflationary shock if the powers that be overreach (as they usually do).

Lead-times on goods remain long. This induced reversion to the mean won't happen overnight, but I believe it is well under way.

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The debt to gdp ratio is higher than it’s ever been.

https://fred.stlouisfed.org/series/GFDEGDQ188S

I don’t see us cutting back spending any time soon, so it doesn’t seem crazy to me that we inflate our way out of this, especially since after this pandemic a lot of countries are in a similar situation, making inflation more politically viable

> The debt to gdp ratio is higher than it’s ever been.

Have a look at Japan:

* https://fred.stlouisfed.org/series/DEBTTLJPA188A

Japan's inflation:

* https://fred.stlouisfed.org/series/FPCPITOTLZGJPN

There was only one published paper that I'm aware that had any debt-GDP-inflation link (Reinhart-Rogoff) and it was retracted:

* https://en.wikipedia.org/wiki/Growth_in_a_Time_of_Debt

FWIW, I seem to remember that taxation is also a pretty good instrument against inflation.

When was the last time we've raised tax rates appreciably? The graph I found shows the top marginal tax rate hovering around 30-40% since 1986, and the last major tax increase (> ~10%) being 1949.

https://bradfordtaxinstitute.com/Free_Resources/Federal-Inco...

With a 50-50 Senate split and Manchin committed to bipartisanship, I don't see much chance of successfully passing significant tax increases.

Don't forget Hauser's law [0]: "No matter what the tax rates have been, in postwar America tax revenues have remained at about 19.5% of GDP."

0: https://en.wikipedia.org/wiki/Hauser%27s_law

An interesting idea from Matthew Yglesias was to not care about maximizing revenue as a primary goal of raising tax rates:

> The Laffer Curve — the idea that tax cuts can sometimes increase tax revenue — is one of the most influential and widely debated ideas in the past two generations of American politics. Beloved by the right and despised by the left, one thing that both sides have tended to agree on is that knowing what side of the curve we're on should be a key driver of tax policy.

> But in an era of surging inequality, it's time to revisit that assumption. Maybe at least some taxes should be really high. Maybe even really really high. So high as to useless for revenue-raising purposes — but powerful for achieving other ends.

> We already accept this principle for tobacco taxes. If all we wanted to do was raise revenue, we might want to slightly cut cigarette taxes. And since cigarettes are about the most-taxed thing in America, we certainly would want to cut out all our other anti-smoking initiatives. But we don't do that because we care about public health. We tax tobacco not to [primarily] make money but to discourage smoking.

* https://www.vox.com/2014/4/18/5620702/case-for-confiscatory-...

Always look at the 30 year bond yields. If they are out of control, then I get worried

From a practical perspective, doesn't inflation naturally destroy large capital accumulations and debts? From a policy perspective this would seem like a viable remedy to the current extreme income inequality and debt burden.

Only if wages rise accordingly. There is some sign it may happen given the still-high levels of unemployment combined with companies actively seeking workers, but it’s too soon to really tell.

Assets like housing and land have certain intrinsic value to them. The intrinsic value doesn't change because the amount of money circulating doubles, but the price of the asset in the inflated currency rises.

Since wealthy people hold more of their wealth in assets, this insulates them from inflation more than those who hold their wealth in savings or who live paycheck to paycheck and see their cost of living increase.

On paper it does reduce the burden of certain debts, but people on the lower socioeconomic end of the spectrum are often already paying debts at much higher or variable interest rates.

It's a complicated relationship. The prices of assets are related to the price of debt (the cheaper the debt, the more expensive the asset). Housing is an asset that pays a coupon (rent), so it acts a bit like a bond. Bonds have been riding the coattails of decreasing interest rates for the last 40 years - if interest rates increase then stocks, houses, bonds etc are going to deflate.

While inflation with low interest rates might increase the value of assets - inflation that leads to higher interest rates might actually do the opposite. So it ends up being a choice of the central bank which way to push this thing (although there is a lean towards keeping interest rates lower for longer because of the size of the U.S. government debt interest payments)

So yes, there is a huge transitory supply shock that's inflationary. At the same time, there are structural labor and energy issues that in my view will contribute to longer term price strains but not of the 70s variety.

These type of "Yes men" are going to be the ones hurt the most for going along with the script.

Interest rates can never be normalized because we can't afford the interest on our debt. That's going to continue to distort the market for the foreseeable future.

Blackrock etc. will get bailed with your money when their speculation fails.

Everything is a mess and I'm having a hard time figuring out what are the reasonable investment options available to an average person like myself.

A well balanced portfolio across 16 asset classes with a strategy based on your short and long term goals.

Don't invest in single issues (idiosyncratic risk ) and have someone else do it for you if you're too personally involved.

Gardening.

The Fed pumped almost $6 trillion into the money supply. That is 3 times more than was done for the 2008 crash. I do not think it is hysterical (which is loaded and gendered term, btw) to worry about the impact that could have on the value of my hard earned savings.

But they are not using it in a gendered way, and doesn't that actually help us recover a term that has legitimate uses?

Deposits are liabilities for banks and much of the injected money has found its way back into the Fed's balance sheet, exchanged for Treasuries the banks need(ed) to maintain collateral requirements (offset deposit liabilities). It may have made passes through the 'normal' economy, but is now caught in a repo loop that has little to a negative impact on velocity, but is inflation negative.

> Inflation hysteria.

And it doesn’t help that there is a strong financial incentive in spreading inflation fears now.

Do tell. What are the strong financial incentives, and who has them?

Advertising cryptocurrency as a "hedge against the imminent inflation" helps the holders of a given cryptocurrency to increase the value of their holding.

Ah, I see. Yes, it does. (Ditto for holders of gold, but that's nothing new.)

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