Right now it yields 7.12% because the last inflation number was really high, but once inflation goes back to normal, the yield will be much lower.
The formula is: Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]
7.12% = [0.0000 + (2 x 0.0356) + (0.0000 x 0.0356)]
This rate is only valid until the inflation rate gets re-adjusted after 6 months. There is an interesting chart showing what the fixed rates and inflation rates have been throughout the history of this bond.
For those considering investing in this, there is a $10,000 max per eligible person. Eligibility includes: 1) United States citizen, whether you live in the U.S. or abroad. 2) United States resident. 3) Civilian employee of the United States, no matter where you live.
Parents can buy these bonds for their children, so a family of four could invest $40k earning 7.12% for at least 6 months. Eligibility requirements are here: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
For comparison, TIPS trade at a negative real yield [1].
[1] https://www.treasury.gov/resource-center/data-chart-center/i...
I'm sure you know this so this comment is more for the casual reader: "I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest."[1]
Worth keeping in mind these aren't really short-term investment vehicles. But earning 2x inflation rate is pretty decent for a low-risk investment.
[1]: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...
Maybe you mean this anyway, but your statement could be misunderstood: One doesn't earn twice the inflation rate. It is multiplied by two to give an annual rate that can then be combined with the annual fixed rate. When calculating the coupon, you would of course have to adjust for half a year.
Is it transitory as they unflinchingly claimed or are we in the Carter Years?
Bill Maher has expressed frustration with lockdowns throughout the pandemic. That he holds the view you mention does not seem surprising or remarkable to me.
(He also seems like an unusual choice to bring in as an authority on this topic. He is primarily a comedian.)
(*) According to FDA/CDC and Israel, which are promoting the 3rd boosting shot in less than a year and anticipating the 4th.
They called it the Great Depression, I suspect it's about to get renamed. This is going to suck.
The supply chain looks ready to collapse, along with public confidence in all of our institutions. History doesn't repeat, but it sure is rhyming, quite loudly right now.
There are many many months of rent and utility bills that haven't been paid. Due to the massive shift to remote work, commercial office space is likely to experience a 50% or more occupancy drop (maybe even worse?). Our large urban centers have a funding model that is suddenly unsustainable if this happens.
Everything to me, at least, is screaming danger, danger Will Robinson.
If we huge inflation, then all these expensive mortgages people stretched for the last few years will be super cheap, so all of a sudden majority of Americans will be out of debt, for example.
All those empty commercial properties instead of foreclosing will simply rent home out for "low rent" purposes like gyms, but that low rent in inflated terms will cover the cost of their lease/mortgage.
It could be messy, and will need support from many players, but I don't think we are looking at a Greater Depression.
Your point seems mostly like demagoguery. I think the more interesting question is... is 5% actually bad? There's a real argument to be had here that rapid inflation reflects genuine improvements like rising wage levels and that it's worth paying for. Remember that the "biggest losers" in inflationary economies are people who hold assets, not investors (whose returns accomadate faster than things like loan terms) or wage workers (who don't have significant assets to depreciate and whose wages track inflation well).
As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone. You, know, where they'd have to 'devaluate' their currencies to make up the difference?
This is simply untrue. Like not even close the definition of hyperinflation used by economists. Hyperinflation is a monthly inflation rate of 50%, or 12974.63% annually.
This is scare tactics.
High inflation is what we had during the Carter years. People who lived though it say it was awful. Five per-cent may be on the cusp, but 8% is getting up there where it eats up a wage earner's buying power.
Now if I was some über rich dude with millions of capital tied up high friction investments, forced to choose between paying capital gains taxes or losing to inflation, i may feel differently.
Frankly, we need to put shitty businesses that exist by virtue of low interest rates out of business. It should not be feasible to buy thousands of single family homes as investment property, for example.
But your average Joe and Jill in the world working restaurants or deliveries, they can't just shrug it off.
The "poor" are, in fact, doing significantly better (economically, anyway) now than they were in 2019. I'll have to go look it up, but there was a great blog post a few months back looking at poverty statistics over the pandemic. The relief bills helped a ton.
Those are transitory, and even if they become permanent, never forget, inflation is a compounding process, so to keep up there must be the political will to re-up them. Moreover, the irony is that the way to fund the relief bills is to create more inflation.
You are advocating putting all of society on an accelerating treadmill that pushes people backwards towards poverty.
Exactly. So is the pandemic. And so is the resulting inflation. I think you agree with me.
Inflation is nothing but fucking over the people who can handle it the least.
It’s like has prices. They go up before the new delivery is in the grind tanks, but goes back down way after the expensive gas in the ground was all sold.
The biggest losers among sophisticated, moneyed actors are indeed people who hold assets.
But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.
And therein lies one of the big pseudo-centrist points here. A mild reduction[1] in fixed-rate entitlement programs is coming down the pipe at some point regardless. This essentially gets the hard part of that political calculus out of the way "for free" (or at least in a cheaper way, since you can blame covid).
[1] Contra the nutjobs who predict the Death of Social Security or whatnot.
No, if anything it hastens having to deal with the hard part, since SS benefits are wage indexed during employment and CPI-indexed in retirement, not fixed. Inflation drives up the nominal $ cost for current retirees, and, ceteris paribus, hastens trust fund depletion.
Telecom? Utilities? Mining?
This is widely stated, but only barely accurate sentiment.
First, index funds do good at 1 thing - which is provide "market returns". Market returns is basically defined by an index, so naturally the definition is circular. The parent mentioned dividends, which are not the normal target for investors (but useful for retirees and others who want an "income" from investment). Dividend stocks may do worse at beating market returns, but better at income generation.
So, non-SS pensioners?
Not: Social Security recipients (it has an inflation-indexed COLA).
Not: public benefit recipients (this inflation is in part a product of temporary increases to aid at the lower end of the economic spectrum).
Not: low-end labor, where prices are being bid up. (And also, often a beneficiary of the previous point.)
If inflation were “good” then the US along with many countries the word over would cause it to happen —it’s easy to do.
Literally every single one of them that controls its own monetary policy (including the US) actively and deliberately does, so there's that.
What I mean is if what we have now (which is about double the norm) were good, we would have done it a long time ago and so would have others.
If we had the previous inflation measure (same as 1970s), CPI would be closer to double digits now (because of housing appreciation over the last year).
https://www.wsj.com/articles/inflation-numbers-1970s-cpi-hou...
Like it or not "home values" decoupled from "housing costs" over the past two decades. The reason for that metric change was to preserve equivalency, you don't get to argue backwards because of it.
you mean, once the "inflation number" goes back to normal.
Inflation (supply of money) has been high [0] for literally decades. It won't get lower for a long time. It may never EVER go "back to normal." Normal would put us in a very bad macroeconomic position relative to all other nations. Why would we, the purveyor of the Petrodollar, do that?
We could experience very high inflation, but hyperinflation is becoming a random word that people throw around without understanding the definition.