Inflation

[G]

Why would tax cuts help inflation? Inflation is sorta= too much money
Taxes destroy money
More taxes would be likely to help inflation. So would making money more expensive by raising rates.

Both are politically harmful and not great for the economy.

He was joking--you've not had your coffee yet, eh? Well, not joking but highlighting the vibe that members of a financial forum would have the gall to want to give less of their labors to the government. 😉

I need to re-read Ron Paul's "End the Fed"

[jacoavlu]

Some would advocate for a return to a hard money standard, as a fundamental step to fix this problem
I will refrain from saying the word

[CordMcNally]

Some would advocate for a return to a hard money standard, as a fundamental step to fix this problem
I will refrain from saying the word

Beetlejuice?

[Larry Ragman]

6% inflation is high, but not crushing by historical standards. No doubt flooding the economy with trillions in printed funds for fiscal stimulus (against a true need - the pandemic) was not judged correctly. I might ague the final round of stimulus was completely unnecessary, but in fairness the policy was a bit of a sledgehammer and stimulus is difficult to predict. Another important factor causing inflation has been the disruptions in our pre-pandemic supply chains. It is just harder to get things right now, and that drives up costs. We have also done a complete shift in energy policy that has hit us at home and at the pump. Finally, it is clear that interest rates have been artificially suppressed for some time now across multiple administrations. However, that has been a difficult gravy train to derail given the salutary effect on equity markets.

As for policy prescriptions, there are a number of logical but not necessarily popular steps that could be taken.
1. The Fed knows they need to raise interest rates. They also know that the last time the Fed set out to break endemic inflation (Voelker in 1981), interest rates went up so fast and high that it caused a severe recession. So they are trying to thread the needle.
2. Another important long term move would be to adjust policies to encourage reshoring manufacturing to shorted supply trains. Now would actually be a good time for American companies to invest since interest rates are low, and this would lead to more American jobs, but it would take years and in the meanwhile companies would pass costs on to consumers.
3. Probably not popular here on WCI, but the government needs to stop using the pandemic to make it hard for people to work. Sure, push for vaccinations, but stop threatening to fire people that don't get them. (And why just companies with over 100 employees?) Educate and persuade would work better with stiff necked Americans.
4. What else? Stop the insanity of punishing the use of natural gas. Repeat after me: natural gas is green! Biden caused the current energy crisis, and he could fix it by reversing his attacks on oil and gas. (You don't have to give up if you are a greenie; just develop a transition plan that does not involve doubling gas prices.)
5. As much as I hate to say it, taxes need to go up to help fund debt as interest rates increase. But it would be great if we could pair this with expenses going down. I don't know about you, but at a micro level I am not terribly interested in dramatic tax increases when Congress randomly drops a trillion here or there on a partisan basis, or spends a trillion fighting in a foreign country just to abandon the effort...

I know, blah, blah. But for my part, it is not that solutions aren't readily apparent; just that they are hard to agree to - much less implement.

[nycEMMD]

Some would advocate for a return to a hard money standard, as a fundamental step to fix this problem
I will refrain from saying the word

It's the only way out now. The fed is stuck between a rock and a hard place, similar position to what the central bank of japan has been in for the past 20 years. Japan was the first to experiment with excessive QE and it did not end well. However, for some reason, all other western nations decided to follow in its footsteps in 2008 and then put that plan into overdrive in 2020. This will not end well for us.

[Lordosis]

He was joking--you've not had your coffee yet, eh? Well, not joking but highlighting the vibe that members of a financial forum would have the gall to want to give less of their labors to the government. 😉

I need to re-read Ron Paul's "End the Fed"

Yes I realize he was joking but it is not even a plausible idea. Maybe I need more coffee...

[G]

Some would advocate for a return to a hard money standard, as a fundamental step to fix this problem
I will refrain from saying the word

beaniebabies!

[Kamban]

As much as I hate to say it, taxes need to go up to help fund debt as interest rates increase. But it would be great if we could pair this with expenses going down. I don't know about you, but at a micro level I am not terribly interested in dramatic tax increases when Congress randomly drops a trillion here or there on a partisan basis, or spends a trillion fighting in a foreign country just to abandon the effort..

The problem with raising rates is that it will lead to even more free giveaway's. We already saw that more and more money was given to let people sit at home, on top of their regular unemployment benefits. And even when the red states discontinued it early, the blue states were handing it out like Halloween had arrived early.

And if you look at the other fake infrastructure bill, it has so much pork and other giveaways that it boggles my mind. And how are we supposed to pay for it. Yeah raise taxes. And it will not hit the very wealthy like Elon nor Bill but poor working sods like us. That is why I am against any further increase in taxes.

As a side note - this increase in taxes might be the trigger for me to retire, not a fear of malpractice suit or insurance idiocy.

[auggie1983]

"several generations of investors who have never lived through significant inflation" -> so maybe government/economists who don't know what they're doing... do?

a forum of pay off debt asap thinks rates should rise? hmm...

I'm tired of paying taxes/Elon/Bezos don't pay taxes... create 100K tax paying jobs and you won't have to either. As a physician, taxes comes with the W2 territory.

How does spending money lower prices? take out a loan, buy a tractor, increase yield from the same plot of land, more supply, lower prices.

[jacoavlu]

a forum of pay off debt asap thinks rates should rise? hmm...

or, a forum of debt averse folks may feel as though gov should not be able to continue a process of endless and ever increasing debt. maybe that can't go on forever?

[Brains428]

What I think will happen can be different than what I think should happen. Given the fact that we live in a credit economy, if we raised interest rates, it would lead to widespread default and a probable recession. So- be careful what you wish for.

[Kamban]

What I think will happen can be different than what I think should happen. Given the fact that we live in a credit economy, if we raised interest rates, it would lead to widespread default and a probable recession. So- be careful what you wish for.

I don't think credit card rates go along closely with fed rates.

Also, this interest rate hikes should be gradual, maybe 0.25% a quarter, to control the "irrational exuberance" as Alan Greenspan would have said.

[Tangler]

I don't think credit card rates go along closely with fed rates.

Also, this interest rate hikes should be gradual, maybe 0.25% a quarter, to control the "irrational exuberance" as Alan Greenspan would have said.

Rates should rise. Fed should raise rates.

They won’t, but they should.

[bovie]

we had a black swan event that is going to have killed a million people before it's over.

Not a black swan event.

[Antares]

I think YOU, need to realize that the recent rate of change in this one factor has recently changed. It has been “absent” from the wall of worries for decades. It is only one factor. Yes significant and many multipliers and impacts. Please note the Fed, did not and does not “cause” economic growth, inflation, wealth, stock market gains, changes in real personal income or increase in investments.
The unsettling part is inflation was very acceptable at 3%, but 6% is a disaster? If it was stable, the reaction is different than uncertainty. A 100% change is huge. What is next? However, the Fed only controls the short term bank interest rates. The rest is what is the impact (multiplier) ripple effect. That ripple effect is the unknown. Macroeconomics tries to predict the impact. The money multiplier impact would expect a huge expansion and inflation surge with a half point cut in rates by the Fed. Didn’t happen. We have been near zero and inflation was below 3% and stayed there. But OMG, raise it a half point and NOW the multiplier kicks in? The point is, the Fed doesn’t control inflation. The interest rates are a tool to raise the cost of debt relying on the multiplier to slow borrowing and hopefully upward price pressures. That is unknown and the rate of change has become destabilized.

Simple example comparing micro economics to macro economics.
Micro: Peleton raised prices something like 50%. Guess what? Demand doubled, per unit costs stayed the same, price elasticity didn’t work(reduced volume), and profits went through the roof and the stock price tripled!
Raising prices helped the company but did it hurt the consumer, employees, or market?
How about natural gas prices? Brings to mind the Texas freeze and the Colonial Pipeline shutdown. Makes the impact and solutions much more complicated. The New Green Deal vs “winterizing” and the question of who pays for it and when.

You are looking at inflation from a micro economic perspective, it’s impact on you on your costs and investments. Inflation didn’t bother me in the 70’s. The gas lines and prices did. Inflation didn’t bother me in the 80’s. The 13% mortgage rate did.

Your guess is as good as any economist.
3% to 6% in a year is unexplainable except for pandemic and government spending. Consumer, employees and companies will all react. I just can’t predict how, when or who gets shafted. Doubling is a new worry, that has raised its head. Volatility creates risk. There are no economic laws like in the sciences.
Study as much as you want.
Inflation impacted you and I much more in the COL in the 70’s and 80’s than on the market.
Read this.
https://awealthofcommonsense.com/202...n-in-30-years/
There is absolutely no actionable conclusions you can reach by studying macro or micro economics.
Your guess is just that, a guess. Keep your debate on the Internet and not in your portfolio.

I guess my guess is as good as any economist. Except for some correct economist who happens to be right while the others are wrong. I don’t necessarily know who that is. I have trouble believing the stories I am hearing about the causes of inflation. Pandemic, supply chain - ok these may have worsened the situation. But I’m stuck on the fact if there’s anything to be done systemically, it’s that raising rates is the primary tool available to try to stem inflation. We haven’t used this tool for many years, and didn’t stop the stimulus instituted in 2008 even after we were long past that. That makes it look like we were having a big party and assuming the bill would never come due. So now we’re at 6%. Does it stop there? You are right, if it’s a stable 6% that’s different from another scenario: the fed failed to raise rates in a timely fashion, we did not get out in front of this thing, and 6% goes higher. Does it stabilize? Or are we looking at a serious problem?
Yes, there’s nothing actionable here. You set your asset allocation to something reasonable and tolerable. Unless….you really believe that the fed will be forced to raise interest rates faster than they want to, faster than they are talking, despite the soothing words….well if you really believed that, there might be actions one would take…