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Old 08-15-2011, 11:58 PM   #21
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I don't think that the Fed has control. Consumer confidence is down, people are paying down debt and saving to make up for their house/retirement fund, or trying to make up for a down economy. Spending is down, except for staples. As money gets pumped into the economy, it is getting sucked up and held. Banks have been burned by EZ credit policies and won't do that ever again, (until next time). The spenders aren't getting the loans, and the savers don't need them. Note that money velocity is a big component of inflation and money isn't moving. Result is stagflation.

Someday, (my guess is when enough Boomers retire) confidence will return, and all that money that was soaked up, will start to flow, then inflation, in a one step / two step whipsaw.

People in or near retirement will get hit twice, once with low returns for excess savings, then with high inflation as their incomes are fixed.

or so says my magic eight crystal ball.
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Old 08-16-2011, 01:14 AM   #22
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I've seen over the decades that economists are great at predictions that fit their world view and semi-good at explaining after the fact why their predictions were wrong. I know I don't know what's coming so I own more gold, REITS, stock in companies with substantial tangible assets, government and private bonds than I did before the debt bubble burst. Also have two years of living expenses in Thai Baht because I have no idea what's going to happen to the exchange rate. I do know I sleep better because I'm dim enough to think that these might be hedges against most possible futures. I sleep a lot better knowing it would take me a year to update my software development skills to where I could return to the states and get a j*b in a competitive market if it comes to that.
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Old 08-16-2011, 05:19 AM   #23
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I picked up on that too. Was that your buddy's actual spelling?
Yes, I did a copy & paste of his email.
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Old 08-16-2011, 08:47 AM   #24
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the cost of future liabilities is the real financial issue, and these will not lose relative value due to inflation. . . .

Agreed, on the Federal budget. But I think we have two 'real' financial issues. One is long-run federal fiscal imbalances, which you mention. The other is an economy stuck in a high-unemployment equilibrium. These are two separate problems and causation runs somewhat opposite from current conventional wisdom.

Those who advocate higher inflation don't do so because they think it will fix the Federal fisc. They do so because they believe it will help overleveraged consumers. If you believe, as I do, that we're in a 'balance sheet recession' where key agents are constrained by excess debt, resolving that excess debt situation is fundamental to recovery. Inflation is one very crude way to do that. Not the only way, or even the best, but a way that should work.

I'd say that achieving full employment is a necessary, but not sufficient, step in achieving fiscal balance too. So while inflation may not devalue our government's biggest liabilities, it should disproportionately raise revenues (regardless of indexed tax brackets) by returning currently underutilized capacity to work.
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Old 08-16-2011, 08:56 AM   #25
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Biflation describes the current malaise. Everything that you need to buy is going up. Everything you own is going down. yet the net CPI rate is modest.
Bicurious inflation is an increase in the cost of sex toys.
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Old 08-16-2011, 09:02 AM   #26
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Bicurious inflation is an increase in the cost of sex toys.
Thought that was trycurious.
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Old 08-16-2011, 09:10 AM   #27
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Biflation describes the current malaise. Everything that you need to buy is going up. Everything you own is going down. yet the net CPI rate is modest.
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Bicurious inflation is an increase in the cost of sex toys.
An increase in the cost of toys combined with a decrease in the performance of the assets?
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Old 08-16-2011, 09:23 AM   #28
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Bicurious inflation is an increase in the cost of sex toys.
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Originally Posted by calmloki View Post
Thought that was trycurious.
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An increase in the cost of toys combined with a decrease in the performance of the assets?
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Old 08-16-2011, 11:30 AM   #29
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My take on this is no one really has a clue what lies ahead for our economy but a lot of people are convinced it will be extreme.
I agree with this. The Fed certainly wants to avoid both deflation and inflation, and they are trying to follow the middle course of just a little deflation.

But, we're clearly in an economic situation that's different from anything else we've seen since WWII. Economists can look at other countries' experiences, but nobody else is exactly like the US. So they're all working with very limited knowledge. This increases the chances of falling off on one side or the other.

For the present, it appears the side that said "it's easy to avoid inflation during a recession/depression" were right.
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Old 08-16-2011, 12:07 PM   #30
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My belief is that the banking system cannot function long term in a deflationary economy. A little inflation makes things work. I imagine that the Treasury will "print" more money to deliberately cause inflation or prevent deflation if/when it comes to that. Some of their actions in the recent past have had the same effect: devalue the dollar. JMHO
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Old 08-18-2011, 06:27 AM   #31
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I agree something "extreme" will happen. My bet is on a major depreciation of the $ (in the 20-30% range, possibly more) rather than on any type of 'flation.
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My admittedly biased observations:

My take on this is no one really has a clue what lies ahead for our economy but a lot of people are convinced it will be extreme.
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Old 08-18-2011, 05:30 PM   #32
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FWIW, I am one who has some experience with hyperinflation.
When I lived in Brazil in the 1980s, we had it in earnest. Every few months they would lop another three zeros off the currency and change its name (think "ten thousand dollars are now one thousand dullards". The smallest bill in my wallet was often a 50,000 and I would need at least several of them just to pay for a taxi ride.

But people dealt with it. The financial system coped. It was unpleasant, but it was manageable.

Hyperinflation in Brazil was difficult, but at the same time I saw what I thought of as ultrahyperinflation in Peru. It was so bad there that many people were paid hourly so they could run to the store and buy something (yes, I'm serious). Images of Weimar Germany were everywhere.

Still, the Peruvians coped.

I'm quite certain that we will see renewed inflation in the USA, although I hope it won't be as bad as we had it in the 1970s. Inflation is the retiree's worst nightmare, even though the rest of society is able to deal with it. Inflation is the one thing I dread more than anything else.
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Old 08-18-2011, 05:35 PM   #33
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And lest anyone doubt that inflation is coming back, notice that after a couple of down years, it's most definitely rearing its ugly head again:

MOAA: COLA Watch
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Old 08-18-2011, 05:48 PM   #34
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And lest anyone doubt that inflation is coming back, notice that after a couple of down years, it's most definitely rearing its ugly head again:

Meanwhile the bond market is currently forecasting inflation of . . .

5-YR 1.72%
10-YR 2.06%
30-YR 2.46%
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Old 08-18-2011, 05:58 PM   #35
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Meanwhile the bond market is currently forecasting inflation of . . .

5-YR 1.72%
10-YR 2.06%
30-YR 2.46%
And it is sure to be right, just like it was in the early 80s when it forecasted inflation of 14-16%. Be sure to go all in! It's a once in a generation opportunity!

Ha
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Old 08-18-2011, 06:04 PM   #36
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Meanwhile the bond market is currently forecasting inflation of . . .

5-YR 1.72%
10-YR 2.06%
30-YR 2.46%
I'm afraid the bond market isn't forecasting anything and unsophisticated investors reaching out on the far end are going to get whacked. I've read that the 10 year bond should be over 6% in a "normal environment" relative to current inflation rates. I definitely feel for retirees who are seeking safe and reasonable returns in the interest rate market.
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Old 08-18-2011, 06:05 PM   #37
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And it is sure to be right, just like it was in the early 80s when it forecasted inflation of 14-16%. Be sure to go all in! It's a once in a generation opportunity!

Ha
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Old 08-18-2011, 06:16 PM   #38
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I'm afraid the bond market isn't forecasting anything and unsophisticated investors reaching out on the far end are going to get whacked.
That's what they keep saying. Unfortunately it keeps not coming to pass.
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Old 08-18-2011, 06:24 PM   #39
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That's what they keep saying. Unfortunately it keeps not coming to pass.
That is why I'm thankful I have a pension as I would be a horrible investor! I know there are tax implications, but why would anyone buy a 10 year bond and it's risk when you can get a 5 year CD at that rate or slightly higher? I guess the 10 year could go to 1% and you would get a nice capital gain!
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Old 08-18-2011, 10:22 PM   #40
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why would anyone buy a 10 year bond and it's risk when you can get a 5 year CD at that rate or slightly higher?
I personally wouldn't. Neither would I own a bond fund holding the same.

But for folks or institutions needing to find a place for a couple million bucks or more, retail CDs aren't really an option.
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