Will stimulus lead to inflation? Shiller responds.
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Qs Laptop
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My entire life I've heard this and believed it. After the previous Covid spending bill I realized we've had deficit spending for all the years I've been alive except for five years. The national debt rolls onward and upward. And yet...no real elevated inflation rates outside of the mid 70's and early 1980's, almost all of it related to oil prices shooting upwards.
So there is the world we live in and the world that we are told we live in. Pick.
24601NoMore
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Far as I know, we've NEVER had the level of repeated, "special" multi-trillion dollar package spending we've had since early last year.
I heard that last year's COVID spending was > $4T. Now add $1.9T. That's almost $6 TRILLION "one-off" spending in addition to the normal deficit spending we usually have.
Now, add the $2-3T "Infrastructure" bill that's being discussed and which could easily happen. That'd take us to $8-9 TRILLION above and beyond "normal" deficit spending since last March, which already has the country $28T in debt.
Then, I read today that some Harvard "experts" are calling for (get this) TWELVE TRILLION in "reparations" spending. (Will that happen? God, I sure hope not - I'd like the money I spent 40 years saving to be worth something more than extra wallpaper covering).
That's $20 - $21 Trillion dollars in "one off" spending - in addition to the deficit spending we already have normally. $20 - 21T is almost as much debt as we accumulated over our entire 240+ year history as of the end of last year (less roughly $7 - 8T).
Like I said above - our existing Debt-to-GDP level was already higher than Greece's right before Greece totally collapsed. There's a point that printing money by the wheelbarrow full destroys the value of all existing dollars - and if we keep going like this, we're gonna hit that point quite rapidly, IMHO.
I've never been one (to this point) to own inflation hedges. Stupid me, I know. But I just bought PIRMX today and have been tracking IAU and GLD looking for a good entry point. TIPS don't appear to be a good play at the moment with negative yields - but one of the things I like about PIRMX is that the PIMCO guys can buy TIPS, foreign currencies, gold, real estate or commodities in the mix they deem prudent, all to respond to inflationary pressures. And I'm sure they know boatloads more than I pretend to on what mix is best to achieve that goal..
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Qs Laptop
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Yep.
That's been the mantra for 50 years, at least.
Reagan’s tax cuts and deficit spending rebuilding the military and funding SDI was going to ruin the economy. Inflation would come roaring back. Then it was George W. Bush’s tax cuts coupled with the spending on the Iraq War and the war on terror that caused the national debt to balloon, which would lead to inflation. Then Obama’s economic stimulus spending, $780+ billion, was going to cause inflation. Then Trump’s Covid relief package was going to cause it.
Funny thing though, inflation hasn’t happened.
Now it’s Biden’s spending plan that’s going to trigger inflation. And why should I believe it this time?
24601NoMore
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Because, as I said above, we've never in our entire history as a country had spending to the LEVEL we're talking about.
It took us nearly 244 years to get to $28T. Now, we're talking about spending nearly three quarters of that (71%) in less than 2 years JUST on "one-off" spending: COVID "stimulus" (although much of it is reportedly not COVID related), Infrastructure and even potentially reparations..
That has never, ever, ever happened - and it's 100-1000X anything that Reagan, Obama, Trump or anyone else ever did or considered. And spending nearly 75% of our ENTIRE debt incurred over 244 years in the span of 24 months is a recipe for disaster, IMHO.
Any of us who have saved anything for retirement should be extremely concerned. The value of those savings is potentially going to be vaporized by spending at these levels.
FWIW, I'd love to be wrong in the end and have everything turn out just fine and ducky. But I don't suspect I will be.
target2019
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I'm using 3.0% inflation average, and 1.0% stddev.
There's probably 3 Trillion dollars in US denominated currency outside the US. We don't have much tourists right now to spend 'US dollars' in US tourism industries.
The stimulus won't cause inflation, because our economy contracted by nearly 1.9 Trillion dollars in 2020 - big drop in consumer spending. And there are millions of people unemployed - both officially reported and unofficially reported. To get back to growth, the stimulus is needed to pump prime the economy.
Can I still buy a $1.19 Cheeeseburger - Yes. Food and essentials -there's no inflation here. Housing prices are a bit higher, since there's a higher demand due to covid19 and there's less construction going on.
The stimulus won't cause inflation, because our economy contracted by nearly 1.9 Trillion dollars in 2020 - big drop in consumer spending. And there are millions of people unemployed - both officially reported and unofficially reported. To get back to growth, the stimulus is needed to pump prime the economy.
Can I still buy a $1.19 Cheeeseburger - Yes. Food and essentials -there's no inflation here. Housing prices are a bit higher, since there's a higher demand due to covid19 and there's less construction going on.
We had a big deficit and incurred a huge debt in the Bush administration, as we bailed out banks in the trillions. so I don't agree with you here. The stimulus now is just the solution to the problem. Our economy contracted by 1.9 Trillion in 2020 so we need to spend that much to get back to growth.
target2019
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Average real estate property tax increase in NJ was 1.0177% in 2020.
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twaddle
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On page 1 of this thread, you'll see a giant blip in the M1 chart (from Shiller's email).
I think we're about to see another giant blip, but of no consequence maybe.
From a Hussman tweet:
I think we're about to see another giant blip, but of no consequence maybe.
From a Hussman tweet:
The only thing that will save us from inflation is allowing a bust in the FED driven bubble-bust cycle. Federal Reserve and government are scared politically to let that happen, and has already created inflation. We are already seeing some of the resulting price inflation in many sectors, and it will likely get worse unless the FED allows interest rates to rise and pulls in liquidity.
Yeah, my personal inflation on the same things I've been spending money on is getting out of control. Greenspan said inflation is his biggest concern.
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twaddle
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I guess there are several things happening. The monetary policy is potentially leading to asset bubbles, but some economists seem to believe that you can only recognize a bubble once it pops, so no alarms are going off.
There is a fiscal "stimulus," but it's not so much a stimulus as a get-out-of-poverty-free card for those impacted by the pandemic.
So I'm not seeing the inflation argument. I am buying the slow, painful recovery argument, though. And maybe asset *deflation* after we get back to some sense of normal.
Genuine fiscal stimulus is also on the table (e.g., infrastructure spending). That seems like a good idea to me.
There is a fiscal "stimulus," but it's not so much a stimulus as a get-out-of-poverty-free card for those impacted by the pandemic.
So I'm not seeing the inflation argument. I am buying the slow, painful recovery argument, though. And maybe asset *deflation* after we get back to some sense of normal.
Genuine fiscal stimulus is also on the table (e.g., infrastructure spending). That seems like a good idea to me.
Dtail
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Personal inflation rate is the game that matters.
For me, it is the ever increasing costs on car/umbrella/home insurance.
Running_Man
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I think intermediate (within 2 years) we will be back at 4-5 %. If interest rates are not allowed to rise and there is an issue with that, then I think inflation accelerates from there.
From CNBC today:
"Though consumer prices were up just 1.4% from a year ago in January, recent indicators of retail sales, durable goods purchases and service sector prices have shown inflation in the pipeline. The 5-year breakeven rate, an indicator of the bond market’s expectations for inflation, rose to 2.38% Wednesday, its highest level since before the financial crisis of 2008."
https://www.cnbc.com/2021/02/25/us-bonds-treasury-yields-rise-ahead-of-fourth-quarter-gdp-update.html
The Fed has some bond buying to do today.......
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PussInBoots
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Wow 10 year treasuries yield was today momentarily up 10%. Something is starting to happen.
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twaddle
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GravitySucks
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I believe the powers that be are much more worried about deflation, so while the stimulus may bump up the inflation rate, it's doing its job to keep deflation in check.
aleabo
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Since when family making $150K considered poverty? I could have understood to give help to unemployment people but printing money and giving them away to majority of US population? Classical inflation - more money than products.
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Yeah, especially retired people who make less than $150K. The idea as I understand it is that they sacrificed precision targeting for speed. But those who needed it, still got something.
The checks were kind of dumb IMO, but the Paycheck Protection Program was appreciated by a lot of local orgs and their staff. I have no doubt it was also abused.
Leo1277
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Here is the problem. Let's look at two quotes:
Now we are spending a similar amount of money as the missing income (and missing goods and services), but much of it does not go into the missing production of goods and services - people cannot make up for the vacations missed last year, or the homes not build, etc - rather they are largely used to fill income gaps.
Now, in my opinion that filling of income gaps is necessary one way or another, since these income gaps would otherwise lead to lots of personal hardship (at the humanitarian level), and lack of buying power, leading to more production decline in goods and services due to the things the unemployed can not buy which they normally would (at the economic level).
But the crux is, in this process we fix the income gap problem and the associated avalanche of further not-bought goods and services, but we cannot fix the situation of the goods and services not produced last year, they are gone forever. Now going back to USGrant1962, with this stimulus spending, we have the same income as we would have otherwise had, but we have a huge lack of goods and services that weren't produced. So, according to "Econ 101" that he refers to, we now are exactly in the situation where the same amount of money is chasing less goods and services. Hence according to Econ 101, this would be an inflation generator.
The main reason of the drop of economy is that goods and services that would normally have been produced and rendered were not produced last year due to Covid. I don't know the exact number off the top of my head, but it is in the neighborhood of the 1.9 Trillion quoted by cyber888. That number appears as missing income, but much of that missing income is due to the fact that the goods and services that should have been produced and that would have led to this missing income are not there.
Now we are spending a similar amount of money as the missing income (and missing goods and services), but much of it does not go into the missing production of goods and services - people cannot make up for the vacations missed last year, or the homes not build, etc - rather they are largely used to fill income gaps.
Now, in my opinion that filling of income gaps is necessary one way or another, since these income gaps would otherwise lead to lots of personal hardship (at the humanitarian level), and lack of buying power, leading to more production decline in goods and services due to the things the unemployed can not buy which they normally would (at the economic level).
But the crux is, in this process we fix the income gap problem and the associated avalanche of further not-bought goods and services, but we cannot fix the situation of the goods and services not produced last year, they are gone forever. Now going back to USGrant1962, with this stimulus spending, we have the same income as we would have otherwise had, but we have a huge lack of goods and services that weren't produced. So, according to "Econ 101" that he refers to, we now are exactly in the situation where the same amount of money is chasing less goods and services. Hence according to Econ 101, this would be an inflation generator.
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Leo1277
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A brief follow-up: So the deep, un-fixable problem is that due to the pandemic, the US produced less goods and services than they normally would have. This cannot be changed, regardless whether stimulus is provided or not, and this is the key driver of the economic deficit. Now the political question arises: do we put this deficit on the government (by providing stimulus), or do we leave it to those individuals that are primarily affected, and let them incur debt or in the worst case go bankrupt. It is probably more prudent to spread the pain around by letting the government take care of it instead of the individuals, and minimize the follow-up damage from the otherwise reduced purchase power of the affected individuals. But the answer is apparently not clear cut.
Yet however you do it, the real problem is the economic output missed by Covid. The only way this unexpected black swan event could perhaps been avoided or minimized is by targeted productive employment of affected individuals, which however is very hard to do in practice, especially on short notice and at the necessary scale. Perhaps one could have employed some of those that lost their jobs as contact tracers, or in some helper capacity in the health care system, or perhaps one could have accelerated some infrastructure programs that don't need a specific trained work force and can maintain the needed social distancing. Long overdue projects in the US National Park system that need manpower come to mind.
On a small scale, such things did happen: many hotels used the empty halls and rooms to accelerate renovations that were in the pipeline, restaurants that were shut down did renovations, companies with workforce at home accelerated investments in the needed infrastructure which will save office space and is hoped to increase efficiency in the future, etc. But however we move forward, we have to cope with a significant chunk of lost economic output that cannot be restored, its impact can only be moved around one way or the other.
Yet however you do it, the real problem is the economic output missed by Covid. The only way this unexpected black swan event could perhaps been avoided or minimized is by targeted productive employment of affected individuals, which however is very hard to do in practice, especially on short notice and at the necessary scale. Perhaps one could have employed some of those that lost their jobs as contact tracers, or in some helper capacity in the health care system, or perhaps one could have accelerated some infrastructure programs that don't need a specific trained work force and can maintain the needed social distancing. Long overdue projects in the US National Park system that need manpower come to mind.
On a small scale, such things did happen: many hotels used the empty halls and rooms to accelerate renovations that were in the pipeline, restaurants that were shut down did renovations, companies with workforce at home accelerated investments in the needed infrastructure which will save office space and is hoped to increase efficiency in the future, etc. But however we move forward, we have to cope with a significant chunk of lost economic output that cannot be restored, its impact can only be moved around one way or the other.
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Montecfo
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Respectfully, these experts may have fine credentials and be mildly interesting to listen to, but they do not know the answer to the question.
The factors which drove inflation in the 70s will likely never recur so trying to compare that period with now I think is useless.
I think our recent experience shows that inflation is far less of a concern than it was in the past.
Perhaps that will change but there is no such indication at this writing.
The factors which drove inflation in the 70s will likely never recur so trying to compare that period with now I think is useless.
I think our recent experience shows that inflation is far less of a concern than it was in the past.
Perhaps that will change but there is no such indication at this writing.
Fundamental economics and human action doesn't change just because technology and innovation does.
The problem is that you view history through decades or centuries, but your current perspective is limited to your lifetime (at most), and more likely a couple of decades.
The US is at a unique point that despite our welfare and warfare state, we are still the center of gravity for innovation and freedom in the world. That balance is constantly at risk...
Leo1277
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That is a useful way of thinking. Can you expand a bit what you think the drivers for the 1970 problems were? What immediately comes to mind is of course the oil price shock, which took out an unexpected chunk from the US economy. Other than that, there were management mistakes that are more clearly visible in hindsight. What else contributed? Also now we have a big unexpected chunk taken out of the US economy.
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