Prices, Inflation/Deflation, Interest Rates & The Fed

Eusebius Erasmus

Pelican
Orthodox
Perhaps a more interesting/productive conversation would be to fully define inflation and deflation. And shrinkflation and stagflation.

I tend to think of inflation as specifically "currency inflation". Meaning, if you have the same quantity of goods/services/houses/salaries/wages/etc, but you have money printing, then prices should rise somewhere, or in multiple places.

Currency deflation would then be the opposite; if we had a stable population and zero printing, then eventually some amount of dollars leave circulation, so prices may actually decrease; people will simply want or need each dollar more.

But, when we consider global supply chain shortages, computer chips, cars, lumber, other raw materials, then that suggests it is a non-currency style of deflation. I don't know what the term would be for that.

Also, if we have people leaving the labor force, simultaneously with job automation, growing populations, aging populations... I don't know what that is really called, or how all these factors interact.

The simplest expression that I did hear was a comment on a youtube vid arguing for deflation; "Money-printing during a deflationary cycle. Nuts." That simply makes me wonder how to play my cards, what will become worth more, what will become worth less.
The first type you're talking about is called demand-pull inflation. The second type is cost-push inflation.
 

vstk

Pigeon
Demand for new cars is especially weak (hence the price in palladium)
My understanding is that the chip shortage is the bottleneck that forced manufacturers to cut production. That in turn reduced demand for palladium where supply is much less tight. Car inventories wouldn't have plummeted if demand for cars was the main issue. And there wouldn't be this giant surge in price of used cars.

I'd also love to see a chart of used car sale volumes to see if they're as healthy as everyone who loves price-as-proxy as the best measure of demand insists
Prices inform us best about supply-demand imbalances. We don't *have* to have a healthy and strong demand to have inflation. It helps but it isn't necessary.

Either way you can see how things like copper, despite a biblical flood of "money printing," can't really break out of the highs of the 2000s.
Pure speculation here, but the fact copper has not sold off sharply with the Evergrande situation in China, and that inventories are still sinking would make me think that we haven't seen the top yet. However, I think 3 days ago was a major bottom for palladium.

Really, who can honestly say $70 oil (forget about NEGATIVE oil) is somehow an indication of a global inflationary period?
It is not so much about the absolute price level than it is about the rate of change. WTI went from -40 to 80 in a year and a half. This is significant. Brent quadrupled. So far the trend is up, and there is strong momentum. Trends do reverse but they also tend to go much further than people think. We have already reached that point with natural gas. It could happen to oil prices too.

This is also why idiots always can be counted on to buy gold during these "hyper-inflationary" scares but are left scratching their heads over why it sells off during the always-quickly-approaching next crunch.
The gold trade has worked when currency debasement became a worry but I agree that it hasn't been the inflation hedge that people think it is. I guess gold lovers still have in mind the gigantic gold frenzy of the 70s where it went up 18 fold and hope this will repeat itself.

I can't comment too much on the natural gas situation but this appears to be another case of willful supply chain destruction. Would you agree?
I think it has a lot to do with politics indeed.



Even with your "deflationary forces" it's still just DISinflation
Because of central banks' arbitrary 2% target, consensus take it as the sea level, and 1% is considered a deflationary environment. It doesn't really make any sense but that is where we are.
Not sure what is wrong with 1% inflation, that is already equivalent to cash losing a third of its value for each generation. Seems enough to me.
 
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The “problem” with 1% inflation, as world governments see it, is GDP will shrink at that level. They need higher inflation to show GDP growth. If growth is too low, the entire economic system collapses under the debt load. From what I have gathered (from people smarter than me), the most likely scenario is that we have one more cycle 5-10 years of debt “growth”, before the BIG collapse — that is the financial system breaks and we have hyperinflation/bond market collapse/WW3. Less likely but still possible would be 2 more cycles (11-18 years) or a collapse during this cycle (worst outcome.).

A collapse now would be the most likely to lead to war and other bad outcomes. If we had 5 more years of relative stability (compared to Mad Max), that would be enough time to monetize Bitcoin, and go from 100 million to 1 billion users. IMHO gradually transitioning to a hard money is the only way, and right now, everything that is happening is driving more people to oppose governments, weakening their power. At the same time they are losing trust in institutions, and getting pushed right into localism, religion.

When taxation and confiscation become more frequent, people will move into the lifeboat that is Bitcoin. Poor countries will adopt it. Punishing El Salvador is pointless and unprofitable for the US. More poor countries will embrace it. Eventually a G20 nation will adopt it. That would be the least violent “reset” scenario.

If we allowed deflation to happen naturally, negative GDP growth wouldn’t be a problem at all, because everything would be getting cheaper over time. People make less money, but the things they buy would get cheaper at a faster rate (because capital allocation would be more efficient without market distortions of central banking). Negative GDP growth is also the only way to save the planet…vs the green new deal, which is nothing more than more economic distortions and wealth transfer.
 
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Blade Runner

Ostrich
Orthodox
The “problem” with 1% inflation, as world governments see it, is GDP will shrink at that level. They need higher inflation to show GDP growth. If growth is too low, the entire economic system collapses under the debt load. From what I have gathered (from people smarter than me), the most likely scenario is that we have one more cycle 5-10 years of debt “growth”, before the BIG collapse — that is the financial system breaks and we have hyperinflation/bond market collapse/WW3. Less likely but still possible would be 2 more cycles (11-18 years) or a collapse during this cycle (worst outcome.).

A collapse now would be the most likely to lead to war and other bad outcomes. If we had 5 more years of relative stability (compared to Mad Max), that would be enough time to monetize Bitcoin, and go from 100 million to 1 billion users. IMHO gradually transitioning to a hard money is the only way, and right now, everything that is happening is driving more people to oppose governments, weakening their power. At the same time they are losing trust in institutions, and getting pushed right into localism, religion.

When taxation and confiscation become more frequent, people will move into the lifeboat that is Bitcoin. Poor countries will adopt it. Punishing El Salvador is pointless and unprofitable for the US. More poor countries will embrace it. Eventually a G20 nation will adopt it. That would be the least violent “reset” scenario.

If we allowed deflation to happen naturally, negative GDP growth wouldn’t be a problem at all, because everything would be getting cheaper over time. People make less money, but the things they buy would get cheaper at a faster rate (because capital allocation would be more efficient without market distortions of central banking). Negative GDP growth is also the only way to save the planet…vs the green new deal, which is nothing more than more economic distortions and wealth transfer.
Correct across the board. Well done, chance. People are so used to "consuming" they can't imagine what a real, ethical, monetary system and economy is (hint: not what we've had for decades), which is NOT based on consumption, which just furthers the goals of the globalist elite, in every way (socially and materially, as these become intertwined as greater consolidation occurs).

There is a role for "monetary creation" which is really just productive lending. Richard Werner has spoken on this, and like everything we know in the world, it is local lending. I highly recommend all of his work, as he exposes what is going on and will go on, if people can't counter the demonic system/institutions of the current elite.
 
There is a role for "monetary creation" which is really just productive lending. Richard Werner has spoken on this, and like everything we know in the world, it is local lending. I highly recommend all of his work, as he exposes what is going on and will go on, if people can't counter the demonic system/institutions of the current elite.
I agree with local productive lending. I don’t think that money creation, ie fractional reserve banking is necessary. All loans should be at least 100% collateralized…this would eliminate the boom bust cycle, and make capital allocation hyper efficient. Fractional reserve banking and debt creation does allow for short periods of quick growth, at the expense of the long term consequences, which is a civilizational collapse every 500 years, and monetary collapse and upheaval every 4 generations.
 

Max Roscoe

Pelican
Orthodox Inquirer
All loans should be at least 100% collateralized…this would eliminate the boom bust cycle, and make capital allocation hyper efficient. Fractional reserve banking and debt creation does allow for short periods of quick growth, at the expense of the long term consequences, which is a civilizational collapse every 500 years, and monetary collapse and upheaval every 4 generations.
Eh, most civilizations don't last anywhere near that long, and fiat currencies have all failed in FAR less time, but I agree with the general sentiment. Even if the US had sound money, however, imagining it would exist in 500 years takes a REALLY fluid mind.

As for credit and debt, it's really amazing how they have gotten the whole world to adopt finance, lending, and fiat currency. Sure, a fully secured banking system makes sense, but I don't know how we would even get back to it. The Taliban probably has it, but I don't see many people around here ready to wage a 20 year struggle to reorder their society.

Not only should loans be secured, but loans should be far less common.
A loan for something like a house makes sense (although in the times before long term mortgages, houses were FAR more affordable). But this jewish financing of our basic wants and needs is absurd. Try checking out on most any online system with over $100 in your cart and you'll be asked if you want to borrow money to continue!

I've never borrowed money for anything other than my first house purchase, and I've had no problem buying nice cars (they are not new, but still nice), whatever other products I wanted or needed, and subsequent homes.

Of course, in the long run, this was a much wiser decision for me, because in the long run I may buy certain things later than others (because I saved for them) but I spent far less on them because I am not paying any interest (a house is somewhat different in that it is one of the few things that still has value at least equal to what you paid for it in the future).
 

budoslavic

Eagle
Orthodox
Gold Member

IMF slashes US growth forecast by one percentage point to 6% - the biggest reduction of any G7 economy: Supply chain crunch, inflation and Delta surge are blamed​

  • IMF slashed its global growth forecast in its latest world outlook on Tuesday
  • Cited supply chain disruptions and soaring inflation rippling around the world
  • US bore the brunt of these effects with GDP forecast slashed 1 percentage point
  • Projected annual growth of 6% is down from a 7% forecast in the last report
  • Forecast assumes Democrats will pass Biden's $4.5 trillion spending plans
 

Arado

Pelican
Gold Member
Solid video from Tucker on this. Hits key points criticizing the Fed for misleading with their 'transitory' narrative since spring and never tapering, and noting that inflation hits lower and middle classes the hardest, while rich assets holders with debt in dollars actually benefit. Also shows skyrocketing home prices as well as other goods.

 

Eusebius Erasmus

Pelican
Orthodox
The Bank of England is considering a rate hike:


If they do it, you can bet that other central banks will follow.

The problem is that this will NOT solve inflation, which is driven by cost factors and supply chains.

So the end result will be high interest rates, high unemployment, and food shortages. If you thought 2020 was bad… you’ll love 2022.
 

budoslavic

Eagle
Orthodox
Gold Member
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IMF slashes US growth forecast by one percentage point to 6% - the biggest reduction of any G7 economy: Supply chain crunch, inflation and Delta surge are blamed​



Here is a good article of the cause of the supply chain problem, coming out of California. Basically, the problem is the direct result Democratic policies, regarding the trucking industry. What is worse, many of those policies will become national, if Biden's spending boondoggle passes.

 
Annual Cost of living adjustments for Social Security recipients, as well as all other federal payments tied to that COLA, will go up by 5.9 percent. So social security payments to about 70 million Americans at a bare minimum will go up 5.9 percent. This is the biggest increase since the 80s.

I suspect that is not even going to touch half of the cost increases coming down the pike.

BUT! And I'm saying this with no sarcasm, I could be wrong and deflation is coming. I'm pretty much 80% convinced we will keep seeing things going up, but Endless Gravity and others have compelling arguments I enjoy hearing to the contrary.

 
It is not so much about the absolute price level than it is about the rate of change. WTI went from -40 to 80 in a year and a half. This is significant. Brent quadrupled. So far the trend is up, and there is strong momentum. Trends do reverse but they also tend to go much further than people think. We have already reached that point with natural gas. It could happen to oil prices too.

You're missing the point: if the boat sank to the bottom of the ocean but then floated up halfway, you're still underwater and dead. Despite what everyone here wants to believe, the boat is the economy and the move up is irrelevant because we're STILL DROWNING.

That's what the past year and a half has been. We are in the middle of the biggest deflationary event of history. Like I keep saying, there's supply chain issues and dislocations but there is no inflation. Anyone saying otherwise is probably lying or has a hidden agenda.
 
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Arado

Pelican
Gold Member
You're missing the point: if the boat sank to the bottom of the ocean but then floated up halfway, you're still underwater and dead. Despite what everyone here wants to believe, the boat is the economy and the move up is irrelevant because we're STILL DROWNING.

That's what the past year and a half has been. We are in the middle of the biggest deflationary event of history. Like I keep saying, there's supply chain issues and dislocations but there is no inflation. Anyone saying otherwise is probably lying or has a hidden agenda.
Would you agree that we have stagflation? I agree in theory that most macro forces are deflationary minus current supply chain hiccups.

However, the political system is structured such that deflation is politically impossible given the dependence of everything on asset prices. The Fed will eventually (may have short bursts of liquidity shortages) print and violate its mandate as much as needed to keep key voting demographics nominally solvent.
 
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