Latest Inflation Numbers and Discussion

[aja8888]

From your source:



Arguably, we haven't been in a "relatively calm period" free of "economic crises" in almost three years.

Yes, I said they were ignoring the rule.

 

[Gumby]

Yes, I said they were ignoring the rule.

Perhaps I misunderstood your point.

 

[daylatedollarshort]

The only action that has worked to tame persistently high inflation in the past has been raising interest rates higher than the federal funds rate. Unless someone comes up with a brilliant alternative solution that all living and dead economists throughout history have never thought of before, The Fed is going to keep raising interest rates until inflation starts coming down at least closer to their 2% goal. This was pretty obvious from the beginning of the year, whether or not The Fed members wanted to publicly admit it or not until now.

Whoops, my bad...I meant to say raising interest rates higher than the inflation rate, not the federal funds rate.

 

[JoeWras]

If you haven't seen the new WSJ article on the Fed rate tightening, it is really good and comprehensive with many charts and comparisons to other cycles the last 40 years.

What pops out to me is the fact that although the Fed is sloping up like never before, they are also doing this from zero, which they never had to do before (except 2016).

Link below. If I following instructions, this is the freely available link and should not be paywalled.

https://www.wsj.com/articles/feds-a...p9sppxr37z2&reflink=desktopwebshare_permalink

 

[Koolau]

Is it not natural that the interest rate should be higher than inflation?

When you don't spend your money but save it and lend it to someone, you should be entitled to some small remuneration, and the only way you actually get some is if you are paid an interest above inflation.

When you are penalized for saving and lending money, something is awfully wrong. I am not an economist to know all the ramifications, but that would not be natural.

My understanding is that the FED's main mission is to "stabilize" the currency. In so doing, inflation will (truly) be transient. Fiat currencies are difficult to stabilize, so the FED uses more crude methods (funds rate increases) to damage the economy and destroy jobs which eventually (maybe) brings inflation down.

The classic example of a stable "currency" is gold (yeah, I know!) Though gold (in relation to fiat currencies) isn't stable in PRICE - it is (reasonably stable) in what it "buys." There's the old adage (still pretty much true) that a $20 gold piece (aka 1 oz fine Gold) will buy an excellent suit of men's clothes. With it's ups and downs, that's still pretty much true since the $US20 gold piece was first minted in 1850. Not a bad track record when you compare it to fiat currencies. I'm not suggesting a return to the gold standard, but the FED is at a distinct disadvantage when it comes to inflation control. It's not a science and barely an art. It's more like magic with a track record to imitate from the last time.

Since I've told you way more than I know about gold and the FED, YMMV.

 

[Fermion]

Obviously though gold could not be used as a currency in any meaningful amount as it would quickly be hoarded to the point where the price would skyrocket. I think there is only enough gold ever mined for everyone to have maybe an ounce or two max?

 

[Montecfo]

The next Fed meeting is Dec 13-14.

This dovetails with the November CPI report which is released early Dec 13.

Ron Insana (former CNBC anchor) had an interesting opinion piece where he complains about the Fed members talking about 7%. https://www.cnbc.com/2022/11/18/ins...d-come-back-to-haunt-the-federal-reserve.html

I agree with his views. Fed seems to want to overuse rhetoric, hoping to underuse rate hikes. They can't believe all the things they are saying.

And equity markets consistently fail to believe the Fed.

The Fed has a credibility problem.

 

[NW-Bound]

My understanding is that the FED's main mission is to "stabilize" the currency. In so doing, inflation will (truly) be transient. Fiat currencies are difficult to stabilize, so the FED uses more crude methods (funds rate increases) to damage the economy and destroy jobs which eventually (maybe) brings inflation down.

The classic example of a stable "currency" is gold (yeah, I know!) Though gold (in relation to fiat currencies) isn't stable in PRICE - it is (reasonably stable) in what it "buys." There's the old adage (still pretty much true) that a $20 gold piece (aka 1 oz fine Gold) will buy an excellent suit of men's clothes. With it's ups and downs, that's still pretty much true since the $US20 gold piece was first minted in 1850. Not a bad track record when you compare it to fiat currencies. I'm not suggesting a return to the gold standard, but the FED is at a distinct disadvantage when it comes to inflation control. It's not a science and barely an art. It's more like magic with a track record to imitate from the last time.

Since I've told you way more than I know about gold and the FED, YMMV.

You sound like a couple of friends I had. I remember that one of them claimed that his hero Milton Friedman said something along those lines. However, I never dug further to see what Friedman believed in.

Obviously though gold could not be used as a currency in any meaningful amount as it would quickly be hoarded to the point where the price would skyrocket. I think there is only enough gold ever mined for everyone to have maybe an ounce or two max?

+1

As the population increases and the economy grows, the amount of currency in circulation has to go up. How can this be accommodated? The supply of gold may not be in sync with the economy.

Again, I am no economist to know these things, but I suspect there's no easy solution. Someone or something will find a way to break whatever system you come up with.

 

[Koolau]

Obviously though gold could not be used as a currency in any meaningful amount as it would quickly be hoarded to the point where the price would skyrocket. I think there is only enough gold ever mined for everyone to have maybe an ounce or two max?

Yeah, to a first approximation, there's about an ounce per human being. Having said that, if, as you suggest, all the gold were hoarded and made incredibly expensive, there are 20 million tons of the stuff in ocean water. At some price, it is recoverable. Kinda like bit coin from the blockchainosphere.

One other thing to remember about money in general and gold specifically: It has ALWAYS been concentrated. Average income in the USA is around $71K/family of 4. Many people in the world live on a dollar (equivalent) per day.

Never a gold bug nor proponent of "gold standard" but the FED and other Central Banks as well as gummints in general (who all use fiat currencies now) could learn a thing or three from studying the history of gold and its universal appeal as the first and one of the very few "real" kinds of money. Rather than manipulating currency to stimulate or retard economic growth, the FED should at least consider stabilizing the value of the currency and let people run the economy the old fashioned way - you know "naked capitalism." But, I don't look for that happen until dollars join the long list of former kinds of "money" on the ash heap of history. Cheery thought!

 

[Koolau]

Again, I am no economist to know these things, but I suspect there's no easy solution. Someone or something will find a way to break whatever system you come up with.

We have met the enemy and he is us.

Yep, (SWAG - too lazy to look it up) 99% of all historical currencies no longer exist in their original form other than a few in name only or those few less than a couple of hundred years or so old. Even the dollar no longer exists as it was originally created (as a gold and later a silver deposit note.) YMMV

 

[MichaelB]

Gold has failed as a base currency every time it has been used, through all human history, without exception.

If the quantity of s currency is fixed and limited, that also limits the expansion of economic activity. There is never more economic activity than there is currency in circulation. When currencies are hoarded, and hoarding has happened every occasion they have been used, it limits economic activity. Only the accumulators can prosper, everyone else is destined to a marginal economic life. There is no example in history of a significant and sustained increase in prosperity in an economy using gold as a currency.

The continued expansion of a flexible currency base has led to the greatest increase in prosperity history has ever seen. More people have enjoyed greater prosperity than under any other system at any other time in history.

That doesn’t mean money can be printed at will. When that happens hyperinflation occurs. We saw that in Germany and Brazil, and most recently Venezuela. And as we recently saw in England, when that happens there is a self-adjusting market reaction.

 

[Koolau]

Gold has failed as a base currency every time it has been used, through all human history, without exception.

If the quantity of s currency is fixed and limited, that also limits the expansion of economic activity. There is never more economic activity than there is currency in circulation. When currencies are hoarded, and hoarding has happened every occasion they have been used, it limits economic activity. Only the accumulators can prosper, everyone else is destined to a marginal economic life. There is no example in history of a significant and sustained increase in prosperity in an economy using gold as a currency.

The continued expansion of a flexible currency base has led to the greatest increase in prosperity history has ever seen. More people have enjoyed greater prosperity than under any other system at any other time in history.

That doesn’t mean money can be printed at will. When that happens hyperinflation occurs. We saw that in Germany and Brazil, and most recently Venezuela. And as we recently saw in England, when that happens there is a self-adjusting market reaction.

Good thing we don't use gold for currency then, right? I don't know a soul who wants that.

Basically, I agree with everything you've said, but you kinda left out some of the other stuff that happens when it isn't done right. You got it right about inflation (hyperinflation) in some cases. But there are inevitable contractions as well which can be any where from inconvenient to deadly - causing starvation and even war. Both parents lived through the great depression and WWII. They considered the Great Depression more (personally) devastating than WWII though both events had elements of bad FED policy (as well as other central banks.) {Personal note the GD derailed my mom's dreams of a college education and my dad's family was literally starving at one point.} Of course there were other issues as well. Think back to 2008. My gut tells me we dodged a bigger bullet than the GD though we'll never know. Lots of issues, of course, but "messing" with the economy at the Federal level doesn't always end well.

It's a bit like the old saying that figures don't lie but liars figure. Our FED had better know what they're doing and they better be lucky as well. YMMV

 

[DJRR]

Gold has failed as a base currency every time it has been used, through all human history, without exception.

If the quantity of s currency is fixed and limited, that also limits the expansion of economic activity. There is never more economic activity than there is currency in circulation. When currencies are hoarded, and hoarding has happened every occasion they have been used, it limits economic activity. Only the accumulators can prosper, everyone else is destined to a marginal economic life. There is no example in history of a significant and sustained increase in prosperity in an economy using gold as a currency.

The continued expansion of a flexible currency base has led to the greatest increase in prosperity history has ever seen. More people have enjoyed greater prosperity than under any other system at any other time in history.

That doesn’t mean money can be printed at will. When that happens hyperinflation occurs. We saw that in Germany and Brazil, and most recently Venezuela. And as we recently saw in England, when that happens there is a self-adjusting market reaction.

+1. Todays recessions are nothing compared to the crushing contractions under the gold standard.

To the other questions, yes there is supposed to be a positive real interest rate, although clearly not always (Germany). Whether it will be resolved by the long end rising or the short end falling we will see.

The Fed has never seen this before, so it is hard to know what to do. They are historically much better on the demand side than the supply side. Add in a pandemic, a labor shortage, etc. and they are not getting the response they want. Even mother nature is against them. Instead of home builders losing their jobs they moved to Florida to repair houses after Ivan. This economy just won't quit. Some people think that's a good thing, but many others want to kill it for some reason or other.

 

[audreyh1]

I guess Powell really did say today rate increases will moderate (very soon).

Markets will party until the piper has to be paid.

 

[NW-Bound]

Powell did not say the spanking will stop. Only that fewer strokes will be administered.

And the market turns exuberant.

 

[theo2]

How can it be the market was falling yesterday from China worries then all of a sudden today when one person speaks it jumps up

 

[JoeWras]

How can it be the market was falling yesterday from China worries then all of a sudden today when one person speaks it jumps up

Been going on for millennia this way. It is just how markets work. It will eventually find sea level.

 

[jollystomper]

How can it be the market was falling yesterday from China worries then all of a sudden today when one person speaks it jumps up

Rule #1 of trying to figure out the market: don't try to figure out the market .

 

[theo2]

or the people behind it

 

[explanade]

How can it be the market was falling yesterday from China worries then all of a sudden today when one person speaks it jumps up

Because traders from big banks make money off price movements.

 

[NW-Bound]

Because traders from big banks make money off price movements.

Can we learn to do like them?

How do we know if we are on the same or opposite side? If we are on the opposite side and they make money, of course we will lose money.

I guess because it's hard to tell, people do not trade and just buy/hold.

 

[youbet]

Powell did not say the spanking will stop. Only that fewer strokes will be administered.

And the market turns exuberant.

I thought he said the same number of strokes will be administered, but the force of the blows will be reduced and they will be administered over a longer period of time.

 

[explanade]

Can we learn to do like them?

How do we know if we are on the same or opposite side? If we are on the opposite side and they make money, of course we will lose money.

I guess because it's hard to tell, people do not trade and just buy/hold.

I doubt those traders making millions a year for big institutions are buying and holding.

 

[theo2]

Because traders from big banks make money off price movements.

one good reason!

 

[theo2]

Can we learn to do like them?

How do we know if we are on the same or opposite side? If we are on the opposite side and they make money, of course we will lose money.

I guess because it's hard to tell, people do not trade and just buy/hold.

We just dont have the money they have to work with,,,,,,