Author Topic: Random thoughts and plans for the coming inflation.  (Read 40905 times)

BicycleB

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Re: Random thoughts and plans for the coming inflation.
« Reply #500 on: June 11, 2021, 10:58:15 PM »

I think anybody investing in taxable accounts are in for a world of hurt if this 5%+ inflation rate continues (personally I think its just getting started and will trend in the 5-10% for a few years). The matter gets even worse if capital gains taxes are increased - which also seems like a foregone conclusion.

-With no inflation, if your stock returns 10%, you lose half the gain to taxes and end up with a 5% real gain.
-With 5% inflation, To return your to a real 5% gain your stock p/e multiple has to be cut in half so that you end up with a 20% return, 10% after tax and 5% after inflation.

What country are you talking about?

US stock gains of 10% nominal for incomes under $441,000 produce federal income tax of 0% to 15% depending on tax bracket. Income of under $40,000 (my usual case) would be zero percent, but the 15% marginal rate for income over $40,000 would still deliver 8.5% nominal return after tax.

Even if 5% inflation were occurring in one year instead of the real-life two, that would produce a real after-tax return of 3.5%. For the part of your income over $40,000 if you can't tax plan to keep it all under $40,000.

https://www.nerdwallet.com/article/taxes/capital-gains-tax-rates

PS. Last I checked, Biden's proposed increase in capital gains tax would apply only above $1 million annual income. Irrelevant to normal FIRE.
« Last Edit: June 11, 2021, 11:07:32 PM by BicycleB »

vand

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Re: Random thoughts and plans for the coming inflation.
« Reply #501 on: June 11, 2021, 11:15:50 PM »
Fiscal drag is an underhand way for governments to eventually pull more people into higher tax brackets and raise more real tax revenue, and it will be widely employed going forward as we come out of the stimulus spending and governments are forced to better balance their books.

Here in the UK government has effectively frozen the upper boundary of pension tax relief until 2026, and will almost certainly be doing the same to income tax bands, which means that, depending on the rate of inflation, the tax relief boundaries will effectively being brought down by 12-25%

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Re: Random thoughts and plans for the coming inflation.
« Reply #502 on: June 12, 2021, 02:16:02 AM »
Inflation is right here right now.

We'll see if its really is transitory, but personally I would not put all or even most of my eggs into that thesis bcause the downside if you are wrong and the inflation is secular will be huge.

https://www.wsj.com/articles/us-inflation-consumer-price-index-may-2021-11623288303

There's also a downside if the Fed freaks too soon and snuffs out inflation. Think about the price paid by Japan once disinflationary expectations set in during the early 1990s and couldn't be dislodged. They're wrapping up "lost decade" number 3 now, their national debt to GDP is a spectacle, and nobody can imagine a bright future. Remember, the US's demographics today are grayer than Japan's were in the early 1990's.

From May 2019 to May 2021, CPI has increased 5.2%, so the trend - spanning over the deflation of 2Q 2020 - is still historically low at only 2.6% inflation per year. I think we need a year >3% to have a chance at escaping Japanification and a debt trap. That is no sure thing, especially as wages are being traded for work-from-home privileges by the white-collar crowd.

Its important to step back and ask: is life really so terrible under a deflationary period?

Deflation is the natural tendency in a market economy with a sound money system as wages remain fixed but as productivity rises the unit cost of goods and services becomes cheaper so your wages gain purchasing power.

The standard of living in Japan has still risen despite their secular deflationary environment and the societal fabric has not become polarised by the huge disparity between the haves and have nots created by the asset inflation that has characterised developed Western economies.

Don't get me wrong, there are some serious problems with Japan's economy, but the pressure of keeping up with a continual rise in living costs is something many ordinary people would welcome.

pecunia

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Re: Random thoughts and plans for the coming inflation.
« Reply #503 on: June 12, 2021, 07:30:59 AM »


_ _ _ _ _ _ SNIP _ _ _ _ _ _

Its important to step back and ask: is life really so terrible under a deflationary period?

Deflation is the natural tendency in a market economy with a sound money system as wages remain fixed but as productivity rises the unit cost of goods and services becomes cheaper so your wages gain purchasing power.

The standard of living in Japan has still risen despite their secular deflationary environment and the societal fabric has not become polarised by the huge disparity between the haves and have nots created by the asset inflation that has characterised developed Western economies.

Don't get me wrong, there are some serious problems with Japan's economy, but the pressure of keeping up with a continual rise in living costs is something many ordinary people would welcome.

I think you meant lack of pressure in your final sentence.

Once in a while, it is announced on the news as to how Japan's economy sucks and has sucked for a long time.  The aspects that you have noted are never announced.  It sounds good.  Quite frankly, I've never understood why it is desirable to maintain the 2 percent inflation rate that the FED attempts to attain.  I liked it when the price of gasoline plummeted during the pandemic.  Lower prices are always a pleasant surprise.  The consistency makes it easier to plan one's life.

Bloop Bloop Reloaded

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Re: Random thoughts and plans for the coming inflation.
« Reply #504 on: June 12, 2021, 08:24:59 AM »
Deflation would be a godsend for me.

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Re: Random thoughts and plans for the coming inflation.
« Reply #505 on: June 12, 2021, 11:16:52 AM »
Will the upcoming inflation void the validity of the 4 percent rule?

The 4% rule is necessarily backward looking, so of course we can't say for sure it will work in the future.  But it did survive the 1970s and early 1980s when inflation was in double digits.   So probably yes.   The 4% is very conservative. 

That said, the Fed has lots of room to raise interest rates up from their historic lows to combat that before significant inflation happens. 


Simpleton

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Re: Random thoughts and plans for the coming inflation.
« Reply #506 on: June 12, 2021, 12:23:54 PM »
Will the upcoming inflation void the validity of the 4 percent rule?

The 4% rule is necessarily backward looking, so of course we can't say for sure it will work in the future.  But it did survive the 1970s and early 1980s when inflation was in double digits.   So probably yes.   The 4% is very conservative. 

That said, the Fed has lots of room to raise interest rates up from their historic lows to combat that before significant inflation happens.

The 4% rule classically has been used in a 30 year context. I think that is a very low bar you are setting for it. If there was no inflation 4% would last 25 years no matter what, so really you are asking for a 20% real return in 30 years to qualify it as a "success".

If you run firecalc over 50 year timeframes you find that 4% actually does fail quite a bit (23% of the time). Most of the times it fails are years where the 50 year timeframe starts before the great depression, or in late 60's to 1970. More recent data needed to show returns starting after this point; but you can look at 45 year survival rates and find its not good either.

So if you are really looking to live off of returns, and not eat away at principal, the 4% rule actually does not survive the 1970's.

Move that 4% down to 3% and you can sleep much easier with a 0% failure rate.
« Last Edit: June 12, 2021, 12:35:57 PM by Simpleton »

American GenX

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Re: Random thoughts and plans for the coming inflation.
« Reply #507 on: June 13, 2021, 02:58:12 PM »
Deflation would be a godsend for me.
Yeah, I would love to see that to make up for the present skyrocketing in prices and painfully low interest rates.  I'm having to cut back even more than my frugal ways already had me limiting my spending.  Now I'm having to consider delaying FIRE yet another year.

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Re: Random thoughts and plans for the coming inflation.
« Reply #508 on: June 13, 2021, 05:19:28 PM »
The 4% rule classically has been used in a 30 year context. I think that is a very low bar you are setting for it. If there was no inflation 4% would last 25 years no matter what, so really you are asking for a 20% real return in 30 years to qualify it as a "success".

By definition, the 4% rule applies to 30 year periods.  That's what the 4% rule is.  And yes, it is a low bar.  Historically at the end of most 30 year periods you wind up fabulously wealthy. 

PDXTabs

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Re: Random thoughts and plans for the coming inflation.
« Reply #509 on: June 13, 2021, 07:07:48 PM »
Deflation would be a godsend for me.
Yeah, I would love to see that to make up for the present skyrocketing in prices and painfully low interest rates.  I'm having to cut back even more than my frugal ways already had me limiting my spending.  Now I'm having to consider delaying FIRE yet another year.

The last time we saw significant deflation was called The Great Depression. I don't think that we want that. I can't imagine that a deflationary spiral would be good for anyone save for maybe people who are massively overweight bonds.

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Re: Random thoughts and plans for the coming inflation.
« Reply #510 on: June 13, 2021, 07:24:58 PM »
The last time we saw significant deflation was called The Great Depression. I don't think that we want that. I can't imagine that a deflationary spiral would be good for anyone save for maybe people who are massively overweight bonds.

Deflation is a common artifact associated with economic downturns.  In one sense, lower prices are great.  Who doesn't love lower prices?  On the flip side, in a deflationary environment it doesn't make sense to invest or even spend money, because prices will simply be lower in the future.  Hording money decreases demand which causes further downward pressure on prices, which encourages more hording, which pushes prices lower, etc. 

One problem with fighting deflation from a central bank standpoint is that in a practical sense you can't lower interest rates below zero.  One you get to zero interest rates, you're out of tools. 

That's one reason why the Fed has an inflation target of 2% (which they have consistently not met).  It is a little inflation, but not much, and it isn't banging against the zero floor either. 

As for the current situation, the economy is all screwed up to due the shutdown and along with that lots of prices have gone up.  But I'm not sure we can plan for inflation in the future.  I think it is much too early to make long term plans.   Personally, I'm going to wait until the economy is less screwed up and reassess at that time. 

That said (brings out broken record) having a nice, big 30-year mortgage at 3% or below interest rates is an amazing inflation hedge.  Probably the deal of a lifetime. 

pecunia

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Re: Random thoughts and plans for the coming inflation.
« Reply #511 on: June 13, 2021, 08:30:08 PM »
The 4% rule classically has been used in a 30 year context. I think that is a very low bar you are setting for it. If there was no inflation 4% would last 25 years no matter what, so really you are asking for a 20% real return in 30 years to qualify it as a "success".

By definition, the 4% rule applies to 30 year periods.  That's what the 4% rule is.  And yes, it is a low bar.  Historically at the end of most 30 year periods you wind up fabulously wealthy.

If you are not dead first.

Telecaster

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Re: Random thoughts and plans for the coming inflation.
« Reply #512 on: June 13, 2021, 08:31:26 PM »
The 4% rule classically has been used in a 30 year context. I think that is a very low bar you are setting for it. If there was no inflation 4% would last 25 years no matter what, so really you are asking for a 20% real return in 30 years to qualify it as a "success".

By definition, the 4% rule applies to 30 year periods.  That's what the 4% rule is.  And yes, it is a low bar.  Historically at the end of most 30 year periods you wind up fabulously wealthy.

If you are not dead first.

For sure!  That's the risk I hadn't thought about until MMM. 

Bloop Bloop Reloaded

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Re: Random thoughts and plans for the coming inflation.
« Reply #513 on: June 13, 2021, 09:02:37 PM »
Deflation would be a godsend for me.
Yeah, I would love to see that to make up for the present skyrocketing in prices and painfully low interest rates.  I'm having to cut back even more than my frugal ways already had me limiting my spending.  Now I'm having to consider delaying FIRE yet another year.

I'm combating inflation the only way I individually can - I refuse to join the spending orgy. Australians are so insulated and have so much money that because we can't go over overseas holidays, the price of local holidays, restaurant meals, accommodation and cars has skyrocketed. All under the guise of "supporting local businesses" (lol). I'm agnostic when it comes to supporting anyone. Once overseas travel opens up I'm going to support some overseas retailers who offer much better value for money than inflated Australian businesses.

vand

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Re: Random thoughts and plans for the coming inflation.
« Reply #514 on: June 14, 2021, 04:17:21 AM »
Deflation would be a godsend for me.
Yeah, I would love to see that to make up for the present skyrocketing in prices and painfully low interest rates.  I'm having to cut back even more than my frugal ways already had me limiting my spending.  Now I'm having to consider delaying FIRE yet another year.

The last time we saw significant deflation was called The Great Depression. I don't think that we want that. I can't imagine that a deflationary spiral would be good for anyone save for maybe people who are massively overweight bonds.

Opinion and perception on this is is always skewed towards the worst documented cases in various countries.  That is why in the US the shadow of the Great Depression is always in the background to warn against the dangers of deflation.   In Europe it is very much the opposite, where the scaring effect of Weimar hyperinflation permates public policy and great threat is seen as inflation running too high.

But in fact there have been a several well documented cases of deflation in advanced economies that were seen as corrective and necessary, just as there are economies where inflation can run high but you can still have real economic growth. It's important to separate inflation from the actual real economic performance.  Big changes in prices either up OR down can be a sign of an booming economy, but they can also be the sign of a collapsing economy.  The problem when either is true is that it becomes difficult to distingush genuine economic price signals from the effects of inflation.

ChpBstrd

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Re: Random thoughts and plans for the coming inflation.
« Reply #515 on: June 14, 2021, 08:21:18 AM »
Inflation is right here right now.

We'll see if its really is transitory, but personally I would not put all or even most of my eggs into that thesis bcause the downside if you are wrong and the inflation is secular will be huge.

https://www.wsj.com/articles/us-inflation-consumer-price-index-may-2021-11623288303

There's also a downside if the Fed freaks too soon and snuffs out inflation. Think about the price paid by Japan once disinflationary expectations set in during the early 1990s and couldn't be dislodged. They're wrapping up "lost decade" number 3 now, their national debt to GDP is a spectacle, and nobody can imagine a bright future. Remember, the US's demographics today are grayer than Japan's were in the early 1990's.

From May 2019 to May 2021, CPI has increased 5.2%, so the trend - spanning over the deflation of 2Q 2020 - is still historically low at only 2.6% inflation per year. I think we need a year >3% to have a chance at escaping Japanification and a debt trap. That is no sure thing, especially as wages are being traded for work-from-home privileges by the white-collar crowd.

Its important to step back and ask: is life really so terrible under a deflationary period?

Deflation is the natural tendency in a market economy with a sound money system as wages remain fixed but as productivity rises the unit cost of goods and services becomes cheaper so your wages gain purchasing power.

The standard of living in Japan has still risen despite their secular deflationary environment and the societal fabric has not become polarised by the huge disparity between the haves and have nots created by the asset inflation that has characterised developed Western economies.

Don't get me wrong, there are some serious problems with Japan's economy, but the pressure of keeping up with a continual rise in living costs is something many ordinary people would welcome.

Japan has only had technical deflation - a broad reduction in prices - for 13 of last 35 years. For the remaining time, they've usually had too-low sub-optimal inflation trending around the 0% to 2% range.

https://www.statista.com/statistics/270095/inflation-rate-in-japan/

The reason most economists consider the 2-4% range optimal - if one's goals are economic growth and maximum employment - is because this is just enough inflation to stimulate people to spend or invest their money rather than sitting on it in a savings account or under a mattress. Meanwhile, inflation at these levels is too slow to create significant menu repricing costs or wage instability. In a zero-inflation economy (which due to normal fluctuations would regularly be a deflationary economy) there is much less incentive to put one's money to work in consumption or investment. This is especially true when you know that everyone else has an incentive to hoard their cash, so it is questionable whether you will sell anything in the market today or if your employer will have to lay you off due to a lack of demand.

Japan features an orderly culture, advanced technology, and developed-economy living standards, but beneath the surface it's not an economy you would want. The Japanese stock market has gone nowhere for a long time, and the bond market has yielded near-nothing for a long time. Thus, FIRE, or even regular retirement, has been an uphill battle, if not impossible for most Japanese. The Nikkei has only returned to life in the past couple of years as inflation started to go up in Japan - demonstrating how inflation goes hand in hand with economic growth. 

Far worse for those of us with FIRE values...
Quote
Nearly one quarter of Japanese companies require employees to work more than 80 hours of overtime a month, according to a 2016 government survey. Those extra hours are often unpaid.

Source: https://www.cnbc.com/2018/06/01/japan-has-some-of-the-longest-working-hours-in-the-world-its-trying-to-change.html

And these are the good jobs everyone aspires to get. As a result of workaholism, many Japanese people have no time to cultivate relationships, get married, or have kids. This, in turn, worsens Japan's demographic decline. Japan is certainly not like the U.S. or Europe during the Great Depression, when people lived off of one can of beans per day. But in a sense they are earning less value per hour in the sense that 70+ hour weeks are the norm so that one can afford an apartment the size of a cheap US hotel room. The facade of a strong economy is only supported by workaholism.

Even worse, a lack of inflation has allowed Japan's debt to outgrow its GDP. Imagine having a mortgage in such a country, where the payments are no easier to make a decade or two later than they were when the house was first bought. This is why double-digit savings rates are the norm. High savings rates keep inflation low, but good luck starting a business or earning enough from investments to support a 4% rule retirement.

This old Brookings Institution article from 1996 estimates
Quote
The costs of maintaining zero inflation would be a permanent reduction in gross domestic product of 1 to 3 percent and a permanent drop in employment by the same amount.
.

MustacheAndaHalf

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Re: Random thoughts and plans for the coming inflation.
« Reply #516 on: June 14, 2021, 10:18:59 AM »
CNBC had an interview with Paul Tudor Jones ("PTJ"), who is a commodity investor.  Most of the market thinks inflation is temporary, which is also reflected in low yields in the bond market.  But Paul Tudor Jones made some interesting points.

The Fed's maximum employment goal is driven by data, but their interest rate management is driven by theories.  In his view, it means the Fed is really only focused on employment - and is ignoring inflation.  The Fed is widely expected to change nothing Wednesday, which "PTJ" considers to be a sign to invest for inflation (gold, commodities ... bitcoin).  But he's a commodity investor.  So the danger is that old saying that if you have a hammer, every problem looks like a nail.
https://www.cnbc.com/2021/06/14/paul-tudor-jones-says-bet-heavily-on-every-inflation-trade-if-fed-keeps-ignoring-higher-prices.html

I recall Warren Buffet fearing inflation last year, and Ray Dalio warning of it as well.  Are there many other famous investors who have been around for decades with a different view?

I decided to increase my portfolio allocation to commodities slightly, since I've been meaning to do it for awhile.  Right before a Fed meeting (Wed) seems like decent timing.  Most commodity ETFs feature high fees and annoying K-1 tax forms.  I normally don't like ETNs, but today bought a couple Barclay's ETNs which feature 0.45% expense ratios and 1099 tax forms.  "JO" tracks coffee, while "JJC" tracks copper.

ChpBstrd

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Re: Random thoughts and plans for the coming inflation.
« Reply #517 on: June 14, 2021, 01:07:36 PM »
The Fed's maximum employment goal is driven by data, but their interest rate management is driven by theories. 

I don't know about this part. Full employment is impossible because of things like people switching jobs and leaving a vacancy for a month or two, transitioning to disability, being unemployable due to addiction, mental illness, or disability, moving to a new city to let the spouse chase a job and not having one's own job lined up yet, doing gig or seasonal work, working in the informal economy, or spending months sniping for high-paying jobs. One could draw a line and say "OK, 3.5% unemployment in January 2020 was the lowest it's ever gone, so that's full employment." but the problem is how many "discouraged" workers are out of the labor force and doing something else like going to school, taking care of a loved one, being homemaker, etc. Such people disappear from the statistic, but have a way of coming out of the woodwork. I think "full employment" is a very theoretical and fuzzy number.

Perhaps they should do unemployment targeting just like inflation targeting. E.g. 4.5% is "sufficient employment". The target can't be an implicit zero unemployment. If zero were the target, the fed would always be reluctant to raise rates, as PTJ seems to imply.

Interest rates, OTOH, seem positively qualitative by comparison. You set the overnight lending rate and watch the effects on CPI, PPI, monetary velocity, corporate earnings, etc. You have a long history of changes and effects so that you can build quantitative models to estimate the scale of the outcome for any given change. Plus, interest rate effects are relatively rapid compared to unemployment.

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Re: Random thoughts and plans for the coming inflation.
« Reply #518 on: June 14, 2021, 07:49:06 PM »
On topic:
Plans:
Include an allocation to "small value" stocks
Include an allocation to international stocks, including emerging markets
Small ~5% gold miner allocation
Own 2 houses with loans at 3% & 2.75%, with four units between the two , three as rentals. If inflation rises we raise rents and the mortgages shrink to near nothing.
Things that are different from the regular plan: nothing. If it becomes known that inflation is certain, prices will adjust to that. Better to own the plan ahead.

We have at least 5 years of work left. DW is in nursing, whose wages will likely increase faster than the average especially after COVID19. I am an engineer, specializing in mining and municipal infrastructure projects at an epicenter of the proposed infrastructure plan, and my wages will also likely rise quickly if it passes in any form.

In case everyone turns out to be idiots (they often do) and we have deflation and lowering bond yields: 5% to extreme duration bonds. We have a lot more to lose in a deflation, so I hope for inflation.

Random thoughts: 4% inflation has historically been correlated with highest real stock returns, so that is what I would hope for.

Let's look at how bad this could really get: Let's say US debt is 140% of GDP and half that level is the desirable target. 4% inflation for 20 years would allow the government to dump 0.5% into debt spending (hopefully somewhat productive) and still reduce the total debt to half (70% of GDP) in 20 years. Not really an emergency, especially if the economy grows in which case a higher debt issuance, lower inflation, or shorter time to halve could be sustained.

Countries which owe debt in a currency they control essentially never have inflationary debt crises: that is reserved for countries owing debt in currency they don't control. 

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Re: Random thoughts and plans for the coming inflation.
« Reply #519 on: June 14, 2021, 09:24:19 PM »
Japan features an orderly culture, advanced technology, and developed-economy living standards, but beneath the surface it's not an economy you would want. The Japanese stock market has gone nowhere for a long time, and the bond market has yielded near-nothing for a long time. Thus, FIRE, or even regular retirement, has been an uphill battle, if not impossible for most Japanese.

https://en.wikipedia.org/wiki/List_of_countries_by_wealth_per_adult

Japan has the highest median net worth per adult of basically any country with a large population. Second only to Australia I guess depending on where you draw the line. I would think FIRE should be possible as long as they have access to foreign markets.

Fully agree with all the crazy working hours though - Japanese work an extra 8 hours a week on average than most western countries.

I would think this number is a little skewed by the aging demographic in Japan though - older people tend to be richer.

« Last Edit: June 14, 2021, 09:30:02 PM by Simpleton »

Telecaster

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Re: Random thoughts and plans for the coming inflation.
« Reply #520 on: June 14, 2021, 09:27:56 PM »
Perhaps they should do unemployment targeting just like inflation targeting. E.g. 4.5% is "sufficient employment". The target can't be an implicit zero unemployment. If zero were the target, the fed would always be reluctant to raise rates, as PTJ seems to imply.

They actually do that.  I forget what the theoretical "full" employment number is, but it is something like the 4.5% you mentioned, for the reasons you mentioned.  Prior to COVID, unemployment was actually below the theoretical minimum, which was causing a lot of head scratching. 

Simpleton

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Re: Random thoughts and plans for the coming inflation.
« Reply #521 on: June 14, 2021, 09:34:14 PM »
They actually do that.  I forget what the theoretical "full" employment number is, but it is something like the 4.5% you mentioned, for the reasons you mentioned.  Prior to COVID, unemployment was actually below the theoretical minimum, which was causing a lot of head scratching.

In the years prior to Covid real wages were starting to rise, and unemployment was so low that people were being lured back into the labor force for the first time in years.

https://www.bls.gov/charts/employment-situation/civilian-labor-force-participation-rate.htm

Unemployment needs to be looked at in this context. It is very easy to get a low unemployment rate if no one wants to work.
« Last Edit: June 14, 2021, 09:38:00 PM by Simpleton »

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Re: Random thoughts and plans for the coming inflation.
« Reply #522 on: June 15, 2021, 07:16:32 AM »
The Fed's maximum employment goal is driven by data, but their interest rate management is driven by theories. 

I don't know about this part. Full employment is impossible because of things like people switching jobs and leaving a vacancy for a month or two, transitioning to disability, being unemployable due to addiction, mental illness, or disability, moving to a new city to let the spouse chase a job and not having one's own job lined up yet, doing gig or seasonal work, working in the informal economy, or spending months sniping for high-paying jobs. One could draw a line and say "OK, 3.5% unemployment in January 2020 was the lowest it's ever gone, so that's full employment." but the problem is how many "discouraged" workers are out of the labor force and doing something else like going to school, taking care of a loved one, being homemaker, etc. Such people disappear from the statistic, but have a way of coming out of the woodwork. I think "full employment" is a very theoretical and fuzzy number.

Perhaps they should do unemployment targeting just like inflation targeting. E.g. 4.5% is "sufficient employment". The target can't be an implicit zero unemployment. If zero were the target, the fed would always be reluctant to raise rates, as PTJ seems to imply.

Interest rates, OTOH, seem positively qualitative by comparison. You set the overnight lending rate and watch the effects on CPI, PPI, monetary velocity, corporate earnings, etc. You have a long history of changes and effects so that you can build quantitative models to estimate the scale of the outcome for any given change. Plus, interest rate effects are relatively rapid compared to unemployment.
You're not accurately capturing it in that one sentence, but I couldn't describe it completely in a brief post, either.

The Fed is measuring the unemployment rate, and keeping stimulus and low interest rates to reduce that unemployment rate.  The Fed could aim for pre-pandemic unemployment rates, or some other goal - but based on unemployment data.

For interest rates, it's predicting the future.  The Fed claims inflation will, in the future, be temporary and then drop back down.  How does it know that?  What data shows the future will have temporary, not permanent, inflation?  That's where the predicting comes in, rather than hard data.

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Re: Random thoughts and plans for the coming inflation.
« Reply #523 on: June 15, 2021, 09:07:55 AM »
Looks like the price of lumber is dropping again.

It appears as if commodity inflation isn't going to last long.
https://finance.yahoo.com/news/lumber-is-showing-us-the-future-morning-brief-100513368.html

Simpleton

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Re: Random thoughts and plans for the coming inflation.
« Reply #524 on: June 15, 2021, 09:12:21 AM »
Looks like the price of lumber is dropping again.

It appears as if commodity inflation isn't going to last long.
https://finance.yahoo.com/news/lumber-is-showing-us-the-future-morning-brief-100513368.html

I am surprised how quickly this price has corrected to be honest.

It is still more than double its pre-pandemic level, but it is encouraging to see this trend.

bwall

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Re: Random thoughts and plans for the coming inflation.
« Reply #525 on: June 15, 2021, 09:22:47 AM »
Looks like the price of lumber is dropping again.

It appears as if commodity inflation isn't going to last long.
https://finance.yahoo.com/news/lumber-is-showing-us-the-future-morning-brief-100513368.html

I am surprised how quickly this price has corrected to be honest.

It is still more than double its pre-pandemic level, but it is encouraging to see this trend.
Same.

The bottleneck was milling capacity, which means that all the additional price increase / profit accrued to the mills, not the timber owners/sellers. Good for the mills and mill workers getting overtime, right!?!!

Anyways, this rare windfall profit opportunity meant that the millers were just going to make as much hay as they could while the sun shined. Each mill is in a race with the next mill to produce as much as possible before the price falls to the historical level. Now the price is falling and they'll still be cranking out supply until the price drops another 50% (below $500). Until then, the mills aren't even thinking about slowing down.

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Re: Random thoughts and plans for the coming inflation.
« Reply #526 on: June 15, 2021, 10:05:11 AM »
Looks like the price of lumber is dropping again.

It appears as if commodity inflation isn't going to last long.
https://finance.yahoo.com/news/lumber-is-showing-us-the-future-morning-brief-100513368.html

I am surprised how quickly this price has corrected to be honest.

It is still more than double its pre-pandemic level, but it is encouraging to see this trend.
Same.

The bottleneck was milling capacity, which means that all the additional price increase / profit accrued to the mills, not the timber owners/sellers. Good for the mills and mill workers getting overtime, right!?!!

Anyways, this rare windfall profit opportunity meant that the millers were just going to make as much hay as they could while the sun shined. Each mill is in a race with the next mill to produce as much as possible before the price falls to the historical level. Now the price is falling and they'll still be cranking out supply until the price drops another 50% (below $500). Until then, the mills aren't even thinking about slowing down.

It will be interesting to see if this turn of events is replicated in all of the areas of shortage such as cars/computer chips/meat etc. It is also worth considering that if capacity ramps up too much in response to high prices, a glut of oversupply could happen as well. It may be a great time to build a home, buy a new car and celebrate with a steak in a year or two.

My bet though is that broadly prices remain quite elevated (I think these 5%+ inflation rates are here to stay for a while longer) and just these "bubble" prices get burst. Its all just a guess though!
« Last Edit: June 15, 2021, 10:11:59 AM by Simpleton »

bwall

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Re: Random thoughts and plans for the coming inflation.
« Reply #527 on: June 15, 2021, 10:23:42 AM »
It will be interesting to see if this turn of events is replicated in all of the areas of shortage such as cars/computer chips/meat etc. It is also worth considering that if capacity ramps up too much in response to high prices, a glut of oversupply could happen as well. It may be a great time to build a home, buy a new car and celebrate with a steak in a year or two.

My bet though is that broadly prices remain quite elevated (I think these 5%+ inflation rates are here to stay for a while longer) and just these "bubble" prices get burst. Its all just a guess though!

I expect to see these turn of events replicated in all areas of shortages.

I hadn't heard of any meat shortages; a quick look at the live cattle price ('on the hoof') over the past five years shows me that the prices cattle ranchers get are within the historical bounds. If any shortage exists (and resulting price spikes) it would be due to reduced meat-packing capacity. IIRC, meatpackers had problems during COVID, and it's a tough job, so, yeh, I could see a bottleneck occurring there. I'd also expect to see prices drop again as with the lumber market. It's easier to substitute meats (or do without) than lumber, so a price spike for meat as with lumber might never have been in the cards. Dunno.

As you say, it's all a guess; a parlor game for those of us who enjoy economics.

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Re: Random thoughts and plans for the coming inflation.
« Reply #528 on: June 15, 2021, 10:25:51 AM »
I hadn't heard of any meat shortages; a quick look at the live cattle price ('on the hoof') over the past five years shows me that the prices cattle ranchers get are within the historical bounds. If any shortage exists (and resulting price spikes) it would be due to reduced meat-packing capacity. IIRC, meatpackers had problems during COVID, and it's a tough job, so, yeh, I could see a bottleneck occurring there. I'd also expect to see prices drop again as with the lumber market. It's easier to substitute meats (or do without) than lumber, so a price spike for meat as with lumber might never have been in the cards. Dunno.

That would mirror lumber where the supply bottleneck was the mills. So you could get as many trees as you wanted, as long as they weren't cut into lumber.

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Re: Random thoughts and plans for the coming inflation.
« Reply #529 on: June 15, 2021, 11:04:01 AM »
But, your main complaint now seems to be that the non-financed cost is going up, the 'cash price'. First, I'd say again, look at the link I sent and you can see that the house pricing isn't going up. It's flat. It doesn't appear so, b/c housing isn't consumed all at once like a hamburger, or even over the course of a few seasons, like clothing. It's consumed over a 30 year period (according to FANNIE MAE! :) ) or perhaps longer.

That's a rather nonsensical claim. Based on recent sales, the "cash price" for my house is up ~40% year on year. If someone wants to buy a house, how is that "flat"?

bwall

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Re: Random thoughts and plans for the coming inflation.
« Reply #530 on: June 15, 2021, 11:34:45 AM »
But, your main complaint now seems to be that the non-financed cost is going up, the 'cash price'. First, I'd say again, look at the link I sent and you can see that the house pricing isn't going up. It's flat. It doesn't appear so, b/c housing isn't consumed all at once like a hamburger, or even over the course of a few seasons, like clothing. It's consumed over a 30 year period (according to FANNIE MAE! :) ) or perhaps longer.

That's a rather nonsensical claim. Based on recent sales, the "cash price" for my house is up ~40% year on year. If someone wants to buy a house, how is that "flat"?

I explained that in the next paragraph. Here it is again:

Therefore, if one did the math comparing a house purchase in 1986 (35 years ago) for, say $50,000 at 10% interest rate, which was the going rate back then, then over the course of the next thirty years the house would have cost a total of $157,962.88 to own. Which is the exact market price of that same house today, when paid in cash.

I can't comment on your specific situation, perhaps there is an external explanation (recent influx of people in the area, increased potential for development, new factory being opened, recent large IPO of a company in your city, supply shock (natural disaster, etc), recently touted by travel/good living magazines, etc.), but in general:

Housing is a durable good, usually consumed over a 30 year period, perhaps longer. Most people can't pre-pay for 30 years of housing all at once, so they request financing. Financing costs have dropped dramatically in the last 20 years (or so) and have resulted in a concomitant nominal price increase in houses. But, the monthly real overall cost of home ownership has remained the same when financing is factored in, as shown above.

I'd encourage you to look at historical pricing in your area. Compare prices 30 years ago, financing rates then and now, and prices now. In some areas of the country, they WILL be higher (west coast) in real terms, in some areas of the country, they WILL be lower (great plains, mid-west) in real terms. In most areas of the country they WILL be the same.

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Re: Random thoughts and plans for the coming inflation.
« Reply #531 on: June 15, 2021, 11:48:03 AM »
But, your main complaint now seems to be that the non-financed cost is going up, the 'cash price'. First, I'd say again, look at the link I sent and you can see that the house pricing isn't going up. It's flat. It doesn't appear so, b/c housing isn't consumed all at once like a hamburger, or even over the course of a few seasons, like clothing. It's consumed over a 30 year period (according to FANNIE MAE! :) ) or perhaps longer.

That's a rather nonsensical claim. Based on recent sales, the "cash price" for my house is up ~40% year on year. If someone wants to buy a house, how is that "flat"?

I explained that in the next paragraph. Here it is again:

Therefore, if one did the math comparing a house purchase in 1986 (35 years ago) for, say $50,000 at 10% interest rate, which was the going rate back then, then over the course of the next thirty years the house would have cost a total of $157,962.88 to own. Which is the exact market price of that same house today, when paid in cash.

I can't comment on your specific situation, perhaps there is an external explanation (recent influx of people in the area, increased potential for development, new factory being opened, recent large IPO of a company in your city, supply shock (natural disaster, etc), recently touted by travel/good living magazines, etc.), but in general:

Housing is a durable good, usually consumed over a 30 year period, perhaps longer. Most people can't pre-pay for 30 years of housing all at once, so they request financing. Financing costs have dropped dramatically in the last 20 years (or so) and have resulted in a concomitant nominal price increase in houses. But, the monthly real overall cost of home ownership has remained the same when financing is factored in, as shown above.

I'd encourage you to look at historical pricing in your area. Compare prices 30 years ago, financing rates then and now, and prices now. In some areas of the country, they WILL be higher (west coast) in real terms, in some areas of the country, they WILL be lower (great plains, mid-west) in real terms. In most areas of the country they WILL be the same.

The difference being people 30 years ago were able to refinance into much lower rates afterwards, and those of us now with expensive houses and really cheap mortgages are unlikely to see rates go negative to put us in a similar situation.

Simpleton

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Re: Random thoughts and plans for the coming inflation.
« Reply #532 on: June 16, 2021, 12:47:32 PM »
https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html

"Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection"

The fed is clearly behind the 8-ball. 3 Months later they are increasing their forecasted inflation by over 40%, and reopening is just getting started. Lets see where we are in another 3 months. They made it pretty clear there is no political will to contain it at any number in the immediate future.
« Last Edit: June 16, 2021, 12:49:46 PM by Simpleton »

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Re: Random thoughts and plans for the coming inflation.
« Reply #533 on: June 16, 2021, 01:30:49 PM »
https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html

"Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection"

The fed is clearly behind the 8-ball. 3 Months later they are increasing their forecasted inflation by over 40%, and reopening is just getting started. Lets see where we are in another 3 months. They made it pretty clear there is no political will to contain it at any number in the immediate future.

PANIC PANIC

Quote
Even with the raised forecast for this year, the committee still sees inflation trending to its 2% goal over the long run.

“Our expectation is these high inflation readings now will abate,” Powell said at his post-meeting news conference.
oh wait

PDXTabs

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Re: Random thoughts and plans for the coming inflation.
« Reply #534 on: June 16, 2021, 04:59:30 PM »
https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html

"Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection"

The fed is clearly behind the 8-ball. 3 Months later they are increasing their forecasted inflation by over 40%, and reopening is just getting started. Lets see where we are in another 3 months. They made it pretty clear there is no political will to contain it at any number in the immediate future.

PANIC PANIC

But even 3.4% inflation has not historically been bad for much of anything. Although having such low rates with 3.4% inflation is unique.

WSJ: Inflation’s Magic Number Is Four

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Re: Random thoughts and plans for the coming inflation.
« Reply #535 on: June 16, 2021, 07:53:12 PM »
Here's another semi "random thought".  Here's an article on the "random thought":

https://www.newsweek.com/will-us-dollar-lose-its-place-worlds-no-1-reserve-currency-1567224

I guess the article gives the "random thought" some credibility.  I can see as the US makes less stuff to sell to the world that there is no money coming in.  I can see as the US does it's vast military thing it has to borrow to pay for it.  I can see this big albeit necessary infrastructure bill that will eventually be approved means even more borrowing.  So, is the dollar going to maintain it's value when it's the currency of a giant debtor nation?  Will it remain the currency of choice throughout the world?

The articles says don't worry, but another author may have said the opposite.

If the European Union continues to grow, won't it make more sense for the Euro to become the predominate currency?  This form of denomination is already used by many diverse nations.  It seems pretty stable.

The Chinese economy will be larger than the US economy in about 4 years so the US certainly does not have the economic "pull" it once had.

In some ways, the price of a barrel of oil became a substitute for gold as the basis of currency.  Oil has been traded in dollars.  As the world shifts from oil to electric and other pollution free transportation,  barrels of oil may not have the same importance.

The random thought is a bit of an offshoot from slavery as a free market and other topics heretofore discussed, but I still think it fits in with the inflation thing.  If the dollar is hit by inflation, it just seems like the world will want a more stable form of currency.

I think we are at some kind of cusp point as far as world economics go and think we are due for some big changes.  Does it look like that to you smart money people?

Michael in ABQ

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Re: Random thoughts and plans for the coming inflation.
« Reply #536 on: June 16, 2021, 08:42:04 PM »

I think we are at some kind of cusp point as far as world economics go and think we are due for some big changes.  Does it look like that to you smart money people?

I don't think the USD is going anywhere as the world reserve currency for a while. Even if China's economy is larger than the US, it's also far less transparent. Investors don't have nearly the same confidence as there's been multiple instances of massive accounting fraud for Chinese companies. In addition, there's a large amount of bad debt from inefficient state-owned enterprises and at some point that's going to have a negative effect.

The EU has been having economic and political troubles since the Recession in 2008. I don't see the Euro gaining acceptance in the future. If anything I think it's more likely so other countries will leave the EU at some point in the next 5-10 years. Greece was definitely considering it a few years ago as they could have regained control of their currency and reaped the benefits that comes with not being tied to the Euro (albeit also losing out on a lot of other benefits).

Simpleton

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Re: Random thoughts and plans for the coming inflation.
« Reply #537 on: June 16, 2021, 08:55:09 PM »
https://www.cnbc.com/2021/06/16/fed-holds-rates-steady-but-raises-inflation-expectations-sharply-and-makes-no-mention-of-taper.html

"Though the Fed raised its headline inflation expectation to 3.4%, a full percentage point higher than the March projection"

The fed is clearly behind the 8-ball. 3 Months later they are increasing their forecasted inflation by over 40%, and reopening is just getting started. Lets see where we are in another 3 months. They made it pretty clear there is no political will to contain it at any number in the immediate future.

PANIC PANIC

Quote
Even with the raised forecast for this year, the committee still sees inflation trending to its 2% goal over the long run.

“Our expectation is these high inflation readings now will abate,” Powell said at his post-meeting news conference.
oh wait

I'm not saying to panic, but plan.

The fed was incredibly wrong in their predictions so far. They are not adjusting course at all. The fed is doubling down on low rates forever and printing until out of ink. This is despite being caught with their pants down much quicker than they thought.

My personal view continues to be that this is by design. All the fed talking points are just political cover. Inflation is needed to normalize debt ratios.

Of course maybe I am wrong and you really can print $4T of wealth with nearly no negative effects, and money really does grow on trees. Or maybe people start trading it in for dog money? https://youtu.be/cbI31x3FpS0

https://youtu.be/Ro7lrA781To
« Last Edit: June 17, 2021, 07:33:20 AM by Simpleton »

PDXTabs

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Re: Random thoughts and plans for the coming inflation.
« Reply #538 on: June 17, 2021, 01:29:23 AM »
The EU has been having economic and political troubles since the Recession in 2008. I don't see the Euro gaining acceptance in the future. If anything I think it's more likely so other countries will leave the EU at some point in the next 5-10 years. Greece was definitely considering it a few years ago as they could have regained control of their currency and reaped the benefits that comes with not being tied to the Euro (albeit also losing out on a lot of other benefits).

Yup, the Euro is arguably the EU's biggest liability. As much as I would enjoy the schadenfreude of watching the US dollar lose world reserve status, at this point I think that TINA. I mean, sure, if the USD goes totally nuts people will abandon it, but as mentioned in the above article 40% of world debt is payable in USD.

theoverlook

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Re: Random thoughts and plans for the coming inflation.
« Reply #539 on: June 17, 2021, 07:46:53 AM »
I can see as the US makes less stuff to sell to the world that there is no money coming in.

Total US exports in goods and services for 2018 was $2.5 trillion. If talking about "stuff" alone, it's still around $1.6 trillion. That's an awful lot, even on a global scale.

MustacheAndaHalf

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Re: Random thoughts and plans for the coming inflation.
« Reply #540 on: June 17, 2021, 02:43:07 PM »
Here's another semi "random thought".  Here's an article on the "random thought":

https://www.newsweek.com/will-us-dollar-lose-its-place-worlds-no-1-reserve-currency-1567224

I guess the article gives the "random thought" some credibility.  I can see as the US makes less stuff to sell to the world that there is no money coming in.  I can see as the US does it's vast military thing it has to borrow to pay for it.  I can see this big albeit necessary infrastructure bill that will eventually be approved means even more borrowing.  So, is the dollar going to maintain it's value when it's the currency of a giant debtor nation?  Will it remain the currency of choice throughout the world?

The articles says don't worry, but another author may have said the opposite.

If the European Union continues to grow, won't it make more sense for the Euro to become the predominate currency?  This form of denomination is already used by many diverse nations.  It seems pretty stable.

The Chinese economy will be larger than the US economy in about 4 years so the US certainly does not have the economic "pull" it once had.

In some ways, the price of a barrel of oil became a substitute for gold as the basis of currency.  Oil has been traded in dollars.  As the world shifts from oil to electric and other pollution free transportation,  barrels of oil may not have the same importance.

The random thought is a bit of an offshoot from slavery as a free market and other topics heretofore discussed, but I still think it fits in with the inflation thing.  If the dollar is hit by inflation, it just seems like the world will want a more stable form of currency.

I think we are at some kind of cusp point as far as world economics go and think we are due for some big changes.  Does it look like that to you smart money people?
The first quote in the article is the opposite of what you're saying:
"During this period of economic uncertainty and human loss during the global pandemic, the U.S. dollar's role as the reserve currency of the world has been reaffirmed,"

The problem isn't just the size of the economy - there needs to be stability and legal norms.  China currently restricts how much of it's currency can leave the country.  How are governments supposed to repay debts in Chinese currency, if China won't allow them to have it?

bwall

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Re: Random thoughts and plans for the coming inflation.
« Reply #541 on: June 17, 2021, 03:28:11 PM »

I think we are at some kind of cusp point as far as world economics go and think we are due for some big changes.  Does it look like that to you smart money people?

I don't think the USD is going anywhere as the world reserve currency for a while. Even if China's economy is larger than the US, it's also far less transparent. Investors don't have nearly the same confidence as there's been multiple instances of massive accounting fraud for Chinese companies. In addition, there's a large amount of bad debt from inefficient state-owned enterprises and at some point that's going to have a negative effect.

The EU has been having economic and political troubles since the Recession in 2008. I don't see the Euro gaining acceptance in the future. If anything I think it's more likely so other countries will leave the EU at some point in the next 5-10 years. Greece was definitely considering it a few years ago as they could have regained control of their currency and reaped the benefits that comes with not being tied to the Euro (albeit also losing out on a lot of other benefits).

+1

The Chinese government does not allow the export of CNY. Yes, you read this correctly. It is 'illegal' to hold CHY outside of the PRC.

vand

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Re: Random thoughts and plans for the coming inflation.
« Reply #542 on: December 12, 2021, 02:28:49 AM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

And if you want a primer on the causes of, ramifications of, and cures for inflation, this is as relevant today as ever:

https://www.youtube.com/watch?v=jE7zxo61Xc8


"Inflation is just like alcoholism. In both cases, when you start drinking or when you start creating too much money, the good effects come first, and the bad effects only come later. That's why there is a strong temptation to overdo it.

When it comes to the cure it's the other way around. When you stop drinking or when you stop printing money the bad effects come first, and the good effects only come later.  That's why it's so hard to persist with the cure."
  -- Milton Friedman


I was also about the say that the only thing dated about the video is that government policy of enforcing price controls is not as strong today as it once was in the era of unionisation and less free trade... then I realised that it is even more relevant today as governments enact the biggest price control experiement in recorded history -- the future price of money!

American GenX

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Re: Random thoughts and plans for the coming inflation.
« Reply #543 on: December 12, 2021, 05:59:16 PM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

There are other threads where inflation has been discussed.  But, regardless of what's posted here, high inflation has been here for a while and is getting worse.  I have noticed many people are downplaying how bad inflation is because they were wasting money in the past and figure they can tighten things up to save money.  But some of us have been frugal all along, so we can't switch from steak to chicken again.  I wish I was only seeing 7% inflation - I'm seeing a lot more than that.  My big homeowner's insurance bill went up 12%, and many things have gone up a lot more than that.

PDXTabs

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Re: Random thoughts and plans for the coming inflation.
« Reply #544 on: December 12, 2021, 06:07:56 PM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

There are other threads where inflation has been discussed.  But, regardless of what's posted here, high inflation has been here for a while and is getting worse.  I have noticed many people are downplaying how bad inflation is because they were wasting money in the past and figure they can tighten things up to save money.  But some of us have been frugal all along, so we can't switch from steak to chicken again.  I wish I was only seeing 7% inflation - I'm seeing a lot more than that.  My big homeowner's insurance bill went up 12%, and many things have gone up a lot more than that.

But what percentage of your monthly budget is homeowners insurance? I think that it is 0.3% of CPI.

TomTX

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Re: Random thoughts and plans for the coming inflation.
« Reply #545 on: December 12, 2021, 06:37:05 PM »
But, your main complaint now seems to be that the non-financed cost is going up, the 'cash price'. First, I'd say again, look at the link I sent and you can see that the house pricing isn't going up. It's flat. It doesn't appear so, b/c housing isn't consumed all at once like a hamburger, or even over the course of a few seasons, like clothing. It's consumed over a 30 year period (according to FANNIE MAE! :) ) or perhaps longer.

That's a rather nonsensical claim. Based on recent sales, the "cash price" for my house is up ~40% year on year. If someone wants to buy a house, how is that "flat"?

I explained that in the next paragraph. Here it is again:

Therefore, if one did the math comparing a house purchase in 1986 (35 years ago) for, say $50,000 at 10% interest rate, which was the going rate back then, then over the course of the next thirty years the house would have cost a total of $157,962.88 to own. Which is the exact market price of that same house today, when paid in cash.

It's irrelevant. I'm talking about a 1 year increase in price of 40% and equivalent interest rates across the two years. If anything, the interest rate rose a bit, which according to your logic should reduce the cash price.

Your example seems rather "pie in the sky". My house is worth 3.5x the purchase price in 2005. Interest rates were  a bit higher then, but even at 5% you're not getting anything like your theoretical scenario. Using your scenario above, the price now should only be a bit over 2x the purchase price.

ChpBstrd

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Re: Random thoughts and plans for the coming inflation.
« Reply #546 on: December 12, 2021, 08:46:20 PM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

There are other threads where inflation has been discussed.  But, regardless of what's posted here, high inflation has been here for a while and is getting worse.  I have noticed many people are downplaying how bad inflation is because they were wasting money in the past and figure they can tighten things up to save money.  But some of us have been frugal all along, so we can't switch from steak to chicken again.  I wish I was only seeing 7% inflation - I'm seeing a lot more than that.  My big homeowner's insurance bill went up 12%, and many things have gone up a lot more than that.

Is that what your current insurance company is quoting you or is that the best rate you could find from among 4-5 quotes this year?

FWIW, my insurance goes up 12% fairly routinely as the teaser rate ends. I shop around and get the next insurance company's teaser rate. They don't start earning money until subsequent years, and tell their customers the rate increases are due to rising costs and claims.

vand

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Re: Random thoughts and plans for the coming inflation.
« Reply #547 on: December 13, 2021, 01:03:14 AM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

There are other threads where inflation has been discussed.  But, regardless of what's posted here, high inflation has been here for a while and is getting worse.  I have noticed many people are downplaying how bad inflation is because they were wasting money in the past and figure they can tighten things up to save money.  But some of us have been frugal all along, so we can't switch from steak to chicken again.  I wish I was only seeing 7% inflation - I'm seeing a lot more than that.  My big homeowner's insurance bill went up 12%, and many things have gone up a lot more than that.

Yes, as Friedman says in the video, the early stages of inflation are usually enjoyable for society. It’s not much of a hardship just to make a few changes and substitutions, trim the fat and kid yourself that you are unaffected. But you can only do this for so long until eventually all the fat has been trimmed.  People get tired when the realisation dawns that they are working harder and spending more money on the same things that used to cost less, jus to stay in the same spot.

You can even kid yourself about how enjoyable it is to grow you own potatoes or how vanlife in the local nature reserve has actually raised your standard of living. I guess there’s something to be said for stoicism. Me? I prefer not being put into the position of seeing my wages fall behind inflation and feeling grateful that the company did everything it could to only give me 2 or 3% real wage decrease

stoaX

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Re: Random thoughts and plans for the coming inflation.
« Reply #548 on: December 13, 2021, 05:36:14 AM »
That despite US CPI just hit 6.8% I had to go to the 6th page of the forum to drag up the main inflation-related thread tells me.... this has a long, long way to run.

Thread needs bumping and re-reading.

And if you want a primer on the causes of, ramifications of, and cures for inflation, this is as relevant today as ever:

https://www.youtube.com/watch?v=jE7zxo61Xc8


"Inflation is just like alcoholism. In both cases, when you start drinking or when you start creating too much money, the good effects come first, and the bad effects only come later. That's why there is a strong temptation to overdo it.

When it comes to the cure it's the other way around. When you stop drinking or when you stop printing money the bad effects come first, and the good effects only come later.  That's why it's so hard to persist with the cure."
  -- Milton Friedman


I was also about the say that the only thing dated about the video is that government policy of enforcing price controls is not as strong today as it once was in the era of unionisation and less free trade... then I realised that it is even more relevant today as governments enact the biggest price control experiement in recorded history -- the future price of money!

Thanks for the Friedman inflation/alcoholism analogy.  I think it applies to many aspects of life.

ChpBstrd

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Re: Random thoughts and plans for the coming inflation.
« Reply #549 on: December 13, 2021, 07:23:44 AM »
 An increase in prices and wages is a good thing for a country whose national debt is over $200k per taxpayer. Inflation is one of those things that make me think the United States will keep it together and do OK long term.

If inflation is 7%, and the weighted average interest rate is 2%, then just imagine (7-2=) 5% of $29,000,000,000,000 just disappearing into thin air. What's 1/20th of $29T? With inflation, we essentially get that for doing nothing, whether the debt is government-printed or lended to the private sector. Let's hope it keeps up. Despite being a millionaire who hopes to live off of paper assets, I recognize that I am a small fish with a lot more to lose from an eventual dollar debt crisis than from the slow deflation of the US's debt balloon.

Remember both sides of all balance sheets.