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Old 12-13-2016, 04:09 PM   #61
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11 years into my 30 year plan, I worry less about "high" inflation (like we saw in the late 70's early 80's) but worry more about "hyper" inflation (20%, 50%, 100%). Gummint has some control over inflation, but I think we may have set ourselves up for worse inflation than we can handle. The debt increase has been staggering (anyone ever divide 330 million people into $20 trillion?) If interest rates have to rise, service on the debt could force us to print more, causing more interest rate hikes, etc. etc. Eventually, wheelbarrow economics could rule. I think the chance of this in my life time is relatively low - but not out of the question. Right now, a strong economy (which can lead to moderate inflation) would seem the only thing that could (temporarily) permanently stave off BIG inflation. YMMV
Our chronic budget deficit is surely adding to the Debt growth. Yet I think that the threat of high inflation could come from a change in world trade settlements. For many decades it was king dollar for most of those settlements. Therefor most countries held dollars in their main foreign currency reserves for trade. However recently most Chinese trade partners are moving toward trade in their own currencies what eventually is going to push large amounts of unneeded US$ back to US. It might trigger high inflation.
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Old 12-13-2016, 04:44 PM   #62
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However recently most Chinese trade partners are moving toward trade in their own currencies what eventually is going to push large amounts of unneeded US$ back to US. It might trigger high inflation.
So the USA has to buy Yuan, then send the Yuan back to China? I think the Yuan would become a high value currency, which the Chinese do not want.

If prices for Chinese goods went up, they would have to lower the prices further, or risk manufactures making the goods somewhere else.

I do not see inflation coming out of this. If wages rise, inflation starts.
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Old 12-13-2016, 04:53 PM   #63
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So the USA has to buy Yuan, then send the Yuan back to China? I think the Yuan would become a high value currency, which the Chinese do not want.

If prices for Chinese goods went up, they would have to lower the prices further, or risk manufactures making the goods somewhere else.

I do not see inflation coming out of this. If wages rise, inflation starts.
No, as far as I know it is like market price of product in Yuan paid to China while market price of oil barrel they export from Russia is paid in rubles. In the past both countries would use US$ for the trade.
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Old 12-13-2016, 05:08 PM   #64
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If prices for Chinese goods went up, they would have to lower the prices further, or risk manufactures making the goods somewhere else.
If the US dollar were to weaken significantly, the increased cost to import goods could have a significant impact on the economy.

We have outsourced so much manufacturing, and are purchasing so many basic goods from other countries. We could not restart the steel industry on short notice. Most of our foundry capacity is decommissioned. Many industries have relocated to countries that do not have the restrictions the the US has.

The US loves cheap food, and cheap goods from other countries. At some point the music may stop, and we will be looking for chairs that have disappeared.
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Old 12-13-2016, 05:21 PM   #65
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If you think it is expensive now, imagine when people are trying to use it instead of corn or soy.

Our whole food supply revolves around dirt cheap corn and soy. That could be changed in a crisis, but probably not in time to avoid famine.
Recall 2012 when there was a big time drought in the corn belt Corn went to $8 a bushel (today it is at 3.56 so a doubling of its price) Soybeans went up 40% or so. Or consider the bird flu that wiped a lot of chickens out last year, when eggs went over $3 a gallon etc.
Note that 2012 had over 33% of the US in extreme drought. But luckly in the corn belts droughts don't last as long as further west so the crop came back the next year.
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Old 12-13-2016, 06:31 PM   #66
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I don't have a crystal ball for 3 months much less 30 years. I'd worry about nuclear war before inflation . . . .

You and me both. Inflation rise has been warned about fir a decade now and yet now still it is still unhealthily too low. I don't think its going anywhere for awhile and I do think its not in my top ten list of concerns.
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Old 12-13-2016, 07:15 PM   #67
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I don't know what to think about deflation. Other economies struggling across the globe - that is deflationary, but are they finally getting themselves out of the mire? US labor surplus with little pricing power due to overseas labor - well that surplus has shrunk and we are at the very low end of the unemployment range. I think US labor shortages will be real, even with all the automation. Dropping energy prices - that was huge and very dramatic, but we seem to have worked through that too.
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Old 12-13-2016, 07:58 PM   #68
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So the USA has to buy Yuan, then send the Yuan back to China? I think the Yuan would become a high value currency, which the Chinese do not want.

If prices for Chinese goods went up, they would have to lower the prices further, or risk manufactures making the goods somewhere else.

I do not see inflation coming out of this. If wages rise, inflation starts.
+1 China is already grappling with some manufacturing leaving to Vietnam.


Back in the heyday of US Growth, the shift from agriculture to manufacturing required many hands to make the goods. Nowadays, due to technology (not only automation, but even moreso, software/robotics), as China shifts from agrarian to manufacturing, even more technological progress requires far, far fewer hands. So not only are they facing wage inflation, but the technological advances today (compared to the US/Europe's shift from agriculture to manufacturing) are a double whammy compared to how the US tackled it 3-5 generations ago.

THat's not to say that there could be issues with countries dumping US Dollars....
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Old 12-13-2016, 08:12 PM   #69
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+1 China is already grappling with some manufacturing leaving to Vietnam.


Back in the heyday of US Growth, the shift from agriculture to manufacturing required many hands to make the goods. Nowadays, due to technology (not only automation, but even moreso, software/robotics), as China shifts from agrarian to manufacturing, even more technological progress requires far, far fewer hands. So not only are they facing wage inflation, but the technological advances today (compared to the US/Europe's shift from agriculture to manufacturing) are a double whammy compared to how the US tackled it 3-5 generations ago.

THat's not to say that there could be issues with countries dumping US Dollars....
Logic tells me you are wrong, while my heart tells me you are right. I truly hope that we are going to overcome all challenges and keep a strong dollar as all of our assets are in US$
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Old 12-13-2016, 09:16 PM   #70
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It appears to me that the likeliest cause for high inflation in the US will be deliberate action by the government/Fed to devalue the currency. If the debt our government owes becomes unserviceable (due to its size in relation to the government receipts), there will be strong political pressure to "print more money" and make payments with this new money rather than default on debt payments/SS payments, etc. Each new dollar introduced reduces the value of all existing dollars. This is the choice that many governments have made in the past when it is politically impossible to raise taxes further--they introduce a "stealth tax" whereby all existing holding denominated int he national currency are devalued.
The stealth tax is happening now. It's the difference between what the official CPI-U is and what money really buys. It doesn't have to be much...too small to argue about, but year after year after year, it adds-up and in fact compounds. I contend that many of us here are barely keeping even with real inflation in those assets allocated to bonds.

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Owning the great companies of the world has been a very good way to protect and even enhance your purchasing power over the long term. If you're worried about inflation, own equities that can increase the price of their products/services.
+1 Plus hard asset stocks, rental properties, etc.

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Originally Posted by Koolau View Post
11 years into my 30 year plan, I worry less about "high" inflation (like we saw in the late 70's early 80's) but worry more about "hyper" inflation (20%, 50%, 100%).
I don't think it's likely, but there is a non-zero chance of a US debt crisis. What if China decided to dump all their US bonds? Yeah, they have nowhere else to go, I agree, but in another dimension, what if they did have somewhere else to go?
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Old 12-13-2016, 09:59 PM   #71
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I think we won't know when inflation will hit again!

From what I remember, inflation is caused by too much money wanting to buy too few goods.

Most of the world is fighting deflation. As a result, our imports are cheaper as well so we're "importing" deflation too. US capacity utilization is pretty low as well (we got the ability to supply more manufacturing goods, just no need).

Like someone said, I figure the next bout of across-the-board inflation in the US will come from some unexpected shock to the supply of something. And we can't predict that.

OTOH We've seen inflation recently from QE that expanded the amount of money for the financial class. Prices of stocks and bonds are inflated.

Inflation in medical care is real and eating up the US GDP. Inflation in rents has been pretty high lately.
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Old 12-14-2016, 06:46 AM   #72
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So the USA has to buy Yuan, then send the Yuan back to China? I think the Yuan would become a high value currency, which the Chinese do not want.
With a huge number of wealthy Chinese nationals scrambling to get as much money out of China anyway they can, there is also a huge supply of people willing to sell their yuan for any convertible currency they can get.

And, yes, China does not want a high RMB.
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