One for the Weekend Economists: Inflation


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8 minutes ago, Cairo said:

That is also my view about investment classes--I think they will all crash together, though timing is way above my pay grade.

The problem with the timing thing is you have to be right twice.

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36 minutes ago, Cairo said:

What is unique about now is that when this thing crashes the whole world gets clobbered together.

That is also my view about investment classes--I think they will all crash together, though timing is way above my pay grade.

There are no more safe harbors imho.

Well, even in this apocalyptic scenario, there is going to be some things that are worth more than others.  Gold, guns, canned goods.  Guns are always the best bet in an apocalypse because if you are the one with the guns, you can take away the other two things from people.

As a disclaimer, I don’t agree that any of the above will happen.  All crashing together means all surviving together.  I’m just playing devils advocate.

 

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Technology is also incredibly deflationary - who knows what is around the corner to make healthcare, food production, or housing cheaper? Have seen concrete 3D printed houses as a possibility. Vaccines that fundamentally change our diet are also being talked about. My personal opinion - climate change is a huge project to tear down and rebuild the 1st world aka growth.

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25 minutes ago, porkchop said:

Technology is also incredibly deflationary - who knows what is around the corner to make healthcare, food production, or housing cheaper? Have seen concrete 3D printed houses as a possibility. Vaccines that fundamentally change our diet are also being talked about. My personal opinion - climate change is a huge project to tear down and rebuild the 1st world aka growth.

A lot to swallow. Think about it. After the Roman Empire mixing concrete was lost for 1000 years. Not to long ago Dr.s were working for chickens. New technology took centuries to come about. Now it’s years. Almost scary as to what will be important in the years to come. Almost seems like non producers ( consumers ) will become irrelevant.

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11 hours ago, SigmundChurchill said:

So, with all these different theories coming from every angle, the answer to where you put your money right now is as illusive as ever.

I have been trying to figure it out.  Some people say rental properties, because interest rAtes are still low and rent can be raised often enough to keep up with inflation.

Precious metals are not linear, and crypto scares the hell out of me.  The market will take a hit, or at least stagnate if rates go up even a little.  So what’s the answer?

Buy farm land, whether row crop or timber. 

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13 hours ago, porkchop said:

Technology is also incredibly deflationary - who knows what is around the corner to make healthcare, food production, or housing cheaper? Have seen concrete 3D printed houses as a possibility. Vaccines that fundamentally change our diet are also being talked about. My personal opinion - climate change is a huge project to tear down and rebuild the 1st world aka growth.

I think this is why we haven't had bad inflation due to the low interest rates imposed since the Great Recession. We haven't heard much until supply was interrupted by covid.  Gotta remember, two half to the inflation equation. Too much money chasing too few goods. 

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56 minutes ago, joeypots said:

I think this is why we haven't had bad inflation due to the low interest rates imposed since the Great Recession. We haven't heard much until supply was interrupted by covid.  Gotta remember, two half to the inflation equation. Too much money chasing too few goods. 

I don’t think so.  I think this is why flat screen televisions have remained cheap.

There are two kinds of deflation.  One is good deflation and the other is bad deflation.  

Good deflation is due to building more product.  That is what we see with technology.

Bad deflation is too little money supply, like we saw in the Great Depression when all the money in the stock market vanished into thin air AND in the recession of 2008 when all the money in the housing and stock markets vanished into thin air.

The reason we never got inflation from Quantitative Easing is twofold.  First, we had a huge deflationary mountain to climb.  Secondly, and what I eluded to before, and this is the dirty little secret that nobody likes to talk about, the money was directed toward the entities that will spur investment rather than the consumer.  
 

I know it sucks, but if you flood the consumers with cash, they will consume, putting strain on the product supply, driving up prices.  Save the companies that employ them, and you accomplish the same thing but at a much slower rate.  And rate is everything.  


Our debt and GDP were once in the thousands, then millions, then billions, and now trillions.  And I have no doubt it will one day be in the quadrillions.  And that is OK.  It’s OK as long as the rate of inflation is controlled.  As long as you can control the inflation to where GDP can keep up with debt, you are fine.  Once you lose control of the rate, that is when you are in big trouble.

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On 12/10/2021 at 2:24 PM, El Presidente said:

 

Where are we heading?

 

Asking this question and expecting a well reasoned forecast is a dangerous proposition. I don't think economists, let alone weekend warrior types, have the ability to model a future projection based on anything other than well-nigh guesses. The real world is overwhelmingly complicated and the problems contain so many variables. Guess the wrong variables, or overlook one or more-or worse, assume correlation or causation between several when none in fact exists-and your model is kaput. The real world is not like a math problem. We don't even know the question, let alone the workings of the system. Solve for x at your own peril. I'll just keep buying cigars as long as I can afford them. That's my 2 cents. 

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6 hours ago, joeypots said:

I think this is why we haven't had bad inflation due to the low interest rates imposed since the Great Recession. We haven't heard much until supply was interrupted by covid.  Gotta remember, two half to the inflation equation. Too much money chasing too few goods. 

This is stagflation - too much $ coupled with anti-economic political policies. If I’m wrong here please someone jump in. Coming out of the late 70s, weren’t the rates raised in 82 to combat this?

 

5 hours ago, SigmundChurchill said:

The reason we never got inflation from Quantitative Easing is twofold.  First, we had a huge deflationary mountain to climb.  Secondly, and what I eluded to before, and this is the dirty little secret that nobody likes to talk about, the money was directed toward the entities that will spur investment rather than the consumer.  

This is why the 2009 recovery was successful and misunderstood. Capitalism obviously relies on the flow of capital. When the flow is impeded, the government steps in to open the  spigot while the impediment is removed. Those bailouts were all repaid with interest. The reason the gold standard was abandoned  was because it is impossible to stimulate growth with currency tied to a finite resource. 

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On 12/12/2021 at 2:59 AM, GolfT3 said:

There was never going to be a scenario where inflation wasn’t high this year given the madness of 2020. 2022 over 2021 will be much more telling. Our current thesis is that inflation will remain well above the Fed’s target next year but will be lower than the 6-7% we are seeing now. 1-2 interest rate hikes in 2022 is the most likely scenario and will be needed to help dilute the impact of fiscal stimulus still being spent by the federal government. The infrastructure bill won’t be big enough to move he needle on inflation ($100B/year), but if the other BBB bill passes that could be an issue. Too early to know as there are no finalized details on spending in that bill.

Over the last 40 years every recession has been followed by a period of high inflation and then a period of slow to no growth, I don’t see why this scenario should be any different.

On the employment front, I’m no big fan of increased or unneeded welfare programs but that’s not why labor force participation is down. Zero evidence to support that conclusion. Statistically, the two groups who left labor force in the greatest numbers in 2020 and have recovered the least by the end of 2022 are workers over the age of 55 and women. Women have started rejoining the labor force at greater rates over the last few months (likely because schools/daycare/etc are more widely open now), over 55 have not. A lot of those workers have likely decided to go part time or retire while their savings and 401k look strong in a bullish stock market environment. Lower labor force participation will continue to drive wage growth in 2022. Not an inherently bad thing as a number of entry wages have been stagnant when inflation adjusted for the last 20-30 years.

Long-winded way to say, people love to play chicken little but the sky usually isn’t falling.

You are making way too much sense ... so you sound like a weekday economist, should you even be participating in this thread???  😉

As far as I've read, and that's not very far, inflation seems to be driven by supply chain issues as demand spikes in the wake of nations worldwide recovering from covid recessions, particularly in oil. So I suppose it's too early to tell how structural the issues are until the recovery period is over. After all US crude oil fell into negative value for the first time ever just a year ago so...

Even the known structural issues are hard to time e.g. for every China going off the manufacturing boil as their employment costs catch up, there's a Vietnam, Mexico and perhaps increasingly a nationalistic substitute. The main medium term issue as far as i could tell is asset bubbles from all of this cheap stimulus money looking for a home. E.g. real estate in my country. So interest rates will eventually be raised but presumably not fast, and they are at such a low rate relative to the average over last couple of decades that it's hard to see this being too big a problem. Unless someone goes wild with the raise button too far too fast.

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