Economist suggests that inflation may be low for a while

[aleabo]

"Economist suggests that inflation may be low for a while"

When did ER become a comedy site?

 

[2177V]

My opinion: Inflation will occur if the federal government wants inflation to occur.

The federal government has just spent trillions of dollars for COVID-19. Paying it back can mean raising taxes. However, voters will push back on raising taxes. However, if there is inflation, then wages will increase to keep up with inflation. When wages go up, taxes increases...without any push back by voters. Hence Inflation is a stealth tax increase. It also means people with a $3M portfolio will be under pressure to invest to keep up with inflation. However, the federal government is less interested in maintaining investor's portfolio than maintaining government spending.

If you were a government official and inflation starts to rise, will you tell the fed to raise interest rates to control inflation?..or let inflation happen? Wall Street will probably prefer the latter since raising interest rates tend to affect the stock market.

 

[Out-to-Lunch]

If you were a government official and inflation starts to rise, will you tell the fed to raise interest rates to control inflation?..or let inflation happen?

Indulge me in a little bit of nostalgia. I am old enough to remember when it was understood that government officials did not tell the fed what to do.

 

[arch57]

"Real" inflation much higher

Inflation low for a long time? When does that start? Housing prices are soaring and so are building materials. My grocery store is no indicator of deflation, just the opposite. Another example of government inflation numbers not meaning much, similar to the referenced market predictions.

I have been complaining to any one who listens that the actual inflation we see in our everyday lives is never truly measured. It's in the governments best interest to keep the CPI low as so many outlays are tied to that number.

As an anecdotal example I always keep a good supply of deck screws of all lengths around for quick projects around the house and yard. Bought a big stash 10 years ago for $5.99 1lb box. Was shocked this past summer when I went to Home Depot and found they are now $9.99 a box, same brand and size.

Point being that at average 1.76% CPI over 10 years (which is a close guess) those deck screws should be $7.16 and this creeping inflation occurs in thousands of items that don't get tracked in my opinion.

And another is what I call "having some fun" index. Things like cost of a lobster roll or whole-belly clam dinner that families treat themselves to once in awhile have also doubled over 10 years. Prices for sporting events, concerts, etc. (pre Covid) are also way higher than the numbers stated by economists.

Most of us here track our spending in one way or another and utilities, insurance, food, auto repair all seem to outpace CPI. My rant has ended!

 

[2177V]

Indulge me in a little bit of nostalgia. I am old enough to remember when it was understood that government officials did not tell the fed what to do.

True. The Fed is supposed to be independent and will do what is best for the economy. The Fed did their part by dropping short term interest rates to almost zero and did quantitative easing. Negative rates are out of the question because this will cause European and Japanese money to flow out of the US stock market because their own countries already have negative interest rates. There is a currency exchange risk if the dollar drops in value so I expect the US stock market to crash when foreign investors pull out and invest in another country.

Therefore the Fed is out of tools. The only tool left is monetary policy which is more government spending which is happening now. After that, this is nothing left. I am just saying what happens if inflation do start to creep up? The Fed can either cease QE or raise interest rates. Either case, the stock market will take a hit.

Doing nothing translate to inflation but this helps the stock market. I am convinced the government will "tell" or "recommend" that the Fed do nothing and let inflation happens because this leads to higher wages to keep up with inflation and higher wages means higher taxes. With higher taxes, this stabilizes the national debt. It may be political suicide to raise taxes on the middle class but inflation will allow the taxes to be raised with higher wages without any political consequences.

 

[Out-to-Lunch]

True. The Fed is supposed to be independent and will do what is best for the economy. The Fed did their part by dropping short term interest rates to almost zero and did quantitative easing. Negative rates are out of the question because this will cause European and Japanese money to flow out of the US stock market because their own countries already have negative interest rates. There is a currency exchange risk if the dollar drops in value so I expect the US stock market to crash when foreign investors pull out and invest in another country.

Therefore the Fed is out of tools. The only tool left is monetary policy which is more government spending which is happening now. After that, this is nothing left. I am just saying what happens if inflation do start to creep up? The Fed can either cease QE or raise interest rates. Either case, the stock market will take a hit.

Doing nothing translate to inflation but this helps the stock market. I am convinced the government will "tell" or "recommend" that the Fed do nothing and let inflation happens because this leads to higher wages to keep up with inflation and higher wages means higher taxes. With higher taxes, this stabilizes the national debt. It may be political suicide to raise taxes on the middle class but inflation will allow the taxes to be raised with higher wages without any political consequences.

BTW, I wasn't even disagreeing with you. I was acknowledging that there is political influence, even if in principle there shouldn't be.

 

[Koolau]

My opinion: Inflation will occur if the federal government wants inflation to occur.

The federal government has just spent trillions of dollars for COVID-19. Paying it back can mean raising taxes. However, voters will push back on raising taxes. However, if there is inflation, then wages will increase to keep up with inflation. When wages go up, taxes increases...without any push back by voters. Hence Inflation is a stealth tax increase. It also means people with a $3M portfolio will be under pressure to invest to keep up with inflation. However, the federal government is less interested in maintaining investor's portfolio than maintaining government spending.

If you were a government official and inflation starts to rise, will you tell the fed to raise interest rates to control inflation?..or let inflation happen? Wall Street will probably prefer the latter since raising interest rates tend to affect the stock market.

You may be correct, but if the FED raises rates to combat inflation, the gummint will suddenly be paying way more for interest. THAT is not a scenario the gummint would like. I know. I know. I'm giving gummint too much credit for thinking beyond its next move, so YMMV.

 

[VFK57]

I think the proof of very possible high inflation is clearly stated in US Debt Clock. How it is possible to repay this huge Debt without high inflation?
https://usdebtclock.org/

 

[meierlde]

I think the proof of very possible high inflation is clearly stated in US Debt Clock. How it is possible to repay this huge Debt without high inflation?
https://usdebtclock.org/

The whole point of Modern Monetary Theory is you don't have to pay it back. The government should do like the British Government did in 1751 (in the Middle of the 7 years war) and issue perpetual bonds like the consols https://en.wikipedia.org/wiki/Consol_(bond) Note that this article says that the us issued such bonds in the 1870s (btw a period of deflation) . With the way the financial market there is a big demand for safe bonds and bonds of an issuer who can just print money are the only such instruments. Note that during the late years of the Clinton Admin there was concern over how the economy would work with the then current thoughts that the federal debt would be paid off.

 

[VFK57]

There is an opinion of Larry Summers, he states that raising US Debt will not crush the dollar:
https://www.yahoo.com/finance/news/larry-summers-says-rising-federal-162713110.html

 

[Koolau]

My puny brain can't comprehend the size of the debt nor whether it will be a major issue in my remaining life time. I think I worry more about the stuff "off the books" (the so-called unfunded, and dare I suggest underfunded "mandates.) You all know what they are. I think I read several years ago they added to something like $80 Tril. but it might have been more. If that was true then, I'm sure it's much more now.

In any case, the seeds of our own (money system) destruction were sown as soon as we officially went to fiat currency. It works until it doesn't. So many questions: How will it end (bang or whimper)? When will it end (our life times, kids life times, grandkids life times)? What will replace it (gold or other PM, different (new) fiat currency, someone else's fiat currency - heh, heh, there are no "backed" currencies that I'm aware of though NOT, NOT, NOT an expert.)? Will there be chaos, soft landing, hyper inflation, civil war, world war, intergalactic war (Wait! Scratch that!)?

As one of our resident glass half-empty posters, I'm leaning toward "bad" results and probably sooner than later, but, as always, YMMV.