Inflation

[Tangler]

People have been worried about the deficit for 100+ years and im not seeing the fallout

Is the us not still one of the greatest and wealthiest and most powerful nations in the world? what evidence is there we should worry about the deficit?

As a medical student, you are young enough.

I think you will probably see some major problems with this in your lifetime.

Debt = risk.

If it can destroy an individual or a business it can destroy a country.

Hubris to think otherwise.


“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
John Adams 1826

Was John Adams wrong?

Maybe. If so, and debt is irrelevant, great.

But are you certain?

I am ok with saying i might be wrong.

I actually hope I am wrong.

I might be oversimplifying it or not fully understanding it but people in favor of debt / spending / printing $, are very dismissive and condescending.

Overconfidence? Hubris?

Certainty that "this is a different situation" and "you don't understand monetary policy". and "printing money is OK for governments"

Pascals wager comes to mind for me. Consequences must be considered.

If there is a 0.1% chance of failure and failure results in obliteration is it a good gamble?

What are the consequences if they are wrong?

You seem certain debt for a country is different than debt for a person or business.

What if it is not different?

Sorry to derail the thread.

[Turf Doc]

As a medical student, you are young enough.

I think you will probably see some major problems with this in your lifetime.

Debt = risk.

If it can destroy an individual or a business it can destroy a country.

Hubris to think otherwise.


“There are two ways to conquer and enslave a nation. One is by the sword. The other is by debt.”
John Adams 1826

Was John Adams wrong?

Maybe. If so, and debt is irrelevant, great.

But are you certain?

I am ok with saying i might be wrong.

I might be oversimplifying it or not fully understanding it but people in favor of debt / spending / printing $, are very dismissive and condescending.

Overconfidence? Hubris?

Certainty that "this is a different situation" and "you don't understand monetary policy". and "printing money is OK for governments"

Pascals wager comes to mind for me. Consequences must be considered.

If there is a 0.1% chance of failure and failure results in obliteration is it a good gamble?

What are the consequences if they are wrong?

You seem certain debt for a country is different than debt for a person or business.

What if it is not different?

Sorry to derail the thread.

I could absolutely be wrong! Crystal balls very cloudy right?

but i am not convinced by the arguments that go well our debt increased X amount therefore we are obviously screwed. I am sure many who were convinced their grandkids were going to be paying off that debt already are gone and those grandkids are saying the same thing about their grandkids. At a certain point you're just wrong.

I am absolutely certain the consequences of debt are different for a person than the US government but that doesn't mean there are zero consequences from the government perspective, as ive said before its inflation and the lack of faith in the currency that is demonstrated worldwide. I don't think we're there.

It reminds of me of people who are convinced that the stock market is going to crash because x, or y, or z, or maybe abc. Yes, totally logical and could totally happen. But if it doesn't happen youre just wrong!

[jacoavlu]

I could absolutely be wrong! Crystal balls very cloudy right?

but i am not convinced by the arguments that go well our debt increased X amount therefore we are obviously screwed. I am sure many who were convinced their grandkids were going to be paying off that debt already are gone and those grandkids are saying the same thing about their grandkids. At a certain point you're just wrong.

I am absolutely certain the consequences of debt are different for a person than the US government but that doesn't mean there are zero consequences from the government perspective, as ive said before its inflation and the lack of faith in the currency that is demonstrated worldwide. I don't think we're there.

It reminds of me of people who are convinced that the stock market is going to crash because x, or y, or z, or maybe abc. Yes, totally logical and could totally happen. But if it doesn't happen youre just wrong!

i don’t recall anyone saying we’re screwed. quite the contrary actually in my opinion.

we (rich people in the US) are in a privileged position where we benefit greatly from what is happening. we will be the last to suffer the consequences, maybe never.

but that doesn’t mean I think it’s right nor does it mean i deny the reality of it

[Tangler]

i don’t recall anyone saying we’re screwed. quite the contrary actually in my opinion.

we (rich people in the US) are in a privileged position where we benefit greatly from what is happening. we will be the last to suffer the consequences, maybe never.

but that doesn’t mean I think it’s right nor does it mean i deny the reality of it

In his defense, i do worry that it could end badly.

I think that is where he got that from.

Again, I hope I am wrong.

[jacoavlu]

In his defense, i do worry that it could end badly.

I think that is where he got that from.

Again, I hope I am wrong.

badly for you and me? paint the picture for me

[nephron]

I think that it already is going bad. The federal government spends more on interest than on science, space, and technology; transportation; and education combined. You can easily imagine how if the government did not have to make those interest payments, it could use its tax revenue to invest in something useful for the future. It's frightening to imagine how if interest rates were to increase by 2%, the federal government would be spending more money on making interest payments then it does on medicare, a program that is already forecast to go "broke". The government is subject to the mathematical principles everyone else is (a dollar spent on interest is a dollar that could not be used elsewhere). While in theory the government could begin to print additional money to cover it's debt, it's not hard to imagine the chaos that would create in the economy when people realized that the government was devaluing its currency to fund its interest payments. The older generation is in essence borrowing money from their grandchildren to maintain their quality of life now.
https://www.crfb.org/papers/how-high...erest-payments

[auggie1983]

You keep saying hubris. Isn’t hubris assuming you know more than all the monetary policy ‘experts’?

debt does not always equal risk. If you get fired, would you rather have 100k in student loans and 100k in your bank account, or $0 in loans, $0 in the bank? How is the second scenario less risky than the first?

the risk of MI greatly increases during exercise, how can exercise be healthy?

[Antares]

As the OP, I will bring this back to my selfish point that motivated the thread. I believe inflation will force the fed to bump up the federal funds rate more aggressively than they are now indicating. It should have been done a long time ago but wasn’t. They hoped to kick the can down the road. Easier at 2-3% inflation and 8% unemployment than 6% inflation or more and full employment. What happens when rates go up faster than signaled or expected, and borrowing is more expensive? Stock market goes down. Possibly significantly, I don’t know I have no crystal ball. Tim described this concern as “unactionable” and maybe he’s right, although I know people who are not buy and hold types who are getting out of stocks to wait and see where things may be heading. (I have done nothing). Why am I concerned? I’m retiring in a yearish, and it would be nice not to retire into a stock market crash. And if these circumstances crash the markets, is it the typical 18 months to recovery, or much longer? I’d be more worried if my retirement was planned to be complete, but my wife and I will work 5-10 hours per week each remotely in a new home for a few years, enough to cover expenses during that time. But I’d call it disconcerting at the least.

[Tim]

“debt does not always equal risk. If you get fired, would you rather have 100k in student loans and 100k in your bank account, or $0 in loans, $0 in the bank? How is the second scenario less risky than the first?”
Behavioral finance. leads to a false sense of security. Both are broke. The very next week, you spend a little and the interest accrues. Liquidity is only one risk. Technically bankrupt. Solvency is another. Change in behaviors are needed for solvency. Get a job and pay the debts in your example. That is why bankruptcy is so painful. Money in the bank leads to
a false sense of security. Both are broke, it’s the next day, week that count.

[Random1]

The problem with inflation is that it is death by a 1000 swords. 5% here , 6% there doesn’t make much a difference for the most part. I just got notification that my electric generation costs are going up by 25%. What this does it takes disposable income away from the population, and all of a sudden you start seeing the weak businesses starting to default and then Main Street becomes a boarded up empty street.

[Zaphod]

So i am guessing this is someone saying the federal deficit is not a concern?

The need for control of government spending and balancing of the federal budget are unnecessary?

True?

If so, can you succinctly describe,
in your own words, why this is true?

If not, then what exactly is this person saying relevant to our discussion?

thanks

Inflation is the only thing to manage in this situation. If inflation is high then you've a problem. What is happening in Japan and why are they having such a hard time?

Pragmatic Capitalism is probably one of the easiest to read books that describes the monetary system, qe, etc...the blog is a decent quick guide.

Is anyone crying about deficit/debt (first many dont even know the difference) ever, EVER talking about the assets of the US? No they always ignore that very important part, just a number, divorced from reality because they know people struggle with big numbers and context.

[Zaphod]

Powell said that we should retire the word transitory with regards to inflation. I suppose you missed that message.

https://twitter.com/nayibbukele/stat...673299968?s=20

If he does not believe it will be transitory and he is doing little (nothing) to diminish it and in fact is continuing to ignore the printing of trillions

then why should I believe it will get better?

I hope it does. I hope prices stop going up. I don't think it will happen any time soon.

You mention: "Oil just fell 20%"

Do you really think gas prices will stop going up anytime soon? I hope you are correct.

No, but transitory was always a terrible word because people thought it meant, 'would retrace' when all it means is it will slow down. People think somehow prices will revert which isnt what transitory means with inflation.

Gas prices are unchanged from their averages for over a decade, this is not inflation, it is recency/anchor bias to last years highly deflated values. This is why its hard to take inflation people seriously, look at charts of these prices over time.

I am no fan of inflation and lowish inflation is totally fine with me, but what we have are mismatches of supply/demand, constraints on physical systems, etc....they are indeed transitory, and then you look at everything else and its massively deflationary longer term. Demographics is one of the most important things, then tech, work from home isnt inflationary, etc..etc..

I know 'printing money' is the colloquial term but when people use it as such you have to be immediately concerned they either dont know anything about the monetary system or are just saying the words they know their intended audience will be triggered by. Fed doesnt print money, they backstop the system. Banks create money.

[Tangler]

You keep saying hubris. Isn’t hubris assuming you know more than all the monetary policy ‘experts’?

debt does not always equal risk. If you get fired, would you rather have 100k in student loans and 100k in your bank account, or $0 in loans, $0 in the bank? How is the second scenario less risky than the first?

the risk of MI greatly increases during exercise, how can exercise be healthy?

Good morning.

1. I don’t think i know more than the experts. I said I could be wrong / hope i am wrong multiple times.

My concern is that if they are wrong it will end badly.

If i am wrong, we keep getting deeper in debt and nothing happens.

2. “If you get fired, would you rather have 100k in student loans and 100k in your bank account, or $0 in loans, $0 in the bank? How is the second scenario less risky than the first?”

100k in debt & 100k in bank, 0 net worth. or $0.

IMO the person needs to get a job. He is broke either way.

neither of those scenarios is good.

Our society acts as if the 100k debt/ 100k in bank person is doing great. He should buy a car, get a boat, fund a social program.

Those scenarios appear identical on day 1 but as Tim describes if the person continues to spend and debt continues to compound and is ignored than it grows than things get worse.


Solution for both = get a job, be frugal, save, invest.

If the debt continues to grow and you ignore it for 50 years things look bleak.

In our case i am basically being told the debt amount and time of growth are irrelevant.

Hope they are correct.

Have a good morning.

[Tangler]

Inflation is the only thing to manage in this situation. If inflation is high then you've a problem. What is happening in Japan and why are they having such a hard time?

Pragmatic Capitalism is probably one of the easiest to read books that describes the monetary system, qe, etc...the blog is a decent quick guide.
.

Ok, thanks. Will read it. Next book. Why not.

[Kamban]

I think that it already is going bad. The federal government spends more on interest than on science, space, and technology; transportation; and education combined. You can easily imagine how if the government did not have to make those interest payments, it could use its tax revenue to invest in something useful for the future. It's frightening to imagine how if interest rates were to increase by 2%, the federal government would be spending more money on making interest payments then it does on medicare, a program that is already forecast to go "broke". The government is subject to the mathematical principles everyone else is (a dollar spent on interest is a dollar that could not be used elsewhere). While in theory the government could begin to print additional money to cover it's debt, it's not hard to imagine the chaos that would create in the economy when people realized that the government was devaluing its currency to fund its interest payments. The older generation is in essence borrowing money from their grandchildren to maintain their quality of life now.
https://www.crfb.org/papers/how-high...erest-payments

I think you make too much sense.

Interest rates are determined by the ratings that is given to the US Government by the ratings agencies. If the Government is late in its payment or heaven forbid, it defaults, all ************************ will break loose. Even the slight increase from 0.5 to 0.1% in the rate in 1971 cost US $12Billion. Imagine what they will be now and if the rate change is 1% rather than 0.05%.

https://www.npr.org/2021/11/23/10585...ay-of-the-debt

Everyone crows about how USA is the greatest and safest countries but countries rise and fall. US will not remain the greatest forever and when the fall comes the generation at that time will feel the hurt. We cannot print away to forever riches. All this extra money printed will devalue it. The US government does not get a pass on math and basic economics just because it is a country and not a household It is like saying in 1999 that this is the internet age and dotcom companies don't fall under the need to make a profit or have sensible PE. We all know how that ended. The US can avoid pain short term by borrowing and paying it with more money printed than usual but inevitably the crows will come home to roost.