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Comment by simonsarris | Hacker News Reader

I've mentioned before [1] but these prices still don't seem that serious. Most prices have still not beat their highs made in 2008-2014 (crude oil, global energy price, eggs, milk, sugar, rice, chicken, pork chops). Ground beef is an outlier, however. And US price per kwh is back at its peak, though it declined in these October numbers to be below... 2014 numbers again. [2]

So while the climb up is bad, the prices themselves aren't even unprecedented. In lieu of an extraordinary global supply chain crisis, these numbers actually seem impressively low. We cocked up everything for a year and prices finally shot back to... prices from 7 years ago?

If fed policy has any effect at all, I think we owe them one for being so cool-headed and non-drastic these past two years. They're doing much better than politicians or the media, at least.

[1] I have some commentary here, and more in a reply to user `anm89` https://news.ycombinator.com/item?id=29114086

[2] https://fred.stlouisfed.org/series/APU000072610

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It's not the prices people are necessarily scared with, it's the rate of increase. It's higher than was anticipated.

What's also concerning is that the velocity of money is really low while M2 money supply is very high. If the velocity picks up we could be in a world of hurt.

This post and its parent hit the nail on the head. Levels aren't particularly worrisome. High, sure, not scary high. However, you should still be worried. Just not about current prices.

It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.

But you’re mistaking inflation for the rate of inflation growth. The rate of inflation growth is horrible right now.

> But you’re mistaking inflation for the rate of inflation growth.

You mean... like... a first derivative? What am I mistaken about? I literally said literally exactly this:

>> It's various first and second derivatives + the amount of "potential energy" in the system that have (informed) people scared.

(and, in fact, it's not just the rate of inflation but also several other related rates of change and rates of rates of change and stocks of things that can fuel changes in those rates, but engaging in that nuance seems a bit fruitless given that you seem to be literally repeating my own point back to me while thinking you're disagreeing with me.)

> The rate of inflation growth is horrible right now.

yes thanks for repeating my point for me.

There's really not a need to be that hostile. They probably misread; I did too at first. I thought you were referring to financial derivatives.

> the velocity of money is really low

For those curious (like I was) about the exact numbers for that I quickly found this chart [1] from the St Louis Fed that strongly demonstrates OP's point. Only partially related to this, the sustained downward trend starting with about 2006 is really interesting, I'm wondering if there are any (relatively) recent papers written about this phenomenon.

[1] https://fred.stlouisfed.org/series/M2V

M2 * M2V = GDP

With GDP being mostly the same trend it has been this chart is just tracking the surge in M2.

Maybe a stupid question, but if the velocity goes up, couldn't/wouldn't the Fed contract the supply?

It seems like having large supply is desirable/correct when velocity is low.

No. We live in a fiat currency world where every dollar is allowed to leverage 10x. This means that every dollar defaulted on results in the destruction of 10 dollars. Even during the housing crash of 2008, the money supply didn't contract because the government was forced to keep the money supply constant, and if they did not it would lead to cascading failures that would destroy the currency entirely. Allowing the money supply, given all of the moral hazard we've shown so far, would be suicide to the economy.

The Fed's next step is to slow down this inflation, and they will do so by raising rates. The Fed's dot plots shows that they will reach the rate of the 30Y Treasury bill sometime around 2024, but with this data they might bring that up to 2023. This will, like every single other time they set the Fed Funds Rate above the 30YT, cause a recession 6 months afterwards, which will bring down the inflation pressures. Problem resolved?

That's totally standard, and not yet the true problem. The problem is after that. Once we reach that recession the Fed quickly drops the interest rate and that brings us out of the recession. But interest rates are already so low, we've already pumped so many dollars into the system, that it might not cut it. We might get cascading failures, we might get stuck in a depression. This might be the end of the long-term debt cycle.

I am waiting with my popcorn ready for the exciting show to unfold when the Fed seriously raises rates. Those in Western Europe (low or negative bank account rates) will park funds in US banks. This will increase demand for dollars and put the final nail in the euro. This will be exciting to watch.

Again, maybe dumb question, but what sense is "every dollar leveraged 10x"?

Also in 2008, it looks like money velocity decreased during the recession (as it's been doing almost monotonically since the mid 90s). It looks like after the crash, velocity increased slightly, and indeed the supply contracted just slightly at basically the exact same time.

Fractional reserve banking.

If a dollar is defaulted, I'm not sure it's accurate to say that one dollar is destroyed (as opposed to moved), let alone ten? If the borrower defaults, it is the same as the borrower owing the depositor $1 (the bank is in a sense acting like a risk-absorbing and expertise-adding middleman between the depositor and the borrower).

And doesn't whether that dollar is "destroyed" depend on why the borrower can't pay it? If it's because someone else got ≥ $1 richer off the borrower, then it seems to me like the supply of money in the economy as a whole hasn't actually gone down.

Ray Dalio's "beautiful deleveraging" ?

Of course they would try to do it - first of all raising interest rates. However they are basically trapped now and it's questionable if they can still control situation. With current debt levels it might be extremely hard to raise rates or sell instruments they hold that were bought with printed money (to take off liquidity of the market). On top of that I would say all the rich and influential are well positioned for high inflation so it's speculation but I wouldn't bet that Fed will choose hard recession scenario...

I'm not sure where you are getting your numbers. Food prices are 30% above where they were in 2010 in the CPI for example.

2010 was the bottom that came after a rather devastating recession. Everything was abnormally cheap in 2010.

That doesn't really change much, it's a rounding error in the calculation. The actual number if you compare to the pre-recession peak is 29.7%.

From the CEO of Square who access to real world data at scale:

Hyperinflation is going to change everything. It’s happening.

https://twitter.com/jack/status/1451733913961783299

CEO of Square, but also kind of a crank who's long on crypto, so he has a vested interest in convincing people to YOLO their savings into crypto so he can cash in. I take his statements with several blocks of salt.

Just wow. So he's just a crank because he likes Bitcoin now?

How easily you just brushed off the successful startup ceo of not one, but two huge tech startups (Twitter, Square).

What do you think it takes to be able to do what he did? Oh no, he's just a crank because he likes Bitcoin now, let's just brush off everything he says from now on. It's not like he's someone who's actually proven himself capable and as someone worth listening to.

> So he's just a crank because he likes Bitcoin now?

Read it as "he's a crank and also likes bitcoin".

Anyways. There's undeniably a massive PR campaign right now to get retail investors into crypto. Fucking football players and media personalities are taking paychecks in bitcoin and posting PR-drafted tweets about it.

Even if I were still long crypto, I'd be sitting the next few months out. Way too reminiscent of dotcom -- folks who know nothing about finance, investing, or crypto are "investing" in highly volatile speculative vehicles. This only ends one way.

Jack is a crypto maximalist who is trying to sound the alarm over a very, very unlikely outcome. He's biased.

I live in disability. And I can tell you the inflation is serious.

I see significant errors in your thesis. You are using global commodity prices to make claims about US consumer prices and consumer inflation. We have comprehensive data from national food retail that shows strong price inflation. Your insistence in using global commodity prices to disprove consumer inflation concerns is incorrect.

No, I have used only US commodity prices, except crude and a global energy figure, which is why I also added US kwh prices. All food prices mentioned are US-only figures.

The link you provided in your previous post is about global prices and uses global commodity data. They are certainly not US-only figures. Correcting this error would likely show you that inflation is real.

That article is about world food prices, every single link I give in my comments contain US-only food prices: https://news.ycombinator.com/item?id=29114501

I have never said that inflation is not real, only that this price inflation has merely returned prices to 2011-2014 levels (excepting beef, which is actually at a new high).

Prices are always moving so you can say anything you want by cherrypicking individual categories. That says nothing about inflation.

For this comment to be helpful, you could offer links about goods that you feel better better represent inflation.

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

I'm not saying food prices (even broad baskets like the this) represents inflation. The broad indexes are better for that. But it's not true to say that food prices are at the same level as a decade ago.

I don't think the parent is arguing that inflation isn't real. They are arguing that in spite of inflation we are at 2014 price levels.

I would note that prices are markovian. So if something doubles over night it means something happened to affect that price. All the information about the thing and its history is represented in the current price. Having that price double overnight conveys information that something is happening. It doesn't matter that the thing cost even more 10 years ago.

You have to look at prices on the margin.

the problem with this line of reasoning is that the Fed has tools to control inflation which they are not using because of it (namely, rate hike) while simultaneously the working and middle classes are feeling the worst effects since they own the fewest equities, least property, and have the most shoestring budgets

meanwhile if you're rich you prob got richer

perhaps we need to rethink how healthy inflation really is

There have been some supply shocks in the past year, but I'm increasingly convinced that the disaster rhetoric around inflation is more of a political argument more than an economic one. Personally I suspect it has more to do with justifying austerity in order to curb labor's demand for more money than anything else.

> I suspect it has more to do with justifying austerity in order to curb labor's demand for more money

The problem with blowing off inflation because you think it empowers workers is that the latest round of inflation more than erased all the wage increases that were provided. In real terms, workers have been falling behind.

So perhaps to make those labor demands more real, it might be a good idea if the government wasn't competing with the private sector for goods and services.

To be clear, I think that all of the price movement we're seeing today is a result of supply chain shock and pent up demand. Arguing about inflation while the ports are still clogged seems extremely short sighted to me; of course prices rise when supply is stuck in a container in LA! Once the supply chains clear up, then we can decide what, if any level of inflation we're seeing.

Until that point in time, I will view any doomer narrative about inflation and the proposed solutions for it with extreme skepticism, especially when the proposed solution is convenient for capital and hard on labor.

Not a single item I buy in the grocery store right now is less than 50% more expensive than it was 6 months ago.

Here (Michigan, US) there is not a single grocery item I buy that has gone up even 35%. Most items have not gone up at all.

Might you tell us your approximate location?

In Massachusetts I haven't noticed any prices going up, everything is the same as 3 years ago.

I used to spend an average of $50 a trip and now it is $70

Cereal I could buy for $3 and granola bars I could buy for $2 now cost $4.30 and $3.29 respectively. Detergent that was $5 is now $7.50. McDonald's cheeseburgers are $2 on their own. That is the largest jump of inflation I've ever experienced in such a short time.

That is not a lot of information, though. Processed food has been harder hit than real food and areas that are entirely dependent on trucking because of a lack of ports or rail also have seen much greater impacts.

I could go to the grocery store later today and catalog about 400 items for you that have jumped 2 or 3 dollars like that. I am telling you it's insane right now.

You don't need to do that because we have a whole team of people whose jobs it is to measure this in a more systematic way - by checking prices all over the country and in a large number of different stores and for many different goods. They report that dood prices have climbed from 260 to 277 over the last year (all items). Within that group, the biggest climbers were meats, poultry, fish, and eggs (+12%).

https://www.bls.gov/news.release/cpi.t01.htm

Parent is exampling how IRL challenges look.

It's fairly miserable to endlessly hear how a problem is 1x big when it's actually 4x big for most folks in your region.

OTOH, the personal experience of individuals will be amplified in their mind due to cognitive distortions. Our brains remember the prices that have gone up, put less emphasis on the prices that haven't.

People reporting their experience will have significant distortion due to how our minds work.

Processed food manufactures also have a bunch of tricks up their sleeve to manage price fluctuations, since that is one of the most critical aspects of their success. Tracking price per ounce is a much more accurate measure, since most manufactures want to fix a price-point for a product.

However, what even that misses is coupons and sales.

Poor people, which is a large majority of the United States, can only afford processed food. You neoliberals in your whole foods crap make me nauseous.

As a housecleaner I live in the SF Bay Area on between $15-20k/year. The cost of my dietary staples which are primarily vegetables, leafy greens, dairy products, and eggs has hardly budged.

Anyone who has access to a kitchen can with practice use minimal time and effort produce meals that are competitive with processed options from frozen foods, grocery store chickens, and of course fast food joints. Though cuts of meat have gone way up in price, whole chickens are still reasonably priced for those who can process a bird which is not really that hard.

I agree with this as well even as a Midwesterner. People balked at me when I told them I have gone by paying only $100/mo in food before(everything including out to eat). People don't realize that you can live without red meat. And chicken is a cheaper, healthier alternative.

Poor people are a large majority? Like, 2/3? 3/4?

Median family income is 80K in 2021. The median HH income for 2021 will come out soon, but it will be north of 70K.

> Poor people are a large majority? Like, 2/3? 3/4?

Over the last generation, indications are far over half experienced regular struggles.

2019 - nearly 70 percent of Americans have less than $1,000 stashed away https://www.statista.com/chart/20323/americans-lack-savings/

2021 - Firehosing cash directly to the public helped some: 25% had no emergency savings, 26% say they have some emergency savings https://www.cnbc.com/2021/07/28/51percent-of-americans-have-...

> Over the last generation, indications are far over half experienced regular struggles.

Most people experience "regular struggles", by definition. Life is a struggle. But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else. The "large majority" of the U.S. is not poor. That's just obviously true from the income data I cited.

If that data is not enough, look at SCF wealth data here:

https://www.federalreserve.gov/econres/scf/dataviz/scf/table...

Median Household networth of 50-75 percentile - what you call "large majority" - is $240K. That's not poor.

Median Household networth of 25-49.9 percentile is $58K. Also not not poor.

Median (50th percentile) networth is $121K.

I really encourage more of a reality-based approach to throwing around phrases like "the large majority of Americans are poor".

> Most people experience "regular struggles", by definition. Life is a struggle.

This seems obtuse. The entire thread is focused on finances. It should be self-evident my post is referring to financial struggles.

> But we have a way of defining who is poor and who isn't in terms of income, and it's good to use the same language as everyone else.

Different metrics aren't a different language.

> The "large majority" of the U.S. is not poor.

A narrowly crafted a declaration makes it easier to find metrics that fit. With that comes a weird assumption that those metrics are the same ones that matter to poor Americans.

For actual people - the meaningful measures of financial health are the long term security of food, housing, medicine and the resources needed to maintain them (eg:savings,transportation).

For actual people - when those things become unobtainable, a state of poverty is in play.

If preferred metrics aren't reflecting long-term or recurring conditions of poverty, maybe we should pivot to metrics that do.

> Different metrics aren't a different language.

You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com, whose results were released as a PR announcement meant to encourage people to open savings accounts. The "no savings" means "no money in a savings account" by those who answer the poll. You know nothing about whether these people were even in the labor force, how old they were, what money they had in checking accounts or 401Ks or money market mutual funds, and whether they were a representative sample (N=hundreds). Because an internet poll is not a study, and a marketing campaign is not scientific data.

This is clickbait. If you have a quality study not published by bankrate.com, then please cite it. And also explain why you are ignoring the US Census and the SCF, which is what everyone who studies household wealth uses.

I am citing the gold-standard academic study of household finances -- the survey of consumer finances, and the gold standard study of income as determined by the Census. This is not a situation of "different metrics", this is a situation of bad data versus good data leading to bad conclusions versus accurate conclusions.

Please look to the Census and academic studies to form your worldview of the state of US household finances rather than Bankrate.com's marketing department.

> You aren't citing a "different metric". You are citing an unscientific internet poll by Bankrate.com

Again, this seems obtuse. It is interesting that your inference of a single poll ignores the many (well publicized) savings studies, that are regularly conducted by a wide number of organizations.

> I am citing the gold-standard study of household finances conducted by the Federal Reserve regularly since the 1970s

That's nice. Metrics adopted in the 1970s based on data from even earlier decades doesn't universally inspire the confidence that you seem to feel. I'd offer that metrics that well reflect the ~entirety of America who faces a meaningful risk of losing housing/medicine/food would likely be the metrics that most matter to people facing those risks.

Otherwise it feels similar to hearing the unemployment rate is 4.9% while >24% of 16-64 aren't working.

>But we have a way of defining who is poor and who isn't in terms of income

Yes, the definitions. Is it a definition or a lived experience? Politicians love to define away poverty.

These definitions are how millionaires were able to claim they are poor to get assistance during COVID.

Life is a struggle. But why? Why is it a struggle in this country, the "richest" country? Why do I have to be homeless, living in a minivan, fighting a mental illness? That is by design. This squid game we are living in is a design, it has rules, and we can change them in a second. But most people just want to be the next million/billionaire so they are afraid that changing the rules will mean they do not get the piggy bank of money they dangle over your head.

As a society we are poor. Compared to people in countries like France and Finland, we are poor, because we are always faced with these life and death decisions about jobs and healthcare. That is what it feel like to be poor; always guarding yourself, always frightened.

> Median Household networth of 25-49.9 percentile is $58K. Also not not poor.

Hell, as a yearly income, that's poor much less a networth. Not destitute, but definitely poor. You can't afford to live anywhere near a city and probably live in a trailer or worse (shack with limited services). The metric is by household, so no splitting with roommates.

> Hell, as a yearly income, that's poor much less a networth.

Not really, because this is primarily young people who are building savings. By retirement age, the savings are much higher even for the median household. Even in the 45-54 cohort, the median networth is 168K. By the time you reach 55-64, median HH income is $213K. Post-retirement, 65-74, median network is $266K. Then it starts to decline as people spend down their savings, so 75 and over it's $254K.

I mean, I guess you can call whatever you want "poor", but we have standard definitions for these things.

And an income of $58K is not "poor" for any age, but FYI median household income for all ages is north of $70K.

> And an income of $58K is not "poor" for any age,

It is today and going forward, as far as anyone can tell.

Within the OECD, only Switzerland, Norway, and Luxembourg have a higher median household income than the U.S.

https://www.oecd-ilibrary.org/docserver/45ae3dae-en.pdf?expi...

Most of the US is not NYC, SF Chicago, and Seattle you know. I'd be shocked if household incomes near me in the Midwest were greater than $55k yet. There are tons of people who make less than $15/hr still.

I feel like it's Feb 2020 and people are just hearing about this new virus called 2019-nCoV (or alternatively "China Flu"). There are maybe 100 cases in the whole U.S, your chance of getting it is literally 1 in a million, and nobody has died from it yet. Tech companies are shutting down left and right and the general public is like "What's the big deal?"

The big deal is exponential growth, which both viral spread and inflation exhibit and which almost nobody has a good intuition for. 1.5% inflation over 10 years means that prices go up 16%; this is what most folks (outside of Silicon Valley) have experienced in recent memory. 5% inflation over 10 years means that prices go up 63%. Your Big Mac will cost $6.50 instead of $4. 20% inflation (like we've seen in housing, or ground beef) means that prices go up 6x. Your average house will be $2M rather than $300K.

Folks who look at the numbers and say we're doomed are plugging the data into a mental model of inflation, government debt, and the money supply and realizing that the logical conclusion is that the dollar is going to go to zero soon. Folks who look at the numbers and say there's nothing to worry about are looking at the numbers today.

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