The Fed has made a historic mistake on inflation
economist.com
economist.com
The Fed‘s basically got binary options here: Keep inflation from ruining lives and savings or saving the economy from collapse. Or trying to do just a bit of both.
I’m rather asking myself: When you‘ve got a water pipe with a valve you can just open and shut and the leakage getting larger and larger with less and less water arriving at the end, is it the one operating the valve doing the historic mistake?
In the Japan scenario that the US is following, the US is just now getting to where Japan was in the mid 1990s. And that's Japan without the global reserve currency and the numerous financing benefits that go with it.
The US has an enormous asset base to debase against, to eat, before it arrives at truly severe problems. It has plenty of spare taxing capacity across every income bracket.
And as the feds crush the income brackets with higher taxes over time, socialized healthcare will continue to creep up the income bracket, taking up more and more of the market (out of necessity due to cost; middle and low income brackets will lose more of their disposable income to taxation, healthcare will become that much more of a burden).
Interest rates will remain exceptionally low for decades to come. The average rate the US Govt pays on its debt will continue to sink lower over time, as the mountain of debt soars higher. That can continue until at least the range of $60-$90 trillion in public debt (1% - 1.5% on $60t-$90t is where they'll push it to over time). 1% on $60t is affordable right now. The skeptics will proclaim such low rates on such a giant pile of debt is impossible - it's not; they would have claimed (circa the mid 1990s) that what has already happened would be impossible too. Courtesy of Japan, we already know what can and will happen, and so does the Fed (even though they constantly lie about it).
The massive debt accumulation (in government and corporate) will take care of a lot of the inflationary pressure that would otherwise be present, courtesy of mediocre growth (the debt accumulation and maintenance robbing the economy of capital it needs to grow faster; the debt acting as a heat sink, which is exactly what it has done to Japan).
This inflation spike is transitory (the people saying that were too early on the duration aspect though and so they got mocked for it), the labor market is about to crack, growth is at recessionary levels, crypto has crashed, bubbly stocks have crashed. The housing market is going to get hit (although it won't be like the great recession) as the labor market gets rattled, people will shift that much more conservative, and blue chip stocks will get hit harder (blue chips like eg KO, which have largely avoided the damage in the market so far). With mediocre growth and a broken labor market, the inflation wave won't be sustainable over a longer time frame. It's better to think of the present inflation wave as a large one-off reset to higher prices (fallout from the various effects and choices during the pandemic), rather than a persistent ongoing event. That type of inflation burst event might happen from time to time over the coming decades as a consequence to various programs the US Govt and Fed run to try to spur the economy and manage high debt levels. For example, as the economy continues to weaken, the Biden Admin will start talking about trying to do another stimulus shot and or infrastructure.
Corporations have rapidly sapped their pricing power to counter inflation. Consumers can only take so much of that, and I believe we're clearly seeing weakening by the consumer in their willingness to keep absorbing huge price hikes on consumer goods. The corps will begin slashing the human cost soon (both delaying hiring and firing) and pushing automation more (eg if your local Walgreens or CVS doesn't have a self-checkout, it soon will; if your local McDonald's doesn't have digital kiosks, it soon will; they'll push labor cost onto the customer wherever they can).
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edit:
Someone (greyed out account) replied with this, and I thought it was worth touching on:
> there's no way you can convince me healthcare costs will go up if we kick the capitalists out of the industry
Well that's not what's going to happen and it certainly won't be a smooth event (the US wakes up one day with a shiny new socialized healthcare system where costs are tightly controlled with top-down pressure). Rather, socialized healthcare will gradually climb up the income ladder out of necessity, because more and more people will be unable to afford the cost of healthcare. The US healthcare market, simply put, will continue to bifurcate (public vs private). Private health coverage will continue to get more expensive, pushing more people onto government coverage / subsidy. The government side will see a lot more top-down pressure on cost/pricing (the government has a very strong incentive to control costs, given the fiscal condition of the US Government, and they'll act accordingly over time). Only the top 1/3 (give or take) income group will continue to be able to afford private healthcare coverage. Private coverage isn't going away and the healthcare market overall isn't going to be nationalized (ie the Capitalists are not getting kicked out wholly, their sandbox will get smaller and what they can charge will get more restricted).
The US will see a process of gradual, ongoing expansion of socialized healthcare. It will not happen in a big one-off event, as has been dreamed of for decades by the Democrats (they've been making a horrific mistake for decades by pursuing that approach, which was obviously going to fail; a lot more progress could have been made by now via an aggressive piecemeal persistence). The one-off system change premise is a particularly naive fantasy and can be safely disregarded as a potential outcome.
The median American will see a decline in their real disposable income. It'll squeeze them in a lot of different ways as that occurs, including on healthcare, education, housing, rent, automobiles, etc.
The income classes will fail to keep up - as they largely have over the past two decades - with the damage to the USD from the national debt and the actions the Fed has to take to deal with that (the Fed playing the role of both enabler and fixer, when it comes to public & corporate debt levels). The asset classes will be fine, they'll largely keep pace (or better) with the loss of value in the USD, although their taxes are going to go up by quite a bit over time (and there will be many attempts at pursuing wealth tax plans). As the income classes lose ground over time, the government will step in and take over more of the financial context of the healthcare and education markets in particular.
I support single-payer, but it's not going to solve the US health care cost problem - and "solutions" to it are likely not going to be pleasant. Likely, in the practical world, whatever cost control ultimately ends up being imposed on whatever system we have 20 years from now is going to make health care worse. Indeed, what makes US health care so bad right now is in part ineffective cost control measures.
[1] https://www.cbo.gov/publication/56571 [2] https://www.pgpf.org/budget-basics/medicare#:~:text=Medicare....
What it will do, is slow the expansion of cost vs what we'll see in the private sector coverage. That slowdown will be courtesy of the massive-scale, centralized, top-down pricing push-back capability that the government has (and has very strong incentive to use as the years go by, given the fiscal situation).
The cost per capita of the two systems will split apart more and more as time goes by.
The government might enact further measures which will likely have consequences not unlike the current policies
Exaggerated, your premise rests on: the US is not exactly like the Japan scenario, it's 98-99% like the Japan scenario. Point being, that tiny population expansion is trivial and will be mostly gone soon anyway.
The population addition in question is majority lower income, lower education oriented in numbers. The US has an inverted immigration system vs eg Canada or Australia (they focus on higher income, higher education, skill-based immigration). That fact further debases the potency / value of the population expansion. US education has been eroding for decades in terms of quality, so those lower income, lower education new immigrants are entering the US at a particularly mediocre time for their purposes (and they'll also simultaneously run into the automation, robotics, AI buzzsaw that is in the first or second inning; further devaluing what that population expansion brings to the table).
I was very clearly speaking about the overall US immigration system and how it's structured.
Foreign STEM grads quite obviously fall into the higher income, higher education, higher skill grouping that (per my prior reference) Canada and Australia prefer to focus the majority of their immigration on (whereas the US does not focus its immigration in such a manner).
That's absolutely not true, and it sounds like 101 xenophobia. Immigrants in the U.S. are significantly better educated than U.S. natives.
Ref: https://www.pewresearch.org/fact-tank/2020/08/20/key-finding...
> Educational attainment varies among the nation’s immigrant groups, particularly across immigrants from different regions of the world. Immigrants from Mexico and Central America are less likely to be high school graduates than the U.S. born (54% and 47%, respectively, do not have a high school diploma, vs. 8% of U.S. born). On the other hand, immigrants from every region except Mexico, the Caribbean and Central America were as likely as or more likely than U.S.-born residents to have a bachelor’s or advanced degree.
Not the OP you're responding to but your own source disagrees with your assertion. Relevant quotes above, emphasis mine. Also, I'm not against immigration but it gets old seeing accusations of xenophobia when someone is trying to have a reasonable conversation about the very real macro-level challenges involved in immigration. Stifling this sort of discourse also ends up being a disservice to people that have worked very hard to immigrate to the US as it can lead to people sweeping under the rug the challenges people will face when arriving.
The production of oil and supply chains is not even close to 2019 levels. Electronic manufacturing and tooling needs 1-2 years to catch up to 2019 (current) demand. Scaring investment does not help.
Nobody should have the power to subvert the meaning of time.
We take the ministry of truth seriously (“the past can be changed”) and get scared by that. Saying thay time is worthless is more or less as grave.
While true, I think it is fair that people broadly share an expectation that time value of money has a positive value and that central banks shouldn’t be subverting market forces to eliminate all opportunity costs of capital.
It’s also the job of central banks to manipulate capital markets (“rows in a database”) to meet their mandates and desired outcomes.
https://www.visualcapitalist.com/700-year-decline-of-interes...
Interesting take, but isn't setting an interest rate doing exactly that, whatever that rate is?
This is why, the Islamic approach is the most superior one: no lending money with interest, period. This means at least two things:
(1) Lending money becomes an act of charity, since you cannot profit off of it.
(2) You want to tap into time value of money? Invest it in a proper risk sharing manner that is fair to all parties engaged.
It would be a very different world had we implemented this approach.
Imagining that folks will ignore that is futile.
Usury is bad and there are other ways to finance underwriting and the other socially useful activities banks perform.
[1] Currency issuers can always service debts in the currency they issue of course. Those liabilities are so operationally different from household debts though that they probably ought to be called by a different name altogether.
If tangible assets have rental fees, then why doesn't money?
As an example, rent to own is a reasonable and moral way to structure a real estate transaction without interest. It’s all about sustainability. Lending at interest requires borrowers, in aggregate, to acquire more funds than the monetary system can provide. It’s clearly immoral to impose conditions that are impossible to meet.
It is almost like the system should have automated rules in place to prevent this from being possible.
I say that inflation was too low 1990-2020 not because they mismeasured it, but because the Fed kept the rates too high.
The CPI basket undermeasures volatility, but it's not bad at measuring inflation. Not great, but every alternative basket I've seen proposed has been worse.
If you want to point a finger, maybe point it at the politician who threatened the Fed chair for not setting negative rates 2 years ago.
We can also blame the politicians who cut taxes in the longest, largest bull market for financial assets in history.
There are reasonable arguments to make that CPI is insufficient for measuring everything that we spend on (it underweights healthcare, gas, college costs, and lots of luxury investments like stocks and artwork). There are also reasonable arguments that cost of living in some regions is growing faster than 8% (the actual CPI number obviously isn’t homogeneous across the entire country).
Also important to note that there is no “intrinsic value” in dollar terms for any good. Everything is a negotiation of how much we want a thing. If you insist on Quaker Oats oatmeal instead of generic oatmeal (a personal preference), you might experience a higher rate of inflation than others who are more amenable to substitutes.
CPI is well defined and has a clear construction, as does PPI and GDP deflator. The 'real number' is something people seem to bring up as a signal that the beaurocrats an politicians are lying to us, but it is not well defined or defined at all, so it's impossible to disagree with.
IIRC, CPI inflation metrics do tricky things with rents versus mortgages, so cost of living can appear very different for renters versus homeowners, even in the same neighborhood.
Was it totally preventable? Not likely. Did it have to be so precipitous and ruinous? Nope. They could have come correct and could have adjusted rates and have encouraged people back to work but dialing back the stimulus sooner --slowing the money printer.
The Fed can’t control government spending. Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that. If anything Powell consistently advocated for a more balanced federal budget precovid.
Keystone XL is a zombie project which abandoned by the development/infrastructure company. It had been stuck in regulatory review and litigation for a decade.
Environmental reviews by both the Obama Admin and Trump admin state that Keystone XL would not have lowered gasoline prices. You are pretending like all oil/gas products are fungible, when in reality most refineries in the US are not capable of refining all raw product. Hence “Energy Independence” is purely a marketing term and we still need to export lots of raw material and import other kinds of raw material to match what we are capable of refining.
How is US government spending causing 8% inflation in Germany?
It's almost like this is a global phenomenon caused by supply shocks and price gouging of essential commodities.
>Massive government spending, funded by new money, caused inflation.
Someday, people will understand that central banks issue less than 8 percent of the circulating money, and that government debt is just another way of financing retirement pension funds.
So only in the most narrow sense is it even possibly true that "the US did not have inflation when it did not have fiat money": if you ignore the times when convertibility was suspended, it becomes a slightly more accurate statement, but still not true as it ignores inflation soon after the founding, large deflationary periods in the early and late 1800s, and subsequent inflationary periods prior to WW I. So you have to ignore convertibility suspension and the inflation and deflation in order to argue that there was no inflation or deflation.
The one iron-clad law of "non-fiat" currencies: eventually they will become fiat currencies.
This amply proves my point.
The inflation was a net zero from 1800 to 1914.
Fundamentally, you can try to control expectations by feeding biased projections, but you have to maintain a certain signal-to-noise ratio in doing so, or else the market will learn to ignore you. You can feed the market inaccurate projections only by spending down your accumulated credibility, which has to be bought back later with accurate projections.
(This applies in real life, too. It takes trust to be believed, and it costs trust to mislead).
"If a new inflation target is too ambitious, and the central bank fails to attain it, the central bank may lose its credibility, which may render less effective any other policies it pursues." [https://www.federalreserve.gov/econres/notes/feds-notes/rais...]
If the market has learned to ignore the Fed, then it becomes very costly for the Fed to achieve accurate projections and earn back its credibility, because it can't rely solely on influencing expectations to achieve its results. It is left only with backing up its bark with a real bite.
I think it’s reasonable to say that the majority of the planet shutting down during the pandemic has at least as much to do with inflation as the fed’s monetary policy, if not much more.
Resuming economic activity after shut downs (and the habits the shut downs changed) is taking time. There is no obvious natural experiment to tease out how much is caused by CB interest rates and how much is fiscal policy. Most of the countries that did one also did the other.
Also, data points on these issues are gathered monthly (if that often), so current analysis will miss a lot in the “fog of war” until there is more data to analyze.
True.
> Massive government spending, funded by new money, caused inflation. The Fed can’t do much about that.
False. The Fed controls the money supply - that is, the creation of new money. (Congress doesn't, thank God.) If the Fed didn't increase the money supply, the government would have to borrow more on the open market, or else tax more. The first might cause visible issues earlier; the second would be politically expensive.
I tend to agree with your sentiment, but wanted to point out there are obvious issues with our analysis.
I have heard pretty good arguments for the idea that supply and demand are still trying to find a new equilibrium in the post COVID demand shock.
What is the specific criteria that was used to reject transitory?
I tend to be skeptical of anyone who accuses others of lying when there are obviously simpler reasonable explanations: it’s hard to predict how the entire economy will react to turning off the spigot.
That proves that the administration knows it has an optics issue, not that inflation isn’t transitory. Inflation is currently the number one issue on most voters minds.
I don’t doubt that inflation exists. I doubt that a substantial portion of it is related to issues that won’t resolve themselves as the economy renormalizes post-COVID and buying habits return to something like pre-COVID.
It's number one because the admin tried to bury the issue by cliaming it was transitory while many outside DC and the Whitehouse were saying, you can't print money, do the BBB to the tune of trillions (where even Yellen balked) send out stimulus cheques, press for a $15 minimum wage (this should have been gradual), keep rates low AND expect there not to be inflation. But they said, nah, you're being chicken little, relax.
Covid did stress the economy, but it would do the opposite of inflation, if they had not stepped on the gas. It dampened demand. It also put some people out of work and also encouraged some to leave the workforce early.
I agree that many outside of DC jumped on Larry Summers’ bandwagon and are screaming that it was never transitory. But that still isn’t proven. And lots of those people happen to be political adversaries of Democrats, so they have additional reason to try and pin another problem on this president, whether it is his fault or not (which is what your Democrat wish list of things that never happened/passed so can’t affect inflation looks like). I would also note that you are mixing fiscal and monetary policy as if the White House admin had control over either.
Printing money (expanding the M1 money supply at least 4x) and a near zero interest rate environment happened for a decade after 2008 with stubbornly low inflation. That doesn’t necessarily lead to inflation.
COVID didn’t dampen demand for more than a month. It changed where demand was aimed. Money that pre-COVID went to restaurants, concerts, and travel was aimed at different goods like home improvements, in-home entertainment, and crypto/stonks. Inflation didn’t show up when households were thrown $1600, unemployment insurance claims saw richer payouts, and PPP was issued. It happened after buying and spending habits changed when people came out of hibernation and were spite spending.
Again, I’m not saying inflation isn’t transitory. I’m saying I don’t think we can know for sure until the supply-demand mismatches created by COVID lockdowns and behavioral changes have returned to some equilibrium. Only then might we have enough info to be sure, especially because transitory opponents will not set goal posts for the definition.
The only one solid piece of evidence I see for some kind of sustained inflation was the Great Resignation, where people were changing their desires and expectations for work and life. Combined with very little immigration since Trump’s inauguration, and we have not enough supply of low paid labor.
'Transient' was the word used not long ago.
Then came the half-hearted small rate raises.
Now the piper must be paid.
My suspicion is that the FED will mostly be choosing to inflation to run its course rather than raising rates too aggressively, and they are trying to pull off a balancing act. Once the current panic subsides, probably things will stabilize.
What other posters are telling you is that there's no such thing as letting inflation "run its course." What actually happens is that high inflation becomes baked into the normal operation of the economy, at which point it is extremely difficult to get rid of (i.e. not just raising interest rates above the inflation rate).
As a side effect, the government loses the ability to issue bonds, as there will be no new buyers.
The only way to prevent this is to make sure interest rates do not stay too low below inflation for too long, and in the end, iterest rates may have to go above inflation to actually get it back down.
https://www.wsj.com/articles/trump-complains-about-rising-in...
https://www.nytimes.com/2019/09/11/business/economy/bonehead...
Not that the Fed doesn't deserve criticism, because they do, but the public would be pissed about many of the measures that combat inflation as well, and the politicians would make sure they know who to blame (hint: not themselves).
- in the summer of 1995, the Clinton administration admitted that “balancing the budget is not one of our top priorities.”
"It worked quite well" meaning:
"We have a balanced budget today that is mostly a result of 1) an exceptionally strong economy that is creating gobs of new tax revenues and 2) a shrinking military budget." - Stephen Moore
https://archive.ph/OD4nl#selection-1643.78-1643.91
Whoever was to blame, the issue is that politicians have been disconnected from spending constraints for too long. There are no controls that impact them when they fail to perform one of their basic duties. Deciding how to spend tax revenue has morphed into deciding how to spend future revenue across all strata of politics (local to federal). The 91fwy express lanes from 1994 are STILL tolls, which was supposed to be converted to additional freeway lanes decades ago, based on the initial project. Nope, money in the hand and promises of money in the future, is what the cities want. From this, we get wasteful slush-fund industries (eg lotteries, etc).
Eh, not entirely. There's also a war going on, which has had serious impacts on the food an energy markets. Plus the supply chain is still all out of whack due to COVID. Neither of those is due to "out of control government spending and printing of money."
The people who reflexively complain about "out of control government spending and printing of money" have predicted 12 of the last 1 bouts of inflation.
This phenomena is so concrete that it was seen in the gold rush era, and even when tobacco leaves were used as currency in the south. There's plenty of historical data to back this up.
1) The US could have pursued a COVID policy of “Kill Grandma, Save the Dollar,” and still had supply chain issues. We live in globalized economy, and China's COVID policy is just as significant to the supply chain as the US's (or even more so).
2) Even if the US's COVID policy did cause inflation, a policy along those lines may have still been the right one, given the circumstances. People monomanically focused on one or a few metrics (like inflation) usually advocate shit policy that's bad for everything else.
The supply chain is affected way more by what China does than by any other country. I do not think that supply chain and inflation problems are just happening in the USA but world wide.
Interest rates should be returned to their norm, around 5%, for sound resource allocation (i.e. the time value of money is priced correctly).
Fiscal policy, specifically wealth taxes, should be used to cushion low and middle incomes from this painful readjustment.
"Soak the rich" is a nonstarter if you're after tax revenue (as opposed to intentionally stoking widespread social envy for political gain), and everyone knows it. The middle class is where the real money is.
Solving tax evasion is simple. All capital boils down to something you can put your hands on.
A budget takes time to make, vote on and spend (or not spend). To be effective it must also align with monetary policy. Changing rates has a much quicker effect.
By the time Congress agrees on what to cut the inflation might even be low - due to Fed action, a recession, or repairing of the post-Covid logistic issues.
In general, lowering demand for goods will decrease upward price pressure.
Unfortunately, rapid rate increases are needed. The downside will be painful. The crying, screaming, bargaining and delusion we are seeing is normal as money gets expensive, asset values drop and times get harder.
It’s the same play Tories have run in the UK, for much the same reasons—winning minorities and working class rural people away from Labour. And it’s resulted in exploding government spending there too.
- an un-clean reopening where many states just dropped restrictions and let people go all of a sudden.
- combined with snarled supply chains.
- combined with a labor shortage.
And then on top of that:
- a war between a major oil exporter (Russia) and a major food exporter (Ukraine).
- COVID lockdowns in China making goods yet more scarce.
The Fed was in a tough spot but made good calls given the information available. Then the new stuff came in and all of a sudden we found ourselves in a pickle. The issue isn't IMO inherently too much money, it's suddenly too little supply.
All the Fed can do is nuke demand. We will not have a good time.
Trump wasn’t president in 2021. Why didn’t the FED act to raise rates then?
Any article that talks about the Fed's response without talking about Powell's reconfirmation is really not worth reading.
Once his job was secure, inflation was priority and he set out to destroy demand to reduce wages and the ease the burden on the broken supply chain that he no tools to fix.
A balanced outcome is always a function of both supply and demand
It is fairly well known that one of the predictors of future inflation is the belief in it - - a self-fulfilling prophecy.
The Fed does not have any tools to address businesses who take advantage of people believing that the prices should be higher to raise their price and in the short term their profit.
The fed has one Cannon to use, reduce or expand the money supply, and it only hits one of the three sources for inflation
...the Coronavirus Preparedness and Response Supplemental Appropriations Act (2 trillion)
...Families First Coronavirus Response Act (FFCRA)
...Coronavirus Aid, Relief, and Economic Security (CARES) Act
...Lost Wages Assistance (LWA) Program
...the 12/20 CAA
...the American Rescue Plan Act (1.9 trillion)?
Perhaps I'm being a tad cynical but this seems a lot like scapegoating so Congress can escape liability for legislation it thought (wrongly) would lead to a glorious congressional reelection landslide in 2022.
I do think that there's a bit much teeth gnashing and blame flinging going around in any case - a 10% inflation for 1 year after years of low inflation isn't the end of the world - if it stays at that. And some of this was almost inevitable given all the shocks of the past few years - how realistic was it that there wasn't going to be some economic hit down the line?
It seems rather plausible that earlier, higher rate raises might well have caused a recession; and had the pandemic exit played out only slightly differently and the fed raised rates earlier - we might be making the opposite complaint now. Even now, it's not like higher interest rates won't cause damage. And to the extent that some of the inflation is due to supply shocks, raising interest rates won't even do as much as you'd like, all while causing more damage than is ideal.
By contrast, it's worth noting that the eurozone interest is still at -0.50%, and they're talking of months to even return to 0. The challenges may not be identical, but it's no coincidence they've not rushed to raise rates so far either.
But I wouldn't put the blame for this mess solely on the Fed and government. Really it's society's collective greed, self-centeredness, incompetence, and financial irresponsibility of overpromising/can-kicking for several decades that's got us here...
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Uncle Sam has been on a unique path because of Mr Biden’s excessive $1.9trn fiscal stimulus, which passed in March 2021. It added extra oomph to an economy that was already recovering fast after multiple rounds of spending, and brought the total pandemic stimulus to 25% of GDP—the highest in the rich world. As the White House hit the accelerator, the Fed should have applied the brakes. It did not.
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I didn’t see any of the others mentioned.
Another thing that bothers me about this is the fact that they don't even include housing in their inflation measurement... despite owning MBS!
Also the CPI is computed by the Bureau of Labor Statistics, not the Federal Reserve.
The PCE is computed by the Bureau of Economic Analysis (part of the Commerce department; BLS is part of the Labor department). Like the CPI, the PCE includes both Rental of tenant-occupied nonfarm housing and Imputed rental of owner-occupied nonfarm housing among its categories. The estimates of these (and other) individual categories in the PCE are directly lifted from the CPI. The main thing that differs between the two in my understanding is how the categories get combined.
Property values are not really directly relevant for an inflation index, because property values are not directly reflected in monthly personal expenditures. What matters (and gets counted) is the price of people’s housing-related expenses.
> As noted in Chapter 2 purchases of newly constructed housing are treated as private fixed investment rather than as consumption expenditures in the NIPAs, and the stock of housing is treated as fixed assets. The housing stock provides a flow of housing services that are consumed by persons who rent their housing and by persons who own the housing they occupy (referred to as “owner-occupants”). In the NIPAs, owner-occupants are treated as owning unincorporated enterprises that provide housing services to themselves in the form of the rental value of their dwellings. Thus, PCE for dwelling services includes both the monetary rents paid by tenants and an imputed rental value for owner-occupied dwellings (measured as the income the homeowner could have received if the house had been rented to a tenant). This treatment is designed to make PCE (and GDP) invariant to whether the house is rented by a landlord to a tenant or is lived in by the homeowner.
https://www.youtube.com/watch?v=Q-5US4J03Wo 13:00 mark.
Interest rates being higher means: get your money out of that speculative crap and into something where you can take advantage of the higher rates.
But also because Bitcoin isn't what its advocates claim it is? It's speculation, not currency. Not a hedge against inflation.
In fact it's inflated worse than USD. Worth 40% less than it was a year ago.
At some point if/when this course of action becomes untenable due to recession/unemployment/too high interest rates given amount of debt in economy, and Fed reverses course (which they did much earlier last tightening cycle in 2018 when markets tanked), those two assets should rise again. Gold particularly falls when real interest rates rise. But, it is likely they are more serious about taking assets down and essentially inducing a recession given the persistent high inflation. The result of fighting that to any real degree means everything keeps going down...which is literally their goal (the reverse wealth affect to slow inflation).
Right now unemployment is under 4%. The Fed has a lot of leeway to raise rates before what they are doing affects employment, and I'm not sure at all that they will allow unemployment to get too high, if they can help it.
If you want short-term inflation protection, add some commodities to your portfolio.
BTC will trend perfectly inline with stock valuations as a function of excess liquidity, kind of indicating they are not what they are supposed to be.
They are a fun speculative instrument, when things get tough, people stop pretending and move onto other things.
That may change, but unlikely.
I see a future crypto 'mapped' to the real world in the future some how, not fully but only partically decentralized, that could work.
He said virtually the same as you..
I said 'pay' I meant to say 'invest'.
BTC should be counter cyclical to stocks, but my bet is that they won't be.
It'll be up during 'fun times' and down during 'scary times' whereas by design it should be the opposite. That could change if something about BTC becomes institutionalized, i.e. everywhere starts accepting BTC for Oil or something but I doubt that will happen.
Probably not stocks, but maybe actually some value stocks.
My point is just that BTC is not a safe haven from stocks.
A friend ran a successful small investment fund, and still went out of business during the last down turn because all his clients had to pull their money out to cover losses elsewhere.
It is the snakeoil people who promised that and gullible idiots believed/memed/tiktoked that.
A plot of land in rural Arkansas has been stable irrespective of Money Supply. The value of grain of sand on the beaches of South Carolina have been same.
OTOH, Bitcoin is not an hard asset :)
Hard/Soft classification are used by naive doomer-preppers (aka Peter Schiff). Assets are things that produce cash flow, rest is speculative. That's why the beanie baby (a "hard asset") that you bought in 1999 hasn't beaten inflation
If nominal, Venezuelan bolívars are the way to go.
If inflation-adjusted, maybe you're on to something, but still depends how you measure inflation.
It's a fine line between sacrificing the future "economy" to save lives now.
We will have to see if overall life loss is less or more due to the human interventions during covid mania.
When mothers die giving bird, car accidents become mortal, heart attacks are not treated because there are no beds in the hospital people tend to revolt. But because it did not happen you seem to argue that the remedy was not needed.
As we know, conservatives in Congress (which includes a bunch of Democratic members) refuse to pass taxes unless they fall disproportionately on the poor. Thus, we are unlikely to see a real resolution to this problem, just more can kicking.
Also inflation is primarily driven by middle/lower class having higher disposable income, not upper class. The propensity to spend a marginal dollar goes up significantly, the poorer you are. If Jeff Bezos sells $1B of amazon tomorrow, it's likely disinflationary in practice because he's taking that money from buyers and not spending it at the same rate
It's possible that forced selling of assets through new tax schemes could be disinflationary by routing money from buyers to the government via taxes. But then again, most of the money in equities is owned by wealthy/low propensity to consume people
You can blame the Fed on that one
You have to clean up the market of consolidation and tax the money away from the wealthy, who got 85% of the stimulus and used it to buy up the economy.
Seems pretty fair and obvious to me. Imagine any of the senate leadership actually proposing that though, lol
I think there will be more willingness to negotiate across the aisle as inflation/fuel continues to heat up.
Over any reasonable time period, the economic benefits of having a healthy populace out weigh the temporary cost of lockdowns. Our current problems with inflation may well be in part caused by workers unable to work due to chronic illness caused by Covid (and indeed the endless rounds of acute illness too).
>> and Democrats are searching for villains to blame, from greedy bosses to Vladimir Putin.
How about congress look in the mirror and all the free money they've been handing out AND spending.
On a related note, why does boosting the economy always involve borrowing money - either on the consumer side or the government side? We never talk about debt (deficit isn't debt, it's the rate of change of debt). Fiscal responsibility is always pushed aside for short term goals.
https://www.theatlantic.com/ideas/archive/2022/06/what-is-ca...
We've got a brewing war in China.
We've got an active war in Eastern Europe.
People literally cannot feed their infant children.
Is there anybody who seriously and honestly believes that Joe Biden should be in charge of assembling a team to solve these issues? Does anybody seriously believe that people like Pete Buttigieg should be in charge of doing anything to help alleviate these supply chain and energy problems?
This will force people back into the workforce and free up capital so that we can friend-shore supply chains.
So in combination with inflation that will not slow down as much as it needs to, the trust which made the U.S. dollar the global reserve currency in the first place is also eroding.
Inspired by the final statement from the article:
> "Inflation that is stable and modestly above 2% might be tolerable for the real economy, but there is no guarantee the Fed’s stance today can deliver even that. And breaking promises has consequences. It hurts long-term bondholders, including foreign central banks and governments which own $4trn-worth of Treasury bonds. (A decade of 4% inflation instead of 2% would cut the purchasing power of money repaid at the end of that period by 18%.) It might add an inflation risk premium to America’s cost of borrowing. And if even America broke its inflation promises in tough times, investors might worry that other central banks—many of which are looking over their shoulders at indebted governments—would do the same. In the 1980s the recessions brought about by Paul Volcker’s Fed laid the foundations for inflation-targeting regimes worldwide. Every month inflation runs too hot, part of that hard-won credibility ebbs away."
It's a weird feeling to understand that there's little that can be done, because so many of the issues we're dealing with were locked in carbonite many decades ago, e.g. Social Security unfunded liabilities. It's like a game of musical chairs, only there is only one chair left, but 27 people are still circling around it, and every few seconds another person shows up to play.
Social Security isn't unfunded. The main issue there is that it invests the money in US treasury bonds. As those bonds mature they reinvest in new bonds. That's all find and dandy, but it creates a system where SS is constantly "buying" bonds and the treasury is constantly "paying" SS. This has historically looked like a flow of money from SS into the treasury. As the boomers retire, the net flow will have to reverse, meaning the treasury will have to pay back a bunch of money that it borrowed from the Social Security administration. That's fine, they have several trillion dollars invested. The big issue is that congress has made a habit of spending other peoples money and sees a huge hole in their budget because of this situation.
Social Security is not an "entitlement" it's more like a contract and congress keeps wanting to default on their end of the deal. The amount a person gets from SS is not much more than their lifetime contributions - the average rate of return for an individual is very low, but that's not what the "problem" is.