The war in Ukraine is a likely a factor in your flour prices, since Ukraine is a major supplier of wheat for the world, and that supply has dwindled over the last couple of years. I'm not suggesting that inflation isn't crazy right now, just that this specific example at least has factors that you can't blame on the US government directly.confucius_ag said:
Here at the office we decided to just track the price of a 25-lb bag of flour at HEB. We started this on March 8, 2022. This is a good snapshot of the inflation we've seen and it's not pretty.
There is no way out for us without recession and likely depression / war. Because the experts you love have stepped in with liquidity that robs the taxpayers either directly of deposits (2008) or through inflation, we have kicked the can instead of experiencing normal economic cycles. So when it does hit, it's going to far more painful than what you think 2020 could have been. So give me normal economic swings all day instead of the nonsense we have now. Semi-regular recessions are far better than devastating depressions.SteveBott said:
Comparing any specific price product is worthless data. Example eggs. Remember when people were crying about 5 dollar dozens? Now 2.83. Does that mean we have deinflation? No of course not. I posted PCE that is what the Fed watches. They are the expert economists.
FYI you want some mild inflation. It's good for the economy. Thats why 2% is the optimal target rate. So 10% over 4 years is acceptable.
Another data metric that also must be compared is wage growth. It cancels inflation. And we have had the best wage growth for lower to middle income workers in generations, beating inflation. It's the other side of the coin.
No one likes this recent rate of inflation but the alternative was recession after Covid. I'll take inflation and wage growth over loss of millions of jobs every time.
I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
Oh it shows up. It's hitting the earnings reports quarterly as you are having to buy goods more frequently at higher prices turning into "growing revenue" for the producers.2wealfth Man said:
A lot of things I buy keep shrinking in unit count or weight. Noticed some disposal bags I buy have gone from 10 count to 8 count. Not sure this type of inflation finds its way into any data.
Heineken-Ashi said:There is no way out for us without recession and likely depression / war. Because the experts you love have stepped in with liquidity that robs the taxpayers either directly of deposits (2008) or through inflation, we have kicked the can instead of experiencing normal economic cycles. So when it does hit, it's going to far more painful than what you think 2020 could have been. So give me normal economic swings all day instead of the nonsense we have now. Semi-regular recessions are far better than devastating depressions.SteveBott said:
Comparing any specific price product is worthless data. Example eggs. Remember when people were crying about 5 dollar dozens? Now 2.83. Does that mean we have deinflation? No of course not. I posted PCE that is what the Fed watches. They are the expert economists.
FYI you want some mild inflation. It's good for the economy. Thats why 2% is the optimal target rate. So 10% over 4 years is acceptable.
Another data metric that also must be compared is wage growth. It cancels inflation. And we have had the best wage growth for lower to middle income workers in generations, beating inflation. It's the other side of the coin.
No one likes this recent rate of inflation but the alternative was recession after Covid. I'll take inflation and wage growth over loss of millions of jobs every time.
And the incredible nonsense about 2% being good. Pure Keynesian garbage. 2% is the number they know they can tax you into perpetuity without you complaining. Any higher and you get a little frisky and start criticizing them. Significantly higher for longer and you start rioting in the streets, which is why the second they realized just how WRONG they were ("inflation is transitory" from your beloved genius economic experts), they embarked on the fastest and most punishing rate raising cycle in history.
All inflation is bad. Because it means the currency is devaluing. A truly healthy economy doesn't need to borrow money and devalue the currency to stimulate growth. A real economy has real productive increases. Companies that provide actual returns are rewarded. Companies that don't fail. A healthy economy continues to employ people and grow wages, again, because of actual increases in productivity. Actual growth. We haven't had that in nearly a century. Hopefully our kids will. And hopefully they won't let unelected bankers steal 2% from them every year with once every decades events that steal 20%.
Heineken-Ashi said:There is no way out for us without recession and likely depression / war. Because the experts you love have stepped in with liquidity that robs the taxpayers either directly of deposits (2008) or through inflation, we have kicked the can instead of experiencing normal economic cycles. So when it does hit, it's going to far more painful than what you think 2020 could have been. So give me normal economic swings all day instead of the nonsense we have now. Semi-regular recessions are far better than devastating depressions.SteveBott said:
Comparing any specific price product is worthless data. Example eggs. Remember when people were crying about 5 dollar dozens? Now 2.83. Does that mean we have deinflation? No of course not. I posted PCE that is what the Fed watches. They are the expert economists.
FYI you want some mild inflation. It's good for the economy. Thats why 2% is the optimal target rate. So 10% over 4 years is acceptable.
Another data metric that also must be compared is wage growth. It cancels inflation. And we have had the best wage growth for lower to middle income workers in generations, beating inflation. It's the other side of the coin.
No one likes this recent rate of inflation but the alternative was recession after Covid. I'll take inflation and wage growth over loss of millions of jobs every time.
And the incredible nonsense about 2% being good. Pure Keynesian garbage. 2% is the number they know they can tax you into perpetuity without you complaining. Any higher and you get a little frisky and start criticizing them. Significantly higher for longer and you start rioting in the streets, which is why the second they realized just how WRONG they were ("inflation is transitory" from your beloved genius economic experts), they embarked on the fastest and most punishing rate raising cycle in history.
All inflation is bad. Because it means the currency is devaluing. A truly healthy economy doesn't need to borrow money and devalue the currency to stimulate growth. A real economy has real productive increases. Companies that provide actual returns are rewarded. Companies that don't fail. A healthy economy continues to employ people and grow wages, again, because of actual increases in productivity. Actual growth. We haven't had that in nearly a century. Hopefully our kids will. And hopefully they won't let unelected bankers steal 2% from them every year with once every decades events that steal 20%.
No. In a normal economy, the value of the currency is tied to something tangible that has value like the dollar used to be with the gold standard. We still used leverage. There was still a time value of money, but we were incapable of wildly devaluing the dollar in relation to gold. That's why they left the gold standard.AggieAL1 said:Heineken-Ashi said:There is no way out for us without recession and likely depression / war. Because the experts you love have stepped in with liquidity that robs the taxpayers either directly of deposits (2008) or through inflation, we have kicked the can instead of experiencing normal economic cycles. So when it does hit, it's going to far more painful than what you think 2020 could have been. So give me normal economic swings all day instead of the nonsense we have now. Semi-regular recessions are far better than devastating depressions.SteveBott said:
Comparing any specific price product is worthless data. Example eggs. Remember when people were crying about 5 dollar dozens? Now 2.83. Does that mean we have deinflation? No of course not. I posted PCE that is what the Fed watches. They are the expert economists.
FYI you want some mild inflation. It's good for the economy. Thats why 2% is the optimal target rate. So 10% over 4 years is acceptable.
Another data metric that also must be compared is wage growth. It cancels inflation. And we have had the best wage growth for lower to middle income workers in generations, beating inflation. It's the other side of the coin.
No one likes this recent rate of inflation but the alternative was recession after Covid. I'll take inflation and wage growth over loss of millions of jobs every time.
And the incredible nonsense about 2% being good. Pure Keynesian garbage. 2% is the number they know they can tax you into perpetuity without you complaining. Any higher and you get a little frisky and start criticizing them. Significantly higher for longer and you start rioting in the streets, which is why the second they realized just how WRONG they were ("inflation is transitory" from your beloved genius economic experts), they embarked on the fastest and most punishing rate raising cycle in history.
All inflation is bad. Because it means the currency is devaluing. A truly healthy economy doesn't need to borrow money and devalue the currency to stimulate growth. A real economy has real productive increases. Companies that provide actual returns are rewarded. Companies that don't fail. A healthy economy continues to employ people and grow wages, again, because of actual increases in productivity. Actual growth. We haven't had that in nearly a century. Hopefully our kids will. And hopefully they won't let unelected bankers steal 2% from them every year with once every decades events that steal 20%.
That's confusing. Are you saying in a "healthy economy" nothing ever costs more (zero inflation). At the same time workers get paid more and companies earn more. And it's all because of "productivity."
Wouldn't you slam into a wall somewhere there? Which would seem to be unhealthy.
There seems to be a growing belief in these pages that currency should be a fixed commodity. Currency can have no set value because it is merely a bartering tool to permit producers, workers and consumers to establish "fair" exchange for their offerings in a macro-setting. Supply and demand still rule that roost and they changeRibeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
It has everything to do with being Keynesian. Our entire system is 100% Keynesian. So all of the fallacies about how "inflation has to exist" are nothing more than supporting a broken status quo that has proven that there is always a price to pay for reckless monetary policy. And we have only started to pay it.Gordo14 said:Heineken-Ashi said:There is no way out for us without recession and likely depression / war. Because the experts you love have stepped in with liquidity that robs the taxpayers either directly of deposits (2008) or through inflation, we have kicked the can instead of experiencing normal economic cycles. So when it does hit, it's going to far more painful than what you think 2020 could have been. So give me normal economic swings all day instead of the nonsense we have now. Semi-regular recessions are far better than devastating depressions.SteveBott said:
Comparing any specific price product is worthless data. Example eggs. Remember when people were crying about 5 dollar dozens? Now 2.83. Does that mean we have deinflation? No of course not. I posted PCE that is what the Fed watches. They are the expert economists.
FYI you want some mild inflation. It's good for the economy. Thats why 2% is the optimal target rate. So 10% over 4 years is acceptable.
Another data metric that also must be compared is wage growth. It cancels inflation. And we have had the best wage growth for lower to middle income workers in generations, beating inflation. It's the other side of the coin.
No one likes this recent rate of inflation but the alternative was recession after Covid. I'll take inflation and wage growth over loss of millions of jobs every time.
And the incredible nonsense about 2% being good. Pure Keynesian garbage. 2% is the number they know they can tax you into perpetuity without you complaining. Any higher and you get a little frisky and start criticizing them. Significantly higher for longer and you start rioting in the streets, which is why the second they realized just how WRONG they were ("inflation is transitory" from your beloved genius economic experts), they embarked on the fastest and most punishing rate raising cycle in history.
All inflation is bad. Because it means the currency is devaluing. A truly healthy economy doesn't need to borrow money and devalue the currency to stimulate growth. A real economy has real productive increases. Companies that provide actual returns are rewarded. Companies that don't fail. A healthy economy continues to employ people and grow wages, again, because of actual increases in productivity. Actual growth. We haven't had that in nearly a century. Hopefully our kids will. And hopefully they won't let unelected bankers steal 2% from them every year with once every decades events that steal 20%.
The fact that this post is starred more than Steve's demonstrates how much people prefer emotionally charged conspiracies to actually understanding what's going on and why. It doesn't take being "Keynesian" to understand a small, steady, and healthy amount of inflation stimulates consumption and therefore growth. But I am not going to go on a diatribe about kids greedy banks and the evil US government.
Long read, but it fully answers your last question.AggieAL1 said:There seems to be a growing belief in these pages that currency should be a fixed commodity. Currency can have no set value because it is merely a bartering tool to permit producers, workers and consumers to establish "fair" exchange for their offerings in a macro-setting. Supply and demand still rule that roost and they changeRibeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
regularly.
As to inflation rates, I'd be interested in knowing how you determined they constitute government "robbery."
Quote:
You don't get punished for keeping your money in cash as there is an actual real savings rate. Aligning your investments with companies and sectors that are outperforming the real savings rate will grow your wealth. Investing in companies that aren't productive will not.
Was I not clear that the example provided was what would happen in an actual healthy economy not beholden to massive amounts of government debt and currency devaluation?AggieAL1 said:Quote:
You don't get punished for keeping your money in cash as there is an actual real savings rate. Aligning your investments with companies and sectors that are outperforming the real savings rate will grow your wealth. Investing in companies that aren't productive will not.
My friend, I believe you've been hoodwinked. But I'll be happy to change my view if you'll tell me what the real savings rate is and how we fools are supposed to sift the companies that outperform from those that don't?
Having been around a good while before 1970, I have some knowledge of how the economy worked. But I assume you are harking back to the end of the world gold standard, which merely served as a roadblock to international trade and had been something of an illusion for many years before. World economies were frenzied by the false stabilizer and ours suffered because of it.Heineken-Ashi said:Was I not clear that the example provided was what would happen in an actual healthy economy not beholden to massive amounts of government debt and currency devaluation?AggieAL1 said:Quote:
You don't get punished for keeping your money in cash as there is an actual real savings rate. Aligning your investments with companies and sectors that are outperforming the real savings rate will grow your wealth. Investing in companies that aren't productive will not.
My friend, I believe you've been hoodwinked. But I'll be happy to change my view if you'll tell me what the real savings rate is and how we fools are supposed to sift the companies that outperform from those that don't?
I would strongly suggest you take a gander through how the economy operated prior to 1970, and especially prior to the FED coming into existence.
Now you are arguing quality of life comparing then to now. I would guess the citizens of the early 1900's were quite pleased compared to their ancestors from 50-100 years prior. At least until the FED managed them into depression and war.AggieAL1 said:Having been around a good while before 1970, I have some knowledge of how the economy worked. But I assume you are harking back to the end of the world gold standard, which merely served as a roadblock to international trade and had been something of an illusion for many years before. World economies were frenzied by the false stabilizer and ours suffered because of it.Heineken-Ashi said:Was I not clear that the example provided was what would happen in an actual healthy economy not beholden to massive amounts of government debt and currency devaluation?AggieAL1 said:Quote:
You don't get punished for keeping your money in cash as there is an actual real savings rate. Aligning your investments with companies and sectors that are outperforming the real savings rate will grow your wealth. Investing in companies that aren't productive will not.
My friend, I believe you've been hoodwinked. But I'll be happy to change my view if you'll tell me what the real savings rate is and how we fools are supposed to sift the companies that outperform from those that don't?
I would strongly suggest you take a gander through how the economy operated prior to 1970, and especially prior to the FED coming into existence.
Or the U.S. economy prior to the early 1900s -- and the FED -- when recessions (and regional depressions) were commonplace. When the only money some Texans had for their limited purchases was XIT or King Ranch script. When much of the Kentucky, West Virginia and Pennsylvania coal areas ran on script useful only at the company store. Ah yes, a joyful time was had by all.
While I believe that Heineken-Ashi answered your question well with the linked article, I'll address this briefly since you asked.Quote:
As to inflation rates, I'd be interested in knowing how you determined they constitute government "robbery."
Not only are those who hold currency and currency equivalents victims of this governmental theft, but also anyone who holds capital assets denominated in dollars.Quote:
Debt monetization or monetary financing is the practice of a government borrowing money from the central bank to finance public spending instead of selling bonds to private investors or raising taxes.
The central banks [e.g. our Fed] who buy government debt, are essentially creating new money in the process to do so. This practice is often informally and pejoratively called printing money or money creation.
It is prohibited in many countries [but not in the US], because it is considered dangerous due to the risk of creating runaway inflation.
Ribeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
Pepper Brooks said:
Or it means he made a better argument that people agree with.
Botts post could have been taken word for word out of Keynes's "A Treatise on Money".
Austrian economics is such a hot topic right now because it rings of common sense and it's so easy to see real life examples of how the current system is flawed and is also a big grift. This is the same system the fed, the banks that created it, Keynes, and others built and continue to prop up.
Ribeye-Rare said:While I believe that Heineken-Ashi answered your question well with the linked article, I'll address this briefly since you asked.Quote:
As to inflation rates, I'd be interested in knowing how you determined they constitute government "robbery."
Monetization of government debt is an un-legislated tax on those who hold currency and currency equivalents, exacted by de-valuation of those holdings. It is a transfer of wealth from the holder to the de-valuer.Not only are those who hold currency and currency equivalents victims of this governmental theft, but also anyone who holds capital assets denominated in dollars.Quote:
Debt monetization or monetary financing is the practice of a government borrowing money from the central bank to finance public spending instead of selling bonds to private investors or raising taxes.
The central banks [e.g. our Fed] who buy government debt, are essentially creating new money in the process to do so. This practice is often informally and pejoratively called printing money or money creation.
It is prohibited in many countries [but not in the US], because it is considered dangerous due to the risk of creating runaway inflation.
As another simplistic example:
I buy a piece of real estate in a stagnant area for $100,000. Twenty years later, the property has not appreciated in value in real terms, but due to a 50% currency devaluation it is now valued at $200,000.
The result -- I now owe capital gains taxes on my 'artificial' $100,000 gain. Let's say that tax is $20,000, leaving me with $180,000 devalued dollars.
In year 1 (base year) terms, I now have $90,000. Where did the $10,000 go? I think you know, and if you're honest, you know it wasn't spent well.
What was the 10-year yield at in January 2020? How have investors in government bonds who locked in long term yields prior to 2020 fared? Are they receiving a premium against inflation?Gordo14 said:Ribeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
That literally isn't how inflation works. And your thinking about it in the wrong terms. Why do I care what the American dollar does if my purchasing power today is that of the top .01%. You're thinking way to narrowly.
Just as a thought exercise, why would a company take out debt at a fixed interest rate to expand production capacity in a deflationary environment. Not only is the demand for their product and or margins likely to be compressed in the future, but their debt burden gets increased with time (the opposite of inflation). Is it a good thing of people and companies are disincentivized to make leveraged investments when they see an opportunity. Inflation is simply a byproduct of healthy consumption growth- aka quality of life improving.
We always will be in a state of inflation or deflation. So my question is, why is 2% inflation so outlandish when every single investment opportunity includes inflation expectations in the expected returns (real returns vs. Nominal returns). When someone quotes the 10 year T-Bill at say right around 4.1-4.2% today, that is at a premium to expected inflation over the next 10 years, otherwise why would anybody buy a 10 year Tbill (also pokes a hole in the whole inflation is so much worse than the Fed says it is b.s. - the market clearly disagrees with you). You want to buy a stock? The comes with more risk than a 10 year T-Bill which is priced at a premium to expected inflation... Maybe we should call it... Equity risk premium. Are you investing capital at a company - ever wonder why we look at NPV10 for most investment decisions?
Inflation is only really bad for you if your wages stagnate (which in today's job market is your fault), if it goes unexpectedly higher (like 2022, but not an issue since - see stock market returns), or you keep all your wealth in cash under your mattress. Alternatively, small predictable inflation is absolutely great if you have a mortgage or any other debt, have a business, want the economy to be going strong. China is an example of a country experiencing deflation right now. The result is they cannot convince their citizens to increase consumption. I will take super scary 2% inflation over that all-day over that.
Heineken-Ashi said:What was the 10-year yield at in January 2020? How have investors in government bonds who locked in long term yields prior to 2020 fared? Are they receiving a premium against inflation?Gordo14 said:Ribeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
That literally isn't how inflation works. And your thinking about it in the wrong terms. Why do I care what the American dollar does if my purchasing power today is that of the top .01%. You're thinking way to narrowly.
Just as a thought exercise, why would a company take out debt at a fixed interest rate to expand production capacity in a deflationary environment. Not only is the demand for their product and or margins likely to be compressed in the future, but their debt burden gets increased with time (the opposite of inflation). Is it a good thing of people and companies are disincentivized to make leveraged investments when they see an opportunity. Inflation is simply a byproduct of healthy consumption growth- aka quality of life improving.
We always will be in a state of inflation or deflation. So my question is, why is 2% inflation so outlandish when every single investment opportunity includes inflation expectations in the expected returns (real returns vs. Nominal returns). When someone quotes the 10 year T-Bill at say right around 4.1-4.2% today, that is at a premium to expected inflation over the next 10 years, otherwise why would anybody buy a 10 year Tbill (also pokes a hole in the whole inflation is so much worse than the Fed says it is b.s. - the market clearly disagrees with you). You want to buy a stock? The comes with more risk than a 10 year T-Bill which is priced at a premium to expected inflation... Maybe we should call it... Equity risk premium. Are you investing capital at a company - ever wonder why we look at NPV10 for most investment decisions?
Inflation is only really bad for you if your wages stagnate (which in today's job market is your fault), if it goes unexpectedly higher (like 2022, but not an issue since - see stock market returns), or you keep all your wealth in cash under your mattress. Alternatively, small predictable inflation is absolutely great if you have a mortgage or any other debt, have a business, want the economy to be going strong. China is an example of a country experiencing deflation right now. The result is they cannot convince their citizens to increase consumption. I will take super scary 2% inflation over that all-day over that.
First, month over month is meaningless. Y/Y is what matters. Right now and for the last couple of months, crude oil, and in effect, gas prices, are clocking in mostly lower or flat compared to the year prior. In May 2023 we recorded RBOB Gas Futures at $2.43. That was a 31% decrease on monthly closing prices YOY from May 2022 at the height of the inflationary spike. May of 2024 is at $2.43, literally flat YOY. The last year of gasoline price changes YOY have been favorable and probably the most contributing factor to the actual inflation rate felt by the economy. This has happened for most commodities which is why YOY inflation has looked favorable. And this will continue to look better going forward if prices keep coming down. The problem is, we still aren't at 2% inflation, and most of the commodities have either formed bottoming patterns or are in the process. Oil is already starting to move back up. As months go on with commodities not dropping any further, inflation is going to all of the sudden start to feel "sticky" and "stubborn" again. And if commodities do what they did in the 70's, inflation is going to start roaring back.Gordo14 said:Heineken-Ashi said:What was the 10-year yield at in January 2020? How have investors in government bonds who locked in long term yields prior to 2020 fared? Are they receiving a premium against inflation?Gordo14 said:Ribeye-Rare said:I agree wholeheartedly, and I'll take it one step further.Quote:
All inflation is bad. Because it means the currency is devaluing.
In a period of rising productivity, even 0% inflation is governmental robbery via fiat currency.
As a simplistic example ---
I'm currently paying $1.00 for my Widget.
An entrepreneur, using new tech, discovers a manufacturing technique and is now able to offer an 'as good or better' Widget for a sales price of $.50.
Ideally, I can now purchase two of those Widgets for my dollar, or alternatively, I can buy one Widget and have money left over to buy another product. I am now wealthier than I was.
If, however, the central bank has the goal of just keeping the price of the Widget at $1.00 (ie No inflation), they will be able to devalue the currency to do that, and the result of the productivity gain will accrue to the government rather than to the governed.
Quite a racket. With the increase in technology we've seen in the last 30 years, American dollars should be going further than they used to. And that obviously is not the case.
That literally isn't how inflation works. And your thinking about it in the wrong terms. Why do I care what the American dollar does if my purchasing power today is that of the top .01%. You're thinking way to narrowly.
Just as a thought exercise, why would a company take out debt at a fixed interest rate to expand production capacity in a deflationary environment. Not only is the demand for their product and or margins likely to be compressed in the future, but their debt burden gets increased with time (the opposite of inflation). Is it a good thing of people and companies are disincentivized to make leveraged investments when they see an opportunity. Inflation is simply a byproduct of healthy consumption growth- aka quality of life improving.
We always will be in a state of inflation or deflation. So my question is, why is 2% inflation so outlandish when every single investment opportunity includes inflation expectations in the expected returns (real returns vs. Nominal returns). When someone quotes the 10 year T-Bill at say right around 4.1-4.2% today, that is at a premium to expected inflation over the next 10 years, otherwise why would anybody buy a 10 year Tbill (also pokes a hole in the whole inflation is so much worse than the Fed says it is b.s. - the market clearly disagrees with you). You want to buy a stock? The comes with more risk than a 10 year T-Bill which is priced at a premium to expected inflation... Maybe we should call it... Equity risk premium. Are you investing capital at a company - ever wonder why we look at NPV10 for most investment decisions?
Inflation is only really bad for you if your wages stagnate (which in today's job market is your fault), if it goes unexpectedly higher (like 2022, but not an issue since - see stock market returns), or you keep all your wealth in cash under your mattress. Alternatively, small predictable inflation is absolutely great if you have a mortgage or any other debt, have a business, want the economy to be going strong. China is an example of a country experiencing deflation right now. The result is they cannot convince their citizens to increase consumption. I will take super scary 2% inflation over that all-day over that.
Expectations can be wrong. Obviously. But they also invested their capital in those Tbills at a time when other assets were delivering similarly low expected returns. The counter is what about the people that locked in almost 16% on the 10 year Tbill in 1981. If inflation stays sub 2% (where it is today on a month over month basis) the people the bought 10 year tbills at 5.5% in October are going to look great right?
That's the thing about markets, you can only make investments on what you see/expect, and then you take risk accordingly. Just because inflation expectations have a market price of X% doesn't mean they are right. The Tbill is the manifestation of the market consensus over the next 10 years with the information we have today + a premium. And I would argue that the 10 year yield is probably the most attractive it will ever be from a permium to expected inflation standpoint, because it is likely distorted to the highside by the steepness of the yield curve and how great of a real return short term Tbills are right now in real return terms. It's frankly unsustainable for the 3 month Tbill to give you basically risk free 3% real returns. And that's the reason the Fed should and will likely cut rates (it's not a political conspiracy).
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People are allowed to think differently than government school textbooks.
That company would 'run the numbers' based on their best expectations of future economic conditions, whether those be inflationary or deflationary.Quote:
Just as a thought exercise, why would a company take out debt at a fixed interest rate to expand production capacity in a deflationary environment[?]
Aside from the fact that the mythical "it's only 2%" skim goes to the house, the inflation amount is never a constant, which leads investors to ponder the age-old question -- What will rates do? This leads to additional uncertainty that needn't be present, at least over longer periods of time.Quote:
So my question is, why is 2% inflation so outlandish when every single investment opportunity includes inflation expectations in the expected returns (real returns vs. Nominal returns).
I disagree. And cash held in T-Bills is certainly not 'under the mattress', and to add insult to injury, the returns are taxed at ordinary income rates. Again, the house wins.Quote:
Inflation is only really bad for you if your wages stagnate (which in today's job market is your fault), if it goes unexpectedly higher (like 2022, but not an issue since - see stock market returns), or you keep all your wealth in cash under your mattress.
Let's revisit my previous example. In it I held a piece of real estate for 20 years. I specified that it was a stagnant market, and I made no mention of any improvements made during that time to the property. Yet, in those 20 years, it doubled in nominal price.Quote:
You're pretending that everything that happened in your completely hypothetical and reductive example is some zero sum manifestation of inflation. Which interestingly means there is no scenario where the asset can go up in price without it being inflation.
a handy guide:Mogilla said:
Keeping inflation down is not the same thing as deflation. The Fed getting inflation "under control" means that prices will continue to rise, just more slowly. We will need a recession if we want to see prices decline. People feeling the burn of tighter budgets and not buying everything they want every time they see it will force prices to decrease.
