White House warns of 'extraordinarily elevated' March inflation
news.yahoo.com
news.yahoo.com
My feeling is that we have been in an immensely inflationary regimen in many ways for a long time. We see that in the money supply, and we see it in the credit market and the capital markets in general -- too much cheap capital. This manifests in many unhealthy ways.
The core problem is that we have been playing games to hide inflation. Outsourcing has allowed us to hide the general inflation of almost all sectors with deflation in electronics and consumer goods. Lax antitrust and "consumer rights" has pushed heavy discounting and loss-leading into the forefront, which means that plentiful capital can cause prices to appear low by shifting them to other sectors.
If we enact important policy changes to antitrust, trade, labor, and climate, there will be inevitable increases in prices, because there's a reason that we're buying all of our consumer goods from China. Hedge funds and private equity and investment banks have huge amounts of capital from loose monetary policy, and they use that to create situations that drive down prices and drive up equity prices, which they unload on huge index funds with consumer funds driven by vast government incentives, and once they manipulate the price up high enough the mark-to-market of their holdings unlocks the ability to access even more capital for this cycle.
Teams of economists work constantly to ensure that our macroeconomic metrics balance out so that we get increasingly useless measures of "productivity" or "GDP" or frankly even "inflation". All we are seeing now is that we are running out of ways to hide inflation.
It doesn't really matter now, it's way way too late to fix but these two things will more or less end the US, it's how most of the large Western empires ended.
IMHO, today's inflation seems inevitable based on recent very loose monetary policy. Blaming it on Putin is ludicrous.
It's also noteworthy that inflation is perhaps the most attractive way (politically) for the growing debt to be marginalized. The other tools (tax raises and spending cuts) tend to bring sharper reactions at the ballot box.
the real irony is people saying this is evidence we need to shift to "green energy", when almost all the key components for that come from China rather than Russia. Even if we make the shift, the end result will be the same in 20 years where China has huge leverage due to countries being reliant on them for energy
But good luck (literally) selling that to American companies who have to pay those factory salaries.
If the US manages to transition to 100% solar, but then China cuts off exports, then we're still at 100% solar. It will just be more expensive to add more capacity or replace damaged panels. Annoying, but not oil-embargo level bad.
If China was the sole-source of steam turbines and enacted a export ban we would also be in trouble. But China isn't the sole source of coal plants, turbines, or PV solar panels.
Sibling poster I believe is correct. Populism is the outcome, not the cause.
Cutting back money supply growth will slow down economic activity and raise unemployment because it makes capital less available. That will happen instantly, because tightening the availability of capital is central bank's one and only lever to influence the money supply. Delayed, on the other hand, is the response of prices and interest rates, which will only stabilize when people are confident that the money supply is going to stop increasing as fast. That means there will be a tough period after the fix is implemented, before things improve.
That creates a problem where democratic governments are stuck trying to get their economies to "take their medicine," dooming the metrics (and real people's prosperity) for their term so that the other politician who replaces them can claim credit. That's not likely to happen, so we get long inflationary periods that continue until it gets so bad that people demand the tough solution and are willing to stomach it. The OP blames "populism" because a democratic society cannot do such a thing until the people agree, while a society controlled by elites could force-feed the public their "medicine" and still be in power to enjoy the benefits when it was over.
Having only a few, highly entrenched and powerful people control the central bank lengthens the time horizons over which it can average the results of its decisions, but that is not the only way to get inflation under control. The other route is to shorten the time between the institution of the austere policy and the time when people believe it is there to stay. Milton Friedman famously proposed a constitutional amendment, but there are other ways to make it difficult for Congress to change direction.
From my vantage, society is controlled by elites and those elites are the ones who don’t want to take their medicine.
In this case, the populism is Biden’s admin labeling inflation as the ‘Putin Price Hike’. This completely ignores the possibility that the American Rescue Plan Act of 2021, $2 Trillion in stimulus that’s largely already spent, could’ve contributed to inflation also. This leaves us vulnerable to repeat our mistakes when making future policy decisions - like whether to waive all student debt.
"Inflation is always and everywhere a monetary phenomenon" M2 has been increasing at an unprecedented rate: https://fred.stlouisfed.org/series/M2SL If you don't solve this you don't solve inflation.
The suggestion for I bonds is the safest approach, but you can only put a limited amount in, and you will still lose a little: most experts believe that government inflation numbers under-represent inflation (the debate is by how much, if you buy an I bond you hope just a little).
Otherwise, investors look for "hard assets". A hard asset will maintain its value, going up in nominal dollar terms when the dollar loses its value. This is a reason why real estate has gone up so much recently (and gone up historically).
Most investments appreciate with inflation. Stocks however risk a rapid negative response to the current market conditions because they have already priced in the value of monetary policy being loose and it is currently tightening to counter inflation (this is more true of growth stocks). Similarly these aren't good conditions for most bonds.
Commodities and gold historically have done much better in high inflation conditions. Gold is a very simple way to replace a depreciating currency with hard money, but commodities may have better tail winds in our supply constrained environment. Bitcoin is a digital hard asset that deserves mention for investing with a speculative amount of money due to additional risks.
Watching how BTC matches the Bond market in a downward trajectory... I dont think its the same sort of asset as gold.
it has no intrinsic strength.
I'm about 33/33/33 cash, stocks and real estate right now. Stuff that feels like it should be an inflation hedge, like commodity ETFs, aren't actually performing well. I haven't found any good advice from family, friends, or the internet in the past few years. It makes me think nobody else knows how to safeguard their savings these days either.
A company like Coca-Cola is pretty inflation-proof, to my mind. Not only does the product have a demonstrated multi-decade appeal, including during a full-on Depression, but the company is working hard to make it more valuable tomorrow.
Currently I have a bunch of QQQ credit call spreads, and much of my long share losses have been tempered by selling ATM calls.
And yes, risk management is the name of the game, especially when it comes to options. Basically comes down to trade size (don't have say more than 5% acc size in one position) and being aware of your risks (how many "deltas" you have on, etc).
The best way to learn is do. Trade with small amounts to understand your trading platform, identify a strategy you're comfortable with & stick to it, learn from your mistakes.
tastytrades youtube playlist on selling options (theta gang strategies) is a good start and I found it helpful in the beginning to learn concepts.
Memes from Reddit and 4chan's "biz" board.
In addition, moving up major purchases (housing, cars, appliances, long lasting commodities like toiletries) will retain value with inflation, instead of being eroded at -8% real from savings accounts.
Maybe stockpile some cash/crypto to buy a bunch of stocks at the bottom of the market. Assuming there is a market left whenever this all “ends” :)
Also, you'll probably want to keep some of your powder dry so that if 30 year TBills start paying, say, 7% or more that you're in a position to buy some of those. People who bought 30 year TBills in the early 80s when they were paying in the mid-teens did really well. Maybe we'll see that kind of opportunity again.
Probably, but (1) MMT support among people with any political relevance is already in the faction known for supporting higher taxes, and (2) no one listens to the people who support MMT, anyway.
The problem is that millionaires and billionaires consume the same amount of toilet paper as us. Taking away money from them doesn't actually change the upwards price pressure on a roll. You actually have to tax away money from consumers for it to have any work combating inflation - I would like to see who can possibly sell raising taxes across the board as a way of fighting inflation.
Some homework for you: Take Bezos entire fortune, plus Elon Musk's, and for fun... Trump's. Hell throw another of the top 50 billionaires in. Divide that by the US population.
This is such a stupid assertion that keeps getting repeated.
The sum of free choices is a fair distribution. People aren't getting robbed at gunpoint; they're _giving_ their wealth to the rich. Bezos is a zillionaire because people literally gave him all his money_.
Both terms are very ambiguous, unless qualification is provided.
Random variables can have many distributions e.g. Poisson, Gaussian, uniform.
I don’t know names of categories of “fairness”, but clearly you and GP have different meanings for the same word.
On one end of the spectrum seems to be: “fair == same end result” -> effort and luck should not matter, not in the slightest.
On the other end of the same spectrum: “fair = same system/rules” -> you could have racketeered more people to get more money and bought a bigger gun to stay alive.
Both definitions of “fair” are equally valid, the choice of the definition is subjective.
Economists say the annual inflation rate could be close to 8.5 percent, the highest seen since late 1981.
According to the median forecast of analysts, monthly CPI growth will accelerate to 1.2 percent compared to February when the gain was 0.8 percent rate, while core CPI will remain unchanged at 0.5 percent.,,
So its energy and food then I guess based off of this statement alone.
Oh good, so just the things I buy, then.
Larry Summers was right about the stimulus and the Fed, and quite a lot of the economists who missed this are guilty of wishful thinking. They let their political preferences blind them to the consequences of the stimulus package. Larry Summers is right about UBI too.
They also aren't even admitting that their policies are the cause. In the linked article, the white house has incorrectly identified policy failures as evidence of Putin's influence US economy. Which is kinda off, Russia is a global minnow compared to the inflation that is going on. Doesn't sound like someone learning the theory correctly based on their mistakes.
There is evidence that while what you want != stimulus, what is most likely to get implemented just got nailed in a coffin in the minds of people who like evidence.
The best thing is, the database is public. I know so many people who got dozens to hundreds of thousands of dollars and got it forgiven by the govt.
The stimulus is a distraction. We had the largest wealth transfer from the working class to the rich during the pandemic and they've got us squabbling about the small stimulus checks.
None of them have businesses or employee paychecks of any kind to protect. I do wonder how common this is and if any of them will actually have to pay this back ever. (I also feel like a little bit of a sucker working for a living...)
But yeah people blaming the stimulus checks which literally directly went back into the economy are just...unaware of how much money was printed and distributed to large companies and shady people during the pandemic.
Here's what it shows...
Loan Status: Not Disclosed
Date Approved: (ranges from "Jan. 27, 2021" to "May 5, 2021")
Business Type: Sole Proprietorship
Jobs Reported: 1
Business Age: Existing or more than 2 years old
Where applicants said the money will go: Payroll (100%)
Any guesses on how this works out for him?
I was pre-approved for 50K as well. Fucking lol what a mess.
Unlike deficit-funded stimulus, paid-for UBI is redistributive and this has less of an inflationary effect (not none at all, because marginal spending and where it is directed differs across the economic spectrum, and downward redistribution has some stimulative effect.)
Unless you manage to replace Congress with people who fully buy in to the vision of pure UBI, that's not going to happen. UBI, if it ever exists, will be implemented by the politicians we have.
Amongst other reasons, UBI would only be given to individuals. Unlike the stimulus, most of which went to industry and government.
However, business and governments didn't drive up the price of macaroni. However, the $4500 the government gave my family probably did.
People bought food and therefore cost of food went up?
So, following this logic, we have enough people who are regularly not getting enough food that when they can, it kills the economy?
I...honestly if that's the actual reason this is happening then it seems like we should be looking at seeing how do we make it so everyone has food and produce food with that metric. Not with a lower metric and be fine with people hungry.
Fascinating.
Giving everyone more money for the same supply of goods is the very basis of inflation.
In Monopoly, if you give 1 player $500 they get a big advantage. If you give every player $500... nothing happens other than all auctions go up.
> I...honestly if that's the actual reason this is happening then it seems like we should be looking at seeing how do we make it so everyone has food and produce food with that metric. Not with a lower metric and be fine with people hungry.
This is exactly the point. If your goal is 0% inflation, the supply of money needs to be tied to actual economic growth. If the economy makes less stuff (like, during a pandemic) you actually need to find ways of taking money out to keep prices stable.
(And the relationship between money supply and inflation would be covered in 101, not 102)
2 years ago, Stephanie Kelton was doing lectures about how fears of inflation are unfounded. Now she is reduced to sharing every conspiracy theory about price fixing.
Even if you believed that there was some amount of free money the government was able to find before reaping the penalties of inflation a) it ended up being a lot less than they promised and b) high inflation is much more painful and politically toxic than people remember.
MMT: “The only real constraint, and the one from which false fiscal constraints are a distraction, of government net tax and spending policy is monetary impacts like inflation/deflation, so government spending and taxation debate should center monetary conditions and considerations, not fiscal balance“
(For sake of argument leaving off debate over accuracy of this characterization): massive inflation resulting from monetary effects of fiscal stimulus
Commentators: “This is why wer should disregard MMT!”
Wait, what?
That doesn't really change the reaction central banks/MMT/all of finance should have. It doesn't matter what causes inflation to start rising. It only matters that we don't get it feeding back on itself: we must have inflation ... without raises (because demand for goods needs to go down).
You're of course right that it'll be politically toxic in the extreme. So they will try everything in their power to avoid doing that.
This is an often repeated misconception (signal boosted by the White House, no less), but a lot of the purported supply chain disruptions are a result of consumers flat out just consuming more stuff:
https://www.businessinsider.com/americans-spending-goods-ver...
A chip shortage can explain the cost of a car going up, and a global war can explain the cost of gas or wheat. But why is the cost of domestic beef going up? Or a cubic yard of soil?
The old Monetarist explanation is clearly the right one - there is too much consumer money in the economy. From both stimulus (much of which was initially good), but clearly interest rates have been too low for too long.
What about fuel? The billions that have been pumped into the economy by the government as covid measures?
Re UBI, its coming. But not until we have a CDBC. And it will come with conditions - be a good citizen. (Points will be deducted if you scream on your balcony when you're locked in)
That is the stimulus, and a lot of it was given as direct payments to individuals without means testing.
Inflation has been high for nearly half a year and the war only started 6 or 7 weeks ago. The timing doesn't line up.
UBI or the stimulus checks are nothing compared to interest rates held to record lows for a record amount of time. Basically, what we found out is that welfare for the rich (via low interest rates that the poor can't take advantage of anyways) does not work.
0: https://en.wikipedia.org/wiki/Asymmetric_price_transmission
Ownership and records are still just as expensive today. Renting is just a new option
the efforts to incept quantitative tightening as of April are...bad comedy. The federal reserves one quarter of one pecent increase of the prime interest rate is a performance art. it has absolutely no ability to control inflation in any context. The real solution, 3-5% interest, is suicide as it would blow up the already shaky corporate credit bubble which is over-leveraged in empty office buildings post-covid. the honeymoon from last december of downplaying the issue as 'transient' inflation is over. Unchecked inflation and sky high gas prices have the very real potential to defenestrate whole sectors of the US economy predicated on summer travel and spending. other options include increasing minimum wage, which is a third-rail for neoliberal capitalism it seems, or works projects, which were torpedoed some time ago by apparently just a single senator.
this isnt solely foreign policy to blame. its a QE addiction stretching all the way back to 2008 the fed has tried and failed to treat.
Neither of those fix it.
Most people don't make minimum wage; the 25th percentile wage is already $15/hour and all of those people are paying higher prices. Which increase even more if you raise the minimum wage and require that cost increase to be priced into goods and services.
Works projects reduce unemployment. Unemployment is already very low. That's not the problem so that's not the solution.
> The real solution, 3-5% interest, is suicide as it would blow up the already shaky corporate credit bubble which is over-leveraged in empty office buildings post-covid.
The real solution is a little weird.
There are two real problems. a) People can't afford consumer goods (short term). b) Asset bubble inflated by low interest rates (long term).
It's actually the second one that contributes to the first. High housing prices etc. relative to wages increase real cost of living. But what do you want to do, pop the bubble by raising rates?
What we need is for nominal asset prices to stay where they are but for interest rates to go up. So how do you keep the bubble from popping while raising interest rates? Put money into it from somewhere else.
Send people checks.
That will cause inflation to counteract the effect of higher interest rates on nominal asset prices, but this time the beneficiaries of the policy are the people who get the checks (i.e. everybody) instead of the holders of speculative assets.
So nominal asset prices stay the same and nominal non-asset prices (consumer goods and wages) go up. But people have the checks to cover that in the short term and long term we finally get out of low interest rates and high housing costs relative to wages.
Energy crisis due to international conflicts
Inflation getting higher than 7%
Increased interest rates
Post-retirement SS benefits are tied to inflation, but in occur annually. (Retirement baseline is adjusted pre-retirement by a wage index, rather than inflation.)
If you spend $100T, only have $1T, and print the rest using make believe dollar bills, what do you expect to happen?
There's literally not enough capital in America to pay for what the congress is signing checks for.
But then it came time to put the meat in the with potatoes. And there was little, if any, oversight in the distribution. A LOT of money was handed out to both individuals and companies that frankly didnt need it. And then the Biden admin added more and more.
Most that i recall seemed shakey at the prospect initially but understanding of the urgency of action. And outright offended at the implementation/outcome, and then viewed it as ludicrous with the follow ups.
These are largely the results coming home to roost.
But agian, those were not the majority or even a vocal minority that i saw. You know how many on certain sites will be outright certain xyz is how the masses view something (ie: an election) and then when the actual results come in everyone is shocked and just states that the differing viewpoint is stupid and gross. Well it seems those individuals got their way this time, and even now possibly haven't realized how shortsighted their viewpoints were and still arent connecting the dots.
This is accelerating inflation. That’s going to be a problem. They can call it the Putin price hike all they like but the invasion only made the situation worse. This is 100% poor monetary policy and a Fed that is painted into a corner. Buckle up.
Yet somehow people accuse Trump of being Putin's puppet. Doesn't add up to me.
Don't forget incessantly pleading with European NATO members (in the unique Trump manner of "pleading") to raise their defense spending to the sky-high level of ... 2% of GDP that all NATO powers have been supposed to be spending all along. I got a good laugh from a video I saw from a European aviation YouTube content creator, discussing countries falling over themselves boosting their spending after the current war started, in which he went out of his way to chastise viewers who had the foolish notion that Trump might have been in any way right.
Also, keeping up and accelerating the training/arming of Ukraine that began under Obama after Russia took Crimea/eastern Ukraine in 2014. There's been tons of media coverage of how Ukraine totally remade its tactics and training on Western models post-2014, and how much of a difference that has made in the current war, but curiously little analysis of the common-sense observation that having all of this happen post-January 2021 is impossible.
>Yet somehow people accuse Trump of being Putin's puppet. Doesn't add up to me.
One might even conclude that the allegations of Putin's insidious influence on US politics/media are correct ... but that the message said influence backs has always been misdescribed. Might.
- a lot of space that was empty was still under long term commercial leases
- there was less demand to live in some of the cities that had a glut of office space, and especially those neighborhoods
- would a lot of office buildings even make good residential buildings? I don't think this could be a fast or cheap conversion in most cases
This means that it is almost always better to have an empty space than an occupied one that you lowered the rent on--I've seen quite a bit of commercial real estate unoccupied for going on 5+ years now.
This merry-go-round will continue until everything crashes simultaneously.
What would be the point? The residential demand is only there because that's where the offices are.
But the support has no reason to exist without the offices. The offices are the cause, and everything else is the effect.
No, that's wrong. Cities develop for painfully obvious reasons. There are two:
1. The government needs an administrative or military hub and constructs a city to be that hub. This is only moderately sensitive to location, but it involves offices being designated to exist in a particular location and a city growing to support them. Note that there are many, many historical examples of this in which the city came into existence by government decree; it was not necessary for anyone to be living there beforehand. Offices were necessary, and sufficient.
2. Work needs to be done in a particular location. Sea trade happens at a port (and San Francisco is just such a city, though the port is now dead); river trade happens along a river; mining happens at a mineral deposit. This case also involves offices coming into existence and a city growing to support them. But unlike the first case, it's pretty sensitive to location; the hub that supports a port needs to be coastal.
Without the offices, there is no reason for a city to exist at all. Some industries may die and be replaced by other industries that take advantage of the local concentration of people in an existing city. But if every industry dies, which is what eliminating the offices means, the city will die too.
The people at the mineral deposits do not need offices either … they are working in the mines or operating equipment.
The vast majority of people that need offices for work can work almost anywhere.
(Offices are of course required at a mine too, but a comparatively tiny number of them.)
Small people screwed about it the most. Most literallu gain nothing in this wealth redistribution scheme.
There are other factors too.
The noticeable thing in the US, relative to the rest of the world, is the level of fiscal and monetary stimulus. This wasn't only Biden, it was thrown into the economy at a time of significant supply shortages and when people were suddenly accumulating large cash balances. It is a crazy situation. Obviously, prices will rise and soak up all that excess demand but: inflation near 10%, interest rates 1%...wow, it is impossible to look at that and conclude anything other than politics has totally debauched monetary policy.
It is also entertaining to go back and read the views of some people (the usual candidates) who were loudly insisting that inflation wasn't going to rise, then that is would be temporary, then that is was due to Putin...this should impress upon the public that economists don't know better, they have no credibility (extraordinary given that the economic logic has dictated policy for close to three decades, they were regarded as omnipotent by politicians).
With regards to President Biden, he will have to be held responsible for applying all out sanctions which have not been able to achieve their objectives. If the goal of the sanctions was to stop the war, that has not happened in last 45 days. We don't know how difficult life has been for the average Joe in Russia from those sanction bites due to the censorship in media in both west and Russia. It certainly has however affected the life of the average Joe here and not for good. But, we are told this is at the expense of our moral victory.
Biden administration has cornered themselves as well into an unnecessary conflict with little chance of an exit ramp. Dangerous stuff.
“These episodes of substantive Russia-NATO cooperation undermine the argument that NATO expansion has always and continuously been the driver of Russia’s confrontation with the West over the last thirty years.”
The article you linked is all over the place with its reasoning. How does it reconcile the two above points? There is a great deal of hand waving with a sole focus on democratic models of government…sounds straight out of the CIA playbook that attempted to justify the US tangled up in so many conflicts for the sake of democracy.
Also, who said NATO expansion has always been the driver of confrontation?
And finally, Ukraine is and has been a far cry from an independent democracy. It is a fractious country that has clear divisions of tribal and ethnic conflict. Their elections and politics have been heavily influenced by Russia and the United States. Biden has been at the center of heavy US influence in a huge country that has been the source of many wars against Russia for centuries. Ignoring the perspective of Russia and only focusing on democracy is critically short-sighted.
"Putin Price hike" is just alliteration, its not scapegoating everything on Putin, its reducing the expected constriction of energy on the market to the geopolitical catalyst in response to Putin's actions. This constriction is not nearly as heavy as it could be, with mostly just a few large US/EU private sector companies choosing not to trade Russian oil and gas right now. The oil and gas is not sanctioned right now. Even this explanation is the beginning of a dissertation that will be irrelevant in a few weeks, so it might make more sense why a reductive 3 word phrase is chosen.
Of course they're going to get away with this. It is politically unfavorable to say "our actions rose gas prices". If the media is operating in your favor just go for it.
If you wanted an indication that some actual humans understood the doublespeak, well now you know that I do, and largely don't care. I follow the macroeconomic environment pretty closely, politicians are a lever too.
Where I'm currently at is that Biden/the US taking action to try to flood the market with their oil reserves and bring down prices is going to be mostly show, as the oil reserves will just need to be topped up again and very quickly. So this means supply and demand for oil has not changed at all, not even in the near term. The market via oil prices is still digesting what the price should be in light of Russian's actions and has not finished even doing that, with an initial overreaction (margin call) and just settling in the $93/barrel range for now. I don't think US oil reserves, for example, is having any effect on that. Just a small tangent to show how I think, in light of political speak which I consider benign and not relevant enough to be as passionate about as you are.
Now, inflation was up before that, definitely, in a way that it hadn't been since 2008. But it got a bit spur from Putin's non-war war.
* Trump tax cuts contribute to deficit and demand
* COVID stimulus contribute to deficit and demand
* COVID causes supply shortages, with same demand, so therefore higher prices (see markups on cars).
* Putin has to go and make it worse with an invasion, pushing up energy costs, which are part of the cost of everything.
On vacation unfortunately. Even HNrs appear married to their political parties.