Author Topic: The real driving forces behind our inflation and where do we go from here?  (Read 6261 times)

bmjohnson35

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 It appears than many believe that recent inflation involves the following short-term drivers (10-30 years):
  -Years of QE
  -Years of forced low interest rates
  -Interruptions caused by covid & Ukraine war
  -Reduction in planned new mines coming on-line (iron ore, coal, lithium, cobalt, copper, nickel, etc.) Note that it can take 5-15 yrs for new mines to come online

In addition to the above short-term causes, I have also read/heard theories that involve the following probable long-term inflationary factors (70 - 100+ years):
  -Diminishing human reproduction, resulting in existing and on-going labor shortages world-wide for years and possibly decades to come
  -Corporate consolidation resulting from governmental loosening on anti-trust policy and/or enforcement. The lack of proper competition has allowed corporate conglomerates to drive corporate profits higher than historically. In theory, corporate greed is one of the contributors to rising prices on many goods/services.
  -Diminishing raw resources (oil, water, top soil, metals, etc.) Future supply bottlenecks and shortages may become a more common trend in the future.
  -Government Policy or the lack of timely government policy has allowed climate change to get away from us, which will cause more disruptions (extreme weather impacts, rising sea levels, water shortages, impacts to food supplies, etc).
  - Increased Globalization has caused the world to become more interdependent.........interruptions in a major supplier of a commodity or an economic hardship in one area causes a ripple affect across other economies.
  - Government policies supporting or at least allowing wealth concentration in a small percentage of society and the shrinking of the middle-class has made economies less resilient

If countries continue to raise their interest rates, it will eventually cause recessions/depressions, which would likely cause spikes in unemployment. Instead of getting ahead of inflation, the result may be stagflation.

Do you agree with the bulk of the ideas above?

Do you do think stagflation is likely in our future and if you do, how long do you think it will last?


P.S. Please don't turn this post into a political blame game. 









PDXTabs

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Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

lifeisshort123

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My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

PDXTabs

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My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

I agree, with all of this. The Fed helped create this situation and now they are hell bent on fixing it.

scottish

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Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

PDXTabs

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Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

No, they really can't. For an interview with one economist that focuses on the fiscal causes of inflation (#2) here's an interview: https://www.npr.org/2022/06/10/1104293317/a-macroeconomist-walks-into-a-bar-fight

Your quote on "combination of reduced supply and increased demand" ignores the quantity theory of money which states that
money supply × velocity of money = price level × real GDP
https://saylordotorg.github.io/text_macroeconomics-theory-through-applications/s15-01-the-quantity-theory-of-money.html

mistymoney

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My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

like, way to make it obnoxious...

bmjohnson35

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My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

I agree the Fed was asleep at the wheel on raising the rates.  I also agree that it's hard to reel inflation back in once it gains momentum.  No one has commented on the long-term factors I referenced. Whether you agree with them or not, I don't know know of any quick fixes for them anyway.  At this point, the fed is using its one blunt tool to tame inflation.  No one appears to be worried about stagflation so far.  I sure hope my concern is unfounded.

Paper Chaser

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If you were convinced that a decade of stagflation were on the horizon, how would that alter your plans?

ATtiny85

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My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

like, way to make it obnoxious...

It was helpful to understand the potential level of cluelessness/groupthink involved. Way better than just "friends of mine"

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #10 on: October 04, 2022, 06:21:09 AM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

I don't understand this.

Isn't inflation the number one concern and metric for MMT?

Meaning, the whole point of the theory is that inflation is the only metric that matters when it comes to printing money??

I mean, I'm not an expert at all, I've only read a few book on it and read a few analysis articles, but that was always the central point that I got. So wouldn't MMT not be at all disproven by inflation caused by excess money printing??

If not, then I'm extremely confused.

Also, Canada dumped way more free money into our economy and our interest rates stayed low and our housing market went even crazier than the US, but we have less inflation.

It's confusing.
« Last Edit: October 04, 2022, 06:23:32 AM by Malcat »

JupiterGreen

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #11 on: October 04, 2022, 06:43:16 AM »
My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

like, way to make it obnoxious...

It was helpful to understand the potential level of cluelessness/groupthink involved. Way better than just "friends of mine"

But there was no substantial reason to add this bit to your comment, it only serves to makes your comments about the topic seem biased and less reliable.

I'm enjoying the discussion here and appreciate the collective understanding as I am not an expert. For every article I read about this topic, I seem to find a contrary one. As @bmjohnson35 noted, it is probably multi-pronged. The good news about inflation is it doesn't really impact mustachians as much as the average consumer. My main concern right now about our budget is our energy bill that has doubled since the new company took over ($3-400/mo energy bills for 2000 sq ft), they are a monopoly in my city. There was no reason for the company to double our rates, it was corporate greed plain and simple and the only recourse we have is to move. We aren't retired and we aren't big consumers so inflation is really not a huge concern for us right now but I observe with interest.   

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #12 on: October 04, 2022, 06:56:11 AM »
My concern is that the fed was asleep at the wheel.  I was gravely concerned about inflation in 2021 in the Summer, when the rates started going up modestly.  Friends of mine, especially those who are liberal MSNBC viewing types, dismissed me as out of touch, said it will get better.  My concern was, as soon as inflation starts to rise it takes a lot of work to bring it back down, usually painfully….

We are in “catch up” mode.  I think it will take close to another year or two of raising interest rates to get the number back down to sustainable levels.  Inflation is one of the most insidious and horrible things that can happen to a society.  I continue to be worried that the fed is not working aggressively and seriously enough to defeat this.  Honestly, now is the time to be frugal, and in the alternate, acquire long term cheap debt while you still can.

like, way to make it obnoxious...

It was helpful to understand the potential level of cluelessness/groupthink involved. Way better than just "friends of mine"

But there was no substantial reason to add this bit to your comment, it only serves to makes your comments about the topic seem biased and less reliable.

I'm enjoying the discussion here and appreciate the collective understanding as I am not an expert. For every article I read about this topic, I seem to find a contrary one. As @bmjohnson35 noted, it is probably multi-pronged. The good news about inflation is it doesn't really impact mustachians as much as the average consumer. My main concern right now about our budget is our energy bill that has doubled since the new company took over ($3-400/mo energy bills for 2000 sq ft), they are a monopoly in my city. There was no reason for the company to double our rates, it was corporate greed plain and simple and the only recourse we have is to move. We aren't retired and we aren't big consumers so inflation is really not a huge concern for us right now but I observe with interest.

We actually have A LOT of very high spenders here. There is a certain breed of Mustachian who is far more focused on the earnings side of the money saving equation than the frugality side.

That's not a criticism, it's just that not everyone here is super nimble in terms of cutting expenses.

Also, depending on the frugal person's lifestyle, they could actually be hit harder by inflation if they're already ultra optimized and inflation is affecting their core expenses like insurance and food.

Had I already been living my leanest life, I would be getting pummelled by inflation right now, especially in Canada where we don't have 30 year mortgages.

I too originally thought that being mustachian means inflation wasn't a big concern, and I said as much early on, but that's only because I was thinking of my own perspective where I had plenty of fat I could trim from my spending to keep it at the same level.

ERE types and high spend mustachians with high fixed expenses could both be feeling the pinch right now.

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #13 on: October 04, 2022, 07:45:28 AM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

I don't understand this.

Isn't inflation the number one concern and metric for MMT?

Meaning, the whole point of the theory is that inflation is the only metric that matters when it comes to printing money??

I agree with you. MMT says that you can do exactly what we did until you can't and you have to back off. It arguably "worked." Also, we arguably did too much and to the wrong people.

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #14 on: October 04, 2022, 09:10:06 AM »
If you were convinced that a decade of stagflation were on the horizon, how would that alter your plans?

That's a good question. The truth is I don't have any immediate plans to change my cross section of funds that include stocks/bonds both domestic and international.  I haven't ever experienced stagflation during my adult lifetime.  My funds are broad index and some in a REIT index fund.  I also gravitate toward funds with historically decent dividends. I know precious metals appear to be a popular go-to, but I find them just as volatile and unpredictable as anything else. I don't "invest" in Crypto.  I plan to start researching commodities, farming and possibly healthcare/pharmaceutical funds. If I do anything, it will be slightly increased diversification. 

What would others do if we move into an era of stagflation?

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #15 on: October 04, 2022, 09:30:21 AM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

I don't understand this.

Isn't inflation the number one concern and metric for MMT?

Meaning, the whole point of the theory is that inflation is the only metric that matters when it comes to printing money??

I agree with you. MMT says that you can do exactly what we did until you can't and you have to back off. It arguably "worked." Also, we arguably did too much and to the wrong people.

So I'm not just a moron who totally misunderstood MMT?

I have a giant knowledge gap when it comes to the ins and outs of economics*, so I never feel confident in what I understand.

*I have everyone here to explain things to me ;)

mistymoney

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #16 on: October 04, 2022, 09:36:57 AM »
If you were convinced that a decade of stagflation were on the horizon, how would that alter your plans?

That's a good question. The truth is I don't have any immediate plans to change my cross section of funds that include stocks/bonds both domestic and international.  I haven't ever experienced stagflation during my adult lifetime.  My funds are broad index and some in a REIT index fund.  I also gravitate toward funds with historically decent dividends. I know precious metals appear to be a popular go-to, but I find them just as volatile and unpredictable as anything else. I don't "invest" in Crypto.  I plan to start researching commodities, farming and possibly healthcare/pharmaceutical funds. If I do anything, it will be slightly increased diversification. 

What would others do if we move into an era of stagflation?

I remember people talking about 16% rate mortgages when I was just entering the work force - my first mortgage was like 8%. So one thing would be to lock in your home purchase if you plan to have one. But I know many esp younger folks, are hoping for purchase prices to come down in that environment too - not sure what is better - lower cost/higher interest or high cost/lower interest - likely depends on a lot of factors.

Long term treasuries and CDs. I know last decade a lot of older folks crowed about having 7-8% interest on gov bonds and bank CDs from way back when. Think those have all timed out by now, but might be a good idea to lock some of that in longer term for the next lower interest/inflation era - which I'm sure everyone is trying to engineer right now. TIPS would be another solid option for the long term mitigation on inflation.

Get a job you like or are at least ok with that is as secure as you can get. The stagflation of the 70s was fueled by slowing growth, rising inflation, and increased unemployment.

Employment is strong now, so my guess is that if we really do hit prolonged stagflation, that may not hold.

slackmax

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #17 on: October 04, 2022, 10:13:15 AM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

10/5  edited to remove the word 'stagflation', which I used incorrectly.
« Last Edit: October 05, 2022, 08:34:48 AM by slackmax »

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #18 on: October 04, 2022, 12:50:30 PM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation, or even stagflation, be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

Definition of Stagflation - persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

High Inflation isn't generally associated with lower prices? Am I misunderstanding you?

I certainly don't want to turn this into an end of the world/sky is falling thread.  I'm assuming that society will not fall apart and we will all get through whatever plays out.  The 70's are best known for it's stagflation and we made it through that time period. The purpose of the thread is to share thoughts on the cause(s) of our present inflationary economy and what forum members plan to do to mitigate stagflation, if it does occur.

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #19 on: October 04, 2022, 01:09:49 PM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation, or even stagflation, be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

Definition of Stagflation - persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

High Inflation isn't generally associated with lower prices? Am I misunderstanding you?

I certainly don't want to turn this into an end of the world/sky is falling thread.  I'm assuming that society will not fall apart and we will all get through whatever plays out.  The 70's are best known for it's stagflation and we made it through that time period. The purpose of the thread is to share thoughts on the cause(s) of our present inflationary economy and what forum members plan to do to mitigate stagflation, if it does occur.

I happen to have a friend who was one of the most senior people in charge of handing out piles of free cash to Canadians during the pandemic. His job was to analyze and advise on the economic impact. He's incidentally now working in procurement for another department.

His fairly inside track, but by no means authoritative view of inflation in Canada is that persistent supply chain issues are such an enormous force, which is part of why rapidly increasing the interest rates isn't as effective as one would hope in the current conditions.

It has been effective at slowing our housing market, but between the labour shortage and the supply chain issues, the demand isn't slowing all that much.

But he really emphasizes the impact of global supply chains as he's seeing it hit the bottom line even harder than the labour shortage in his old position. There's also major issues with agriculture production recently, so that's a factor.

Because if we look at all of the factors that a lot of Americans cite, Canada was a bigger offender: we pumped enormous sums of free money into the market (I got around 40K), our workforce was shut down longer, we had even more pent up demand, and our housing costs went through the roof (I believe proportionally more than the US, just by demographic nature of the country with the vast majority of us living in large urban centers).

So wouldn't our inflation be way more out of control than the US if monetary policy were a major driving force of this particular inflation, which is affecting so many countries?

I mean, we crippled our own economy, gave out boat loads of cash, and then unleashed a huge population of folks with disposable cash who didn't want to work into a low interest environment.

Shouldn't we be worse off?

This is the kind of thing that makes me confused about economics.

scottish

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #20 on: October 04, 2022, 03:39:47 PM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

I don't understand this.

Isn't inflation the number one concern and metric for MMT?

Meaning, the whole point of the theory is that inflation is the only metric that matters when it comes to printing money??

I agree with you. MMT says that you can do exactly what we did until you can't and you have to back off. It arguably "worked." Also, we arguably did too much and to the wrong people.

My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

At least we have some idea what to do in inflationary times...

scottish

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #21 on: October 04, 2022, 03:51:28 PM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

No, they really can't. For an interview with one economist that focuses on the fiscal causes of inflation (#2) here's an interview: https://www.npr.org/2022/06/10/1104293317/a-macroeconomist-walks-into-a-bar-fight

Your quote on "combination of reduced supply and increased demand" ignores the quantity theory of money which states that
money supply × velocity of money = price level × real GDP
https://saylordotorg.github.io/text_macroeconomics-theory-through-applications/s15-01-the-quantity-theory-of-money.html

But surely you can't have inflation if the demand and supply curves don't change!    That's the highest level of abstraction.    If the demand curve changes, by giving people free money, then they can pay more for things.   And if the supply curve also changes, as a result of supply shortages, then sellers can charge more for things.   In fact, they may have to charge more for things.

I took a little bit of economics in university.   I've always thought that economics isn't much of a science.    They have all the debates and arguments of the more scientific pursuits, but economies are so complex it's very hard to reach any sort of conclusion about the validity of a theory.    In a hard science, a "theory" is not only commonly accepted, it's backed up by completely reproducible experiments.   There's an apocryphal story about a bunch economists and a bunch of physicists getting together at a conference.    The physicists couldn't believe the economists didn't verify their theories.    Told from the perspective of a physicist, no doubt.

How would you even do a reproducible experiment in economics?     To their credit, there is a sub-community in economics that is trying to do experiments.   I had a good book on this topic, if I can just locate it...

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #22 on: October 04, 2022, 04:15:00 PM »
Economists can't agree on what causes inflation (or what the largest contributor is). But some suspects/theories are:
1. Supply chain constraints (supply side / cost push inflation).
2. Debt financed fiscal stimulus (demand pull inflation).
3. Monetary measures including interest rates and QE (demand pull inflation).

But the thing is, it doesn't matter which it was because we did all of them.

I do not expect stagflation because I trust the Fed not to let that happen again. The other thing that would be great for inflation would be to raise taxes but neither party seems really into that.

Sure they can, you just have to reach a suitably high level of abstraction.   Inflation is caused by a combination of reduced supply and increased demand.      Hopefully this is the end of the for the modern monetary theorists, though.   I never liked the idea of governments creating unlimited amounts of money.

I don't understand this.

Isn't inflation the number one concern and metric for MMT?

Meaning, the whole point of the theory is that inflation is the only metric that matters when it comes to printing money??

I agree with you. MMT says that you can do exactly what we did until you can't and you have to back off. It arguably "worked." Also, we arguably did too much and to the wrong people.

My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

At least we have some idea what to do in inflationary times...

Not as far as I understand it, it doesn't ignore factors that impact inflation.

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #23 on: October 04, 2022, 05:37:11 PM »
My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

I agree but it is a theory. We could run some experiments, or not. But remember all those years that inflation was too low and ultra low rates helped the capitalist class more than the working class? It's kind of an unanswered question if MMT would have helped.

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #24 on: October 04, 2022, 05:39:36 PM »
How would you even do a reproducible experiment in economics?     To their credit, there is a sub-community in economics that is trying to do experiments.   I had a good book on this topic, if I can just locate it...

I agree. Unless a natural experiment presents itself it is impossible to run a good experiment.

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #25 on: October 04, 2022, 05:55:33 PM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation, or even stagflation, be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

Definition of Stagflation - persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

High Inflation isn't generally associated with lower prices? Am I misunderstanding you?

I certainly don't want to turn this into an end of the world/sky is falling thread.  I'm assuming that society will not fall apart and we will all get through whatever plays out.  The 70's are best known for it's stagflation and we made it through that time period. The purpose of the thread is to share thoughts on the cause(s) of our present inflationary economy and what forum members plan to do to mitigate stagflation, if it does occur.

I happen to have a friend who was one of the most senior people in charge of handing out piles of free cash to Canadians during the pandemic. His job was to analyze and advise on the economic impact. He's incidentally now working in procurement for another department.

His fairly inside track, but by no means authoritative view of inflation in Canada is that persistent supply chain issues are such an enormous force, which is part of why rapidly increasing the interest rates isn't as effective as one would hope in the current conditions.

It has been effective at slowing our housing market, but between the labour shortage and the supply chain issues, the demand isn't slowing all that much.

But he really emphasizes the impact of global supply chains as he's seeing it hit the bottom line even harder than the labour shortage in his old position. There's also major issues with agriculture production recently, so that's a factor.

Because if we look at all of the factors that a lot of Americans cite, Canada was a bigger offender: we pumped enormous sums of free money into the market (I got around 40K), our workforce was shut down longer, we had even more pent up demand, and our housing costs went through the roof (I believe proportionally more than the US, just by demographic nature of the country with the vast majority of us living in large urban centers).

So wouldn't our inflation be way more out of control than the US if monetary policy were a major driving force of this particular inflation, which is affecting so many countries?

I mean, we crippled our own economy, gave out boat loads of cash, and then unleashed a huge population of folks with disposable cash who didn't want to work into a low interest environment.

Shouldn't we be worse off?

This is the kind of thing that makes me confused about economics.

Many "experts" with apposing theories and answers prove that it's universally confusing. I certainly can't say with any certainty that low interest and excessive money supply was the main drivers.  There are so many variables and moving parts, that it's impossible to predict, especially when you add in irrational human behavior into the equation.
 

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #26 on: October 04, 2022, 05:58:56 PM »
My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

I agree but it is a theory. We could run some experiments, or not. But remember all those years that inflation was too low and ultra low rates helped the capitalist class more than the working class? It's kind of an unanswered question if MMT would have helped.

But do we have a good model that actually does help?

I guess I'm just wondering how someone jumps from seeing an inflationary market to saying that this will somehow disprove what MMT has to say.

The only way that makes sense is if existing models do a better job at predicting inflation, and a change towards MMT has triggered this current inflationary environment.

As far as I can tell, MMT hasn't been at all widely adopted, so how can it be disproven by what's happening.

Again, I'm just really confused by what current inflation has to do with MMT?

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #27 on: October 04, 2022, 06:00:04 PM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation, or even stagflation, be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

Definition of Stagflation - persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

High Inflation isn't generally associated with lower prices? Am I misunderstanding you?

I certainly don't want to turn this into an end of the world/sky is falling thread.  I'm assuming that society will not fall apart and we will all get through whatever plays out.  The 70's are best known for it's stagflation and we made it through that time period. The purpose of the thread is to share thoughts on the cause(s) of our present inflationary economy and what forum members plan to do to mitigate stagflation, if it does occur.

I happen to have a friend who was one of the most senior people in charge of handing out piles of free cash to Canadians during the pandemic. His job was to analyze and advise on the economic impact. He's incidentally now working in procurement for another department.

His fairly inside track, but by no means authoritative view of inflation in Canada is that persistent supply chain issues are such an enormous force, which is part of why rapidly increasing the interest rates isn't as effective as one would hope in the current conditions.

It has been effective at slowing our housing market, but between the labour shortage and the supply chain issues, the demand isn't slowing all that much.

But he really emphasizes the impact of global supply chains as he's seeing it hit the bottom line even harder than the labour shortage in his old position. There's also major issues with agriculture production recently, so that's a factor.

Because if we look at all of the factors that a lot of Americans cite, Canada was a bigger offender: we pumped enormous sums of free money into the market (I got around 40K), our workforce was shut down longer, we had even more pent up demand, and our housing costs went through the roof (I believe proportionally more than the US, just by demographic nature of the country with the vast majority of us living in large urban centers).

So wouldn't our inflation be way more out of control than the US if monetary policy were a major driving force of this particular inflation, which is affecting so many countries?

I mean, we crippled our own economy, gave out boat loads of cash, and then unleashed a huge population of folks with disposable cash who didn't want to work into a low interest environment.

Shouldn't we be worse off?

This is the kind of thing that makes me confused about economics.

Many "experts" with apposing theories and answers prove that it's universally confusing. I certainly can't say with any certainty that low interest and excessive money supply was the main drivers.  There are so many variables and moving parts, that it's impossible to predict, especially when you add in irrational human behavior into the equation.
 

THIS IS WHY I'M SO CONFUSED!

People keep blaming certain things and I'm like "but how do you know that???"

TreeLeaf

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #28 on: October 04, 2022, 06:50:48 PM »
I spent a lot of time trying to understand this. At first I thought similarly to how the Fed thought - things will simply go back to normal and this is temporary.

After a while that became obviously incorrect.

There are several factors driving inflation, on both the demand side and supply side. On this demand side...well, we printed off trillions of dollars and handed it to everyone and their mom and their company etc. We printed off so much money in America you can see the spikes in real per capita income on a graph.

Some people spent this money but most paid down loans or saved it, so this is still working its way through the system in some cases.

Several things are impacting the supply side. This is the bigger problem imo. Most of these are related to after effects from the pandemic still. Some things are taking a lot longer to kick start again than expected, and these things are then causing a lot of other things to take longer to kick start as they rely on the last thing. "Supply chain problems". Some Chinese cities are still shutting down, causing mass havoc in Chinese supply chains. This is felt everywhere people rely on Chinese manufacturing might, which seems to be everywhere. A lack of enough labor is causing problems. Some people - especially older - simply never went back to work after the pandemic. Other younger people never went back to work due to lack of available daycare. Some daycares never reopened to same as previous capacity due to lack of children.

More complex products are being impacted more due to the 'supply chain' issues (read: vehicles etc).

It is taking longer than expected but the Fed is bringing down demand, especially for rate sensitive industries such as housing and soon vehicles. Vehicle production is - very slowly stabilizing some. I am hopeful this will come more into balance with demand around the end of the year.

Of course there is also an energy crisis, which is actually the bigger problem imo. The energy crisis isn't just being driven by Russia....This is the elephant in the room no one is paying attention to. This probably concerns me more than anything. Eventually this will come to a balance but I suspect it will be higher than previous price points which will put a drag on things, economically, for the foreseeable future.

Anyway - this is just my layman's perspective. Where we go from here depends largely on when/to what extent the supply chains heal and how large Jerome Powell's balls are. I.e. how hard will the fed push them economy down in the name of fighting inflation? I suspect they will eventually find some balance between unemployment and inflation and the fed will stop the rate hikes then.

It's not that bad really, at least there is toilet paper now.

Also - I have no financial background at all, and generally have no idea what I'm talking about, so it's also safe to assume everything above is complete horse shit, since I haven't been able to make any sort of reliable prediction for next year since the pandemic started.

Mr. Green

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #29 on: October 04, 2022, 07:25:45 PM »
If countries continue to raise their interest rates, it will eventually cause recessions/depressions, which would likely cause spikes in unemployment. Instead of getting ahead of inflation, the result may be stagflation.
Wouldn't significant unemployment stop inflation? No demand = falling prices.

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #30 on: October 04, 2022, 07:28:43 PM »
I spent a lot of time trying to understand this. At first I thought similarly to how the Fed thought - things will simply go back to normal and this is temporary.

After a while that became obviously incorrect.

There are several factors driving inflation, on both the demand side and supply side. On this demand side...well, we printed off trillions of dollars and handed it to everyone and their mom and their company etc. We printed off so much money in America you can see the spikes in real per capita income on a graph.

Some people spent this money but most paid down loans or saved it, so this is still working its way through the system in some cases.

Several things are impacting the supply side. This is the bigger problem imo. Most of these are related to after effects from the pandemic still. Some things are taking a lot longer to kick start again than expected, and these things are then causing a lot of other things to take longer to kick start as they rely on the last thing. "Supply chain problems". Some Chinese cities are still shutting down, causing mass havoc in Chinese supply chains. This is felt everywhere people rely on Chinese manufacturing might, which seems to be everywhere. A lack of enough labor is causing problems. Some people - especially older - simply never went back to work after the pandemic. Other younger people never went back to work due to lack of available daycare. Some daycares never reopened to same as previous capacity due to lack of children.

More complex products are being impacted more due to the 'supply chain' issues (read: vehicles etc).

It is taking longer than expected but the Fed is bringing down demand, especially for rate sensitive industries such as housing and soon vehicles. Vehicle production is - very slowly stabilizing some. I am hopeful this will come more into balance with demand around the end of the year.

Of course there is also an energy crisis, which is actually the bigger problem imo. The energy crisis isn't just being driven by Russia....This is the elephant in the room no one is paying attention to. This probably concerns me more than anything. Eventually this will come to a balance but I suspect it will be higher than previous price points which will put a drag on things, economically, for the foreseeable future.

Anyway - this is just my layman's perspective. Where we go from here depends largely on when/to what extent the supply chains heal and how large Jerome Powell's balls are. I.e. how hard will the fed push them economy down in the name of fighting inflation? I suspect they will eventually find some balance between unemployment and inflation and the fed will stop the rate hikes then.

It's not that bad really, at least there is toilet paper now.

Also - I have no financial background at all, and generally have no idea what I'm talking about, so it's also safe to assume everything above is complete horse shit, since I haven't been able to make any sort of reliable prediction for next year since the pandemic started.

Up here in Canadaland we talk about this pretty non-stop, at least anyone I know who knows anything about the energy sector does.

But I live with someone who works in that space to maybe it's just *me* hearing about the energy sector and its impact on the economy...ad nauseum...ad infinitum

scottish

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #31 on: October 04, 2022, 07:42:27 PM »
My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

I agree but it is a theory. We could run some experiments, or not. But remember all those years that inflation was too low and ultra low rates helped the capitalist class more than the working class? It's kind of an unanswered question if MMT would have helped.

But do we have a good model that actually does help?

I guess I'm just wondering how someone jumps from seeing an inflationary market to saying that this will somehow disprove what MMT has to say.

The only way that makes sense is if existing models do a better job at predicting inflation, and a change towards MMT has triggered this current inflationary environment.

As far as I can tell, MMT hasn't been at all widely adopted, so how can it be disproven by what's happening.

Again, I'm just really confused by what current inflation has to do with MMT?

My opinion is that MMT was an enabler for our politicians to spend as much money as they felt like without worrying about the consequences.     There's an NYT bestseller on my reading list:  "The Deficit Myth" which appears to have a thesis that this spending is fine and won't have consequences.    Trudeau & Freeland like to "follow the science", well that's what they did.   They followed MMT.

We spent, what an addition 400B CAD in free money?    Including giving 40K to one millionaire malcat?     That's 1/4 of the annual GDP of the entire country!    How could it not be inflationary?   Just to be clear, I'm not saying the covid supports were a bad idea, just that we could have been more circumspect in giving the money away. 

If you're hoping to find a clear economic model for everything though...    I think you're going to be disappointed.

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #32 on: October 04, 2022, 07:49:00 PM »
If countries continue to raise their interest rates, it will eventually cause recessions/depressions, which would likely cause spikes in unemployment. Instead of getting ahead of inflation, the result may be stagflation.
Wouldn't significant unemployment stop inflation? No demand = falling prices.

IF we enter stagflation, we end up with slow growth, higher unemployment and inflation. I equate slow growth with lower demand........maybe I'm wrong?

If you research stagflation, you will find that the experts can't agree what causes it.  Spikes in oil prices is one usual suspect, but I would assume they mean a spike in oil prices along with the right conditions to slow productivity.  Who knows?  I'm a firm believer that the oil price increases in 2021 & 2022 is the result of OPEC knowing they can.  They took a beating early in the pandemic when oil prices even went negative for moment.  Once the economy started opening up again, they have carefully controlled supply and kept prices (profits) at record highs.

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #33 on: October 04, 2022, 08:02:05 PM »
My point was that it'd be a lot more useful to know how much money you can create before you run into inflation.    That's omitted from MMT is it not?     Waiting until you're in an inflationary situation to determine you created too much money is alot less useful than knowing when to stop so you can avoid the situation.

I agree but it is a theory. We could run some experiments, or not. But remember all those years that inflation was too low and ultra low rates helped the capitalist class more than the working class? It's kind of an unanswered question if MMT would have helped.

But do we have a good model that actually does help?

I guess I'm just wondering how someone jumps from seeing an inflationary market to saying that this will somehow disprove what MMT has to say.

The only way that makes sense is if existing models do a better job at predicting inflation, and a change towards MMT has triggered this current inflationary environment.

As far as I can tell, MMT hasn't been at all widely adopted, so how can it be disproven by what's happening.

Again, I'm just really confused by what current inflation has to do with MMT?

My opinion is that MMT was an enabler for our politicians to spend as much money as they felt like without worrying about the consequences.     There's an NYT bestseller on my reading list:  "The Deficit Myth" which appears to have a thesis that this spending is fine and won't have consequences.    Trudeau & Freeland like to "follow the science", well that's what they did.   They followed MMT.

We spent, what an addition 400B CAD in free money?    Including giving 40K to one millionaire malcat?     That's 1/4 of the annual GDP of the entire country!    How could it not be inflationary?   Just to be clear, I'm not saying the covid supports were a bad idea, just that we could have been more circumspect in giving the money away. 

If you're hoping to find a clear economic model for everything though...    I think you're going to be disappointed.

K, but I literally know the people who developed the policy for CERB and made the recommendations on how it was likely to impact the economy, and they're not basing their analysis off of "The Deficit Myth," which I have read myself, and which warns HEAVILY of inflation risk. Our dearest friend was one of the lead policy advisors putting together the economics analysis of it, and he was basing his recommendations on his economics PhD and nearly 2 decades of providing analysis on exactly this kind of issue for ESDC.

Also, the reasoning for doling out money to rich folks like me instead of basing it on some complex process of having to demonstrate need is that it was infinitely cheaper to just pay everyone who lost income than to design and administer a process that would differentiate between my peers who still have a ton of debt payments to make and me who saved an unusual proportion of my early income. Because plenty of very high income earners were in a bad spot when they lost their incomes.

I can 100% guarantee you that absolutely no one who was part of that policy was in denial that it could/would contribute to inflation. Between a rock and a hard place, sometimes some inflation is a known risk a government is willing to take.

However, let's come back to what I have commented on a few times already. How can we put that much blame on CERB when other countries are also experiencing the same inflation, if not worse??

Again, I'm not at all saying that CERB hasn't contributed, and I'm certain those in power were entirely aware it would. But I don't really thing MMT is to blame. Which, if I'm honest, the number one take away I've gotten from literally everything I've read about MMT is to focus solely on the inflation risk...

So I truly don't understand people focusing on that. It just doesn't make sense to me.
« Last Edit: October 04, 2022, 08:05:16 PM by Malcat »

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #34 on: October 04, 2022, 08:25:32 PM »
Also, the reasoning for doling out money to rich folks like me instead of basing it on some complex process of having to demonstrate need is that it was infinitely cheaper to just pay everyone who lost income than to design and administer a process that would differentiate between my peers who still have a ton of debt payments to make and me who saved an unusual proportion of my early income. Because plenty of very high income earners were in a bad spot when they lost their incomes.

Which is way better than the USA where we gave a bunch of money to people that didn't lose income.

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #35 on: October 04, 2022, 08:40:53 PM »
Also, the reasoning for doling out money to rich folks like me instead of basing it on some complex process of having to demonstrate need is that it was infinitely cheaper to just pay everyone who lost income than to design and administer a process that would differentiate between my peers who still have a ton of debt payments to make and me who saved an unusual proportion of my early income. Because plenty of very high income earners were in a bad spot when they lost their incomes.

Which is way better than the USA where we gave a bunch of money to people that didn't lose income.

Also, to be fair, I hadn't settled my disability insurance lawsuit yet(legal fees $$$) lost ALL of my consulting income, and had many thousands in medical bills ($$$$$$) to pay, so in truth, it's not like I was in an amazing place financially at the time either. CERB bailed me out of a pretty uncomfortable situation.

Not that that's at all relevant to the conversation here. I certainly wasn't contributing to inflation based on what I was spending on. Lol.

I did end up buying two properties during the housing explosion, but one was in Newfoundland where housing prices actually dropped by 20-30% and houses were listed for years, not months.

So maybe Robespierre can spare me the guillotine?
« Last Edit: October 04, 2022, 08:45:02 PM by Malcat »

ChpBstrd

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #36 on: October 04, 2022, 08:45:11 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.


Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #37 on: October 04, 2022, 08:52:04 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

But it's a global issue.

The UK has gone completely insane, but they've got Brexit shit contributing. But Francs and Germany are right up there with the US.  Many countries are raising interest rates right now.

How much credit can we give this helicopter money when this is happening is multiple, very different countries?

It's obviously a factor, but I just can't wrap my mind around how much of a factor it can be playing when other countries are experiencing the same thing.

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Michael in ABQ

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #39 on: October 04, 2022, 08:58:33 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

But it's a global issue.

The UK has gone completely insane, but they've got Brexit shit contributing. But Francs and Germany are right up there with the US.  Many countries are raising interest rates right now.

How much credit can we give this helicopter money when this is happening is multiple, very different countries?

It's obviously a factor, but I just can't wrap my mind around how much of a factor it can be playing when other countries are experiencing the same thing.

Didn't pretty much every advanced economy dole out helicopter money during the pandemic? That money is chasing many of the same goods. A consumer in Germany or the UK is buying the same products made in a factory in China as consumers in the US or UK.

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #40 on: October 04, 2022, 09:01:27 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

But it's a global issue.

The UK has gone completely insane, but they've got Brexit shit contributing. But Francs and Germany are right up there with the US.  Many countries are raising interest rates right now.

It is arguably two different global issues.

It’s more painful on the Continent but more persistent and demand-driven in America.
...
 The headline inflation numbers are increasingly similar—around 8% in both the U.S. and Europe—but the causes, consequences and treatment remain quite different. In particular, the U.S. has higher underlying inflation—which is potentially more persistent and is appropriately being treated with aggressive monetary tightening. In contrast, more of Europe’s inflation is imported—which makes it more painful than U.S. inflation but also likely more transitory, and so the European Central Bank should follow a comparatively restrained response
...
The comparatively large runup in inflation in Europe is largely because of the extreme increase in the price of natural gas, now around $27 per million British thermal units, which was nearly three times what it is in the U.S. Russia’s invasion of Ukraine raised food and energy inflation around the world, but these effects have been much sharper in Europe than the U.S.
...
Moreover, some of the excess core inflation in Europe is also imported from the U.S. Since the pandemic started, the U.S. has spent cumulatively an extra $600 billion on goods, which is roughly 4% of the world’s total annual goods consumption (assuming a third of global consumption is spent on goods). In contrast, Europe has spent below-trend amounts on goods over that period. High U.S. demand in conjunction with global supply-chain problems is driving up spending on goods all over the world.
...
But the imported aspect of European inflation makes the cost-of-living crisis in Europe much worse because workers haven’t been able to offset it with faster nominal wage growth and large government transfers.
...
Both the U.S. and Europe have a combination of persistent domestic demand-driven inflation and transitory global supply-driven inflation, but the ratios are very different in the two economies.
- WSJ: The U.S. and Europe Have Different Inflation Problems

EDITed to add - that's Jason Furman, Obama's top economic advisor and now a Harvard professor.
« Last Edit: October 04, 2022, 09:17:35 PM by PDXTabs »

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #41 on: October 04, 2022, 09:04:52 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

But it's a global issue.

The UK has gone completely insane, but they've got Brexit shit contributing. But Francs and Germany are right up there with the US.  Many countries are raising interest rates right now.

How much credit can we give this helicopter money when this is happening is multiple, very different countries?

It's obviously a factor, but I just can't wrap my mind around how much of a factor it can be playing when other countries are experiencing the same thing.

Didn't pretty much every advanced economy dole out helicopter money during the pandemic? That money is chasing many of the same goods. A consumer in Germany or the UK is buying the same products made in a factory in China as consumers in the US or UK.

I mostly pay attention to the US and the UK. The UK did not send checks to people that lost zero dollars of employment income. Of course the UK has some problems that the US doesn't like Brexit, the European energy crisis, and the current Tory government.

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #42 on: October 04, 2022, 09:36:43 PM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

I don't think the public went buying crazy over such a relatively small increase in their "excess savings". They don't even talk about supply shortages/interruptions. I don't think it's as simple and straight-forward as implied by this explanation. The article below essentially calls fowl on the excess household savings theory.

https://cepr.org/voxeu/columns/us-excess-savings-are-not-excessive

TreeLeaf

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #43 on: October 05, 2022, 05:16:09 AM »
I spent a lot of time trying to understand this. At first I thought similarly to how the Fed thought - things will simply go back to normal and this is temporary.

After a while that became obviously incorrect.

There are several factors driving inflation, on both the demand side and supply side. On this demand side...well, we printed off trillions of dollars and handed it to everyone and their mom and their company etc. We printed off so much money in America you can see the spikes in real per capita income on a graph.

Some people spent this money but most paid down loans or saved it, so this is still working its way through the system in some cases.

Several things are impacting the supply side. This is the bigger problem imo. Most of these are related to after effects from the pandemic still. Some things are taking a lot longer to kick start again than expected, and these things are then causing a lot of other things to take longer to kick start as they rely on the last thing. "Supply chain problems". Some Chinese cities are still shutting down, causing mass havoc in Chinese supply chains. This is felt everywhere people rely on Chinese manufacturing might, which seems to be everywhere. A lack of enough labor is causing problems. Some people - especially older - simply never went back to work after the pandemic. Other younger people never went back to work due to lack of available daycare. Some daycares never reopened to same as previous capacity due to lack of children.

More complex products are being impacted more due to the 'supply chain' issues (read: vehicles etc).

It is taking longer than expected but the Fed is bringing down demand, especially for rate sensitive industries such as housing and soon vehicles. Vehicle production is - very slowly stabilizing some. I am hopeful this will come more into balance with demand around the end of the year.

Of course there is also an energy crisis, which is actually the bigger problem imo. The energy crisis isn't just being driven by Russia....This is the elephant in the room no one is paying attention to. This probably concerns me more than anything. Eventually this will come to a balance but I suspect it will be higher than previous price points which will put a drag on things, economically, for the foreseeable future.

Anyway - this is just my layman's perspective. Where we go from here depends largely on when/to what extent the supply chains heal and how large Jerome Powell's balls are. I.e. how hard will the fed push them economy down in the name of fighting inflation? I suspect they will eventually find some balance between unemployment and inflation and the fed will stop the rate hikes then.

It's not that bad really, at least there is toilet paper now.

Also - I have no financial background at all, and generally have no idea what I'm talking about, so it's also safe to assume everything above is complete horse shit, since I haven't been able to make any sort of reliable prediction for next year since the pandemic started.

Up here in Canadaland we talk about this pretty non-stop, at least anyone I know who knows anything about the energy sector does.

But I live with someone who works in that space to maybe it's just *me* hearing about the energy sector and its impact on the economy...ad nauseum...ad infinitum

Yes - some people are talking about it, but it is generally viewed as another short term supply related issue that will heal. I don't see it this way.

If you look at decline rates of traditional oil wells over the years, decline rates of fracking wells, where most of the additional oil in the world has come from since 2008 (fracking plus cheap financing) - I view this as more of a longer term problem. The days of cheap financing for fracking are over, and not just because of high interest rates. Investors have collectively finally learned their lesson. We are also having trouble restarting refineries in various places but the underlying reason is the same - big money is slowly pulling out. People are now blaming this on the pandemic but this crisis was setting up to occur right before the pandemic anyway - the pandemic just brought it forward some in time.

Eventually this day was going to come. Additional sources of oil are getting more expensive to drill for, more people in the developing world want oil, and the cheap sources of oil are slowly depleting.

The energy inflation - and the subsequent supply side 'shortages' aren't ever going to get solved. Big money intelligently does not want to invest much into this anymore because they see the writing on the wall. Eventually demand side destruction will sort of stabilize energy prices, but they will be at a permanent higher price point than before the pandemic.

Just my .02 cents though. I could be wrong - we could find some other wonderful new cheap source of oil soon, then they may throw trillions of dollars at the problem, but I kind of doubt it. It would be much cheaper to throw billions of dollars on electric vehicles to solve the problem - and I suspect this is exactly what will occur, considering how many shiny new ev battery factories are being built. Of course they also have their own supply constraint problem atm...

« Last Edit: October 05, 2022, 05:18:03 AM by curious_george »

ChpBstrd

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #44 on: October 05, 2022, 06:54:04 AM »
This article succinctly explains why we have too many dollars chasing too few goods. There isn't much more of an explanation needed: helicopter money led to a spending spree (and probably saved us from a great depression).

https://finance.yahoo.com/news/consumers-still-have-13-trillion-in-extra-spending-power-morning-brief-100026042.html

Also, the shape of the chart suggests consumers will completely draw down their pandemic-era savings sometime around late 2023 or early 2024.

I don't think the public went buying crazy over such a relatively small increase in their "excess savings". They don't even talk about supply shortages/interruptions. I don't think it's as simple and straight-forward as implied by this explanation. The article below essentially calls fowl on the excess household savings theory.

https://cepr.org/voxeu/columns/us-excess-savings-are-not-excessive

That circa March 2021 article is awesome as an example of how off-the-cuff estimates can become academic sources, and how abstract hypotheticals like "Ricardian Equivalence" can weave their way into conversations about tangential subjects. Their conclusion that stimulus bills "are unlikely to generate a surge in demand post-pandemic" did not age well. The article now serves as a great critical thinking exercise.

slackmax

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #45 on: October 05, 2022, 08:29:48 AM »
If you don't want to work, and have lots of money in cash, and only cared about yourself, wouldn't deflation, or even stagflation, be a good thing for you?  Lower prices, yay ! 

Is the problem that there might be a lack of certain things to buy, at any price? Riots near your house?   AN army invading your country ?    What?   

Thanks

Definition of Stagflation - persistent high inflation combined with high unemployment and stagnant demand in a country's economy.

High Inflation isn't generally associated with lower prices? Am I misunderstanding you?


You are right, bmjohnson. My mistake ! Thank you.  I should not have included the word stagflation in my question.  Just deflation, which means lower prices, which sounds good to those with cash to spend.  There are  bad aspects of deflation, of course, but getting to buy stuff cheap, if you have cash,  still sounds good.     

bmjohnson35

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #46 on: October 05, 2022, 10:04:18 AM »
I spent a lot of time trying to understand this. At first I thought similarly to how the Fed thought - things will simply go back to normal and this is temporary.

After a while that became obviously incorrect.

There are several factors driving inflation, on both the demand side and supply side. On this demand side...well, we printed off trillions of dollars and handed it to everyone and their mom and their company etc. We printed off so much money in America you can see the spikes in real per capita income on a graph.

Some people spent this money but most paid down loans or saved it, so this is still working its way through the system in some cases.

Several things are impacting the supply side. This is the bigger problem imo. Most of these are related to after effects from the pandemic still. Some things are taking a lot longer to kick start again than expected, and these things are then causing a lot of other things to take longer to kick start as they rely on the last thing. "Supply chain problems". Some Chinese cities are still shutting down, causing mass havoc in Chinese supply chains. This is felt everywhere people rely on Chinese manufacturing might, which seems to be everywhere. A lack of enough labor is causing problems. Some people - especially older - simply never went back to work after the pandemic. Other younger people never went back to work due to lack of available daycare. Some daycares never reopened to same as previous capacity due to lack of children.

More complex products are being impacted more due to the 'supply chain' issues (read: vehicles etc).

It is taking longer than expected but the Fed is bringing down demand, especially for rate sensitive industries such as housing and soon vehicles. Vehicle production is - very slowly stabilizing some. I am hopeful this will come more into balance with demand around the end of the year.

Of course there is also an energy crisis, which is actually the bigger problem imo. The energy crisis isn't just being driven by Russia....This is the elephant in the room no one is paying attention to. This probably concerns me more than anything. Eventually this will come to a balance but I suspect it will be higher than previous price points which will put a drag on things, economically, for the foreseeable future.

Anyway - this is just my layman's perspective. Where we go from here depends largely on when/to what extent the supply chains heal and how large Jerome Powell's balls are. I.e. how hard will the fed push them economy down in the name of fighting inflation? I suspect they will eventually find some balance between unemployment and inflation and the fed will stop the rate hikes then.

It's not that bad really, at least there is toilet paper now.

Also - I have no financial background at all, and generally have no idea what I'm talking about, so it's also safe to assume everything above is complete horse shit, since I haven't been able to make any sort of reliable prediction for next year since the pandemic started.

Up here in Canadaland we talk about this pretty non-stop, at least anyone I know who knows anything about the energy sector does.

But I live with someone who works in that space to maybe it's just *me* hearing about the energy sector and its impact on the economy...ad nauseum...ad infinitum

Yes - some people are talking about it, but it is generally viewed as another short term supply related issue that will heal. I don't see it this way.

If you look at decline rates of traditional oil wells over the years, decline rates of fracking wells, where most of the additional oil in the world has come from since 2008 (fracking plus cheap financing) - I view this as more of a longer term problem. The days of cheap financing for fracking are over, and not just because of high interest rates. Investors have collectively finally learned their lesson. We are also having trouble restarting refineries in various places but the underlying reason is the same - big money is slowly pulling out. People are now blaming this on the pandemic but this crisis was setting up to occur right before the pandemic anyway - the pandemic just brought it forward some in time.

Eventually this day was going to come. Additional sources of oil are getting more expensive to drill for, more people in the developing world want oil, and the cheap sources of oil are slowly depleting.

The energy inflation - and the subsequent supply side 'shortages' aren't ever going to get solved. Big money intelligently does not want to invest much into this anymore because they see the writing on the wall. Eventually demand side destruction will sort of stabilize energy prices, but they will be at a permanent higher price point than before the pandemic.

Just my .02 cents though. I could be wrong - we could find some other wonderful new cheap source of oil soon, then they may throw trillions of dollars at the problem, but I kind of doubt it. It would be much cheaper to throw billions of dollars on electric vehicles to solve the problem - and I suspect this is exactly what will occur, considering how many shiny new ev battery factories are being built. Of course they also have their own supply constraint problem atm...

I personally agree with your general assessment, but I also believe that the oil industry is also controlling supply in a way to maximize profits. They may also be trying to stretch out a costly scarce resource? The human race uses an extraordinary amount of oil.  It's in almost anything and everything.

I read more and more about emerging technologies that are so close to market (batteries, solar, nuclear, manufacturing, farming, biology, etc.). I suspect we will push things to the brink, but I'm hopeful that we will see a convergence of technologies that will turn things around. I may be naïve, but I figure it's healthier than the alternative view. Of course, this will still take decades to unfold, not years.

Metalcat

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #47 on: October 05, 2022, 10:25:29 AM »
I personally agree with your general assessment, but I also believe that the oil industry is also controlling supply in a way to maximize profits. They may also be trying to stretch out a costly scarce resource? The human race uses an extraordinary amount of oil.  It's in almost anything and everything.

I read more and more about emerging technologies that are so close to market (batteries, solar, nuclear, manufacturing, farming, biology, etc.). I suspect we will push things to the brink, but I'm hopeful that we will see a convergence of technologies that will turn things around. I may be naïve, but I figure it's healthier than the alternative view. Of course, this will still take decades to unfold, not years.

Up here in Canadaland, the O&G folks are the ones most aggressively pushing for clean energy infrastructure reform. They're all rebranding as "Energy" companies, tar sands just aren't a feasible long term plan. Hell they don't even want to invest now to meet demand. It's been a massive shift. That's not just in Canada either, I'm literally sick of hearing about the transition of Royal Dutch Shell to Shell Energy. This is obviously not without it's criticisms and failures, obviously, nothing is, but the point is that the deepest pockets in the world are pushing said "convergence of technologies" instead of just suppressing them. Interesting times for sure.

What that means for inflation over the net few years? Well, not much obviously. But there's nothing like a good financial mess to catalyze change...good or bad.

Paper Chaser

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #48 on: October 05, 2022, 10:53:36 AM »
I personally agree with your general assessment, but I also believe that the oil industry is also controlling supply in a way to maximize profits. They may also be trying to stretch out a costly scarce resource? The human race uses an extraordinary amount of oil.  It's in almost anything and everything.

I read more and more about emerging technologies that are so close to market (batteries, solar, nuclear, manufacturing, farming, biology, etc.). I suspect we will push things to the brink, but I'm hopeful that we will see a convergence of technologies that will turn things around. I may be naïve, but I figure it's healthier than the alternative view. Of course, this will still take decades to unfold, not years.

Up here in Canadaland, the O&G folks are the ones most aggressively pushing for clean energy infrastructure reform. They're all rebranding as "Energy" companies, tar sands just aren't a feasible long term plan. Hell they don't even want to invest now to meet demand. It's been a massive shift. That's not just in Canada either, I'm literally sick of hearing about the transition of Royal Dutch Shell to Shell Energy. This is obviously not without it's criticisms and failures, obviously, nothing is, but the point is that the deepest pockets in the world are pushing said "convergence of technologies" instead of just suppressing them. Interesting times for sure.

What that means for inflation over the net few years? Well, not much obviously. But there's nothing like a good financial mess to catalyze change...good or bad.

BP expects EV chargers to be more profitable than fuel pumps:

https://www.reuters.com/business/energy/bp-car-chargers-overtake-pumps-profitability-race-2022-01-14/

PDXTabs

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Re: The real driving forces behind our inflation and where do we go from here?
« Reply #49 on: October 05, 2022, 11:54:46 AM »
I personally agree with your general assessment, but I also believe that the oil industry is also controlling supply in a way to maximize profits. They may also be trying to stretch out a costly scarce resource? The human race uses an extraordinary amount of oil.  It's in almost anything and everything.

I read more and more about emerging technologies that are so close to market (batteries, solar, nuclear, manufacturing, farming, biology, etc.). I suspect we will push things to the brink, but I'm hopeful that we will see a convergence of technologies that will turn things around. I may be naïve, but I figure it's healthier than the alternative view. Of course, this will still take decades to unfold, not years.

Up here in Canadaland, the O&G folks are the ones most aggressively pushing for clean energy infrastructure reform. They're all rebranding as "Energy" companies, tar sands just aren't a feasible long term plan. Hell they don't even want to invest now to meet demand. It's been a massive shift. That's not just in Canada either, I'm literally sick of hearing about the transition of Royal Dutch Shell to Shell Energy. This is obviously not without it's criticisms and failures, obviously, nothing is, but the point is that the deepest pockets in the world are pushing said "convergence of technologies" instead of just suppressing them. Interesting times for sure.

What that means for inflation over the net few years? Well, not much obviously. But there's nothing like a good financial mess to catalyze change...good or bad.

Yup. Banks are choosing not to finance oil projects because they think that there will have bad ROI. Same with investors.

Speaking of investors, the Dutch royal family is rumored to have a large stake in Shell and a desire for their country to not be under water. "Queen Beatrix, 61 and a politics graduate, is rather a capitalist royal, with major stock holdings in Amsterdam, London, New York and Geneva. A rumoured stake of 3.5% in the huge Anglo-Dutch oil company Shell - worth an estimated £2.2bn - is reported to underpin her fortune, supplemented by holdings in Esso, the Dutch airline KLM and the big Dutch bank ABN AMRO, Mr Droege believes." - https://www.theguardian.com/uk/1999/jun/30/monarchy.world But their fortune is secret so no one really knows.