Puzzling over inflation in the next 30 yrs.

[MRG]

I did not know you could get eggs from them, but the meat idea is a great one.

Damn autocorrect.

 

[MRG]

Grass-fed beef is a healthier meat than corn-fed, but not as fatty and tender. And indeed corn is not a natural food for cows, though we force them to eat it.

Pigs and chicken on the other hand need carb from grain. The conversion from corn to chicken meat is nothing short of amazing. It takes less than 2 lbs of corn to get 1 lb of chicken meat. If humans were so efficient with our food, we would all weigh 1000 lbs.

Cattle are raised by letting them graze free range, so they do grow up on grass. It is only in the last few months of their life that they are fed corn in feed lots, in order to fatten them up. This is not a common practice in other countries.

+1

The average chicken goes from hatch to slaughter in 6 weeks! Partly the breed (Cornish cross), but also the feed. If these chickens are allowed to grow much bigger they're legs are likely to break.

 

[samclem]

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.

"Famine" might be a bit of an overstatement. Meat production in the US is an inefficient way to make protein, and the US diet already includes much more protein than we need for optimum health. Even in the event of a widespread failure of corn or soy crops, the farmland we have will produce enough calories to keep everyone afloat, and pigs, hens, etc will eat a lot of different things and produce enough protein for adequate health. The only problem would be US purchases of meat from poorer countries overseas when prices go up--we're adequately wealthy to do it, and those populations might be deprived of adequate protein unless trade restrictions are put into place.

 

[razztazz]

Yes. It may be means or assets based, but you can be assured that if there is enough voters receiving it, it will go up at least as much as inflation.

Well this is very encouraging as you seem very sure of it.

 

[Hamlet]

"Famine" might be a bit of an overstatement. Meat production in the US is an inefficient way to make protein, and the US diet already includes much more protein than we need for optimum health. Even in the event of a widespread failure of corn or soy crops, the farmland we have will produce enough calories to keep everyone afloat, and pigs, hens, etc will eat a lot of different things and produce enough protein for adequate health. The only problem would be US purchases of meat from poorer countries overseas when prices go up--we're adequately wealthy to do it, and those populations might be deprived of adequate protein unless trade restrictions are put into place.

How long would a switch take to implement though? Say the corn and soy crops fail throughout the Midwest some autumn. Our farmland may be able to produce something else by next fall, but I think it would make for a pretty ugly year. Also, if the failure was caused by drought, there is no guarantee that something else could be grown in quantity the next year.

Note also that everything in our country is set up to maximize production based on corn and soy. Suddenly switching all those millions of acres to something else is going to be hard to do with the equipment and people who haven't grown anything else in large quantities for 40 years. Think of all the food on the shelves at stores that require large quantities of corn/soy. What is going to happen to the economy when those products either can't be made or are massively more expensive?

The inflation of food costs could be extraordinary, and our production of many, many products would be impacted.

I was originally talking about something today that could cause stagflation like the oil embargo did. This is the first thing that came to mind.

 

[samclem]

How long would a switch take to implement though? Say the corn and soy crops fail throughout the Midwest some autumn. Our farmland may be able to produce something else by next fall, but I think it would make for a pretty ugly year. Also, if the failure was caused by drought, there is no guarantee that something else could be grown in quantity the next year.

I just don;t think it's nearly the risk for the US as for some other countries, and that there are other more likely causes for big US inflation than an agriculture crisis.
1) Food doesn't make up much of the average US consumer's spending--about 10%, and that includes eating out (so, the actual food portion of the bill is only a fraction of that). Overall, it's probably about 7% of the average consumer's spending, so even if food prices doubled (which would take a heck of a root cause) it wouldn't be a huge issue for most families.
2) Agriculture doesn't make up a huge part of the US economy--less than 6% of GDP.
3) The US is big enough and has enough geographic diversity in our agricultural areas that a drought widespread enough to reduce corn or soy production by 50% nationally would be very unlikely. (I'd guess that, given the current prevalence of monocultural plantings that a surprise epiphytotic event is more likely--but still not likely).

Anyway, who knows. I hope I'm right and that we never have a huge crop failure, as it would be a bad thing (more for the rest of the world than for the US, though). We'd probably buy our way out of it, but somebody would go hungry.

 

[ESRwannabe]

High inflation is extremely unlikely. My base case is stagnation, worst case is outright depression. I base this on demographic data and upcoming technological advancements.

 

[Koolau]

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

 

[Hamlet]

I just don;t think it's nearly the risk for the US as for some other countries, and that there are other more likely causes for big US inflation than an agriculture crisis.

I was specifically talking about big inflation without big economic growth, which is reasonably rare in history for countries that don't have debts denominated in foreign currencies.

It usually takes some sort of supply-side shock. This was the only obvious one that came to mind. I can't think of anything vital to production that we are likely to experience a massive shortage of.

What other potential causes of stagflation come to mind?

 

[Hamlet]

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

I can't think of an example of that ever happening when the debt owed is in the currency of the country itself, though. Is there an historical example of this? All of the hyper-inflation scenarios that I can think of involved countries that owed debts that were not in their own currency.

The things that make interest rates rise also almost always involve things that increase the ability of the government to generate tax revenue, ie full employment and rapidly rising wages.

I think a supply-side shock is needed to generate the stagflation scenario.

 

[VFK57]

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.

 

[Senator]

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.

 

[VFK57]

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.

 

[Clone]

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.

 

[meierlde]

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.

 

[Al in Ohio]

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.

 

[audreyh1]

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.

 

[MooreBonds]

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....

 

[VFK57]

+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$

 

[sengsational]

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.

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.

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?

 

[respond2u]

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.

 

[traineeinvestor]

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.