The US Economy and Inflation
Seems to be a lot going on with the US economy right now -- as is the case around the world. High inflation, led by energy.
I wanted to take a quick snapshot of Forum sentiments with the following completely non-biased questions.
I wanted to take a quick snapshot of Forum sentiments with the following completely non-biased questions.
Comments (292)
True — I should have added QE/expansionary monetary policy.
I think you cannot really tell what will happen. I suspect a recession but it could well be japanification is the economy. I don't believe, like some writers, that people are on a spending spree after covid lock downs. That reduction in spending was the result of people losing jobs. Since most companies were propped up with subsidies, the extra spending is the result of people getting jobs again, moving to pre-covid levels but most companies more or less maintained operational capacity. If this was the only driver, we should've seen deflation during covid but we didn't.
Second area, we've seen shortages in components and raw materials due to covid disruptions since 2020 causing inflationary pressures during the pandemic. You would expect, especially if people would be spending more coming out of covid, that production capacity would increase. Instead we've seen three quarters of reduced shipping in consumer electronics. Why?
Only reason I can think of is that supplier sentiment is the market is overheated and we're bound to have a recession, (see for instance onetrust laying of 10% after a record q4 in 2021, Tesla layoffs etc.).
QE is definitely a contributor, we've had years of asset inflation already (real estate, cryptos, shares, bond yields dropping) fueled by cheap credit and at the first sign of serious interest hikes, everybody is falling over each other to rebalance their portfolio. To where is a mystery to me, I've not been involved in markets closely anymore for over two years.
Wars never helped.
So, all of the above and then some?
Also certain material shortages left and right.
And accumulated debt in the system trying to correct itself.
Those are underlying long term structural causes I'd say, then you also have short term factor like covid, Ukraine war, geo-political tensions and protectionism etc...
Demand takes off after covid, but it turn out supply of energy and materials is rather inelastic ... Increasing energy supply for example typically involves building large infrastructure taking years to build. So prices can only go up if we want to resume growth after covid, which implies increased demand.
Since energy and materials supplies and debt are a structural problem going forward, I'd expect some kind of long-term economic consequences, but wouldn't want to guess exactly what and when.
Quoting Benkei
What if supply just isn't as easy to increase as one thinks? You see this all the time in economics, that increase in supply is just a matter of demand incentive and volition. But in case of energy and materials there are physical processes to mine or harvest them. The idea that supply would follow demand only follows up to the point there aren't any physical limits we run into to increase supply.
The only places where currency is created legally is in the printing presses of central banks.
When there is out-of-control inflation, it is because central banks are printing too much money.
Why are they printing too much currency? Because it's an easy, short-term way for governments to get more money to spend on all its hobby projects, and it makes the public carry the cost (inflation is literally a hidden tax).
The solution is lower government spending (after all much of this money printing is the result of the government wanting to spend more than it earns!), and much, much stricter control on government and the central banks, which are currently intermingled to the point that central banks can no longer perform their role as safeguard.
Besides this, the public needs to understand that there is no such thing as free money, and they need to stop demanding it from their governments through the voting process, because this is part of what incentivizes governments to make unaffordable, unrealistic promises that can only be fulfilled through printing money.
The inflation is the direct result of a long inflationary monetary policy, the low and negative interest rates and all the stimulus programs. Basically everywhere. And what broke the dam was the direct stimulus to the consumer during the pandemic. That simply went to prices as supporting banks and corporations didn't because of the bursting of the speculative bubble. Or to put it short, what said (and you acknowledged, which should be noted here).
And the way to handle this, would be higher interest rates. The Paul Volcker response.
Higher interest rates isn't quantitative tightening, Quantitative easing was double talk for money printing.
The real question is that are people aware of this? Do they understand how inflation works? It's been a long time, 40 years, that the nation (meaning the US) has been on a high inflation environment.
I think the good thing is that the US has democrats in charge. They likely are more responsible than republicans would be. But I'm not sure just how high the inflation will go before it's taken out by high interest rates paid on bank accounts.
The US Fed is now between a rock and a hard place.
That's why you have the price mechanism. If something becomes unobtainable, it's price goes extremely high. That creates incentives to replace the "something" with another thing. Hence high oil prices are the best thing that can happen to alternative energy resources.
And the last mechanism is simply an economic downturn. If you don't have it, well, there isn't then a market for it. People just have to go without it.
And btw to everybody, has anybody seen anything anymore from the MMT crowd? :snicker:
Yeah substitutability, that works only up to some extend. Batteries without lithium are inferior,maybe we will eventually find something that could replace lithium, maybe not, there are not an infinite amount of elements in the periodic table. Or fertilizer for example is made with natural gas, we don't know of any good other way I don't think. In the abstract it sounds good, but there are practical 'physical' problem to the idea.
Only if oil and its derivatives aren't used to produce and distribute said alternative energy sources, which is, as it stands, a big if.
Either way, and I've said this before, coal, oil and natural gas are by far the most energy dense sources of energy we have access to. They are the reason we have had an industrial revolution to begin with. I highly doubt the idea of substitutability applies to fossil fuels, because they are what the entire economic system as we know is build on, and not only for the energy they provide. But the amount of energy you can use directly translates to amount of work that can be done, which in turn directly ties into the productivity-equation. If you need to invest more to get access to other energy sources, i.e. energy will be more expensive, this will have consequences for the rest of the economy.
Quoting ssu
Yeah I also would like to see someone try an explanation post-inflation :-). I dunno, I though it had some promise because we didn't have inflation for the longest time no matter what we did it seems, but what we have now seems a knock against it to say the least.
And the last episode launched the neoliberal era. If we go into stagflation, which would mean the Fed's interest rate hikes don't bring inflation under control, we'll head into stagflation. What policy changes would follow that?
You're probably right, but this pill has become a particularly bitter one to swallow, because the raise in interest rates it would require to counteract the current level of inflation will probably be the nail on the coffin of a great many private companies which are already hanging by a thread.
You probably saw how the stock exchanges reacted to even a slightly higher interest, one that doesn't come close to the measures required to repair this mess.
Then again, the longer the politicians keep throwing this hot potatoe around to avoid having to take unpopular but necessary measures, the worse the pain in the end, when the bubble finally bursts.
It's decreasing though.
You're talking about consumer electronics specifically here?
Apparently there is already a drop in demand this year, after the "post-covid" surge last year, coupled with lock-down issues in China, and inflation, etc... all apparently contributing to a scaling down in shipping.
https://www.market-prospects.com/articles/weak-demand-for-consumer-electronics-and-ease-the-shortages-of-supply-chain
But point well taking, this was probably not a good example for the more general point I was trying to argue there.
State intervention in the service of plutocrats.
Your solution: abolish or minimize state intervention; keep the plutocrats.
My solution: abolish or minimize plutocracy. Keep and strengthen democracy.
I think the Fed -- monetary policy -- is responsible for the bubbles in the major asset class: stocks, bonds, housing, and somewhat in commodities. The re-implementation of QE, lowing the federal funds rate to near zero and, uniquely in 2020, buying corporate debt, was due to COVID. I don't necessarily fault the Fed for this. But it continued for far longer than it needed to.
Also, these policies really do nothing but help the financial sector. All of the money goes through private banks, and the greater borrowing that took place was largely spent not on raising wages, research/development, etc., but on stock buybacks. Record levels. Between this and dividends, most of the money was basically channeled to shareholders. And, as we know, the people who own the stocks/assets are a minority, with the "top 1% of Americans having a combined net worth of $34.2 trillion (or 30.4% of all household wealth in the U.S.)".
With inflation, I think it's striking that the companies raising their prices (energy companies, food companies, meat producers, etc) are also posting huge profits. So while worker wages have increased, they've used "inflation" as a story to raise their prices to make up for labor costs/supply cost, passing the cost on to consumers rather than absorbing that cost themselves. So, for example, instead of taking the 5% extra labor costs and 4% in extra production costs out of net earnings, they raise prices 9% (or more) and maintain the same level of profits as before (and then some). I think this explanation accounts for most of the inflation we are currently seeing -- far more than simply the "money supply," as some argue.
Sure, but when profits are so high it's worth asking whether or not these corporations can absorb the cost. Turns out they could -- I see no reason why they can't, or no good reason. Rather, they raise prices -- which is passing the extra cost onto others. Why should this be ignored? It's glaringly obvious this is just rampant greed. But it's just taken as the way of the world, as if a natural law. It isn't and never has been. It's a choice.
It could be regulated, as it was in the past. But we're still in the neoliberal era, alas.
Quoting Tzeentch
Milton Friedman's theories are now obsolete. Even the Fed acknowledges this. It's not totally irrelevant, but just doesn't have the explanatory power it was once believed to have. Too simple, and assumes rational actors and efficient markets -- neither of which we have. This is demonstrated by what I said above about the corporate-level decision to absorb labor/production costs (meaning subtracting the extra costs from the record profits) or pass the cost on to consumers by raising product prices. That decision, made by shareholder-elected board members and the CEO (whose compensation largely consists of shares), has nothing whatever to do with the money supply.
Quoting Tzeentch
They were printing a massive amount in 2008/2009 as well, even instituting QE for the first time. We didn't have inflation after that -- unless you count stock prices, of course (seen in the longest bull market ever).
Quoting Tzeentch
This is more parroting of Milton Friedman, unfortunately. It just isn't supported by evidence.
QE, the buying of corporate debt, and lowing the FFR all benefit the banks and the corporations that were failing and threatening to bring down the economy. So monetary policy is now generally a safety net for the financial sector. That has little to do with government spending, which is fiscal policy. If you're arguing that fiscal policy is what accounts for inflation, that's a different line.
Quoting Tzeentch
Except that this is nonsense. There's plenty of money, plenty of resources. The problem is that it goes to fewer and fewer hands. Making the sweeping statement of "government spending" being the issue reflects a favorite political narrative, but nothing more. Certainly not the data.
But I agree, in part -- there should be less government spending in some areas. For example, the $800 billion dollars we spend annually on weapons manufacturers. Good place to cut spending.
I really don't know what this means.
Quoting ssu
I don't know what this means either. Quantitative tightening is the opposite of easing. That means the Fed is beginning to lower mortgage-backed securities and debt on their balance sheet. That was indeed increasing the money supply. The opposite (QT) will decrease the money supply.
Quoting ssu
I don't think so. What this will do is burst the bubbles created by the Fed -- stocks, bonds, and real estate. We're seeing that already. That's obvious. And there's a ways to go -- stocks, for example, are still not at trend. The S&P 500's trend line is about 2500, and it's currently at 3688. Still overpriced even after dropping 20% from it's high of 4600 in December.
What's not obvious -- and what the Fed cannot control -- is what corporations choose to do. As I said earlier, we're in a time of record profits. Major energy and food companies could choose to keep costs lower, but they aren't. Why?
It's a choice. And that choice has nothing whatsoever to do with what the Fed does, and so it will not have the effect they want. All it will do, again, is burst the stock/bond/housing bubble they helped create.
Corporate profits will remain intact for a while, because any cost will be passed on to consumers and labor through increased prices and major layoffs. That's the choice of the private sector. So inflation will continue. But that can only go on so long. Once that stops, either because of a backlash from consumers/labor or, less probable, government intervention (due to mass public pressure to act), we'll see prices stabilize. But they'll be a lot of pain in the meantime, and that pain will be felt disproportionately on the middle and working classes -- as always.
COVID supply disruptions, the "great resignation"/union organizing/wage increases, and the Ukraine war are all important. But again, the CHOICE by corporate boardrooms to have others pay for the greater costs is just that, a choice. This is the heart of the problem. It's hard to take pity on companies when they're posting record profits and engaging in record levels of share repurchases all while crying about increased production costs.
At what point do we hold the corporate sector accountable?
Right, you're asking for systemic change then, because companies are no social organisations but specifically set up to make profit. In the current set-up one would expect corporations to try and keep their profit margin, right? I mean, I certainly would be surprised if corporations all of a sudden would collectively and voluntarily decide to absorb the cost themselves.
And I will say, I doubt all corporations could absorb the increase in cost all by themselves. Some, the bigger ones probably could, other ones I'm not so sure.
Make profit for whom? According to the US Chamber of Commerce and the Business Roundtable, it's no longer only the shareholders. True, that's just empty rhetoric to appease the angry rabble while they take actions that are the complete opposite of what's stated. But the point stands. The belief that corporations exist to make profit, and profit for shareholders, is a belief.
In fact, corporations can exist for any kind of reason. There are non-profit corporations. There are co-op corporations. There are corporations that distribute profits in ways that were more akin to the 1950s and 60s when real wages kept up with productivity.
Is changing that belief "systemic change"? Maybe; changing the policies that have been implemented on the basis of this belief certainly would be systemic. Can be done in a heartbeat. Other nations have, and so can we. But since the plutocracy/corporate sector owns "our" government, the chances are slim indeed.
Quoting ChatteringMonkey
The fact that we assume or expect this is partly the problem. It means we, the population, have subscribed to the bullshit ideas of corporate America as well. In reality, there's no justifiable reason for this behavior beyond pure, unadulterated greed -- and, of course, class warfare. The rest is a useful story to tell oneself and others.
Quoting ChatteringMonkey
This only makes sense if the costs were so great that they were no longer profitable. But even in that case, you can borrow and cut other costs -- like the huge salaries of executives or expansion plans. Once all that has been tried, yes perhaps you need to shut down factories/stores or let some of your people go. But that's a long way to travel.
Mostly what I see is record profits. For those without record profits, the usual happens: they enrich themselves to the bitter end, then file for bankruptcy while giving themselves huge bonuses.
The owners will always come out on top. Bet the house on it.
The question then is one of confidence. Can the Fed and other central banks make you believe they have inflation under control? And the less they can, the less they can. This is particularly pertinent for the EU where the base interest rate is still around zero and they are constrained by the need not to collapse the bond markets of the most debt burdened countries, the so-called PIGS.
Don't know about you, but I'm buying before everyone else does.
Yes tacitly, and even not so tacitly, this is what is generally understood as the maxim of our societies, get ahead by whatever means, whatever the cost... just don't do it overly explicit.
But you are right, it is a belief and could be otherwise. What that otherwise entails though is another question, and one to which one might not altogether like the answer.
You say part of the problem is that the populace has "subscribed to the bullshit ideas of corporate America". But that isn't exactly how it works, one does not choose to subscribe to one of a wide range of possible and available options, more apt would be to say they have been conditioned in the corporate consumerist bullshit. Corporate advertising has largely replaced or subsumed societal myth/religion/traditions/mores, whatever you want to call it. and part of what made that possible are historical movements to dissolve those societal structures.
Anyway I could go on, but my point I guess is that the problem runs a bit deeper than expecting corporations to unilaterally and suddenly change their goals to something other than profit-seeking. They are also imbedded in systems that give them certain incentives and constrain them.
Supposedly we're already in the sticky phase (where it's happening because it's happening).
Every day another bank ceo announces that were going into a recession, as if they're trying to tell everyone not to expect continued inflation and stop buying stuff.
Yes inflation is I guess always to some extend about confidence, that is what ultimately keeps increasing the velocity of the inflation-ball. But the ball has to start rolling somewhere. Gas-prices in Europe are 5x to 10x of what they where last year and summer is only beginning. These increases are not a confidence issue, but competition on the energy-market driving up the prices. There is the Ukraine war too yes, but prices were already peaking before the war. This is a long-term structural problem, because climate change, because increasing scarcity of resources, because a badly managed energy-transition, because rising geo-political tensions etc... I don't think it's going away any time soon.
Everyone knew it was coming, and everyone knows it's failed government fiscal policy at the root of it.
Quoting Xtrix
Indeed, we have markets that are to a great degree controlled by governments, which turn them neither rational nor efficient. It's the governmental monopoly on printing money that's been at the root of this, coupled with ever-growing governmental control.
And of course the government will try to find "alternative" explanations, and insist things are more complicated. It will blame the public, it will blame the cooperations, and now it's blaming Covid and Russia, while it's printing billions of make-believe money thinking it can break the rules of basic economics.
When has the government ever shown a shred of sense and admitted to its disastrous fiscal policy and its eternal desire for control and more spending being at the root of much of this trouble?
Never.
Likely they use the same line of argument as you do, arguing that theories that put the blame on government are "now obsolete and things are more complicated". Please.
Quoting Xtrix
The Federal Reserve is an absolute failure and a part of the issue. It's completely politicized and unable to fulfill it's primary goal. What a surprise that the Fed "acknowledges Milton Friedman is obsolete" - Friedman argued to abolish that whole rotten mess.
PS: So great is in fact your blind spot that you didn't think to put the primary cause of inflation as an option in your poll.
It's funny, we might think that modern economic magicians can help us, but they can't. If there's a bank run on fiat, fiat will collapse. And confidence in fiat, just like confidence in banks, is the only thing standing in the way of that.
1. I took over a 5.25% mortgage when I bought a house in 1972 and the going rates were 8% - 9%. I was told "You'll never see such a low rate again!" When I had a house built in 1985 I was fortunate to get a 15 year VA loan at 11.25%.
2. On both occasions when I received checks for over $2K from the government during the pandemic I thought, Why did they send me money I don't need? I suppose that it cost more to differentiate needs than to simply send blanket $$ out.
Friedman was at the U of Chicago when I was there, but I never met him. :nerd:
I want to say confidence in fiat isn't entirely made out of whole cloth. People come to these conclusion because the times, the socio-economical climate is pointing in that direction. In other more stable times one wouldn't deem it worthy of consideration.
Like the $800 billion spent on defense contracts every year? That spending? What "fiscal policy" are you referring to, exactly?
And who is "everyone"? Everyone predicted this for "decades"? Since when, the 80s?
It's helpful to give some substance to generalities. Otherwise I have no idea what you're talking about. Maybe some trope about the national debt?
Quoting Tzeentch
No, we have markets that have been deregulated for the last 40 years, largely using the ideas of Friedman as justification. This is the neoliberal era. To turn around and still blame the government is rich, when they were acting in accordance with the bogus ideas of "free markets."
(1) "Government is the problem" -- slogan of the 80s.
(2) Government deregulates for 40 years. Housing crash, recession, real wages decreases, skyrocketing wealth inequality ensue.
(3) "See, we told you government was the problem!"
Very nice, circular story.
Quoting Tzeentch
I didn't say the blame on government is obsolete, I said Friedman's theories are now obsolete. Specifically the one you echoed:
Quoting Xtrix
That "inflation is nothing other than an increase in the total amount of currency" is obsolete. Your claim -- and his -- is not about fiscal policy, it's about monetary policy. The Fed is in charge of monetary policy. The legislature -- the US Congress -- is in charge of fiscal policy.
Let's at least be clear. As I said earlier, if you want to argue that fiscal policy is the true culprit -- as you now seem to be doing -- then that's a different discussion.
So far you've given no convincing support for this claim either.
How did the United States finance decades of endless war and military projects such as the $800 billion you referred to?
Why, by printing money, of course.
Now, some governments are able to practice restraint, and despite wanting to spend more, they realise that printing money whenever they want will ruin a country in the long-term. The United States government was no such government.
Everything is “connected” in one way or another.
Fiscal and monetary policy are very different animals. You can have one without the other, as was the case after the 2010 midterms.
Quoting Tzeentch
It finances expenditures through revenue. To spend beyond revenue, the government borrows money by issuing treasuries. Treasuries can be bought by anyone, including corporations and foreign countries — and the central bank. The Fed currently holds around 15% of the US debt, which it purchases by printing money.
So again, it’s just not so simple.
We could balance the budget by cutting spending on wars and the military, yes. But the debt isn’t that important.
I’ll tell you where Friedman’s theory holds up fairly well: with major asset classes, like stocks. Since this is where the money flows, you see “inflation” within these classes. Another word for it is “bubbles.” But even here it’s not so cut and dry, because the outcome is largely a matter of corporate choices — buyback choices, CEO remuneration choices, dividend choices, general resource allocation, etc.
Also, even if your generalization were true, it doesn’t explain inflation.
I notice too that you have avoided substantiating anything:
Quoting Xtrix
Care to elaborate?
I'm not going to play this game where you ask for details while ignoring the elephant in the room.
You said inflation was due to monetary policy. Then you said it’s fiscal policy. Now I ask: what specific fiscal policies are you talking about?
I don’t see how this is ignoring anything.
If you can’t (or don’t want to) support your argument, that’s fine. No need to make things up though.
One of the principles of MMT is that injecting more money into the system will only cause inflation if there are shortages of goods.
It adopts this monetary policy to accomodate a general fiscal policy of spending too much.
I don't know why you would be asking me for the specifics of that fiscal policy, since it's completely besides the point and you've yet to acknowledge the elephant I just described.
But instead it has been used to accomodate government spending.
Yes, inflation can be a delicate issue, but this isn't a delicate situation anymore. It's a complete disaster and the cause is obvious.
So, if this principle is right, then supply chain issues would be the proximate cause of inflation, and it seems likely that if supply cannot meet demand, inflation (perhaps not as significant) would still have resulted even if extra money had not been injected,
I have done nothing but discuss that “elephant.” I went over monetary and fiscal policy.
Again, this idea is mostly Friedman’s — and it’s obsolete. Why? One reason is that the Fed increased the money supply in 2009 as well— injecting huge sums into the financial sector, and even buying mortgage backed securities. Did inflation follow? No.
A second reason is because, when you look at inflation in detail — whether the CPI or PCI — a major factor is the ripple effect of supply disruptions from COVID and Ukraine, particularly in energy. That has little to do with the money supply. Inflation is 6% outside of food and energy, and even that is mostly inflated because of the prices of used and new cars — itself a result of lack of supply.
So here we have a few industries, and a handful of companies within these industries, raising prices due to the supposed rising costs of production and labor and/or shortages of commodities like oil/gas and semiconductor components (for computer chips in cars). That’s a choice, as I mentioned before— not an inevitability.
It’s not only profiteering, though. With cars and housing, there’s a supply issue — but also the fact that people are willing to pay up the nose for a house or car. Where did they get this money? From higher wages, stimulus programs, and borrowing (incentived by low interest rates). The government COVID stimulus has now stopped, and the Fed is raising interest rates and decreasing the money supply.
But while it will effect borrowing and spending, it won’t effect profiteering nor supply chain disruptions to commodities, nor the next pandemic, nor the war in Ukraine, nor climate change. And all of these things effect inflation— not just expansionary monetary policy. It will effect what it helped create — stock, bond, and housing bubbles. We already see all three crashing. That’s no surprise. So why has inflation persisted? It’s claimed that they have to go farther, and it takes some time because of lag. I don’t buy this completely.
So, again, this isn’t ignoring the money supply— but as a theory that explains inflation, “everywhere and always,” it’s just no longer true. It assumes things which aren’t true now — but which may have been true in the 70s. It’s at best an incomplete, narrow view. No where near as obvious and simple as you seem to believe.
Lastly, your sense of how the government finances spending is simply wrong. It’s not that they’re financing things by “printing money.” Again, the Fed owns about 15% of debt. That fact should give you pause.
:100: :strong:
:up:
I don’t have solutions, mostly because I don’t claim a right to tell others how to live their lives. Though I would abolish those who claim such rights.
So the plutocrats who own and run the government? Great — agreed.
Plutocrats, commies, you name it.
Moronic libertarians, etc. :up:
Interesting theories, no doubt with a great deal of truth to them.
But I'm not willing to absolve governments just because an alternative theory exists, while they continue to break economy 101. You double the amount of currency in a system, you halve its value.
Is it more complicated than that? Undoubtedly.
Government also failed elsewhere, including in how it mismanaged the covid epidemic, and how it provoked Russia into its illegitimate attack on Ukraine.
Quoting Xtrix
I'm sure you have an idea of what kind of money that amounts to, same for the amounts of money that are printed every year. Maybe those number should give you pause?
What I’m suggesting is looking at the available data and trying your best to think through what’s going on, temporarily suspending certain beliefs and assumptions and perhaps leaving them behind altogether if there are alternatives that give a better explanation.
It’s not really a theory I’m offering— it’s just looking at the facts. What facts? Well, the topic is inflation. How is inflation measured? Through the consumer price index and personal consumption index (which is what the Fed uses). These are baskets of goods and services, as you know. And when you look at this in detail, the highest rates of inflation are in commodities and products effected by these conditions. Oil is an obvious example. Wheat is another. Disruptions to supply and steady or greater demand will usually lead to higher prices. Add in to this fact the price gouging factor, and it’s not a shocker that we have inflation right now. But just misleading to attribute it all to monetary policy or fiscal policy in terms of an increased monetary base.
The fact that there’s more money in the economy is true. This will have effects. Milton Friedman wasn’t an idiot. Is his claim that “inflation is always and everywhere a monetary phenomenon” true, however? I suppose in the sense that it involves money. But otherwise it’s a matter of changes in supply and demand, belief and confidence, price gouging, and — in my view — the socioeconomic system of capitalism.
Worth remembering too that inflation is widespread right now. As you would expect from shocks to oil and wheat supply. Even if printing money was the only (or main) culprit here — what about everywhere else?
Quoting Tzeentch
Agreed.
Quoting Tzeentch
Disagreed.
I think this is true. Which is why we see inflation internationally.
At the heart of it all, I think, is capitalism. We could easily control inflation by controlling profits, and taking investments out of the hands of the private sector. We’re not supposed to talk about it, but this is partly why China isn’t seeing the same levels of inflation — even though they too are basically a state-capitalist economy, it’s far more regimented than in the Western world.
What we’ll do instead is increase unemployment and stagnate wages and price people out of buying homes, cripple them with greater credit card/mortgage/loan interest rates, etc., to curb spending/demand. This will do nothing about supply chains and nothing about a privatized, profit-driven economy. But what else is new?
Simply to put it, stopping the easing is already tightening. If you have increased the money supply and then decrease it or stop it altogether, isn't that tightening?
Quoting Xtrix
How the markets react to the monetary policy of the Fed is a result of monetary policy. Markets going down is a consequence, not the other way around.
Basically one should understand the interest rate as the price of money. Higher interest rates mean higher price of money, which is like putting on the brakes on the stock market.
Paul Volcker killed the inflation (and inflation expectations) by raising the Fed's fund rate to 20% in June 1981. From that year interest rates have basically gone down (or stayed at level). I think now we are seeing or have seen the bottom and now the cycle is in the upward going phase.
Of course the real issue is political. And I fear that the politicians can and will choose inflation than higher interest rates. And blame everybody else: the war in Ukraine, the pandemic, climate change, foreigners, hoarders... you name it!!!
Since the asset bubbles I mentioned were created by the Fed’s monetary policy, it’s no surprise they are bursting now. Stocks have even farther to go to trend, in fact.
So I’m not exactly sure why you’re stating this.
Quoting ssu
Politicians aren’t choosing anything. Monetary policy is in the hands of the Fed — which has become more and more hawkish in terms of money. Interest rates have already been raised 1.5% this year alone and will likely continue.
Inflation is largely due to supply chain disruptions. There’s nothing the Fed can do about that. What the Fed can do — and we see happening — is reverse what it caused: the inflation of three key markets: stocks, bonds, and housing. All are bubbles; some were superbubbles (stocks).
These bubbles bursting will have some effect on overall inflation— but, again, will do nothing whatsoever for semiconductor shortages, wheat supply stocks due to war, or oil/gas supply chains.
Uhhh....yeah. They have.
They've chosen the various stimulus packages etc. which got the inflation finally going.
Now when you give that stimulus to people, the money does go into the economy and does create higher demand, which then creates higher prices.
And hence we finally have high inflation. And hence the need for higher interest rates.
:100:
No, they haven’t. What I was responding to:
Quoting ssu
Politicians don’t “choose” anything about interest rates.
As far as fiscal policy: yea, they passed stimulus bills. Arguing that
Quoting ssu
is simply an assertion. If it were so cut and dry, then Europe shouldn’t be experiencing inflation — according to your own chart. But they are as well.
The effects of stimulus is real, but I agree with economists who say it accounts for about 1% of inflation or so.
Quoting ssu
Low interest rates create demand too. Cheap borrowed money lead to higher prices.
But this almost completely overlooks supply shocks and corporate choices. This is far more a supply side issue.
True, we can use inflation as an excuse for austerity, for punishing workers and families, etc., which is the most likely outcome. But that’s a political choice.
How, and how?
We could be here all day, but solutions are plentiful. Just off the top of my head — and restricted only to the low-hanging fruit:
Ban stock buybacks (specifically SEC rule 10b-18)
Decouple CEO pay and stocks
Wealth tax
Excess profit tax
Maximum wage
Increase corporate tax rate
Increase capital gains taxes
Close tax havens (Bahamas, Caymans, Ireland)
Close tax loopholes (stepped-up basis, etc)
Fund the IRS
Strengthen labor laws and the NLRB
Require worker representation in boardrooms
Pass the PRO act
And on and on. But I have no illusions that any of this will happen any time soon.
What you're suggesting would all need to happen from the top down. It's clear that those at the top are not going to do anything that would in any way endanger their position of power.
Quoting baker
I’m glad you read carefully.
What’s funny is that I was going to put in “Is this a real question or just an excuse to shit on anything offered?” Figured I’d give the benefit of the doubt. I regret that. Should have known better, given your history.
I guess I’ll just repeat myself: there are plenty of solutions. These are some of the ones off the top of my head. My own personal activity has been directed at the local and state level, and towards unionizing. Not at the federal level, where I have no impact whatsoever.
But since you aren’t really interested in any solutions (all “pipe dreams”) and apparently just want an opportunity to display your very-superior-cynicism, I’ll leave it there. My mistake for engaging.
*sigh*
And this is how you're actually helping those at the top stay there.
I'm saying you're idealistic to a fault, to the point of ineffectiveness. And nobody's there to stop you ...
:lol: By engaging with disingenuous questions? Probably true — given it’s a waste of my time.
If only I could very cleverly call all work “pipe dreams” on the Internet. That would show ‘em!
I really am interested in how plutocracy can be abolished or at least minimized and how democracy can be strenghtened. But I don't see any realistic solutions. And neither do you, apparently:
Quoting Xtrix
No, you’re not.
Notice I didn’t even bother asking “Why are they pipe dreams?” Why? Because as I said before, I was expecting this childish response. But secondly, you have no idea about most of what I was referring to anyway. For example, to say the repeal of rule 10b-18 is a “pipe dream”? Really? So you’re aware of that specific rule? You’re knowledgeable enough about it to make the judgment that its repeal is a “pipe dream”?
No. You’re not. Of course you’re not. You just wanted an opportunity to show how absurd it is to claim any solution at all. Which was entirely predictable and, as I said, I made the mistake of giving the benefit of the doubt. Believe me, it won’t happen again.
Quoting baker
You see no solutions at all. Because you’re interested only in posturing.
I’ll repeat— again — what I said before: my involvement is in unions and in state/local governing (aka “pipe dreams”). I could get into those solutions too — but I’ll save it for someone interested in something beyond posturing.
The solutions, if we can call them that, would require despotism to enact and enforce, exploitation to fund, and the expansion of state power and bureaucracy to govern. We have ample historical evidence to know know how all that works out.
To believe in the independence of the Fed or the ECB on these matters is a bit naive.
Quoting Xtrix
I'm not following you. Or do you think the EU didn't have it's own stimulus packages?
Europe had it's own stimulus packages, including ECB the PEPP (pandemic emergency purchase programme). They had basically negative real interest rates and didn't anticipate higher inflation. The EU made an 750 billion euro ($857 billion) stimulus package as early as 2020 and then individual countries had their own stimulus packages. EU didn''t choose another path in this case.
It was already in 2021 a widely held assertion that the stimulus packages directly to the consumer would create inflation. Which assertions proved to be correct.
So perhaps these things take a little more time.
But do note a discussion from a year ago on the Forum here.
I didn’t say that. But I also don’t say the board of governors are politicians. If you consider them politicians, fine. I think that’s misleading. If you think they make politically motivated decisions — OK. But not saying much. And has nothing to do with fiscal policy decisions.
Quoting ssu
Take a look at your own chart. Yes, they had stimulus packages — and FAR less than the US. So is their inflation still due to that fiscal stimulus?
We had stimulus and QE in ‘09. No inflation.
Again, I think it’s time to let go of Friedman’s ideas. Things are just not so simple.
It would do well to distinguish fiscal and monetary stimulus for the sake of discussion and clarity from here onward. If by stimulus you refer to both, please say so.
Quoting ssu
Again, I agree with economists that say the fiscal stimulus (the CARES bill and AR bill) accounted for perhaps 1% of inflation. The monetary “stimulus” (QE) also accounts for inflation — particularly in the markets I mentioned: stocks, bonds, housing. (And cryptocurrency, incidentally.)
This is reflected in core inflation numbers — high, but not very high.
The majority of inflation is accounted for by COVID and Ukraine supply disruptions. Demand has been there as well — but to focus solely on demand, or claim that it’s demand that accounts for most of the inflation we see, is just not supported by the data. Oil prices aren’t soaring because people have more money to bid them up, for example.
:rofl:
Says the (inadvertent?) corporate apologist who has far more in common with Mussolini and Hitler than anyone here.
Apologies for attacking your plutocratic masters. Didn’t mean to hurt your feelings.
I didn’t say that. Those are direct quotes of other people. When Hitler and Mussolini agree with you, it should elicit the desire to do the opposite.
That's what I was trying to say.
Quoting Xtrix
Making a huge separation between fiscal policy and monetary policy isn't fruitful. Perhaps better would be to talk about economic policy, as both fiscal and monetary policy (central bank) tools are used together. The idea that an administration uses fiscal policy and totally separately the central bank uses monetary policy and these would be thinking of totally different issues is not the case.
The simple fact is that if the economy isn't humming along (meaning there's huge economic expansion and it's basically peak times), the economy is viewed as a crisis and the administration has to do something. And usually also the central bank has it's hands full of things to do.
Quoting Xtrix
Inflation isn't confined to one country and the US affects very much other countries too. The old saying that when the US sneezes, Europe catches a cold is quite correct.
Quoting Xtrix
But do notice the crucial difference of where the stimulus / QE went during the great recession and during the COVID stimulus. Bursting of a speculative bubble is deflationary and the QE went to basically to prop up the banks and the financial sector. With the pandemic response this was done also, but a huge inflow was given directly to the consumer, which did have dramatic effects. When you give to the American consumer one trillion dollars, that is going to be a lot going into the real economy. And that does create inflation.
Quoting Xtrix
Perhaps then referring to economic policy would be better. Or perhaps to clarify this better: economic crisis management. Because things are smaller or larger crisis, from the view of the political leadership.
Quoting Xtrix
Right. And how many YEARS you think those disruptions will last? Because usually disruptions (which we saw during the pandemic with toilet paper getting scarce, protective masks etc) aren't permanent, they usually are cleared in six months or so. Yes, Russia and Ukraine do give us raw materials and agricultural products, but these are in the end small compared to the global market.
I would just object to this rhetoric as it's usually the given anti-inflationary rhetoric given to the public. It is partly similar to the rhetoric that foreign entitities etc and lastly, hoarders are to blame for inflation. So in the later stages of high inflation the blame is put on the hoarders and the profiteers. And people can believe this. But what is very important to understand the link to economic policy and government spending. Now, if a recession happens, what do you think happens to government spending?
Quoting Xtrix
Yes, well, it wasn't so long time ago when oil prices went negative. But high oil prices are like a hand brake to the economy. Which then will put things back to equilibrium.
Slaveowners were true capitalists. We know you long for those days of true individual freedom. When they agree with you…
In case it’s not crystal clear: I’m not interested in your opinions about anything, and think you’re a repugnant human being. Please stop trolling this thread.
Sorry, but fiscal policy and monetary policy are very different things. If you want to talk generally about the economy, fine. But when it comes to claims about inflation, getting these terms right actually matters.
Quoting ssu
The claim was that inflation is due to fiscal stimulus. US did far more than Europe; both have inflation. So your response seems to be: it’s still fiscal stimulus because inflation isn’t confined to one country.
Think about this for a minute.
Quoting ssu
So again we’re back to the fiscal stimulus claim. Okay — yes, I realize that’s the theory.
We had fiscal stimulus in 09 as well. Not as much, but between that and QE, the money supply increased. Inflation was predicted — and there was none.
Quoting ssu
Fine. Sounds good.
Quoting ssu
I have no idea.
Quoting ssu
Russia is a major exporter of oil and gas. That causes significant supply disruptions.
But it’s not only the war in Ukraine. Those are contributors to supply disruptions already underway due to COVID.
Or take used and new cars. Plenty of inflation there— which also helps drive up the CPI. Is that due to an abundance of money, a shortage of chips, or profiteering? Well, all three of course. But what if you take one factor out — like supply shortage? Well, again look at the CPI data. Control for supply problems: the cost all items, less energy and food, is 6%. But even that is misleading. Why? Because that number is driven up by used and new cars, which is included, and transportation — also affected by both cars and energy (gasoline, oil).
Not including those, and you’re looking at about 4%. “Normal” inflation is around 2%. So theoretically, without supply disruptions, we’re seeing some inflation — but nothing terrible.
Does extra money even explain all of that inflation? No, I don’t think so. You still have issues of corporations (many monopolies, like meat producers) price gouging, passing on extra labor costs (and then some) to consumers, a shift in demand for services over goods after lockdowns, etc.
Inflation due to extra money in the economy is a nice story — and there’s clearly some truth in it — but it’s simply not sufficient to explain what’s happening and, in my view, doesn’t account for more than perhaps a few hundred basis points of the inflation we’re seeing.
So, money in a sense is just another commodity following the law of supply-demand (the more of it there is, the less valuable it is).
What puzzles me is that inflation nullifies the objective of printing more money (you havta pay "more" for the same goods). Why print more money then? Perhaps, there's a lead time to people discovering what's going on, providing the government a window of opportunity to carry out some activities which would've been impossible before. I dunno!
They are multiple causes. As we've discussed, at this point, expectation of inflation is one of the causes.
Will the economy slump into stagflation? That's an important question now.
If I could answer that, I’d be wealthy indeed.
Then you simply don't look at the big picture. Because the response to covid was done in tandem. Both by the Government and by the Federal Reserve.
Quoting Xtrix
Yet this is easy to explain:
Because of the a) the speculative bubble bursting during the great recession and above all, b) the differetn targets of the stimulus.
One trillion dollars directly to consumers had a huge effect during COVID. It actually made US citizens wealthier while the economy was slowing down thanks to the COVID restrictions. During the Great Recession the target of the QE was financial institutions, not consumers. They got that aid, but did they lent it out? No. And then debt was paid back, people cut their spending:
A housing boom created by a debt (bubble) will have severe effects on the real economy because houses aren't built by robots in China, but contribute to the local economies and employment a lot. And buying a home is one of the largest investments people can do (unlike investing sums in bitcoins). So housing boom and bust has a huge impact on the economy.
The pandemic had a different effect. The restrictions were a government intervention to the economy, which hit hard the service sector. But just for a while. And this was compensated with direct money transfers to the consumer AND huge actions by the Fed (QE was restarted in March 15, 2020, it expanded it's repo operations and set up new lending programs and naturally dramatically lowered it's interest rates).
Because inflation happens well after the money has been printed.
Let's have a simple model.
The government has to pay it's employees and assist it's citizens and companies, but hasn't go at all enough tax income to do this. Doesn't matter, it prints the money. The people who first get this money are the winners, assuming they can spend it immediately or invest it in something that isn't affected by inflation. The new money then starts to circulate in the economy and while there's more money going after same level of products and services, prices rise. Then workers / employees see that their cost of living has gone up and demand more in pay. And if there's a demand for workers, companies have to pay more. This is then publicly scrutinized and declared to be the reason for the inflation and is called wage inflation. But do note that this is NOT the actual first action, it was the government money printing to pay for it's expenses.
Hence it's usually the last persons (workers) who are blamed for inflation, not the government itself.
What a mind job, eh? Everyone knows it's just a silly game, a game where everybody loses, and still they play it as though clueless! Intriguing to say the least. Merci beaucoup!
There's one thing the old 19th Century name, political economy, tells immediately about economics. And that is that it's very political, not some clinical neutral "social science" as it can be portrayed. Hence politics and political rhetoric is an integral part of it.
Fiscal and monetary policy are very different things. That has nothing to do with the “big picture.” It’s a matter of being clear. They’re very different in how they function, and when we want to go deeper than speaking in generalities, it happens to matter.
That being said— yes, the Fed and congress happened to act together during COVID. Fiscal and monetary policies are still very different things.
Quoting ssu
This is exactly why getting our terms correct is important. QE is part of monetary policy, which is what the Fed does. It was and remains targeted towards the financial sector.
To argue that “this time” it was directed towards consumers is just confusing what happened. It’s not true. The stimulus that was directed to consumers was FISCAL POLICY. That means the bills passed in congress — the checks sent out directly to citizens, the child tax credit, expanded unemployment benefits, etc. These actions had nothing to do with QE — nothing. Nor the buying of corporate debt.
At least get your own argument right. You’re arguing that the government gave people too much money. It’s what Summers and Manchin were arguing last year.
To that point, I’ll simply repeat what I’ve been saying: this seems to account for very little of the inflation we see — maybe a few basis points. I already explained the evidence for this in my prior response.
Though it’s a neat story, for sure. Stick to it dogmatically if you wish.
Oh, for crying out loud.
You genuinely think that there isn't the link in the central bank money printing and fiscal policies? The biggest holder for US treasury bonds is the Federal Reserve. It owns far more US treasery bonds than foreigners do (the second biggest owner group).
Just to show how much is a half trillion dollars to the income to the US government:
Quoting Xtrix
@Xtrix, during the Great Recession there wasn't any 1 trillion dollar direct transfer for the consumer. "Cash for clunkers" wasn't at all so big... and neither others. The QE was said to have gone into infrastructure, largely. (Which I doubt).
Of course there is.
Fiscal and monetary policy are also very different things.
To be clear:
Monetary policy and fiscal policy play a large role in the economy. That’s obvious. When it comes to explaining inflation, there are also other important factors to consider outside of these policies — like COVID and its effects; climate change and its effects; and geopolitical problems (war).
I can only reiterate what I said before. It looks to me like many economists are attributing the bulk of inflation to too much money, when that’s only one factor and by no means the biggest.
Quoting Xtrix
This is not only a demand issue. It’s also largely a supply issue. To minimize the supply-side of this situation is ideologically motivated.
Can you explain a bit what your meaning here.
Inflation is a monetary phenomenon.
Yes, COVID, wars, etc. do increase the spending of governments, which the take more debt (and basically print money), which then create inflation.
Shortages due to a war is a bit different: Russia's naval blockade has halted Ukraine's shipments of agricultural products to many countries, and these countries have depended on Ukraine, then naturally this means that prices go up because of the shortages. But note that this case isn't inflation: do notice that prices simply going up don't mean inflation.
Inflation is usually defined as:
Shortage on Ukrainian wheat isn't the same as general increase in prices.
Oh.
So you mean that corporations are secretly refraining of producing what is demanded? Well, they then lose money.
COVID and War and climate change effect supply, which drives up prices. That’s not monetary policy. That’s my point.
Quoting ssu
That’s exactly what it means. Purchasing power will decrease, so it’s related.
I’m not denying that pumping a lot of money into the economy has no role to play; it certainly does. But when looking at the current situation it seems that supply issues are playing a bigger role.
Well, this is the point I really look forward to have a discussion.
How long should you believe this "supply shock" argument? How long people believe the "Present inflation is just transitory and will quickly go away" argument?
Before it was Covid. Fine. But now?
War in Ukraine? Really? I think Daniel Lacalle's argument is convincing:
So the real issue here is what are the real reasons and what are just consequences. And are we actually blaming consequences. With high inflation in the present, usually that happens. Yet history and economic history point the finger on government policies.
I don't think the US government prints a lot of extra money. They sell treasury bonds to pay for things like the COVID response. The Fed was slow to respond to early warnings that inflation was ticking up, supposedly to protect the economy during the pandemic. When they finally got around to responding, it was too late, so I think the Fed is being blamed. We could just as easily blame the pandemic.
When the Federal Reserve doubled it's monetary base from September 2020 to December 2021, you think that isn't a lot of extra money?
Sure...the people need those COVID money transfers when prices have risen...:snicker:
Quoting Tate
That was then bought by the Federal Reserve, right.
It's not the foreigners who have continued to buy it:
I just meant they borrow it, they don't print it. Maybe that's not an important distinction?
Quoting ssu
I think American banks have always been the primary lenders, haven't they? But yes, the Fed was buying too. The Fed was probably damned either way.
Stagflation, here we come.
No, it isn't an important distinction. With money printing I don't mean the actual printing of money, although they do that too.
Let's just listen to what the actual chairman of the Federal Reserve says about this:
Indeed.
I bet in the fall if this thread doesn't pick it up, someone else will start a thread about stagflation.
I wonder if it will take a decade to recover from it like last time.
This is a global problem.
When Paul Volcker raised the interest rates above the inflation rate, I guess the US debt to GDP ratio was something like 13%. Now it's over 130%. That's a big difference when the central bank ought to raise interest rates so that the real interest rates aren't negative. Or anything close to that.
Now the Fed funds rate is 1,75% and the inflation rate 8,6%. That's highly negative.
In fact, Japan is already in this quagmire: they simply cannot have higher interest rates or the government will have real problems.
I have no idea how long this will last.
In the 1970s the Fed raised rates, tanked the economy, then lowered them again, probably due to political pressure.
That's supposed to be one of the factors that led to stagflation. We'll see if they repeat it or learn from the lesson.
Learn just what?
Actually the real interest hikes happened in the 1980's. Paul Volcker was the Fed chief in 1979-1987.
Here's the fed funds rate along with the CPI from that time:
Now, just look how scary it looks just now. Rates are nowhere close to confine the inflation.
This time I think they will let inflation run wild. There's enough scapegoats around and simply the Fed is between a rock and a hard place.
A lot of people will be poorer in the future than now.
That the policies will be of "relief", "stimulus" and "assistance" is quite clear. Just look at how Biden tries to engage with high fuel prices:
I've not followed what he has said. And I think the real problem is that into this issue will also be engraved the political mudslinging, the "culture war" or whatever you will call the feuding by the two parties in the US. Just to talk about the issue, or any issue close to this, will immediately treated as some kind of dog whistle if one or the other side talks about the issue enough. And then... no more of any kind of educative debate about the issue.
The only fairly universal guideline is that those not in opposition and not power can talk about the problem clearly while those in power have to handle the issue.
Hence, it's not at all surprising that who has talked about the issue most clearly is Vladimir Putin: he genuinely has nothing to lose on this, and will be happy about the possible demise of the dollar / the Western financial system.
A lot of Americans feel the same way. 'Let it all go up in flames and start over, or not even that, just let it all be ended'. It's the nihilism @Olivier5 was talking about in the Ukraine thread.
Ah, the decadence of the West!
Well, both Americans and we foreigners likely don't understand just how much of that wealth and awesomeness of the US economy is based on the position the US dollar enjoys.
Yet why we have now (and will have in the future) high inflation is because finally the MMT (Modern Monetary Theory) experiment has been done, and it's effects are to be seen now. Here's a perfect example of the MMT thinking:
It should be noted that Kelton as supporter of MMT does say the obvious, that with deficit spending the real limit is inflation (or in the end, basically the trust in the currency). But as we know, we have a lot of excuses for inflation to be "transitory": the war in Ukraine and Putin, supply shortages and, why not, even climate change. Anything else but that deficit spending by our governments.
That's not controlled by the US, though. The whole global economy is doing that, much of it by the will of the Chinese.
It's all integrated.
Not actually. There's no alternative now for the US dollar. For now.
Basically the US just can fuck up and have the dollar lose it's status as the reserve currency. It's not like the World's countries will choose an alternative system. It's just that they will have to admit that the system doesn't work anymore. And only the Americans themselves can mess things so badly, if they want.
Good way to do that is to send those stimulus checks again for the people and just spend, spend and spend. It's totally possible to wreck the dollar, but will take a lot of work!
How long are you going to believe the demand-side argument? Apparently it’s unfalsifiable.
Again— inflation was predicted after all the spending in 2009. Didn’t happen. But to save the theory, we make up excuses. 13 years later, inflation happens after an unprecedented global pandemic — inflation that’s occurring all over the world — and the same believers say “See? Told you so.” It’s simply nonsense.
Quoting ssu
Well interest rates have been raised— inflation persists. So how long are we going to believe this is the solution?
The point is: these things have lingering effects. Supply lines are still very much disturbed.
Quoting ssu
Yes, really. That’s had a huge impact. Also unprecedented and has nothing whatsoever to do with the Fed.
I’ve actually addressed all of that. They have different causes. Commodities effect homebuilding as well.
Nothing else has inflated more than energy. A quick look at the CPI shows this.
Quoting ssu
History points to multiple causes in multiple asset classes.
There simply aren’t easy answers to what’s happening. The evidence points to supply-side issues more than to demand in the current case.
After the bursting of a speculative housing bubble inflation won't pick up as the bubble bursting is highly deflationary. Banks and the financial sector are the ones in focus and they won't continue lending as they did before. And the inflation the QE created basically went afterwards to asset inflation, to refilling the bubble.
Quoting Xtrix
Why do think so?
This is a story. But the fact remains that it was predicted at the time, and it didn’t happen.
Furthermore— stimulus was given and QE was implemented. Interest rates were extremely low. Lots of money pumped into the economy. No inflation.
Scramble for excuses if you wish. Just proves it a dogma, not a serious theory.
Quoting ssu
Because they’ve been screaming about debt and inflation for decades. A broken clock is right twice a day.
All this is, in the end, is a conservative talking point. It’s an excuse to ignore supply-side issues like line distributions, price gouging, profiteering, and oligopoly. Rather they want us to believe it’s because some poor people got $1200 bucks and wages increased by 4%. Give me a break.
Complete bullshit.
Some have, that's true. I do know those permabears. They have their niche audience, just like every perma-something or conspiracy theorists has. And if they change their minds, oh boy, their audience will revolt!
(I only really listen to those that can truly change their stance from bearish to bullish. Those who acknowledge that basically the fiat system can go on for decades and even our lifetime, even if it could crash also.)
Quoting Xtrix
But if you think inflation is just a conservative talking point, which I would correct it is when the conservatives aren't in power, then there is not much else for you to contribute in this thread.
What I've learned that usually economists of different school do have a point. Something that is true and should be thought about. Yet likely they miss something else also. Hence there aren't economists or economic schools that are RIGHT and others that are WRONG. But many do have this idea, especially when politics comes to the picture. They will have their real economists and others being the phony ones. And basically the whole issue becomes a political fight, perhaps part of the culture war. And then what people hear are only supposed dog whistles.
No, I didn’t say inflation is a talking point— I said attributing inflation to raising wages and handing out stimulus checks is a talking point.
Oligopoly and profiteering are far more a problem then child tax credits.
With inflation, wage increases are usually viewed as the bad guy. And of course the government did basically shut down businesses during the pandemic, so the stimulus checks should be a truly exceptional case. The real question is will they be so exceptional.
And then there is the question government finances. Which looked like this in 2020.
So that was the "exception". How does it look now? Does it look like the 2020 budget?
If your point is that American pandemic payouts have now devalued the dollar, I don't think it works that way.
Right— and it’s complete nonsense. Anyone who buys into that really just hasn’t looked into the matter closely enough.
I agree. Those who get the money before the inflation kicks in are the real winners. And usually the wage earners are the last to demand higher compensation due to the higher prices. Yet there's ample amount of literature of wage inflation.
But even if it's nonsense, it's politically quite convenient. Just as is the idea that high inflation ought to be best fought by lowering salaries!
Devaluation (or revaluation) of a currency is a different thing. Remember that other countries had similar policies as the US and in many cases the US dollar / US markets are thought to be the most safest (still).
The Congressional Budget Office (CBO) estimates in it's latest report that this year total federal revenue will be 4,8 trillion and the deficit that was 2,7 trillion last year (and earlier in 2020 basically as large as the total revenue) will be just be one trillion. Yet they (the CBO) also forecast that there won't be any recession.
As Sachs points out, Ukraine could easily see hyperinflation because of the war.
Inflation in Ukraine is now about 20% and is going to 30%. The Baltic States have endured high inflation too in the euro area:
So there's not much difference, really. That may have been your point.
Danke for the clarification. :up:
Of course there are multiple reason for a complex phenomenon, but naturally the central banks will (and have) emphasized the external shock argument and naturally will be silent of the effects of monetary policy. In this situation it is totally understandable that they won't be forth coming and honest: it's simply their role to be so.
However I think the really big question is here, will the US try to get it's debt problem contained by inflation? Of course somethings have to be done along with this: likely the increase the age limit when people can have social security, higher the age when people can retire, lower military spending, limit money transfers and so on.
In the 70's, in ten years the US dollar lost about half of it's value with only "modest" inflation, not experience anything remotely to hyperinflation. Now that the past acquired debt would be cut 50% might help with inflation, but of course then current expenditure is the problem. It really doesn't add up. Neither in the US or here in Europe.
In the end the system has to be changed: either by collapse, some twisted debt-jubilee or some kind of wealth transfer. Unfortunately in our time, the nation states and their leaders have forgotten from history is that the easiest way is simply to rob the bankers, throw them in jail and start it over with new bankers.
Arigato gozaimus for the reply.
If you understand two things:
1) That money is created through the issuance of debt.
and
2) Fiscal and monetary policy do interact, especially when the government finances it's spending through printing money.
Then I think you will get the hang of it.
(That was years ago. And we do have that high inflation now. And the Fed ought to be doing what Bernanke says.)
The mechanism is easy. The government has to pay something: salaries and other expenditures. It hasn't gotten enough tax revenues. So the government goes to a money printer, prints money and sends that money to it's employees etc. and problem solved. Yet as in the economy there are now more money trying to buy the same goods, hence prices rise. And when the people lose faith in the currency altogether, then you have hyperinflation.
(It's easier to understand when just imagine what would happen to prices of the cars, homes, luxury items and even basic food and if every US citizen (330 million of them) would instantly get 1 million dollars to their bank account. You really think nobody of the 330 million would go and buy something?)
Why inflation can be beneficial to governments:
Monetary policy — the actions of the federal reserve — inflate asset classes like stocks and housing. Currently, it accounts for some inflation— some.
Mostly inflation is the result of COVID and the war in Ukraine. People who want to reduce it all to “printing money” have read too much Milton Friedman, and are unwittingly giving cover to austerity policies, which will hurt mostly the working classes. But it’s not that simple.
The mechanism involved is this:
The treasury issues debt to fill the gap between expenditure and revenue — the deficit. That debt can be bought by individuals, companies, institutions, foreign countries, and even parts of the government itself. We run deficits every year— This is why we have a high national debt, which is the total of all deficits.
The federal reserve owns some of that debt — but only some. When they buy treasuries, they buy them from institutions. With what money? Mostly through “printing” money — in todays world, by adding digits to an account — which only they have the power to do.
The institutions are banks, mostly. If these banks hold more cash than bonds, they tend to lend out money and for better interest rates. More companies and individuals borrow, and you have more spending. This simulates the economy, in theory.
The additional investments banks would theoretically make to increase production doesn't work for the same reason. Meanwhile housing prices doubled in ten years in the Netherlands. Many advanced economies have seen strong rises in housing prices and they're a basic need. Rents moved with it. That's not just "some" inflation, that's a huge chunk of people's disposable income and should figure strongly in any inflation figures but usually doesn't because it's not a pretty picture (we het owner occupying costs because nobody ever moved houses in inflation fantasy land).
So housing prices are filtered out and stocks and bonds never featured in them in the first place. That has nothing to do with covid and Ukraine though definitely is inflation and will wipe out 50% in value at some point affecting pensions and people's personal holdings.
Energy price and food inflation, that's Ukraine. Broken supply chains, that's covid. The only reason they are considered predominant in inflation figures is because the methodology is arbitrary bullshit. In reality inflation is much higher.
They buy some bonds. The Fed has been doing so for decades. During QE in 2009, they were doing it on steroids. People screamed of inflationary effects— and the CPI stayed roughly the same. It did, however, have effects on markets.
As I said before— I’m not saying that increasing the money supply has no effect on inflation. But it’s much more contained to the three main asset classes than to the economy as a whole.
What’s changed this time around is the fiscal stimulus and COVID programs put into place. And COVID itself, of course.
Quoting Benkei
Yes, housing is certainly affected by low interest rates. They’re one of the asset classes I mentioned. Having been in the market for the last two years I can tell you it’s not only interest rates, however. COVID played a large role in behavior as well.
Quoting Benkei
It has a lot to do with COVID. It greatly changed supply and demand.
True, it has nothing to do with Ukraine — I never claimed otherwise.
Quoting Benkei
COVID factors into both— but Ukraine added to the problems, yes.
In any case, energy prices have a huge effect on all aspects of the economy, from plastics to cars to shipping costs. And those increases have led the charge. They haven’t led the charge because of the Fed. That’s the point.
About 30% of most issues is not "some". Maybe it's different in the US. Even so, I have the feeling you're not understanding my general comment. The whole point is that CPI is not an adequate measure when asset inflation has real life consequences for consumers with regards to housing and pensions. That inflation existed well before covid and Ukraine so really had nothing to do with either of them.
?
What would you call it?
It’s a lot — the Fed buys a lot of bonds. Maybe that’s what you’re getting at. The point I was making is that it’s one part of the overall debt — an important part, but not even the majority.
Quoting Benkei
I can’t speak for Holland, but in the US the housing market really took off around the start of COVID. I know this well only because it corresponded to when my wife and I started looking for a house. COVID changed a lot of behavior — but it wasn’t only that. It was also the Fed lowering rates to almost zero. That played a huge role — no denying it.
Maybe I have missed your point. If your main argument is that CPI doesn’t tell the whole story about inflation, I agree.
Thus housing prices aren't counted when talking about inflation. Rents don't change as much, hence they are usually preferred.
It's not a conspiracy, the simple fact is that "ugly" or politically delicate statistics like actual inflation or the unemployment rate are made to look better by changing the statistics. Just as the companies in a stock index are changed if the stocks don't perform well (and you don't take them all into account), the food stuffs in the basket are changed too. And then there's hedonic adjustment with which you can lower also inflation.
For one, central governments and banks have no reason to admit being at fault. Economies are complex enough that it's always possible to find another patsy - financial markets, covid, the Ukraine war, etc. and let the next administration deal with it.
Second, money printing is instrumental to the survival of modern states because tax revenues do not cover state expenses, yet these states have gotten into the habit of spending a lot more than they bring in. Money printing is one of the ways this sand castle is kept standing. It's voter deception plain and simple, because the taxpayer pays for it, but it's never mentioned in any campaign plans. I wonder why?
Third, there are swathes of individuals who sense their preferred politicial systems hinge on this situation of overspending (and they'd even like to see more), so much like my first point, they find a patsy to deflect the blame.
Money printing can be fine, even desirable, to stimulate a growing economy. Economies cannot grow forever, though, and money printing is not a way to support irresponsible fiscal policy and towering government expenditure. It's like a person who has been living well beyond their means and does not wish to cut back. In a sense, states cannot cut back, because they've built a house of cards ontop of this situation. So in reality what's left is to wait for the reaper to come and collect his due.
The Fed was printing plenty of money in 2009 too. No inflation.
An unprecedented global lockdown has major consequences. Claiming this is used as a "patsy" is laughable.
Inflation has multiple causes. One cause is the money supply. COVID's disruptions is another. The war is yet another.
This isn't difficult for anyone who isn't insistent on blaming one thing.
The 700 billion loaned to banks was eventually paid back in full. It's just a very different situation. The pandemic response was specifically meant to stimulate the economy, where the Great Recession payouts were meant to shore up confidence and unfreeze credit.
But you're right that there are multiple causes of inflation, one being the sluggishness of the Fed to respond before inflation had set into the American psyche.
The difference is the Fed was then responding (correctly) to an economic recession. Now it's creating one!
So what?
Quoting Tate
Both were meant to stimulate the economy. The Fed printed money back then too and people screamed about inflation. Didn't come.
Quoting Tate
Yes, the Fed should have raised interest rates last summer, at the latest.
Not exactly. It was responding to catastrophe in the financial sector. Since that sector has become central to the US economy, the government had no choice but to respond.
So it didn't inflate the money supply.
Quoting Xtrix
Actually, no. The point of payouts in 2009 was to keep the global economy from collapsing by increasing confidence in the banking system.
Also, I don't recall anyone saying anything about inflation at that time. The whole world was like a deer in headlights.
It did increase the money supply. For years the supply has increased, in fact.
https://tradingeconomics.com/united-states/money-supply-m0
Quoting Tate
Actually, yes. The fact that the financial sector was the primary target is irrelevant. The entire global economy was on the brink of depression then -- it was on the brink of depression during COVID, as well. The Fed has a few tools to fight recessions. All of the tools used thus far has increased the money supply, and has done so for years.
https://www.nytimes.com/2009/05/04/opinion/04meltzer.html
https://www.nytimes.com/2009/05/29/opinion/29krugman.html
Well, yes, the Fed allows the money supply to go up over time. I meant that TARP didn't make a significant impact, and it wasn't intended to.
Quoting Xtrix
Right. So what you can do is point out that the government, specifically since the 1930s, responds to contraction by easing the money supply, creating make-work projects, and instituting price fixing for farmers.
The pandemic response was unprecedented in scale, though. The intention was to keep the lockdown from wiping out part of the infrastructure of the US economy.
It responded to a major recession. Recession is a general slow down of the economy. A reduced demands can lead to deflation and it's been one of the key tasks of the Fed to ensure deflation is kept from worsening a recession further, or worse: ending up in a deflationary spiral. One way it can do so is by increasing the money supply.
In my view, this seems to fit the 2009 Fed response quite well. Today, is clearly quite different. Today the threat is not deflation, but inflation, and printing money will only worsen the situation.
You don't appear to know anything about what happened in 2009. You should read about it. Every American should understand what happened.
Who was Timothy Geithner, and what did he do to save the global economy from crashing?
Yes but TARP wasn't the Fed. That was legislation from Congress. I was talking specifically about monetary policy and its relation to inflation. It's certainly true that the bills this time around (for COVID) were MUCH larger, and that undoubtedly had an impact on inflation. No question.
The financial crisis of 2009 was a direct result of inappropriate laissez-faire policies. I guess that's why I believe everyone should understand how dire the situation actually was.
True, it's a different situation. To Xtrix's point, even the Chairman of the Fed thought the economy was going to settle itself out of the COVID response without needing any unusual intervention. So it's not correct to say that everyone should have seen inflation coming.
Nobody saw Putin coming.
If they believed no intervention was necessary then why did they print an unprecedented amount of money?
Perhaps they thought they could "kickstart" the economy, but oh boy were they wrong. If there was any hope of a quick recovery after covid they thoroughly killed it.
But I find it hard to imagine that was their reasoning, because if stimulation was their goal I believe they would have treaded more cautiously.
The thing is, they knew beforehand that raising interest rates to combat inflation was going to be exceedingly difficult. In Europe (different place in the world, but not completely unrelated) interest rates have been 0.0% and even negative for a while, and they're now going up by 0.5% here, 1.0% there - it's not enough. It's not enough by far, yet raising it further will push struggling companies over the edge and flip the economy on its back another time around.
This unhealthy situation (0.0% or negative interest is pure economic fantasy) was on the cards long before covid and Ukraine. Everyone knew if inflation were to skyrocket we'd be in trouble.
Against this backdrop, I struggle to find explanations for the Fed's actions.
Yet one should understand that the role of money supply isn't going to officially acknowledged. It can be said when referring to Turkey (or Ukraine desperately fighting a war) or some Third World country by the media, but not in the case of the US or the EU zone.
It seems not only to be acknowledged but downright insisted upon — myopically.
Really, officially?
Are the central banks accepting the blame themselves for the inflation? I don't think it was so.
Never has that happened.
Oh no, you should remember what they were saying just last year:
Harmful mistake to fight against temporary inflation. :snicker:
No, and quite rightly. Because, as I’ve repeated many times, central banks play some part in inflation. They are not alone the cause. If that were true, we’d have had inflation 13 years ago.
There’s plenty to criticize the Fed about. Being “the” cause of inflation isn’t one of them.
Well then, do they accept partly that blame?
Or do the governments accept partly blame for their COVID give aways?
I don't think so.
Quoting Xtrix
What would you then criticize the central banks for?
I wouldn’t hold my breath.
Quoting ssu
For being, as Karen Petrou calls it, the “engine of inequality.” They inflate assets. Who owns the assets? We know the answer.
It's almost as if there were other factors involved beyond monetary policy. :chin:
Hanke is a joke.
Yes indeed. What else is new?
Spot the unquestioned premise:
Why do they pay for them this way? Why not ABSORB the cost? How? Answer: From the billions of profits that they make. Take some of that money and give it back to workers, while keeping prices the same? Am I missing something here?
Who loses? Well, shareholders. Because that’s who you’d be taking from.
This is the same argument made concerning wealth redistribution, and a related one since the wealthiest 1-10% also own the majority of shares, and these are the people it is proposed that we take from (by taxing more).
Is it wrong? No. Because no where is it written, in law, in finance, in accounting, in ethics, in politics, or in philosophy, that shareholders are entitled to 90% of the profits.
To maintain this 90% number by either (1) keeping prices the same and refusing to raise wages or (2) raising wages but also raising prices (inflation, thus keeping real wages the same) is morally indefensible — but quite apart from that is clearly leading to enormous societal pain.
Leaders and rich folk better get with the problem. A society in pain will eventually revolt, their angry eventually will come for you too. We’re seeing it happen before our eyes already.
In terms of what we working class folk can do about it is join in the revolt. One way is organizing through unions. Without collective action, individual workers are simply expendable if they cause too much fuss, and can be picked off one by one if they start asking the wrong questions or making the wrong demands. Most have no recourse alone, since most don’t have the legal and financial resources to fight back— and even if they did, would be involved in an undesirable protracted fight.
I see a number of outcomes:
1) Corporate boardrooms (and the people they represented: namely, the wealthiest Americans) wake up and start treating workers better, both monetarily and in conditions.
2) Government starts taking a bigger chunk of their profits and redistributes it a la 1930s and 40s (and 50s).
3) Workers force the hand of employers through strikes (and so unions) or force the hand of government through votes.
4) Things remain essentially the same. Employees are hit the hardest, inflation is reduced, profits are kept roughly the same in terms of net earnings allocation (percentage of profits) being given to shareholders, and everything just carries on.
I don’t see (4) going on forever, though. I think that’s the least likely. Eventually something will break— and again, probably has already.
Reference: https://www.nytimes.com/2023/01/04/opinion/workers-employers-inflation-raises.html
It's already been broken. For a long time.
The basic problem is that the US simply cannot change course without a financial crisis. And that actually includes others, like the EU as they are doing exactly the same. Increasing the debt level is now basically a structural, unavoidable part of the system. This creates a limit on just high the interest rates can go, or are let to go. Positive real interest rates would simply mean far too large interest rate payments, hence inflation is here to stay on the long run.
Simply put it: when the deficit spending constitutes over a fifth of the budget, there's no way the political system can stop the growth of the debt without some kind of a crisis. Why a crisis? Well, this system has gone a long time without a crisis, hence politicians can hope that it goes on another year. And then another year...
They most certainly can, and I just went through how. Giving less than 90% of corporate profits to rich people, taxing corporations and wealthy Americans at a rate that was common in the 50s and 60s, and not spending 800 billion dollars annually on defense contractors — isn’t a crisis. The characterization that these actions would lead to a “crisis” is nonsense.
Quoting ssu
There’s been plenty of crises with our current system. 2020, 2009, 2000, etc.
The crisis is that we have a level of wealth inequality not seen since the pyramids. Correct that and the rest follows— including all the hand-wringing about the national debt.
My emphasis is on what the actual political system can deliver. Not what it could theoretically deliver. Yes, the US could simply copy the smartest most successful policies from other countries, but that's not going to happen. The sectors that prosper from the existing situation have too much lobbying power.
Just to give just one example, the US puts the most money per capita on health care than any other country, even more than Norway, but the system is quite lousy and with health stats the US is quite average.
And with taxation? Remember that actual money gotten from taxes, tax revenue, doesn't go up hand in hand with tax rates. Hence if you double the tax rates you will be increasing your tax revenues yes, but you won't be doubling the tax revenue. Not close. And making a gap of one fifth of your income is a problem.
Nothing will change until there's a crisis. And usually then the culprit will anybody else than the actual culprits.
It’s not theoretical— it’s happened before. Not in another country, but in the United States.
It’s amazing to me that corporations NOT giving 90% of profits to shareholders is considered beyond the realm of what’s possible.
Quoting ssu
True— which is why the workers need to cause a crisis. Through strikes in key industries. Only then will concessions be made.
Or they can rise up violently. Which may be necessary, I suppose.
Well, with these kind of union participation percentages, I doubt it. And I think these low participation rates are the reason just why employers in the US can be so aggressive against unions. Have a large majority of the workforce unionized and it's politically totally different.
Yes indeed. Of course, there are higher rates in the 70s and yet they were still destroyed. So it’s also about how strong they are. Unbreakable solidarity is hard to come by.
So the economy is between a rock and a hard place: if the fed does nothing, inflation continues to climb, if they act, it could potentially cause a string of bank failures the government would probably have to deal with.
Eventually.
In the meantime, something must be done about the fact that we gave working people checks two years ago — and higher wages for, you know, risking their health to keep the economy going. That cannot go unpunished.
In my opinion, there are two problems at work.
1. The Fed, or the ECB, or any governmental/politicized institution for that matter, cannot handle the responsibility of this amount of control over the quantity of money.
2. Governments bearing the risk of bank failures turn people apathetic to their banks' behavior.
People should bear the risk if their bank fails. That's the only way to encourage them to act in more financially responsible ways.
The fact that people don't care is why banks get away with irresponsible business practices. People don't care because "the government will deal with it". What they miss is the only way the government can "deal with it" is by printing money, which causes inflation, which is essentially a hidden tax paid for, predominantly, by Joe Average.
No more bail outs and no more money printing.
In this case the threat is coming from central bank policy, so it's a little late to cry "laissez faire!". But yes, bank failures are a good thing (unless they aren't).
Also I've picked up a long the way that institutions such as George Washington University and U of Pennsylvania's Wharton school have close ties with covert US Federal economics policies and personal.
I think the Fed is now busy saving the banking system... again. And with that of course, it doesn't have to be worried about the money having the same effect as those covid-dollars put into the pockets of Americans that were forced to stay home. During these times the banks will hold on to that money like Scrooge McDuck.
Quoting Mark Nyquist
Economists are only people, and when people come together, there's usually the the "in crowd" and those would like to be in the in crowd. I think in the 1980's was the peak for the Chicago School.
Quoting Mark Nyquist
Economics as a profession have deep ties with Central banks. After all, few of the most lucrative positions are held there and Central Banks (not just the Fed) do sponsor economic research. So for example the very long and interesting history of the US opposing a Central Bank is very much put aside to the conspiracy theorists to argue about.
I don't think that was the Fed, if you're talking about 2008-2009. It was Congress and the Treasury.
One consequence of fighting inflation, as Powell has stated, is that ordinary Americans will have to go through some "pain." We know what this means. They want unemployment higher, wages to "stabilize," etc. But yes, right now they're worried about the banks. Good! Fuck 'em. Puts them in a real bind which I'm very happy to see. Of course, they'll choose the banks first and foremost.
Oh it was the Fed.
It simply wasn't in the news. Only later we found out that the whole financial system had been close to collapsing. And just how much was given to banks and corporations.
You see, Wall Street banks are de facto behind of the Fed. They are the ones who wanted a central bank. They understood that no individual or individual banks cannot save the whole system. But it should be absolutely clear that the Fed works for Wall Street.
Hence in the Savings & Loans crisis the banks were rural Hillbillies, and hence that crisis was dealt totally differently, starting from that many bank managers went to prison. Not so in 2008-2009. Which ought to have been an outrage, btw.
The people have something in the bank? Or have debt to a bank?
This would be the proper antidote. And politically it's totally impossible.
Perhaps the money that people have in banks should be secured. That actually isn't a huge amount. But the outcome would be basically a deflationary collapse, assuming the market mechanism would be let sort things over. Prices would collapse, companies would go over, government would have to fire a lot of employees, huge unemployment, it would basically suck for a year and a half and then things would be far better.
And prices falling isn't actually so bad... to people that don't have debt, but savings.
Yet as long as the ruling classes make their money through having debt, then inflation is and will be the answer.
It was pretty obvious when the chairman of the fed and the secretary of the Treasury appeared before Congress asking for money. Everyone knew that 55 trillion dollars had just disappeared and that the banking system was in credit freeze. Most of the bail out was legislation called TARP.
Quoting ssu
It's insured by the FDIC up to a certain amount.
Quoting ssu
Of course.
But of course, if bank capital is offset by unrealized losses of securities, then the capital requirements aren't doing what they should be doing.
I am surprised. I thought rising rates were likely to trigger a crisis, but I assumed it would come from unhealthy corporations being unable to cheaply roll debt, not banks holding on to low yield LTD getting cleaned out. For one, we have had decades of low rates, it doesn't seem like there should be enough high rate issuances to suck up demand, unless they are cloning it again via derivatives. In that case, you'll have a secondary problem of high yield instruments getting cleaned out when rates fall as people do advanced refunding, call bonds, etc.
Also makes you wonder about the credibility of the Fed in a world where rates are high for years considering their gigantic balance sheet of low interest securities accumulated during the Pandemic.
Realistically, what is needed is major tax increases to address distorting levels of wealth and income inequality. No cap on Social Security or Medicare income, making the tax no longer regressive, plus full applicability of these taxes to capital gains, would go a long way. The Federal budget is set to start running a surplus later this decade not considering senior entitlement revenue or expenses, but runs an astounding deficit paying for seniors, who already received half of federal spending.
We also need austerity. It is trivial to cheat Medicaid and Medicare right now and attempts to recoup costs are arbitrary. $500,000 worth of heart surgery at age 85, step right up, that's the right sort of ailment. $500,000 worth of long term care for Alzheimer's? We need to liquidate all your assets to pay for things.
Taking steps to not pay for Medicaid costs is essentially standard now, only poor people get hit with all of it. It's a rent seeking niche. The fact is that if you accumulated $1M is securities and cash and had an expensive house, then you should pay for you care. Chances are that will liquidate much or all of your estate. People have a hard time wrapping their minds around this because senior care, by far and away the most expensive type, is arbitrarily free in some cases and not others. The arbitraryness and uneven burden needs to go, and a good way to do this might be an across the board estate tax on virtually all estates (say over $25,0000) instead of any attempt to recoup costs.
Baby Boomer can't expect $2 trillion plus a year in cash payments later this decade, free healthcare, and that their assets pass on untouched, it's unrealistic and will kill the system for their children.
Or, more unrealistically, they could nationalize healthcare and higher ed and put in cost controls seen elsewhere in the OECD. That will be very painful though and austerity itself as millions of admin staff in colleges and insurance whose positions don't exist in other countries become redundant.
Chronically low interest rates need to go, we now have tons of evidence that they increase inequality. Mortgage interest deductions need to be phased out because favoring homeowners just promoted inequality and any savings get priced into house sales anyhow.
A full carbon/pollution tax would also hit Chinese goods very hard and incentize near shoring, which could help fix some of the supply chain issues.
:up: The foreign exchange market is showing that global sentiment doesn't expect the fed to raise rates any further. The dollar is getting weaker, not stronger as it would if a rate hike was expected.
There's a lot of uncertainty right now
Increasing the retirement age makes sense in the context of increasing life and health spans. Nationalizing healthcare and senior care is a expense reduction idea. Even if the US was still on top for spending, it could reduce healthcare costs by a extraordinary amount by moving costs closer to other nations.
The reason you need to mostly target the income and taxes of the wealthy isn't ideological or moral. I think framing it this way hurts attempts to deal with the structural deficit, making reforms less politically palatable. You go after high networth households for the same reason you rob banks, "that's where the money is." The top 1% has over 15 times the networth of the bottom 50% in the US. The bottom 50% of households hold a fairly insignificant amount of wealth, about, and the next 25% doesn't fair that much better. You simply can't fix the problems by taxing them, only by denying them entitlements and means tested benefits, but here most of the spending is due to seniors, and so arguments that cutting benefits will "make them work more, backfilling lost income," are even more ridiculous.
The above is also why arguments about rising wages for low income service employees driving inflation don't hold water. To be sure, this trend squeezed some industries quite hard, but these aren't even the sectors where prices have risen most rapidly. Overall price level increases can't be wholly due to growing wages for the the bottom half of the income distribution, since they only account for 12-14% of all income and their wage gains only outpaced inflation for a few months. Their real wages have since experienced negative growth.
One can only imagine the huge efforts at tax evasion any such effort to preempt an inevitable large scale crisis would kick off. I sometimes wonder if we are in store for a WWII scale financial conflict of sorts as developed countries are hit by a tsunami of pensioners but are unable to get recalcitrant elites to pay for the cost. Down the road, I can see some sort of international tax collection body existing, but unfortunately not until it is created to respond to a large scale crisis most likely.
:up:
Quoting Count Timothy von Icarus
The US simply should look just why it's health care costs are so insanely more than in any other country. When this has been discussed on PF, very obvious and clear reasons, like with people without proper medicare then being first treated at the ER. Among other obvious problems.
And of course there's the military spending. But the problem is that I cannot see any other way for these to be dealt than a huge crisis.
Quoting Count Timothy von Icarus
If the bank gets robbed too many times, people will not put money into the bank. The basic problem is that even if tax rates have varied, the tax income hasn't change as much as you would think. So doubling the tax rate will increase your revenues, but won't double them.
Quoting Count Timothy von Icarus
Wages are the perfect culprit for central banks and governments. Anything else than loose monetary policy is given as the reason for inflation.
The problem is that when the proper understanding of how our debt-based monetary system works is limited in public to basically to nearly conspiracy theories, it is no wonder that the people do not understand where the inflation really comes from. In schools, in universities, the example given is the wage increases etc. Not the financial sector controlled by the central banks.
They have. I mean doctors have. I think the theory at this point is that Americans are unusually unhealthy. Not sure why, but I'm sure the American Sugar Association isn't helping. They actively squash research that clearly shows the dangers of over doing sugar.
I would question the part about tax receipts being unable to go above 20%. This is a common argument made by opponents of tax hikes and I believe it is spurious. Plenty of countries maintain tax receipts well above this level, the UK has been around 30% for instance.
The graph is compelling until you realize that there is a historical reason for receipts never breaking 20%. Every time they have begun to eclipse that number there has either been massive tax cuts or a recession. Obviously, tax receipts can't make up a larger share of GDP if taxes get slashed every time receipts begin to breach a given level.
High top marginal rates meant far less 70 years ago when income inequality was drastically below today's levels. Much less of all income was in those high-level brackets. Also, it is somewhat spurious when marginal rates are represented only for income taxes, not the regressive payroll tax or effectively regressive capital gains tax.
I mean, I know these figures and they still look wild every time I see them, the bottom 90% holds less than 25% of wealth. The 1% is out distancing the bottom 90%.
Chronically low interest rates, a central bank policy, and low top marginal tax rates have been huge in creating this gap.
As for another strong relationship:
If you're into security policy, this is even more disturbing. Autonomous drones, rocket delivered drone cluster munitions, autonomous spotters paired with autonomous artillery systems, integrated augmented reality for infantry, squad level UGVs, etc. We're entering an era where a quite small cadre of well paid professionals, managing a military made up of autonomous systems is going to be able to crush a much larger military/revolt. I don't think the gap between professionals and the "people" will have been as big since the medieval period, where the armored knight with horse and couched lance could rely on routing peasant formations many times their size.
Not to mention the power of modern surveillance networks utilizing small drones to EW UAVs to high altitude balloons to satalies. AI monitoring communications channels, facial recognition, ubiquitous cameras on every street from small town squares and up, biomarker databases, etc. Taking out revolt before it starts is also way easier.
It's disturbing to think about how much military power wealth can buy when inequality is this high.
Not to be dramatic or anything lol...
It is worth noting that while the US average keeps growing at a solid clip, inequality is so bad that this means absolutely nothing for most people.
Actually, the two are not unrelated. High levels of immigration, when said immigrants tend to be low skill/low net worth, necessarily increases income and wealth inequality. Income inequality goes up because, if the new arrivals command lower wages than the current population, that will bring down the average. You also have the problem of chronic low demand for lower skilled workers, meaning that increasing the labor supply may just be driving down wages and decreasing labor force participation rates (particularly among natives eligible for means tested benefits).
There is also evidence that higher rates of migration erode the ability of workers to unionize. A leaked document from Amazon showed that they tried to keep their warehouses diverse specifically because a language barrier tamped down the threat of unionization (we have similar documents from the Gilded Age). Employers also have more leverage when the workforce keeps growing faster than demand.
I only bring this up because it is sometimes claimed that much higher levels of migration to developed countries from the developing world can fix the pensioner crisis and relieve global inequality. This is highly unlikely to work.
First, higher rates of migration only kick the can down the road on pension systems and actually make the liability problem worse if the new arrivals tend to be low earners. It is often claimed that immigrants are a net asset vis-a-vis liabilities in the US, but this is when analysis specifically looks at the federal budget, which is misleading. Most of the federal budget is for entitlements that immigrants cannot receive (at least not until they flip categories), so of course they help there. The other big item is defense, and it does not cost more to defend the US if there are 390 million people versus 330. However, at the state and local level, where K-12 schools are funded, immigration can be a significant burden (e.g., the MA Ch. 70 funding allocation, widely considered the best in the nation, has a minimum funding level for low-income ESL students that is over twice that for a non-low income native speaker).
Second, any claim that global inequality can be addressed by migration is spurious. Just Bangladesh can supply more low-income migrants than Japan and the US can absorb. You're talking about over a billion people. Lifting them out of poverty has to involve investment in their nations. IMO, global inequality is a travesty and a systemic security threat. Aid budgets should be on par with defense budgets (and those also tend to be too low).
Is this related to climate change?
No, although that's a good reason to use it as an example. I just thought of it because it is one of many very poor countries (24% poverty rate but much higher if OECD standards are used). It is not anywhere near the population of India or where Nigeria will be in the future, but it is still 170 million people.
Lifting those people's living standards by moving them would mean 100 million people moving. This is on the one hand impractical and unfeasible, and on the other more than developed nations could absorb. It would also negatively affect the people left in country.
My point is simply that moving will at best still be an option for an extremely small share of the population when you consider the numbers.
Gallup did some polling on this and there are 750 million people today who want to relocate countries, 138 million to the US specifically. Obviously that's not a realistic figure.
Quoting Count Timothy von Icarus
I think the recessions haven't happened because of tax increases, but lowering taxes in hope of increasing economic activity can happen and has happened. Just as lowering the price of money (the interest rate).
Quoting Count Timothy von Icarus
Income from a job may be important to many ordinary people, but for the rich it is the capital gains. And this presents a problem with taxation. Let's say for some reason the Leftist party would win here and would triple the capital gains tax here (that would be then a tax percentage of 99%). My reaction would to F-them and not sell anything before those crazies are out of office and the capital gains tax are normal again. For the rich, well, their assets can suddenly be then in a tax haven.
Quoting Count Timothy von Icarus
Well, at least those countries that have a steady inflow of educated young working emigrants don't have problems, if these foreigners are accepted. And they basically are accepted, if it is perceived that they bring more to the economy than they take. I mean, nobody hates tourists, even if there are those foreigners all the year around. Now if those tourists wouldn't spend anything, just hang out on the streets, people in any country wouldn't like them.
* * *
The fundamental problem in economics is that however preposterous the spending spree and debt bubble we have, it's always the normal, the "new economy", and we simply don't accept the natural market correction that would happen if we would let free markets to roam. And I'm not talking here about the little guy, who usually get's trampled, but a severe short recession, a deflationary correction, isn't accepted as it would transfer wealth from those having it now. And those who have the wealth usually have also the power and the strings to influence the government in their desperation.
Are you saying that anti-immigration sentiment isn't just about racism? That it's also about this tool capitalists use to undermine the power of labor?
I think there is an option between tripling the capital gains tax and leaving it where it is. You could simply have it taxed on a level with income. If someone has realized losses, the amount they are able to carry forward for multiple years would be based on their total asset levels. This would allow small business owners to write off significant losses, while also avoiding the current phenomena where someone like Donald Trump, an hier to a gargantuan fortune, avoids paying income taxes for years on end.
I mean, does anyone actually defend a system where a billionaire can go years without paying income taxes?
You could also close key loopholes. Right now, the very wealthy don't even need to realize capital gains. They just take out loans collateralized by their assets and spend down their value without realizing a gain. You could fix this easily by simply saying that, above a certain threshold, if you borrow against assets to receive cash, that cash is taxed as income. It is totally possible to allow someone to borrow $100,000 against assets for a home (it is very uncommon for the middle class to use these anyhow ) but to tell someone with a networth over $30 million that if they get cash on a loan collateralized with assets (at least of some classes, e.g. equities) they have to pay some sort of tax since they are, in effect, realizing a gain.
This change would also fix the issues with some asset classes becoming bubbles. We tax bonds as income but not realized gains on stocks or real estate, which incentivizes speculative bubbles.
IMO, gains on residential real estate for non-primary residences should have an extra tax assessed at a rate determined by the current gap between median income and median rents/mortgage payments. When there is a housing shortage, it automatically will become less attractive to buy up real estate, curbing the positive feedback loops that keeps leading to bubbles. Then revenue raised from this tax goes to a special fund used for building housing units. If states want access to this fund, they need to pass legislation allowing the funds to be used regardless of all the petty laws set up to block construction in order to keep home values inflated. Win/win.
I don't think it's that simple; plenty of business elites have sunk a lot of their personal wealth into anti-immigration campaigns. There is a bidirectional relationship between growth in median wages, unemployment rates, the immigrant share of the economy, rates of immigration, segregation, etc. and sentiment towards immigration.
Certainly, in some cases businesses do see immigration as such a tool, but in general I think more is going on. Immigrants impose externalities on each other similar to congestion effects in traffic. How long it takes for a new group to assimilate (in terms of economic variables) depends on how many more people are coming at the same time (among other factors).
The modern liberal state has sublated elements of socialism and nationalism. These nationalist components say, "our state is for our people." Thus, even liberals didn't think Algerians rights would be satisfied by France giving them the right to vote, they wanted "an Algerian state for Algerians."
But this causes a contradiction. Socialism is justified by the idea of a group owing things to one another, arguments about the health of the state, etc. Extending these benefits to outsiders is not broadly popular in the same way, as the tiny size of foreign aid budgets relative to military ones demonstrates. National origin is most divisive, and is more of a factor in labor organization, when these issues are brought to the fire and are unresolved.
Interesting data. Thanks for bringing it up because I am always so interested in Japan.
Japan and its Prefectures (????, tod?fuken) are a very complex places to live in. Culture adversities kick in when you try to make contact with them. I guess Tokyo and Osaka cannot be a problem, but it would be harder in little places such as Izu and Yamagata.
I read a book a few months ago called: Dynamics and immobilist politics in Japan. It shows key aspects of why Japan has the nowadays problems that you have shown in that data. The authors explain that some Prime Ministers tend to manage Japan in a very nationalist/isolation way.
That politics and the lack of immigration, plus low births, make for stagnant incomes. But do you know what is most interesting about it?
Japan will have the same GDP growth as Spain (my country, because I was interested in comparing both) in the next two decades. When I read the information, I couldn't believe it...
Well, furthermore, by GDP standards, Japan is clearly a developed country, with its ups and downs. I guess isolation cannot be a good decision. even for rich and industrialized countries.
They always had a lot of ups and downs. From the big increase in GDP in the 1960s to the stagnation of the 1990s due to the real estate bubble, Nonetheless, they are still there, maintaining themselves as a developed and rich country thanks to their culture of hard work and sacrifice. Interesting, right?
Some real estate investors are like Trump: anything they get, any money, they put into new buildings and take as much debt as they can. Then when the building is finished and the sell it and they would basically make that profit that would be taxed, they can deduce their interest and debt and basically start a new project. Hence they can make no profit ever, but increase their assets with billions.
Quoting Count Timothy von Icarus
Now I don't understand this. If there is a housing shortage, why discourage renting flats / investing in real estate?
Quoting Count Timothy von Icarus
Even if this would be the case, even if the tax would go to a special fund, it would be peanuts and very inefficient to have any effect on housing. After all, profits are only taxed, and profits are a small cut from the actual investment to real estate. If the incentives for building apartments or renting them is nonexistent, then no matter where the taxes would go will not matter. There will continue to be a housing shortage.
Housing markets work if investing in housing is simply made easy and profitable enough for people and possibly companies to investment in real estate. Usually government micromanagement doesn't work. It is the ground rules and the effectiveness of the institutions that governments should be concerned about.
Housing bubbles happen because of loose monetary policy and because usually some smaller banks or alternative financial institutions try to grow "aggressively" by ditching all caution on just who to shovel money at: if anybody that can walk into the bank (or go to the website) can get a mortgage, .
In the 70s there were three waves of high inflation, so we may still be in a trough waiting for the next wave.
How so?
I don’t buy that this is mostly a monetary issue. Apologies to Friedman. So Vockler’s methods wouldn’t be appropriate here anyway.
However, I'm a novice in financial affairs.
The desire to increase profit margin is the only cause of inflation.
Wage increases are post hoc corrections for inflation. When the same goods and services cost far more than they used to, people cannot afford them any longer when and if they have the same earnings. To blame wage increases for inflation is to blame the bandaid for the bleeding cut.
Me too. I think the hesitation to raise interest rates is related to the threat of bank failures. One theory is that the liquidity is resulting from the COVID19 stimulus, which turned out to be bigger than we realized at the time. There's no way to forcefully reduce that liquidity without setting off a downturn that could go deeper than necessary.
It's an interesting story that's unfolding.
:up: Well said.
Some common folks got 1200 bucks three years ago, and some raises for working during the pandemic, and now they must pay dearly for that. That’s all that’s happening. Blame the people for raising prices. Meanwhile corporate profits continue to soar.
A good example from the Times just today:
https://www.nytimes.com/2023/05/29/opinion/inflation-groceries-pricing-walmart.html?unlocked_article_code=WjEk23ZSH7lfiOdBi1KQHWDZJWW3ygSsdjnAEabZBgexPhuyctNH2Bedpk13aaO19LOlAek-DYIlX7OC40G6dJCpbe_XKBNJzHshEgnGq6VDYHyjTiRZoAickk5VsW9d7aS6vIfjCk5gR0RNvI5NXDOHoVJFqlU7QAJFTPyNHV_KjvDUgsYXWx8U1fxJvhEeqb-atbiTIruDlEBUHYTz9vVp2kqvtDHZlfnClEuIAJKhpe79NwcVWOwAyvQPfsayytXe8LTeTdJqlG_QX-oFtjjwxFF3stF7jg-aBZGhZSteeD4vWlmmXZskFFWuN4XlhRIIQvYOKWHrJseYCbPFz8s2CENJ10e9_4_KFok&smid=url-share
As I've mentioned (somewhere else), a friend that works in the local central bank (part of ECB) said years ago that the Fed is between a rock and a hard place. It simply cannot move anymore in similar fashion, as the inflation mouse is already feasting on people's cash.
Yeah, and we started from the lowest interest rates ever recorded in human history. So it's not difficult where there will likely go for the remainder of this decade. I assume they hope they can keep inflation at 5% for the rest of the decade. Negative real interest rates is the helper here.
Quoting creativesoul
Uh, but the price will rise because of the higher demand. It's the fundamentals of demand and supply. I mean, if a hundred people would desperately want something that costs 10$ and there's only one item left, you think that nobody of them would buy it for 11$ or even 20$?
Quoting creativesoul
Ah! Similar ideas were floated even in Antiquity: it's the greedy baker that hikes the prices of bread! Shame on him. (Never mind things like was the state minting more coins with less silver in them to pay for everything starting from the military.)
Some of us think inflation happens when you print too much money, or simply create from nothing new debt to pay back the old debt. If you would keep it in the banks, it basically wouldn't create inflation, but for example give money to people because there's a pandemic or something... Now add a war to the picture and other stuff, you will have inflation. But people will a) politicize this and b) believe what politicians say to them who the culprit is.
Quoting creativesoul
At least you are correct in that the last people usually left holding the bad are workers, who see their living cost rise and then demand more pay. And naturally the state itself portrays them as the culprit for inlfation, when the real culprit have been themselves. The ones who profit from inflation are those who get the new money first. And those are the ones that can print more money. Not the workers.
Ah... whatever the market will bear...
What someone would be willing to pay(what the product is worth) is irrelevant to the point. Completely. The cause of the price increase is what's in question.
The price increases because the seller wants to increase it. The price does not go up because more people want the product. The cause of the increase is the desire of the seller to maximize profit. The short supply helps create/foster the high demand. Neither causes the price increase. Only the seller's desire to increase profit does.
The lack of antitrust laws...
Those of us who believe that would be mistaken. Recent history shows otherwise. The financial crash at the beginning of the Obama administration proves that. All sorts of money printed. No inflation to speak of. What more does one need to prove that printing money does not cause inflation, than a time when it was printed and no inflation resulted?
I assume you've never had the time or interest to learn economics. Or business.
Quoting creativesoul
When you do get it, you don't.
And that the issue here: for governments to print money / take more debt in their currency works and will work. The inability to understand that the consequences made today will have an effect only years later will confuse people. They can easily blame somebody else and people will eagerly accept this.
Don't forget the retirees on fixed income.
But social security got a bump up recently didn't it?
Ah... so ad homs supplant argument, valid objection, or adequate explanation.
For whatever it's worth, your assumptions about me are as wrong as your attribution of cause concerning inflation.
Yet you aren't on the barricades, are you? Is anybody else?
And with a 5% inflation, just look how quickly your money will lose value. Let's say that for the next five years you would have 5% inflation (which could be masqueraded by statistical gimmicks to look like 3% or 2%). Afterwards it won't take so much time to get where the money is half of it used to be. But who cares what things were priced a decade ago.
Only if it would be 5% per month people would panic and it would be an uproar. The idea is just to boil the frog so low that it doesn't jump out, you know.
They can vote for a populist or whatever, but unfortunately retirees aren't going to be on the barricades either. Older people will just suffer and take it. And I feel really bad when seeing retired people working as the cashier in a supermarket.
How about a mind experiment?
Assume every US citizen, child or adult, would be given 100 million dollars by the government. You really think that prices wouldn't go up? You think Ferraris and luxury homes would be selling then for the same price as before?
Let's do...
Add to the hypothetical one caveat... it's all done in secret. Sellers have no idea.
Do you really think that the addition of the money alone is the cause of inflation?
Here's a striking and the key difference... the stimulus in 09 overwhelmingly went to financial institutions and huge corporations, whereas the stimulus in 2020 overwhelmingly went to small businesses and individuals under 150k annual income.
It makes no financial sense to raise prices beyond the affordability of the consumer base. That would result in losses. In 09, people did not have money. So, even though all sorts of money was printed, there were no consumer cost increases to speak of. In 2020, lower wage earners were given stimulus money to offset losses in regular earnings. 'Regular' people were given money and tax advantages. Consumer costs went through the roof.
It's not a coincidence that inflation immediately followed the latter but there was none whatsoever following the former.
Whatever the market will bear. Or as ssu just put it... boil the frog on low... so it won't jump out of the pot.
The money that was delivered to banks to prop up the banking system in 2009 was all paid back, so liquidity rose, but then dropped again.
The 2020 stimulus eclipsed TARP by a large margin and there is no clear path to reducing that liquidity. I mean, it's not the only reason inflation high, but it's definitely a significant factor.
I've never denied that printing money is a factor. I've basically set out how it is. I'm denying that printing money causes inflation. That line of thinking completely neglects the only cause of inflation and blames it on something else.
It would cause inflation all other things being equal. It would increase demand.
Supply shocks also cause inflation, obviously.
What are you identifying as the cause of inflation?
Food prices, gas prices, car prices…we now know why prices have gone up so much. Trying to fit it all nearly into “we’re printing too much money” is really a joke. I guess you have to be a Nobel winning economist to see it in such terms, and be so silly.
Inflation IS an increase in retail price/consumer cost. The cause of inflation is the desire to maximize/increase profit. I personally like for the demand to be higher than I can meet. I do not raise my prices. I have people waiting in line. I could raise the prices. I don't. Does that make me a bad business owner? Some may say so. I'm content and satisfied with what I can make at the prices I have.
The point is that if supply shortages caused prices to go up, then it would happen in every case. I'm prima facie evidence to the contrary, and I'm not the only one.
Supply shortages can be used by those who want to maximize profit as a 'reason' to increase consumer cost. It does not have to be that way. An increase in demand does not cause a price increase.
No.
Prices can go up (or down) for other reasons than money printing. And that's unfortunately the problem here. People have different definitions. The real problem is when I look at my childrens school books is that when explaining inflation, central banks and government spending aren't discussed at all. The "at all" is the main problem here. It would be better if there would be a sidenote that inflation can happen because of government printing money to finance it's expenditure. And that at worst this can lead to a collapse in the faith of the value, which creates a hyperinflation.
Quoting creativesoul
That doesn't make sense. Every American gets the 100 million. Some Americans are those "sellers" you refer to. Who are these mystical "sellers" you refer to?
Or you think people when they get 100 million wouldn't use that money?
Ferrari sold a bit over 3000 cars into America last year and produced 13000 cars in total in 2022. Now, when there are now 340 million people in the US with over 100 million dollars, you think there wouldn't be let's say 20 000 of them (a meager 0,0059%) who would like buy a Ferrari? Only that amount of new customers (up 20 000 from 3 000), would not only lead simply to "supply shortages", but the price going up.
Similarly with real estate. If there are many people wanting to buy a real estate, then they are in competition with each other. Hence somebody can pay more than the asking price. Thus in the end there would be hundreds millions of multimillionaires trying desperately get something with their money.
Not perhaps like in, Zimbabwe, but still:
Quoting creativesoul
Purportedly? At least that's better.
If the banks sit on the money nothing happens... except that the speculative bubble is held up and isn't let burst. Basically the monetary policy stops the correction that the market would do on it's own. What happened was called asset inflation.
If you give it to people, inflation will happen sooner or later. Just as the example of giving 100 million dollars to everybody shows.
Except that’s not what’s happening. The article on food shows why.
It works in some cases, like housing and stocks. Those assets inflate, sure. You can see why. When attempting to explain the rise in food or gas, it just completely fails.
What’s irritating is that this story is so very convenient for corporate America.
Exactly. It was a fantastical hypothetical. It's not going to happen either way. However, for the sake of mind experiments I was simply pointing out that if - in this impossible scenario - no sellers knew how much money the buyers had, then there would be no increase in consumer cost.
Ferrari is not bound by physics to raise their prices, even in your scenario. They could increase production.
As I've said, prices can go up and down for many reasons that aren't related to inflation. And you can allways find new reasons to argue just why prices are up.
Yet do you think that still it's a post-covid demand. Will it be that next year?
Or the Ukraine war?
Yes, a war can cause prices to rise because of shortages. But once the war is over (or other supply chains are formed), the prices stabilize. And the best example of this we had in the spike in energy prices just last winter here in Europe. Now, suddenly, the price spike because of Russian energy going away from the market has been dealt with.
I think you didn't read my answer to the end.
OK, let's say there would be a really stupid Ferrari dealer that didn't know (because he's Italian) that Americans just got 100 million every one. And let's say the manufacturer wouldn't know this somehow either. Well, likely then he would sell all his cars very quickly. And then the next one's will form a huge waiting line, because of the sudden incredible demand for Ferraris.
But think about the last guys coming to the store when he would have only one to go (for simplicity we assume he's selling also used Ferraris). Likely someone wanting a Ferrari would try to give him more than the asking price. Because why not? If you spend 50 000 or heck 80 000 more to the asking price on a Ferrari when he has 100 million. It's still peanuts.
And that's the basic problem with your idea. You assume this mythical greedy "seller" is the problem. No, the problem is also when there too many buyers for one item. The buyers are then in competition with each other. And this isn't something hypothetical: you can have items, goods, real estate going for higher than the asking price without no intention of the seller to have an auction. And yes, if people are selling something at 100$ and someone will give 150$, they will take that 150$.
This is simple supply and demand.
Sure, that's exactly what was happening in the housing market, and perhaps still is.
There are greedy sellers... that's not a fiction.
The CPI, yes.
Quoting creativesoul
A social overhaul would be necessary for that to be meaningful to anyone. In other words, you're stepping out of your time in history to make that observation. It gets lonely analyzing the earth from a vantage point on the moon, so it's a rare insight.
You're touching on one of the reasons I'm so interested in the present situation (other that I'm trading forex and I use fundamentals to pick entries). One of the threats hanging over us now is stagflation. The last episode of severe stagflation ushered in the present neoliberal age. So I wonder if a second episode of it would change our priorities again, and if so, about when would that happen, and what would it look like?
Mark Blyth suggested that any economic crisis will be explained in terms of its solution. There could be multiple solutions, and so potentially different economic theories depending on which path the society takes.
With rising interest rates, it's going to end (if it's still going on).
Quoting creativesoul
I can agree with that. But the aren't only greedy sellers.
Yeah, I've been accused of looking at things differently than most people. I could always increase production as well and keep the same margin. I'm certainly at far less than capacity. However, I want to keep the scarcity and work less.
The neoliberal era has resulted in the tremendous wealth gap and discontent of the average blue collar, retail worker, and many public service providers. Typically non college educated, but plenty of college educated folk have paid for education that basically provided nothing in terms of ROI.
The interest of shareholders is in direct conflict with the interest of employees, assuming there are any American employees in the business chain efforts. When corporations stopped making employees a priority things began to go downhill for workers.
For whatever it's worth, I like the little short guy economist who worked in the Clinton administration as Secretary of Labor for the first two years(if I remember correctly)... Cannot remember his name at the moment...
Oh yeah... Robert Reich
You're ahead of your time. :grin:
I'm getting 5% on my money.
Eventually, if inflation gets bad enough and the fed is seen as protecting bankers more than Main Street, a political party will run on a platform of revoking the fed's independence.
Yeah... :joke:
Probably a direct result of growing up so poor... much easier to satisfy!
I think you're just not greedy, so your vision isn't clouded by that.
Right, a phenomenon which explains the inflation that matters for most people. Not stocks and bonds.
Quoting ssu
Prices going up over time is inflation.
And you're right, you can always find new reasons -- which is only right, considering the world is complicated. Which is why clinging to obsolete generalizations from yore is silly.
I'm actually not so sure about that, unfortunately.
Americans can easily be divided by party lines and made to hate each other. I think that's the basic way to control the disappointed voters and keep them supporting the system by voting the two parties. It doesn't matter that they voters do actually share common things. Americans didn't like the way the financial institutions were handled with silk gloves in the last financial crisis (socialism for the rich), but the animosity between the right and the left prevailed. Doesn't matter that actually the "Occupy Wall Street" and the Tea-party people shared common issues, they hate each other enough not to notice them.
And secondly, there's a time lap when inflation rears it's head and when the money was printed. If it was Trump sending cash to Americans, it's only during Biden's administration that the effects can be seen. Inflation also goes up and down and isn't a fixed continuous issue.
Hence you can always say once the inflation decreases that the "inflation" has been now contained, or that it was temporary, or transitory, as we were lead to believe.
And then you have to remember that there are those for whom high inflation works: those that have invested debt into something that keeps its value. They are just happy about inflation taking care of their debt.
Companies Push Prices Higher, Protecting Profits but Adding to Inflation
Glad to see some attention to this glaring contributor to inflation.
For example real estate doesn't have this ability... it can tackle inflation only in the long run: a flat in the perfect location has historically usually been very expensive no matter of the market. Yet when real estate is "historically looking very low priced", especial when real prices are looked at, there simply are few if none of these in the market on sale.
No they aren’t. They protect the profits, yes, which goes to shareholders. The consumers and workers get screwed, as always. It’s a terrible investment.
Quoting ssu
It’s a major contributor and, often, the main culprit, yes. In the case of food, it’s the main culprit. In the case of cars…It’s partly that but partly supply disruptions. Etc.
Quoting ssu
As I’ve said elsewhere, housing, stocks and bonds are all a different animal. The Fed is great at creating asset bubbles. Especially when moral hazard is factored in, which they’re exceptional at creating.
This is an interesting video. It touches on how the west can import deflation from China to offset policies that would normally cause inflation. Supposedly that happened in the last decade. Ignore the flashy title. It seems like all YouTube videos have hyperbolic titles these days.
Again, If they protect their profits, which go to the shareholders, wouldn't they be actually quite good investments in this environment? Why would they be a terrible investment?
Quoting Mikie
Let me get this straight:
If they government simply prints more money to bay it's bills, and this creates a situation where there's far more money sloshing around, you seem to then accuse those who see this happening. In fact it's quite similar to those that accuse inflation of happening because of the trade unions wanting have higher wages. Not that trade unions react to the higher prices.
It's really about just who can put this inflation into motion....
I find it odd that you keep blaming inflation on the government printing more money, while offering a graph that clearly disputes that...
Look at 2009...
Whomever wants to increase profit margin and can get away with raising prices.
Because of the clearly demonstrable quantifiable harm done to the consumer and less fortunate members of society.
The market is supposed to be a vehicle to provide goods and services to the members of society. Increasing cost is a disservice. It's a complex way for the poorest and less fortunate to transfer what little they have into the pockets of those who already have the most...
Because raising prices, which customers pay for, just to maintain profits, and then giving away 90% of those profits to shareholders is a terrible investment. It’s terrible for workers, customers, society, and, as has been studied, for businesses themselves.
To even call it an investment is misleading. It’s not investing anything, really. It’s trying to keep the profits and stock prices high.
Quoting ssu
Yes. Companies can. Wal Mart chose to absorb extra cost, for example. Others don’t.
The Fed printing money does inflate certain assets, yes. That’s only one part of overall inflation.
So your refutation is that once there was peak of deflation during the financial crisis? Weak.
No, the primary reason is that the US government is spending far more than it earns. And the US government will continue this until a crisis erupts. Then they will blame something else and people will obediently believe them.
Quoting Mikie
Stock companies try to make a profit for their owners. It's not a terrible investment, if they achieve doing that.
Quoting Mikie
Stock buybacks etc. are another thing. Basically if the company makes a profit, then it's a healthy company.
Quoting creativesoul
So trade unions too when they achieve a pay raise?
Again, just who gets to use the money before the prices start to go up is the real winner in this game.
Quoting Mikie
Most important asset being the US dollar. Yet I'd add that it's not just the Fed, it's all the central banks and financial institutions that have to be considered too.
It’s not an investment in anything. And it’s a terrible practice. Terrible for businesses, in fact. To say nothing of the moral bankruptcy of the shareholder primacy view, which you seem to assume as a law of nature.
Quoting ssu
Just more nonsense.
Quarterly earnings tells you little about a company’s “health.” It only tells you it’s profitable this quarter.
It's never a good sign when one supplants valid objection with attacking a strawman. It's not the only time that the government provided stimulus(printed money) and no inflation followed.
However...
...even if it were, which it's not...
...that single example would serve as more than adequate prima facie empirical evidence(proof even) that inflation is not caused by the government printing money.
The intellectual poverty in comparing government finances to private business...
It's a shame that many, if not most, Americans have been brainwashed into believing that that's a good analogy.
Terrible practice to make a profit? Terrible for business?
Just what in your mind is a business profit?
Evil banality of greedy people that abuse people or what?
What is the strawman where you do have inflation every year except one?
Making a profit is fine, provided it’s done morally. Giving those profits to the rich is morally wrong and terrible practice. It’s also not an investment. R/D, capex, raising wages, community programs — those are good investments potentially.
So yes, it’s terrible practice. We see the results for business, too. Maximizing short term profits and giving 90% back to shareholders, which is what’s been happening these last 40 years, has been a disaster. True, not a disaster for Carl Icahn and the like— if that’s what you mean by success, you’re welcome.
Obviously you don't like capitalism, but the fact is profit is given to those that are the owners. Workers get salaries, owners profits.
The issue is just to look at what has the biggest effect on the issues. Yes, some large corporations indeed have pricing power and can protect their profits. However, it's still a response to the situation: raw materials and others cost rose, hence they could raise prices. And it's basically the same talking point, that it's the greedy corporations, that Gerald Ford had when inflation rose to 12% during his administration. And that's how the political discourse will be set: talk about greedy corporations, the war in ukraine, supply shortages and total silence about monetary policy.
And thus I keep repeating on the absolutely massive Trump era COVID stimulus packages in addition to the out of control spending that the US has. A jump from a debt-to-gdp ratio of 100% level to 120% level in a year or so simply has consequences. That public spending went from 4 trillion to the 7 trillion range has consequences. It's unpopular in the US as both Democrat and GOP administrations are the culprits here and thus the other side cannot simply blame the other.
Similarly, that just now the balance sheet of the Federal Reserve has double again in a very short time is telling.
And now that money didn't go to re-inflate a burst speculative bubble and keep the financial system afloat, but to prevent the COVID lockdowns causing an economic downturn.
Likely in the end the international dollar system will simply collapse. Likely then the bad guy for all this in addition to the "greedy corporations" will be said to be China. Never fiscal spending by central bank printing money as the culprit.
I think you're forgetting that the US is part of a global system. The US can overspend without developing hyper-inflation as long as China doesn't have high inflation. The problem right now is that everybody's inflation is on the high side. Even Japan's inflation rate is going up (which usually never happens).
Right now we're in a self-propelling cycle. Wages are up because spending is up, and vice versa. Even though there are signs that we may already be in a recession, inflation continues along it's own trail.
:lol:
Bye.
All nations are following the same example. And that's why a dollar crisis wouldn't be a crisis of the US, it would be a crisis for the West. We are in the same boat. And that's why the saying has gone that in the end the US is the best of the bad. I'd say the end result is monetary crisis of the whole system. Just like Nixon had in the 1970's.
Quoting frank
It would be good actually to see what economists and commentators said earlier. Reasons like why there wouldn't be any inflation because of the COVID stimulus packages and the huge increase in spending. There was even the Modern Monetary Theory (MMT) that was eagerly listened to. Even if the MMT did understand that somewhere inflation would be a problem, it wouldn't be now. Especially not for the US.
And comments were like this when the trillions level stimulus bills happened:
It's the age old thing of people believing that "this times it's different". As if what held earlier in history wouldn't hold know. And when something is brewing on for decades yet isn't upon us and the crisis hasn't happened yet, nobody cares.
China isn't in the west. China doesn't follow western policies.
Quoting ssu
I guess, but the stimulus was meant to keep the global economy from crashing, so what would you have advised instead?
Especially after the sanctions now imposed on Russia, China can fear that similar things would happen to itself. And thus the globalization bromance between China and the US is over and globalization is now going backwards. China is also focused on trying to increase it's domestic market and doesn't see anymore the link to the US or the West's technology and investment as crucial as earlier.
As Harvard Business Review put it:
This transformation doesn't happen quickly, but is happening. Still the majority of all foreign currency holdings that nations have are in US dollars. And the fact is that even if the USD has an oversized role on the markets, the US still has the largest economy.
Below a graph showing the foreign currency reserves held in the World:
The fact that now the biggest holder and the biggest buyer of US Treasuries isn't China or Japan, but the Federal Reserve. Yet the real problem is that US public finance has totally decoupled from actual tax income and is totally dependent basically structurally on acquiring more and more debt. The problem is the rapid growth of this, which will be increasingly difficult to manage.
You can pay that debt away with inflation. And that's why even if we can have temporary lulls in inflation, it won't go away.
I dont think much of what you wrote there is directly related to the present situation.
What Chinese policies then you had in mind?
Besides, China has followed a quite similar path as the West when it comes to debt, yet it's public sector isn't as heavily in debt as for example the US is being under 100% of debt-to-gdp. (If the total debt to gdp is for China in the 300% level, it's for the US somewhere in the 700% level)
Is your point that debt causes hyperinflation?
Hence I don't think you or me ought to talk about hyperinflation when you have had what? 9% inflation at the highest was or so. That's a quite an extrapolation. Many countries have had experiences of high inflation without there being hyperinflation. Not everything leads to the worst case happening.
After all, just with 10% inflation in a decade and your money is worth less than a half. Yet paying back those older debts is far more easy.
The problem is just how the US government, and typically any Western government, spends. The political problem is that "mandatory" spending is already the majority of the costs and "discretionary" is the smaller part.
Hence the "stimulus packages" will be the new norm. Just as the raising of the debt level. And it simply doesn't add up. Sooner or later you will have the crisis because the spending simply is unsustainable. And what ought to be noticed is that the higher interest rates will mean that the share of the "interest on the debt" will rise. We have started climbing from the lowest interest rates ever recorded in history.
And the spending of "mandatory items" will be changed only through a crisis. Come that before 2030 or after.
Quoting ssu
This part I agree with.
"On Friday, June 16 the Fed released the semiannual monetary policy report to Congress. The report is inclusive of data available through 16:00 ET on June 14. As such it doesn’t include the May data on retail sales, jobless claims for the week ended June 10, the import and export price indexes, or the University of Michigan consumer sentiment index. Policymakers have access to the data on industrial production since that is produced by the Federal Reserve. These reports don’t really change the picture painted by the data which is one of a still tight labor market and inflation at the core which is mainly in non-housing services.
"The monetary policy report serves as a template for the Fed Chair’s prepared remarks before each of the Congressional committees at which the semiannual monetary policy is delivered. For this round, summer testimony begins at 10:00 ET before the House Financial Services Committee and resumes at 10:00 ET before the Senate Banking Committee. Although not on the official schedule, it is typical for the Fed to release the prepared remarks at 8:30 ET when the House committee leads the rotation.
"While the monetary policy is a product of the Board of Governors and issued by it, the contents will be heavily informed by the most recent FOMC meeting of June 13-14.
"The central points of the summary in the report are two. First is, “Bringing inflation back to 2 percent will likely require a period of below trend growth and some softening of labor market conditions.” Second is, “The Federal Reserve is acutely aware that high inflation imposes significant hardship, especially on those least able to meet the higher costs of essentials. The FOMC is strongly committed to returning inflation to its 2 percent objective.”
"As was the case when Chair Jerome Powell delivered the February testimony, he is likely to get hammered on the potential for job losses in the millions if the FOMC persists in keeping monetary policy restrictive. After the upward revision in the FOMC median forecast for the fed funds target range by about 50 basis points for 2023, he will hear even more about the harm that higher rates does to individuals and businesses. The implication is that the Fed is callously endangering the livelihood of Americans by cutting off credit to individuals and businesses.
"Powell will probably reply along the lines of what he said in February and has reiterated since as recently as his press briefing on June 14. He said, “Without price stability, the economy doesn’t work for anyone.” The Federal Reserve has essentially one tool to fight inflation: raising interest rates — to lower demand and cool the economy. To imply that the central bank should not use it to achieve its Congressional mandate of price stability is disingenuous at best. The Fed would fight inflation without job losses if it could, but its options are limited.
"The Fed has more than enough evidence that the inflation cycle of the 1970’s and early 1980’s was difficult to end and require determined leadership on the part of then-Chair Paul Volcker to accomplish. Tentative monetary policy that tried to avoid unpopular rate hikes and elevated unemployment were unsuccessful. After the Volcker Fed “broke the back” of high inflation, a long period of relative price stability allowed the Fed to keep interest rates at modest levels for a long period. Powell and other Fed officials are almost certainly right to stay the course on tight monetary policy to keep inflation expectations in check and until inflation is tamed even if the lesson has been forgotten in the generation since the last major episode."
According to Bing AI, 40% of American seniors rely solely on SS to survive. Many others are on fixed income retirement plans as well. These people are left behind to suffer the most devastating impacts on society from high inflation. Compensating workers more drives up the spiral and leaves retirees behind in the dust. Perhaps that's acceptable since ageism is thriving.
No it doesn’t.
The excuses for keeping wages low are getting more and more pathetic. Now it’s supposed to hurt old people… :roll:
"Perhaps that's acceptable since ageism is thriving"
ego requiem meam causa.
Quoting Mikie
I rest my case. I’ll repeat: the idea that workers being paid a living wage in the richest country on Earth somehow hurts older Americans is a lie.
Thus, it has nothing to do with being acceptable because of “ageism,” because it’s complete bullshit. Got it? Cool.
I don't think the liberal response to rate hikes is ageism. It's just an impotent gesture.
Not talking about a "living wage", only raising wages in general for the purpose of blunting inflation. That's a recipe for leaving older generations on fixed incomes behind.
Quoting frank
Deal with inflation? (1) raise wages (2) raise interest rates.
(1) simply ignores inflation by feeding the wage-inflation spiral. (2) was pretty effective when Volker took the reins. But, admittedly, the country is in unexplored financial territory now.
So keeping real wages stagnant helps older people. Is this serious?
Wages can keep up with inflation and social programs like Medicaid / Medicare and SS will be just fine. There’s plenty of money to go around, provided we deal with the $800 billion a year gift to defense contractors and the massive tax cuts Trump gave to the corporate sector. To say nothing about trillions in stock buybacks that could easily be given to the workers who generate the astronomical profits we’ve seen the last…40 years.
Conservative canards aside, this can be done —and, importantly, has been done before.
Quoting jgill
There’s no law of economics that says if you give workers a raise, you must raise your prices to make up for it. I think Wal Mart making 1 or 10 billion less in profits— i.e., absorbing the cost — would be survivable. Considering they make roughly 150 billion. Or, rather than buy back their own stocks, companies can reinvest in workers — like they did for decades prior to the neoliberal assault.
So there is no “wage-inflation spiral.” It’s just more excuses. It’s a pity you buy into this nonsense.
Oh oh. You mean we can't keep giving money away?
Powell seems pretty confident that raising rates with "break the back" of inflation again. He wants it down to 2%.
To corporate America, particularly the financial sector? True. We shouldn’t keep giving money away to them.
Also, Friedman’s thinking is long obsolete.
CPI Report Shows Inflation Eased to 3% in June
https://www.wsj.com/articles/consumer-price-index-report-june-inflation-ede7f4b1?mod=mhp
Interesting.
In fact, there are countries that have legally mandatory inflation corrections for salaries in certain sectors, like Belgium, and not once since those laws were passed have they had to deal with a wage inflation spiral.
And that's not even going into the nonsense that's "price stability" in the first place, which benefits no one except financial institutions.
Right-wingers had a field day, crowing about the “Biden recession.” But it wasn’t just a partisan thing. Even forecasters who knew that recessions are defined by multiple indicators, and that America wasn’t in a recession yet, began predicting one in the near future. As Mark Zandi of Moody’s Analytics, one of the few prominent recession skeptics, put it: “Every person on TV says recession. Every economist says recession. I’ve never seen anything like it.”
By late 2022, members of the Federal Reserve committee that sets monetary policy were predicting an unemployment rate of 4.6 percent by late 2023; private forecasters were predicting 4.4 percent. Either of these forecasts would have implied at least a mild recession.
To be fair, we don’t know for sure that these predictions will be falsified. But with unemployment in June just 3.6 percent, the same as it was a year ago, and job growth still chugging away, the economy would have to fall off a steep cliff very soon to make them right, and there’s little hint in the data of that happening.
[/quote]
A few people were screaming about a recession on this very thread. Between that and the constant blather about how we’re “printing too much money,” I think it’s time to simply face the fact that most people don’t have a clue about what they’re talking about, and that the proper action is to ignore them.
There are many factors of inflation— supply chain disruptions, post Covid demand, war, corporate price gouging, monetary policy artificially inflating the three major asset classes, etc.
Now that there’s been no recession and inflation is under control, the new boogeyman will be the national debt, which Republicans suddenly care about again and which therefore all of us are supposed to be scared shitless about.
It never ends.
The fact is that Biden, for all his flaws, has been far more progressive than Obama— and while he’s made maddening decisions on labor and environment, his administration has made attempts to do sensible things in education, regulations, etc— at the SEC, EPA, the NLRB, etc. even saying nice things and appointing good people is a positive message for the country and world.
I think it was the third quarter of 2022 that America's 500 largest companies had almost double the profit margin that they had through the 60s and 70s.
Rather, the most reasonable explanation I can think of is that:
First the pandemic causes a huge supply shock, one that has aftershocks due to China's repeated, draconian shut downs. This puts supply side pressure on prices.
At the same time, people can't consume services in the same way due to COVID restrictions. Demand for durable goods soars at the same time supply is hit hard, so there is a demand side inflationary push as well.
Service workers who were laid off in droves find new production jobs, which are expanding rapidly due to the shift towards durable goods consumption. At the same time, Baby Boomers begin to retire more rapidly due to the pandemic, both due to job conditions and safety fears as it is primarily an illness that is dangerous for the elderly. Migration also slows way down, hurting the labor supply. When things reopen, tons of service jobs are hiring at once but the labor force is smaller. This kicks off wage hikes, and indeed for a while , even with inflation, the bottom 80% of earners are doing better than they have in decades.
This is the initial inflation, but why don't we reach equilibrium quickly? I would argue that in the labor market we did reach equilibrium. Real wage growth slowed and then actually reversed. Did we have a labor shortage with a decling price for labor?
So why the continued inflation? I think the answer is lies in the surge in corporate profits. The pandemic forced many industries to raise prices and made people accept large price hikes. At the same time, the short period of real wages growth and the stimulus left households with more money to spend making demand less inelastic. Companies now had an excuse to raise prices that consumers buy and because prices have not recently surged like this consumer habits are lax. First some firms hike prices because they have to in order to survive, but then this solved the collective action problem of who raises prices first in an oligopoly.
Huge market concentration over the past decades makes this worse. When 4 firms control 80% of meat and over half the value of the average grocery cart goes to 6 conglomerates, it is much easier for oligopolies to realize monopoly profits once their collective action problem is fixed. Obviously the war in Ukraine hit energy supplies too.
Then you have the housing market which goes up for a whole different set of reasons, but adds to all this.
If this is the case, or at least a close approximations, fiscal policy should play a larger role. We should be taxing those who benefited from the windfall monopoly-like profits to reduce aggregate demand instead of using a brute force tool like rate hikes (of course, you might still do hikes, very low rates appear to increase inequality long term in a corrosive way). We should also be looking at market share and trust busting with renewed vigor.
Ageism has nothing to do with it. Some economic policies hurt some classes and help others, that is the nature of the beast. Accumulating $32 trillion in debt hurts younger adults and children. Having almost half the Federal budget be transfer payments to seniors (universal basic income in the form of Social Security and universal healthcare in the form of Medicare) necessarily hurts other classes. There is only so much to go around. But this doesn't make "think of the children," necessarily a good way to look at monetary policy.
We gave seniors these benefits largely because of the assumption that, once someone reaches a certain age they can no longer work in many professions. SS was in the context of the 1930s when lifespans were much lower and most work was manual labor. The problem being addressed was widespread senior poverty.
The programs worked. Today seniors are the group least likely to live in poverty. Children are the most likely group to live in poverty. During the pandemic we experimented with a child tax credit that gave families about 35% of the average Social Security payment per month, per child. But we also ran astounding deficits during this period.
The arguments for children deserving support, that they cannot support themselves, seem at least as good as the argument for seniors. The argument that it is an investment is even better. However, we can't afford current spending levels, so it's not like this is a real option unless we dramatically hike revenues or cut spending. To the extent transfers to seniors crowd out funding for other classes, veterans' benefits, support for children, even ideas like reparations for slavery, they "hurt," those classes.
To my mind, seniors already have the largest share of wealth of any group, a much larger share of wealth than their parents did at their age, receive the lion's share of all transfer payments, hold most high offices at the federal level, and so I wouldn't be particularly worried about them as a class per say, at a least not more than any other age group. I would be worried about a particular subset of seniors, those with inadequate savings for a basic standard of living. But the easiest way to help them is with targeted transfer payments, not monetary policy. Monetary policy is inherently a blunt tool and needs to focus on the big picture.
That many seniors don't have adequate savings, is to my mind definitive proof that our national pension system is simply inadequate. It is highly unlikely that current generations will live through the high rates of growth and wage growth that Baby Boomers did and even many Baby Boomers have trouble covering their retirement. That points to a fundementally structural issue.
We have traditionally prioritized older generations over younger ones on the assumption that economic growth and technological changes will mean that younger generations end up far better off than prior ones. That assumption no longer appears to be true, real wages have stagnated for half a century, falling for lower quintiles, life expectancy is declining for babies born today, growth hasn't returned to old levels.
Plus, IDK if inflation even does hurt seniors more as a class. That's common wisdom but they own the most real estate and equities relative to their share of the population by a solid margin and these are gaining value faster than inflation.
In order to do that, taxation would have to be controlled by a body of experts the way rates are. In principle, people shouldn't be taxed unless they approve, so this is a side effect of founding principles, not a lack of wisdom on anyone's part. What is available to take action is rate hikes. Powell specifically mentioned Volcker in his last set of comments, so he's saying "Don't doubt me."
This asshole said the secret part out loud.
At least he said unemployment has to rise 40% to 50%, not meaning unemployment has to be 40% to 50%. Well, unemployment (if the stats are genuine) in Australia is something like 3,7%. An unemployment of 5,55% isn't bad, double digits unemployment is bad. But then unemployment figures are notoriously understated (with unemployed when they stop looking for a job or after some time falling from the unemployed statistics).
But here's the issue:
The unemployment - inflation argument goes a long way and is mainstream economics. Basically meaning that with high unemployment you have a recession and prices don't rise because people cannot afford higher prices and they cut spending. Then when unemployment is low, economy is roaring and guess what, with high demand those prices rise! This is quite straightforward and simple.
Yet the model doesn't take into account (of course) in any way the government and especially not the central bank. Because you can have stagflation: both high unemployment and high inflation. Hence if the government recklessly borrows or prints money to cover it's expenses, it's totally possible to have both unemployment and inflation.
Now I guess the game is to have the modest inflation that will take care of the excessive spending while not being so hot that the voter will jump out of the boiling water in the next elections.