It looks like inflation is here

[Loren Pechtel]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

In the long run the economy rebalances so everyone is at the same relative position as they were before.

 

[laughing dog]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

In the long run the economy rebalances so everyone is at the same relative position as they were before.

What would make you think that?

 

[Treedbear]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

In the long run the economy rebalances so everyone is at the same relative position as they were before.

What would make you think that?

Just bend over and you'll find out.

 

[RVonse]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

Debtors (e.g. students, and middle-class homeowners) are the beneficiaries of inflation. Banks would be the big losers. That's why it's unlikely to happen.

You logic does appear valid excepting that the US government is also a huge debtor as well. At 120% debt to GDP the US treasury has only 3 options at this point:

1. Austerity on steroids (this will never happen for political reasons)
2. Massive default with the complete loss of global reserve currency
3. Huge inflation of our currency in order to reduce the magnitude of debt.

When the push finally comes to shove, I'm betting the politicians will go with number 3. The bankers are powerful but they are going to be thrown under the bus with the rest of the savers.

 

[Swammerdami]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

Debtors (e.g. students, and middle-class homeowners) are the beneficiaries of inflation. Banks would be the big losers. That's why it's unlikely to happen.

You logic does appear valid excepting that the US government is also a huge debtor as well. At 120% debt to GDP the US treasury has only 3 options at this point:

1. Austerity on steroids (this will never happen for political reasons)
2. Massive default with the complete loss of global reserve currency
3. Huge inflation of our currency in order to reduce the magnitude of debt.

When the push finally comes to shove, I'm betting the politicians will go with number 3. The bankers are powerful but they are going to be thrown under the bus with the rest of the savers.

Congressmen, Presidents and real policy-makers would be reacting differently if the national debt were their personal debt, but instead it's an abstraction. Monetary policy will be directed at pleasing influential bankers ... at least until bubbles are forced to burst.

Collapse of the dollar will be first signaled by rising long-term interest rates; instead rates are at record lows! This "house of cards" may be doomed, but nobody knows how far away the day of reckoning will be.

Since debt owed by the American government to Americans is less threatening than dollars paid or owed to foreigners, Paul Krugman has called the trade balance more worrisome than the government deficit. The  Net international investment position (NIIP) of the U.S. isn't encouraging: The U.S. has a more negative NIIP (per GDP) than any other major countries except Spain and Ireland. In absolute terms, U.S.'s $14 trillion negative NIIP dwarfs the rest of the top 5 (Spain, UK, France, Australia, each in the $1 trillion ballpark). Japan, despite its huge $13 trillion national debt, has a large $3.7 trillion NIIP. (Germany, HongKong, China, Taiwan, Norway, Netherlands, Canada, Singapore are the other countries with positive NIIP above $1 trillion.)

TL;DR: I agree that prudent investors should be hedging against a possible end to this sound and easy dollar. If I were a younger or more active investor, I'd own some cryptocurrencies!

 

[Swammerdami]

This article makes a case that inflation may come sooner rather than later. (One reason that policy makers and central bankers seem complacent about inflation risks is "We have nothing to fear but fear itself." Policy makers have a duty to project optimism.)

 

[Jason Harvestdancer]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

In the long run the economy rebalances so everyone is at the same relative position as they were before.

Weinmar "rebalanced" by replacing their old currency with a new one and resetting all debts at a government mandated level. It did screw over debtors to help the lenders.

Zimbabwe "rebalanced" by abandoning their currency.

 

[Loren Pechtel]

Some wage-led inflation would be no bad thing for most folks anyway. Inflation isn't simply a loss of purchasing power, but a redistribution of it. If someone pays more, someone gets more. There are winners and losers ..and reasons the powers that be are obsessed with inflation.

In the long run the economy rebalances so everyone is at the same relative position as they were before.

What would make you think that?

I notice no attempt to rebut the point.

Anyone getting above minimum wage is because market pressure makes that happen. Erode their purchasing power with inflation and the same force remains--in time their wages will adjust. Likewise, in most cases prices are driven by profit margin--they will rise, also. In the long run everyone ends up where they started.

 

[laughing dog]

What would make you think that?

I notice no attempt to rebut the point.

I noticed you have not given anyone any reason to think your point has any validity whatsoever.

Anyone getting above minimum wage is because market pressure makes that happen. Erode their purchasing power with inflation and the same force remains--in time their wages will adjust. Likewise, in most cases prices are driven by profit margin--they will rise, also. In the long run everyone ends up where they started.

What makes you think that your imagined increased in prices caused by these wage increases necessarily translates into an exactly proportional increase in the prices? If prices increase unevenly, there is no reason to expect that the real income of these workers to necessarily return to the same level constant in the long-run.

 

[Loren Pechtel]

I noticed you have not given anyone any reason to think your point has any validity whatsoever.

Anyone getting above minimum wage is because market pressure makes that happen. Erode their purchasing power with inflation and the same force remains--in time their wages will adjust. Likewise, in most cases prices are driven by profit margin--they will rise, also. In the long run everyone ends up where they started.

What makes you think that your imagined increased in prices caused by these wage increases necessarily translates into an exactly proportional increase in the prices? If prices increase unevenly, there is no reason to expect that the real income of these workers to necessarily return to the same level constant in the long-run.

It won't be even. It will even out in the end as the fundamental forces are still the same.

 

[ZiprHead]

I noticed you have not given anyone any reason to think your point has any validity whatsoever.

Anyone getting above minimum wage is because market pressure makes that happen. Erode their purchasing power with inflation and the same force remains--in time their wages will adjust. Likewise, in most cases prices are driven by profit margin--they will rise, also. In the long run everyone ends up where they started.

What makes you think that your imagined increased in prices caused by these wage increases necessarily translates into an exactly proportional increase in the prices? If prices increase unevenly, there is no reason to expect that the real income of these workers to necessarily return to the same level constant in the long-run.

It won't be even. It will even out in the end as the fundamental forces are still the same.

Apparently Republicans feel differently since they keep giving rich people tax breaks and subsidies. It never evens out in the end for them. They just get richer and richer.

 

[laughing dog]

I noticed you have not given anyone any reason to think your point has any validity whatsoever.

Anyone getting above minimum wage is because market pressure makes that happen. Erode their purchasing power with inflation and the same force remains--in time their wages will adjust. Likewise, in most cases prices are driven by profit margin--they will rise, also. In the long run everyone ends up where they started.

What makes you think that your imagined increased in prices caused by these wage increases necessarily translates into an exactly proportional increase in the prices? If prices increase unevenly, there is no reason to expect that the real income of these workers to necessarily return to the same level constant in the long-run.

It won't be even. It will even out in the end as the fundamental forces are still the same.

Why would you think that? Once you recognize that wage increases will cause differential effects among industries, then there is no reason to expect that there will not be structural change across those industries. Which means that there is no reason to expect that the "fundamental forces" are the same or that they will have the same effect.

 

[Swammerdami]

It won't be even. It will even out in the end as the fundamental forces are still the same.

Why would you think that? Once you recognize that wage increases will cause differential effects among industries, then there is no reason to expect that there will not be structural change across those industries. Which means that there is no reason to expect that the "fundamental forces" are the same or that they will have the same effect.

Price changes which differ for different industries are GOOD — This is the market adjusting to new realities of supply and demand.

 

[Jason Harvestdancer]

It won't be even. It will even out in the end as the fundamental forces are still the same.

Apparently Republicans feel differently since they keep giving rich people tax breaks and subsidies. It never evens out in the end for them. They just get richer and richer.

Like when Biden proposed lifting the SALT limits. That is a huge tax break for the wealthy.

 

[Rhea]

I don’t agree with lifting the SALT limits. I definitely think we should repeal the ability to write off mortgage interest on second homes (which include yachts). There are a lot of righ people write-offs that I think should go away.

 

[Swammerdami]

In an ideal world the inflation rate is 0%, but our control lags considerably so we will weave around the objective. We want to minimize the harm caused by this weaving--and going below 0% causes more harm than going above it does. Thus we deliberately aim far enough above 0% that the normal variation won't cause it to dip below 0%.

Fear of deflation is only one reason that central banks target a small positive inflation rate.
(1) inflation makes it possible to set negative real interest rates. When inflation is very low, the only way that central banks can provide the stimulus of negative real rates is to make nominal rates negative.
(2) companies can give real pay cuts to poorly performing employees. (it is much easier for companies to leave a nominal wage unchanged than to lower it.)
(3) some sectors, e.g. restaurants, may be stimulated by lower real prices. (it is inconvenient or costly to reprint menus for a small inflation.)

Central bankers would like to see inflation above the nominal 2% target (although they don't say so publicly), and would then be happy to see higher, more normal, interest rates. Indeed, a hope from stimulus is that it will lead to higher employment and an associated modest boost in inflation.

 

[laughing dog]

In an ideal world the inflation rate is 0%, but our control lags considerably so we will weave around the objective. We want to minimize the harm caused by this weaving--and going below 0% causes more harm than going above it does. Thus we deliberately aim far enough above 0% that the normal variation won't cause it to dip below 0%.

Fear of deflation is only one reason that central banks target a small positive inflation rate.
(1) inflation makes it possible to set negative real interest rates. When inflation is very low, the only way that central banks can provide the stimulus of negative real rates is to make nominal rates negative.
(2) companies can give real pay cuts to poorly performing employees. (it is much easier for companies to leave a nominal wage unchanged than to lower it.)
(3) some sectors, e.g. restaurants, may be stimulated by lower real prices. (it is inconvenient or costly to reprint menus for a small inflation.)

Central bankers would like to see inflation above the nominal 2% target (although they don't say so publicly), and would then be happy to see higher, more normal, interest rates. Indeed, a hope from stimulus is that it will lead to higher employment and an associated modest boost in inflation.

There is yet another reason that central banks have a positive rate of inflation for a target. Current price indices that are used to measure inflation are thought to over-estimate the effects of inflation. The canonical research by Martin Feldstein decades ago came to the conclusion that in the US, the CPI (the measure used at the time) over-estimated the effects on purchasing power by about 2%.

 

[laughing dog]

It won't be even. It will even out in the end as the fundamental forces are still the same.

Why would you think that? Once you recognize that wage increases will cause differential effects among industries, then there is no reason to expect that there will not be structural change across those industries. Which means that there is no reason to expect that the "fundamental forces" are the same or that they will have the same effect.

Price changes which differ for different industries are GOOD — This is the market adjusting to new realities of supply and demand.

Exactly. Which means that LPs contention that "fundamental forces" are the same in the long run so that there is no long-run effect on relative wages or incomes is incorrect.

 

[Gospel]

If you or anyone on your staff is reading this, June 30th. Just keep the rates down until June 30th Yellen. That's all I ask of you.

 

[Loren Pechtel]

It won't be even. It will even out in the end as the fundamental forces are still the same.

Apparently Republicans feel differently since they keep giving rich people tax breaks and subsidies. It never evens out in the end for them. They just get richer and richer.

Changing the tax rate changes the forces at work. A one-time wage increase does not.