Inflation

Y’all killing me with this shit

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I think we're pregnant, the only question is what color the baby's hair is going to be.

Just to make sure we're all on the same page: Congress doesn't have anything to do with monetary policy other than rubber-stamping any Fed nominees that the President submits to the Senate for consideration. The Fed is a nominally-independent body with terms intended to make them somewhat immune to Congressional or WH meddling. The nominees themselves still matter (which is why President matters), but as we'll see in a minute, externalities constrain monetary policy more than they should. In a perfect world, the Fed should be concerned with nothing other than the value of the USD, but that has largely ceased to be the case.

Historically, Congress has been constrained in terms of how much debt they could run up by a number of factors, not least of which was Fed policy. If interest rates are too high, the supply of dollars is constrained, etc, the Federal government could dig a hole pretty quickly. Currently, about 10% of the Federal budget every year is spent on debt service (interest payments) on the current national debt. Contrary to a lot of the bullshit you hear from talking heads on TV going on about "wasteful spending" - most of the Federal budget and most of the debt is related to various forms of insurance that are effectively "beyond debate". Social Security, Medicare, Medicaid, the VA, etc, make up the lion's share of the debt and the projected spending. Bridges to Nowhere are unfortunate boondoggles, but rounding errors in the Federal budget.

That said, Congress probably learned the wrong lesson from 08/09. Long constrained (at least to a nominal extent) by the unknown machinations of current and future Fed policy, they discovered they could spend a lot more money than they thought possible, and the Fed would support those efforts. To this day, the Fed is spending $40 billion dollars per month buying bonds, warping market feedback on government debt levels. The Fed is buying Mortgage-Backed Securities, adding to distortions in the housing market and making it easier for subprime buyers to close on houses they might not be able to afford (not just poor people here - overextended wealthy just as much of a risk). When covid rolled around, the Fed went on a massive money-printing spree to the point where (as of summer 2021) roughly 40% of USD in circulation had been printed in the last year. That was fine, because the velocity of that cash had dropped precipitously (people weren't spending money b/c Covid/they didn't have anyplace to spend it). With the economy heating up post-Covid (and the velocity of money returning to normal levels), the Fed has limited options to control inflation. They can take cash out of circulation (sell bonds, raising interest rates), they can raise interest rates directly through the overnight cash rate, or they can sit on their hands and hope it all works out. Getting back to the point earlier, raising interest rates could be a huge problem for the Federal budget, and based on Fed behavior at present, seems to be a scenario they don't want to pursue.

So you're going to get inflation, the question remains how much and how quickly. The 'stagflation' scenario is probably a best-case: inflation is a persistent problem, but it simultaneously reduces economic growth (compounded by covid-related supply chain issues). Everything costs more in absolute dollars, but nothing fundamentally changes. Economic growth sucks, but Weimar is avoided. The upside here is that everyone gets to be a millionaire.

There are at least a couple of ways to make hay here. Avoid investing in "growth" stocks. High inflation kills growth companies; put your money in energy, industrials, materials. Borrow money to buy inflation-resistant assets in today's dollars to be repaid with tomorrow's dollars. Lastly, be skeptical of any Fed data.
 
I think we're pregnant, the only question is what color the baby's hair is going to be.

Just to make sure we're all on the same page: Congress doesn't have anything to do with monetary policy other than rubber-stamping any Fed nominees that the President submits to the Senate for consideration. The Fed is a nominally-independent body with terms intended to make them somewhat immune to Congressional or WH meddling. The nominees themselves still matter (which is why President matters), but as we'll see in a minute, externalities constrain monetary policy more than they should. In a perfect world, the Fed should be concerned with nothing other than the value of the USD, but that has largely ceased to be the case.

Historically, Congress has been constrained in terms of how much debt they could run up by a number of factors, not least of which was Fed policy. If interest rates are too high, the supply of dollars is constrained, etc, the Federal government could dig a hole pretty quickly. Currently, about 10% of the Federal budget every year is spent on debt service (interest payments) on the current national debt. Contrary to a lot of the bullshit you hear from talking heads on TV going on about "wasteful spending" - most of the Federal budget and most of the debt is related to various forms of insurance that are effectively "beyond debate". Social Security, Medicare, Medicaid, the VA, etc, make up the lion's share of the debt and the projected spending. Bridges to Nowhere are unfortunate boondoggles, but rounding errors in the Federal budget.

That said, Congress probably learned the wrong lesson from 08/09. Long constrained (at least to a nominal extent) by the unknown machinations of current and future Fed policy, they discovered they could spend a lot more money than they thought possible, and the Fed would support those efforts. To this day, the Fed is spending $40 billion dollars per month buying bonds, warping market feedback on government debt levels. The Fed is buying Mortgage-Backed Securities, adding to distortions in the housing market and making it easier for subprime buyers to close on houses they might not be able to afford (not just poor people here - overextended wealthy just as much of a risk). When covid rolled around, the Fed went on a massive money-printing spree to the point where (as of summer 2021) roughly 40% of USD in circulation had been printed in the last year. That was fine, because the velocity of that cash had dropped precipitously (people weren't spending money b/c Covid/they didn't have anyplace to spend it). With the economy heating up post-Covid (and the velocity of money returning to normal levels), the Fed has limited options to control inflation. They can take cash out of circulation (sell bonds, raising interest rates), they can raise interest rates directly through the overnight cash rate, or they can sit on their hands and hope it all works out. Getting back to the point earlier, raising interest rates could be a huge problem for the Federal budget, and based on Fed behavior at present, seems to be a scenario they don't want to pursue.

So you're going to get inflation, the question remains how much and how quickly. The 'stagflation' scenario is probably a best-case: inflation is a persistent problem, but it simultaneously reduces economic growth (compounded by covid-related supply chain issues). Everything costs more in absolute dollars, but nothing fundamentally changes. Economic growth sucks, but Weimar is avoided. The upside here is that everyone gets to be a millionaire.

There are at least a couple of ways to make hay here. Avoid investing in "growth" stocks. High inflation kills growth companies; put your money in energy, industrials, materials. Borrow money to buy inflation-resistant assets in today's dollars to be repaid with tomorrow's dollars. Lastly, be skeptical of any Fed data.
The hair will be orange. Think about who got us pregnant. :p
 
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One question that I have had for some time now.... with the Fed printing all this money recently... why have I started to see signs again at retail establishments about limited amount of change and low count bills? I figured mid-shutdown it was due to limited amount of people spending, but now with spending back up, and more money in circulation, it seems odd. I get coins, but are they only printing large bills or are people squirreling cash away?
 
I think we're pregnant, the only question is what color the baby's hair is going to be.

Just to make sure we're all on the same page: Congress doesn't have anything to do with monetary policy other than rubber-stamping any Fed nominees that the President submits to the Senate for consideration. The Fed is a nominally-independent body with terms intended to make them somewhat immune to Congressional or WH meddling. The nominees themselves still matter (which is why President matters), but as we'll see in a minute, externalities constrain monetary policy more than they should. In a perfect world, the Fed should be concerned with nothing other than the value of the USD, but that has largely ceased to be the case.

Historically, Congress has been constrained in terms of how much debt they could run up by a number of factors, not least of which was Fed policy. If interest rates are too high, the supply of dollars is constrained, etc, the Federal government could dig a hole pretty quickly. Currently, about 10% of the Federal budget every year is spent on debt service (interest payments) on the current national debt. Contrary to a lot of the bullshit you hear from talking heads on TV going on about "wasteful spending" - most of the Federal budget and most of the debt is related to various forms of insurance that are effectively "beyond debate". Social Security, Medicare, Medicaid, the VA, etc, make up the lion's share of the debt and the projected spending. Bridges to Nowhere are unfortunate boondoggles, but rounding errors in the Federal budget.

That said, Congress probably learned the wrong lesson from 08/09. Long constrained (at least to a nominal extent) by the unknown machinations of current and future Fed policy, they discovered they could spend a lot more money than they thought possible, and the Fed would support those efforts. To this day, the Fed is spending $40 billion dollars per month buying bonds, warping market feedback on government debt levels. The Fed is buying Mortgage-Backed Securities, adding to distortions in the housing market and making it easier for subprime buyers to close on houses they might not be able to afford (not just poor people here - overextended wealthy just as much of a risk). When covid rolled around, the Fed went on a massive money-printing spree to the point where (as of summer 2021) roughly 40% of USD in circulation had been printed in the last year. That was fine, because the velocity of that cash had dropped precipitously (people weren't spending money b/c Covid/they didn't have anyplace to spend it). With the economy heating up post-Covid (and the velocity of money returning to normal levels), the Fed has limited options to control inflation. They can take cash out of circulation (sell bonds, raising interest rates), they can raise interest rates directly through the overnight cash rate, or they can sit on their hands and hope it all works out. Getting back to the point earlier, raising interest rates could be a huge problem for the Federal budget, and based on Fed behavior at present, seems to be a scenario they don't want to pursue.

So you're going to get inflation, the question remains how much and how quickly. The 'stagflation' scenario is probably a best-case: inflation is a persistent problem, but it simultaneously reduces economic growth (compounded by covid-related supply chain issues). Everything costs more in absolute dollars, but nothing fundamentally changes. Economic growth sucks, but Weimar is avoided. The upside here is that everyone gets to be a millionaire.

There are at least a couple of ways to make hay here. Avoid investing in "growth" stocks. High inflation kills growth companies; put your money in energy, industrials, materials. Borrow money to buy inflation-resistant assets in today's dollars to be repaid with tomorrow's dollars. Lastly, be skeptical of any Fed data.
Excellent post.

What is the current risk that the rest of the bigger players in the world revolt from the petrodollar/reserve currency?

What would be the immediate and longer term effect here for normal middle class plebes?
 
this... right here. Hits me right in da feels.

As a Federal employee, my earnings potential and options for increases are pretty limited, at least any kind of annual boost. I'm pretty lucky - most people's pay schedules set by the GSA is very slow and steady, Our agency actually has pay for performance (sort of). Even then, aside from a cross-band promotion, major increase in duties etc - you pretty much have to be a rockstar, with evidence of being on your way to ending war and curing cancer to get an extra 3%. Realistically it's like 2% plus whatever COLA adjustment is.

COLA was decided at 2.7% at the beginning of the year. And at the time that was espoused as "generous" to try and make up the differential against private sector... .which is a big LOL. Even though 10 months ago everybody could already see the writing of inflation on the wall.
So that means I already know that my annual "raise" all told will be well below the cost of inflation and no way to combat it.
Remember that I am also under scrutiny for ny kinf of side business income or many specific investments.
 
One question that I have had for some time now.... with the Fed printing all this money recently... why have I started to see signs again at retail establishments about limited amount of change and low count bills? I figured mid-shutdown it was due to limited amount of people spending, but now with spending back up, and more money in circulation, it seems odd. I get coins, but are they only printing large bills or are people squirreling cash away?
Around here (in TN) we haven't saw much of that at all.esp last summer.We were in Denton NC for about four days a week ago and about every place you went in to had a sign.
 
this... right here. Hits me right in da feels.

As a Federal employee, my earnings potential and options for increases are pretty limited, at least any kind of annual boost. I'm pretty lucky - most people's pay schedules set by the GSA is very slow and steady, Our agency actually has pay for performance (sort of). Even then, aside from a cross-band promotion, major increase in duties etc - you pretty much have to be a rockstar, with evidence of being on your way to ending war and curing cancer to get an extra 3%. Realistically it's like 2% plus whatever COLA adjustment is.

COLA was decided at 2.7% at the beginning of the year. And at the time that was espoused as "generous" to try and make up the differential against private sector... .which is a big LOL. Even though 10 months ago everybody could already see the writing of inflation on the wall.
So that means I already know that my annual "raise" all told will be well below the cost of inflation and no way to combat it.
Remember that I am also under scrutiny for ny kinf of side business income or many specific investments.
Our yearly raises don’t even include col. it could be worse.
 
The market will decide I guess. We have to stop buying and the prices will drop. We haven't given any incentive for anyone to lower prices. We kept buying expensive lumber, restaurants seem to be full, houses are way over valued and people keep buying, used cars are expensive but people keep buying, gas is up but the road is full of cars. Walmart was full of people this morning....and their prices are already notabley higher. I don't get it. We are our own worst enemy....and have been.
 
The market will decide I guess. We have to stop buying and the prices will drop. We haven't given any incentive for anyone to lower prices. We kept buying expensive lumber, restaurants seem to be full, houses are way over valued and people keep buying, used cars are expensive but people keep buying, gas is up but the road is full of cars. Walmart was full of people this morning....and their prices are already notabley higher. I don't get it. We are our own worst enemy....and have been.
Because Americans don't understand living without.
 
Because Americans don't understand living without.
No we don’t. Our poor are some of the richest people by world standards.

At some point the squeeze will get real enough and restaurants will feel it (who are still reeling in many cases from lockdowns), the demand for cars will fall off (you’ll realize the one you have can be maintained less expensively than a loan payment) and houses will cool (because folks will stay where they are).

This of course is all out the window if the bubble simply bursts.
 
No we don’t. Our poor are some of the richest people by world standards.

At some point the squeeze will get real enough and restaurants will feel it (who are still reeling in many cases from lockdowns), the demand for cars will fall off (you’ll realize the one you have can be maintained less expensively than a loan payment) and houses will cool (because folks will stay where they are).

This of course is all out the window if the bubble simply bursts.
but.but.but little Johnny's best friends parents have a new house,w a pool,a new tahoe and three new SXS's.We dont want little Johnny thinhkin we cant afford those things too,We have to keep up w the Jones's!!
 
but.but.but little Johnny's best friends parents have a new house,w a pool,a new tahoe and three new SXS's.We dont want little Johnny thinhkin we cant afford those things too,We have to keep up w the Jones's!!
This is the sad truth for many.

We sold our home in Smithfield. A nice older place with many thousands in landscaping and very nice inside. My neighbor bought it for his mother so no realtor or anything involved.

We moved to the mountains to live (for now) in a 1991 singlewide on a BEAUTIFUL property and we simply changed our entire POV. We live simply and enjoy each other.

I have been to Central and South America many times and seeing real poverty was a life changing event for me. I was “rewired”.

Yeah we’re going to build a house, the last house. I will be buried here. This for me is a perfect simple life. We don't try to keep up with anyone. My grandson is growing up loving the outdoors and not the culture the commies are pushing and many are buying.
 
I used the term "keepin up w the Jones's "on FB one time and literally had to explain who the Jones's were and what that meant.I guess that showed my age.
 
I have been to Central and South America many times and seeing real poverty was a life changing event for me. I was “rewired”.
Coming from a 3rd world country about as poor as you can get for 10yrs, I totally understand. America as a whole doesn't know how good they got it ...even people who "struggle" here is nothing compared to what real struggle is. Gosh, I could share stories of Romania that would blow you away with what harsh reality it was...but one main thing I can say is you don't complain really cause that's all you know and what you don't know about can't hurt/disappoint you. One small example, funny but serious, when leaving Romania to come to America on airplane, I literally thought we were leaving the planet never having education, just street survival smarts. That was the wildest thing you could imagine...flight attendants couldn't keep me strapped to my chair to see the world I was leaving behind lol. We flew in to NY and yeah.....imagine that. My first american food was 9 Mcdonalds burgers and 6 large fries...10yrs old I weighed a massive 43lb...no lie, it was kinda gross lol
 
but one main thing I can say is you don't complain really cause that's all you know
I saw this by and large. The people were HAPPY. CONTENT.

They lived in dirt floor huts in the mountains of Ecuador and if they were fortunate they had a few sheep or a donkey (I saw one pig). The villages had communal kitchens and ate together. The kids (no BS) played with an old bike wheel or wooden block like something from an old movie. We gave out soccer balls after we pumped them up and it was like we were giving out gold.

They were out of their minds ecstatic about getting some hard candy and the few tools we were able to get to them. Everything had to be brought in luggage because anything shipped ahead was stolen long before it reached the destination.

In Quito and in other towns, kids had left their villages at 7-10 years old to become shoe shine boys. They would work for a man who set them up and took most of what they made, they went around asking to shine shoes for 25c or whatever they could get. It was heartbreaking to see a child alone with no family trying to live, trying to eat.

It was similar in other countries but those kids in Ecuador touched me like nowhere else.



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People believe the US is immune to real famine and doing without basic needs. We bitch when a few items are out of stock or fuel is expensive. I do this too. I hope I’m wrong but it absolutely could come here. The system is much more fragile than we like to think and when it appears those in power are hurrying it along it should be a wake up for everyone.
 
The kids (no BS) played with an old bike wheel or wooden block like something
yep that's what I did growing up too...it was time of my life running down the street with one of those.
Christmas time came around and I always looked forward to (hopefully) getting pair of wool made socks so I could play in the snow without being bare feet....shoes??? what are those...lol
People believe the US is immune to real famine and doing without basic needs. We bitch when a few items are out of stock or fuel is expensive. I do this too. I hope I’m wrong but it absolutely could come here. The system is much more fragile than we like to think and when it appears those in power are hurrying it along it should be a wake up for everyone.
I don't think US is immune to this...it will come, matter of when not if
 
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