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  • Inflation

    Maybe I’ve missed a discussion of this topic. I have some understanding of investing, but only a rudimentary knowledge of macroeconomics.
    We have inflation at 6%, the federal funds rate at 0.25%. I’m scratching my head over this. After a decade and a half of QE, are the chickens coming home to roost? Is this time really different? It seems to me that inflation will force significant interest rate hikes if they are not done purposively. The fed is not talking this up at all yet - maybe there will be rate increases gradually in 2023 - and when they do have to significantly raise rates, especially if beyond the messaging, the market effects would seem likely to be dramatic. It seems to me the house is on fire, and no one is running for the water hose. I’m thinking there’s an economic danger that is getting swept under the rug. I have images of neglect leading to hyperinflation, the proverbial wheel barrels full of dollar bills required to buy a loaf of bread.

    I don’t know what I’m talking about here. Can someone please explain why I am catastrophizing? Maybe things are fine, and I’ve misconstrued the situation….
    My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

  • #2
    i think some counterpoints have been still people out of labor force and some of inflation is from fixable supply chain issues, but inflation can be a self fulfilling prophecy. i think they have signaled rate hikes next year.
    “. . . And the LORD spake, saying “First shalt thou take out the Holy 401k. Then shalt thou save to 20%, no more, no less. 20% shall be the number thou shalt save, and the number of the saving shall be 20%. 25% shalt thou not save, neither save thou 15%, excepting that thou then proceed to 20%. 30% is right out . . .””

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    • #3
      Raising interest rates generally contracts business because money is more expensive to borrow. Thus, coming out of a pandemic or a fragile economy, raising interest rates could seriously impede a recovery.

      The fed has long said that inflation was believed to be “transitory,” but then again so is life. I personally think the fed is getting this one wrong. I think they needed to be more aggressive. Because interest rates are still close to rock bottom, equities are overvalued because there’s nowhere else to make a buck. Inflation is high enough now that they need to increase faster than they want, and this will hurt bonds. But they need to get in gear, because there’s a lot of folks not on this site that can’t handle a 5% increase in expenses with no increase in salary.

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      • #4
        I think they're hoping for a miracle to help bail them out. Who knows.

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        • #5
          If most of the inflation is due to issues with the supply chain and inflation is global then raising interest rates is probably needed but it isn’t directly addressing the main cause of the problem.

          I’m fine with them raising interest rates slowly. I know I’m speaking from a position of privilege but the markets have vastly outpaced inflation this year. It’s hard to feel like the house is on fire when the S&P has gone up over 40% in the past year.

          Even for those who are less fortunate and are in debt, inflation has decreased the size of their debts. If people truly can’t afford anything… there are a lot of available jobs right now and opportunity for salary increases.

          All economic changes hurt some and help others. But I think most people will be able to wait this out and some are doing extremely well.

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          • #6
            Originally posted by Dusn View Post
            If most of the inflation is due to issues with the supply chain and inflation is global then raising interest rates is probably needed but it isn’t directly addressing the main cause of the problem.

            I’m fine with them raising interest rates slowly. I know I’m speaking from a position of privilege but the markets have vastly outpaced inflation this year. It’s hard to feel like the house is on fire when the S&P has gone up over 40% in the past year.

            Even for those who are less fortunate and are in debt, inflation has decreased the size of their debts. If people truly can’t afford anything… there are a lot of available jobs right now and opportunity for salary increases.

            All economic changes hurt some and help others. But I think most people will be able to wait this out and some are doing extremely well.
            The thinking would be that the rise in the equities markets is in significant part due to artificially low interest rates, an issue that may be preceding significant consequences. The increase in the money supply probably doesn’t make matters better in this regard. Again, I say stuff but I really don’t understand this because if I did and I were right, interest rates would have to move up quickly and significantly, and they’re not.

            Obviously no one can predict the future, but surely others are concerned about this too. I wonder if it’s like a game of musical chairs?
            My Youtube channel: https://www.youtube.com/channel/UCFF...MwBiAAKd5N8qPg

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            • #7
              I have been kind of surprised at the number of people here who seem to downplay the concurrent surge in the stock and housing market during a freaking global disaster as based on the life stage and savings of millennials. Perhaps the average age here is younger than those of us who lived through the .com and then housing bubble? It is always different this time and yet not. None of this makes sense to me. The current climate of spending every last penny of stimulus money on flat screen TVs and buying a new house during a clear seller's market while simultaneously deciding to quit their jobs wreaks of disaster in my opinion.

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              • #8
                When I last posted on inflation and that we need to raise interest rates to correct it before it gets out of hand, someone pointed that more smarter economists think that it is not needed.

                But I felt that even smart economists can get it wrong. It is not transitory. One cannot blame it on used car prices anymore. Waiting too long for the economy to recover will mean that we would have waited too long and let it get out of hand.

                But then the fed does not want to upset the party in power and hence this wait and see policy. The housing market has gotten too overheated and needs to cool.
                Last edited by Kamban; 11-16-2021, 08:01 PM.

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                • #9
                  Originally posted by Kamban View Post
                  When I last posted on inflation and that we need to raise interest rates to correct it before it gets out of hand, someone pointed that more smarter economists think that it is not needed.

                  But I felt that even smart economists can get it wrong. It is not transitory. One cannot blame it on used car prices anymore. Waiting too log for the economy to recover will mean that we would have waited too long and let it get out of hand.

                  But then the fed does not want to upset the party in power and hence this wait and see policy. The housing market has gotten too overheated and needs to cool.
                  I always find it funny that no matter whatever economic policy a news article is talking about, they always mention that 'top economists' support whatever policy. You can find 'top economists' to probably support any kind of economic policy you can come up with so it's pointless to even put that in there unless you're writing with an angle. It's like how the fed refuses to come out and admit that inflation is here and they're likely undershooting real inflation. They kick the can own the road.

                  "Inflation is transitory."
                  "We're going to talk about possibly talking about inflation being hypertransitory."
                  "We're want to see how the next few months settle to see if inflation is a reality."

                  People are tired of their bull ************************ and I think the general public can see through it. I understand that monetary policy is over the head of the average American (me included) but I think if they would just start treating the American people like adults then I think we could all move forward a little better. I wonder if they'll put out another tweet for Thanksgiving similar to the 'the cost of 4th of July cookout in 2021 is down $0.16 this year'?

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                  • #10
                    Originally posted by Antares View Post

                    The thinking would be that the rise in the equities markets is in significant part due to artificially low interest rates, an issue that may be preceding significant consequences. The increase in the money supply probably doesn’t make matters better in this regard. Again, I say stuff but I really don’t understand this because if I did and I were right, interest rates would have to move up quickly and significantly, and they’re not.

                    Obviously no one can predict the future, but surely others are concerned about this too. I wonder if it’s like a game of musical chairs?
                    At the end of day, the only thing I know for sure is that I’ve had the largest increase in net worth over the past year that I’ve had in my lifetime. I’m guessing that’s true for many of us.

                    does it make me nervous, especially when I hear everyone’s theory about the future on the internet? Sure. And when the stock market has gone up this much, for this long, and some point it has to come down.

                    But I try to stick to the things I know. And I know that in the present moment I’m doing well. I can’t predict the future.

                    Comment


                    • #11
                      Originally posted by Dusn View Post

                      At the end of day, the only thing I know for sure is that I’ve had the largest increase in net worth over the past year that I’ve had in my lifetime. I’m guessing that’s true for many of us.
                      It's a transitory increase.

                      Comment


                      • #12
                        Originally posted by CordMcNally View Post
                        People are tired of their bull ************************ and I think the general public can see through it. I understand that monetary policy is over the head of the average American (me included) but I think if they would just start treating the American people like adults then I think we could all move forward a little better. I wonder if they'll put out another tweet for Thanksgiving similar to the 'the cost of 4th of July cookout in 2021 is down $0.16 this year'?
                        Even an uber driver in NC can get the inflation that the fed is trying hard to downplay.

                        There was this Indicator from Planet Money episode where they did an episode on inflation. The 50 year old lady in Hendersonville saw more pay and more tips averaging 10% but she could not afford to do the job because the gas prices rose by 30% for her to fill a tank of gas in her fuel efficient Honda. From $22 to $32 or so. She kept receipts to show the reporter.

                        Sometimes these average Joe gets the economy better than the smart economists in their Ivory tower, cocooned from real world reality.

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                        • #13
                          Originally posted by Dusn View Post

                          At the end of day, the only thing I know for sure is that I’ve had the largest increase in net worth over the past year that I’ve had in my lifetime.
                          In my opinion with regard to stock market it is only a true increase if you have cashed out. If not it is a gain on paper only, possibly a temporary gain. In the long run it always seems to work out in the index investors favor however in the near future I suspect there will be a lot of disappointed folks who have counted their unhatched chickens and were not prepared for a significant recession.

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                          • #14
                            part of the problem is economics is a social science and part of inflation is psychological. people asking for raises or striking, and businesses increasing prices, due to the expectation of nontransient inflation, thereby helping to create it. hard to make predictions.
                            “. . . And the LORD spake, saying “First shalt thou take out the Holy 401k. Then shalt thou save to 20%, no more, no less. 20% shall be the number thou shalt save, and the number of the saving shall be 20%. 25% shalt thou not save, neither save thou 15%, excepting that thou then proceed to 20%. 30% is right out . . .””

                            Comment


                            • #15
                              Grocery prices are up. Meat is way up.

                              Daycare raised rates.

                              My personal inflation rate is high.

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