Inflationary effects pending?

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tetractys
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Inflationary effects pending?

Post by tetractys » Sat Mar 21, 2020 11:35 pm

Any ideas on how this downturn and its ensuing policies, like the possible injection of trillions, could effect future inflation? I have no idea but I’d like to hear from others.

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whodidntante
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Re: Inflationary effects pending?

Post by whodidntante » Sat Mar 21, 2020 11:38 pm

Gigantic budget deficits combined with creating money out of thin air will have an inflationary effect. The only question is whether it will be sufficient to offset the deflationary effects of gigantic job losses and a billion people mostly staying at home.

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firebirdparts
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Re: Inflationary effects pending?

Post by firebirdparts » Sat Mar 21, 2020 11:41 pm

I'll let you know in about 10 years.
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Re: Inflationary effects pending?

Post by typical.investor » Sat Mar 21, 2020 11:52 pm

tetractys wrote:
Sat Mar 21, 2020 11:35 pm
Any ideas on how this downturn and its ensuing policies, like the possible injection of trillions, could effect future inflation? I have no idea but I’d like to hear from others.
Theoretically, what if it does? Why wouldn't the typical reaction of hiking rates cool things off?

And will injection of trillions even be inflationary? I'd be more worried of inflation from supply shocks if a large number of business went under and then the virus subsided allowing demand to pick up.

Or what if globalization is rolled back? That's been one huge inflation reducer. Is that going to happen?

And hey, wasn't 2008 remedies going to stoke inflation uncontrollably too?

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Re: Inflationary effects pending?

Post by pennsylvania211 » Sat Mar 21, 2020 11:57 pm

whodidntante wrote:
Sat Mar 21, 2020 11:38 pm
Gigantic budget deficits combined with creating money out of thin air will have an inflationary effect. The only question is whether it will be sufficient to offset the deflationary effects of gigantic job losses and a billion people mostly staying at home.
Good point
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Re: Inflationary effects pending?

Post by JonnyB » Sun Mar 22, 2020 12:02 am

Given that U.S. Treasuries are yielding 0.85% for 10 years and 1.45% for 30 years, Mr. Market is saying he sees no inflation on the horizon for a good long time.

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Re: Inflationary effects pending?

Post by watchnerd » Sun Mar 22, 2020 12:13 am

The TIPS market seems unworried about near term inflation.

Which, potentially, makes it either a good time to buy TIPS, or a complete waste of money compared to nominals
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Re: Inflationary effects pending?

Post by Thesaints » Sun Mar 22, 2020 12:20 am

There are two different kinds of inflation:
- Caused by excessive influx of money. This doesn't seem to be on the horizon. Todays modern markets can absorb any amount of money by simply increase their valuations.

- Caused by a shortage of good/service available to be exchanged. If this virus thing goes south, I would not discard the possibility.

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Re: Inflationary effects pending?

Post by MoneyMarathon » Sun Mar 22, 2020 1:45 am

tetractys wrote:
Sat Mar 21, 2020 11:35 pm
Any ideas on how this downturn and its ensuing policies, like the possible injection of trillions, could effect future inflation? I have no idea but I’d like to hear from others.
$2 trillion is about 10% of US annual GDP. We're losing tons of demand "naturally" from (a) shelter in place altering people's consumption and (b) shelter in place costing people jobs. It may not have much of an effect on inflation, against that backdrop.

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Re: Inflationary effects pending?

Post by Scooter57 » Sun Mar 22, 2020 9:20 am

At some point doesn't the supply of treasuries to pay that debt exceed the demand for them? At what point do investors worldwide decide to switch to a less diluted currency? There was a time just a bit over a century ago when investors would have preferred pounds sterling to dollars. There is no reason to believe they will stick with dollars over this next century.

If the treasury just keeps issuing treasuries and the Fed keeps buying them back, how do we not end up with a loss of faith in the quality of US credit?

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Re: Inflationary effects pending?

Post by Sandtrap » Sun Mar 22, 2020 9:41 am

Not yet.
This is not a repeat of the 1975 - 1980 where inflation peaked at 14% or so.
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March2009
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Re: Inflationary effects pending?

Post by March2009 » Sun Mar 22, 2020 10:19 am

From what I understand, the dovish Fed, QE, and massive budget deficits since 2008 didn't cause inflation since technology, productivity, and globalization have kept up. I know it's much more complicated than that but that is a one sentence summary. I also understand some prices did increase substantially while others decreased so inflation overall is a very broad subject. See links below. In any case, the actions by the fed and government this time around seem to be substantially greater than the great recession. I know Mr Market is predicting no inflation but the fed and government appear to be desperate (and Mr Market is emotionally clinging to cash at the moment) and inflation is the least of the their worries so I think we will see an increase in the inflation rate. If I'm right, we will have higher inflation and higher unemployment. Sounds like the 1970s... :(

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Re: Inflationary effects pending?

Post by hudson » Sun Mar 22, 2020 10:23 am

tetractys wrote:
Sat Mar 21, 2020 11:35 pm
Any ideas on how this downturn and its ensuing policies, like the possible injection of trillions, could effect future inflation? I have no idea but I’d like to hear from others.
My vote goes to nobody knows.
At this time, I don't own any inflation protect products, but I'm keeping my eyes open.

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Re: Inflationary effects pending?

Post by watchnerd » Sun Mar 22, 2020 10:34 am

Half my bonds are nominals, the other half are short TIPS + MM.

Between the two, something will be okay.
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tetractys
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Re: Inflationary effects pending?

Post by tetractys » Sun Mar 22, 2020 4:14 pm

Lots of great comments and food for thought! Thanks all!!! Nothing to add; but I’ll still be watching.

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Re: Inflationary effects pending?

Post by columbia » Sun Mar 22, 2020 4:17 pm

Maybe.

Anything can happen in financial markets.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Ramjet
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Re: Inflationary effects pending?

Post by Ramjet » Sun Mar 22, 2020 4:20 pm

Maybe deflation is more likely in the near term?

Stable supply combined with reduced demand

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Re: Inflationary effects pending?

Post by columbia » Sun Mar 22, 2020 4:22 pm

Ramjet wrote:
Sun Mar 22, 2020 4:20 pm
Maybe deflation is more likely in the near term?

Stable supply combined with reduced demand
Truck drivers and delivery personnel can get sick too.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: Inflationary effects pending?

Post by UpperNwGuy » Sun Mar 22, 2020 4:25 pm

People on this forum worry more about inflation than any other group I know of.

I lived through the bad inflation days of the 1970s and 1980s as a young adult, and I just don't see those days coming back anytime soon. Lots of fear mongering here on this forum.

Full disclosure: I don't own TIPS.

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Re: Inflationary effects pending?

Post by Scooter57 » Sun Mar 22, 2020 7:34 pm

We kept inflation at bay by exporting manufacturing and well paid manufacturing jobs to countries where people would work for what would be slave wages in the developed world and where child labor is still permitted. We are now learning the down side of not having factories in the US and European countries that can make goods when we have an emergency need for them.

If countries attempt to become more self sufficient and rebuild their strategic manufacturing industries, goods will become more expensive and there will be inflation. By the same token, as other nations become prosperous from their manufacturers, their populations will demand a bigger piece of the profits of their labor. Eventually we run out of people on this planet who will work for a handful of rice a day and send their little children into mines and factories at age 8.

The US built its industrial might using immigrants willing to work for starvation wages and child labor. My dad was working at age 10, in 1915. (Fortunately a brother helped him go back to school.) Over time those workers forced that to change. Other nations will too. But no one can say when. There are still billions of people who live as very poor farmers for whom a factory job paying $40 a week for 50 hours work is a huge step up.

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Re: Inflationary effects pending?

Post by bigskyguy » Sun Mar 22, 2020 7:45 pm

Scooter57 wrote:
Sun Mar 22, 2020 7:34 pm
We kept inflation at bay by exporting manufacturing and well paid manufacturing jobs to countries where people would work for what would be slave wages in the developed world and where child labor is still permitted. We are now learning the down side of not having factories in the US and European countries that can make goods when we have an emergency need for them.

If countries attempt to become more self sufficient and rebuild their strategic manufacturing industries, goods will become more expensive and there will be inflation. By the same token, as other nations become prosperous from their manufacturers, their populations will demand a bigger piece of the profits of their labor. Eventually we run out of people on this planet who will work for a handful of rice a day and send their little children into mines and factories at age 8.

The US built its industrial might using immigrants willing to work for starvation wages and child labor. My dad was working at age 10, in 1915. (Fortunately a brother helped him go back to school.) Over time those workers forced that to change. Other nations will too. But no one can say when. There are still billions of people who live as very poor farmers for whom a factory job paying $40 a week for 50 hours work is a huge step up.
Well said. I suspect (hope, and indeed pray) that once the furor of this event settles down, that we as a culture move away from the extremes that have led to the gutting of our communal social safety networks and the rising level of economic inequality. We may be reliving the first half of the 20th century. I only hope that it won’t take a worldwide armed conflict to resolve.

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Re: Inflationary effects pending?

Post by Tenesmus83 » Sun Mar 22, 2020 7:56 pm

There will be definite devaluation of the dollar for the forseeable future. Given the low yield of bonds, I don't know if
it's worthwhile buying them. Maybe gold or bitcoin might be a better hedge against deflation.

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Re: Inflationary effects pending?

Post by watchnerd » Sun Mar 22, 2020 7:58 pm

Tenesmus83 wrote:
Sun Mar 22, 2020 7:56 pm
There will be definite devaluation of the dollar for the forseeable future. Given the low yield of bonds, I don't know if
it's worthwhile buying them. Maybe gold or bitcoin might be a better hedge against deflation.
If you're working / spending in the US, I'd pick TIPS over either gold or Bitcoin.
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Re: Inflationary effects pending?

Post by LFS1234 » Mon Mar 23, 2020 6:20 am

If there ever was an area where "nobody knows nothing" applies, inflation prediction is it.

Those who remember US inflation remember the ramp-up between about 1961 and 1980. By the late 1970s it was commonly expected for inflation to continue upwards. By 1980, the general expectation was that inflation would continue to rise, or at least stay high.

Now we have the opposite situation: it has already been 40 years since the 1979-1980 inflation peak, and two generations have not experienced it during their adult lifetimes. It is just as natural for these generations to assume that inflation will not rise, as it was for their parents (or grand-parents) in 1980 to assume that it would not fall.

Even those of us who remember the 1970s tend to assume that inflation rises and falls gradually, because that is what we experienced. Few who are alive today recall step-function inflation, yet that is what occurred around 1916-1919 (during which time CPI inflation went from 2% to 20% and back to 3%), and that is also what occurred around 1946-1947, when CPI inflation rose from 2% to 18% before going back to 3%.

Nobody knows nothing.

I would personally be very uncomfortable with any portfolio that could not survive inflation, both of the gradual and of the sudden-spike variety.

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Re: Inflationary effects pending?

Post by hudson » Mon Mar 23, 2020 6:37 am

LFS1234 wrote:
Mon Mar 23, 2020 6:20 am
If there ever was an area where "nobody knows nothing" applies, inflation prediction is it.

Nobody knows nothing.
I used to think that I had a good feel for predicting inflation and interest rates; I was wrong.
I now agree with LFS1234. Nobody knows nothing.

What do Paul Robin Krugman, Nassim Nicholas Taleb, Larry Swedroe, William Bernstein, or Rick Ferri say?
I left out Taylor Larimore, survivor of the Great Depression and more.

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Re: Inflationary effects pending?

Post by Rus In Urbe » Mon Mar 23, 2020 6:44 am

Sandtrap »
Not yet.
This is not a repeat of the 1975 - 1980 where inflation peaked at 14% or so.
j :happy
Having a Nostalgia moment.
Remember the gas lines?
WIN buttons (Whip Inflation Now)?
And I didn't buy meat for a year because I couldn't afford it on my student budget...the only thing affordable was calf's liver, which I learned to eat every few weeks.

OUCH that was a painful time!

....looking forward, there will be a lot of pressure on the Fed to let inflation take care of most of the Americans who are in debt. They will only cave to those pressures if the indebted corporations find that it also helps their bottom lines...and then, look out, Mabel!

What interesting times! STC. :beer Rus.
I'd like to live as a poor man with lots of money. ~Pablo Picasso

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Re: Inflationary effects pending?

Post by kingomri » Mon Mar 23, 2020 8:28 am

This crisis and the ensuing demand shock due to job loss and lockdowns are incredibly deflationary. Inflationary policy is a good thing in this instance to counteract deflationary pressure - we've got the fiscal space to put money in the hands of workers without a job and small businesses in danger of going bankrupt. Let's do it.

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Re: Inflationary effects pending?

Post by typical.investor » Sun Mar 29, 2020 10:36 pm

Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
Sandtrap »
Not yet.
This is not a repeat of the 1975 - 1980 where inflation peaked at 14% or so.
j :happy
Remember the gas lines?
Not really, but a friend got mad at his mom for giving his bother a can of coke. She said it was because the brother gave her someone to talk to in the gas line.
Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
And I didn't buy meat for a year because I couldn't afford it on my student budget...the only thing affordable was calf's liver, which I learned to eat every few weeks.

OUCH that was a painful time!
Ah liver was cheap? I can remember my mom serving it then. That was the only time. So that's why .... never knew.

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tetractys
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Re: Inflationary effects pending?

Post by tetractys » Sun May 24, 2020 10:01 pm

Food prices are moving, sale prices have dispersed, it looks like inflation is kicking in.

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Re: Inflationary effects pending?

Post by willthrill81 » Sun May 24, 2020 10:06 pm

whodidntante wrote:
Sat Mar 21, 2020 11:38 pm
Gigantic budget deficits combined with creating money out of thin air will have an inflationary effect.
That's certainly what traditional economic thought suggests. However, the national debt and the money supply have both increased by a factor of 4 or more (nominal) since the year 2000, yet inflation has only averaged 2% over the same period.
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Re: Inflationary effects pending?

Post by Valuethinker » Mon May 25, 2020 6:34 am

Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
Sandtrap »
Not yet.
This is not a repeat of the 1975 - 1980 where inflation peaked at 14% or so.
j :happy
Having a Nostalgia moment.
Remember the gas lines?
WIN buttons (Whip Inflation Now)?
And I didn't buy meat for a year because I couldn't afford it on my student budget...the only thing affordable was calf's liver, which I learned to eat every few weeks.

OUCH that was a painful time!

....looking forward, there will be a lot of pressure on the Fed to let inflation take care of most of the Americans who are in debt. They will only cave to those pressures if the indebted corporations find that it also helps their bottom lines...and then, look out, Mabel!

What interesting times! STC. :beer Rus.
To some extent your memory is conflating events.

Yes there was an oil crisis in October 1973 when the US and the Netherlands were embargoed briefly for supporting Israel against Egypt and Syria in the war of that month. The Yom Kippur War.

It is not clear that the US was ever actually physically embargoed. The US simply bought oil from other producers and other customers switched to buying from the Arabs. Oil is dsmnably difficult to trace, particularly as a refined product.

The Saudis by all accounts made special arrangements for the US 6th Fleet in the Mediterranean to receive fuel. Henry Kissinger published an anonymous article in a US magazine sketching out a scenario for a western invasion to secure Arab oil supplies. The message seemed to get through.

Oil went from 3 dollars a barrel to 13 almost overnight. The equivalent shock was repeated in winter of 1979 when oil workers in Iran shut down the industry which led to oil at 40 dollars a barrel and the fall of the Shah of Iran.

The actual gasoline shortage was caused by a US attempt to control domestic oil prices at below world levels.

It was the price controls, not the oil embargo, which led to gas lines. By 1979 oil had been uncontrolled, and there were no gas lines. Instead gas consumption fell as the price soared.

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Re: Inflationary effects pending?

Post by nedsaid » Mon May 25, 2020 9:52 am

Valuethinker wrote:
Mon May 25, 2020 6:34 am
Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
Sandtrap »
Not yet.
This is not a repeat of the 1975 - 1980 where inflation peaked at 14% or so.
j :happy
Having a Nostalgia moment.
Remember the gas lines?
WIN buttons (Whip Inflation Now)?
And I didn't buy meat for a year because I couldn't afford it on my student budget...the only thing affordable was calf's liver, which I learned to eat every few weeks.

OUCH that was a painful time!

....looking forward, there will be a lot of pressure on the Fed to let inflation take care of most of the Americans who are in debt. They will only cave to those pressures if the indebted corporations find that it also helps their bottom lines...and then, look out, Mabel!

What interesting times! STC. :beer Rus.
To some extent your memory is conflating events.

Yes there was an oil crisis in October 1973 when the US and the Netherlands were embargoed briefly for supporting Israel against Egypt and Syria in the war of that month. The Yom Kippur War.

It is not clear that the US was ever actually physically embargoed. The US simply bought oil from other producers and other customers switched to buying from the Arabs. Oil is dsmnably difficult to trace, particularly as a refined product.

The Saudis by all accounts made special arrangements for the US 6th Fleet in the Mediterranean to receive fuel. Henry Kissinger published an anonymous article in a US magazine sketching out a scenario for a western invasion to secure Arab oil supplies. The message seemed to get through.

Oil went from 3 dollars a barrel to 13 almost overnight. The equivalent shock was repeated in winter of 1979 when oil workers in Iran shut down the industry which led to oil at 40 dollars a barrel and the fall of the Shah of Iran.

The actual gasoline shortage was caused by a US attempt to control domestic oil prices at below world levels.

It was the price controls, not the oil embargo, which led to gas lines. By 1979 oil had been uncontrolled, and there were no gas lines. Instead gas consumption fell as the price soared.
A couple of thoughts here. First, good old supply and demand and not price controls are best for an efficient economy and plentiful goods. Also reminded of the old saying that the cure for high oil prices is high oil prices, the reason being is that high prices incentivize production. The invisible hand of the market does far more than central planning.
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Re: Inflationary effects pending?

Post by aj76er » Mon May 25, 2020 4:30 pm

Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
Remember the gas lines?
No, but were they similar to Costco gas lines on any given Saturday?
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Re: Inflationary effects pending?

Post by Dale_G » Tue May 26, 2020 12:27 am

aj76er wrote:
Mon May 25, 2020 4:30 pm
Rus In Urbe wrote:
Mon Mar 23, 2020 6:44 am
Remember the gas lines?
No, but were they similar to Costco gas lines on any given Saturday?
I don't buy gas at Costco, but are the lines 4 hours long and you are limited to 3 gallons?

Dale
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Re: Inflationary effects pending?

Post by macher » Tue May 26, 2020 6:49 am

tetractys wrote:
Sun May 24, 2020 10:01 pm
Food prices are moving, sale prices have dispersed, it looks like inflation is kicking in.
Yea but what’s your definition of inflation? If I’m correct inflation has been about 2% average? Now hyper inflation is a different story.

In the past when there was hyper inflation CD’s and treasuries were high sort of kept up with the hyper inflation.In this climate if there is hyper inflation I don’t see CD’s treasuries and the like coming even close.

In other words IMO you can’t back test treasuries and CD’s because IMO that ride is done going forward.

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Re: Inflationary effects pending?

Post by typical.investor » Tue May 26, 2020 7:30 am

macher wrote:
Tue May 26, 2020 6:49 am
tetractys wrote:
Sun May 24, 2020 10:01 pm
Food prices are moving, sale prices have dispersed, it looks like inflation is kicking in.
Yea but what’s your definition of inflation? If I’m correct inflation has been about 2% average? Now hyper inflation is a different story.

In the past when there was hyper inflation CD’s and treasuries were high sort of kept up with the hyper inflation.In this climate if there is hyper inflation I don’t see CD’s treasuries and the like coming even close.

In other words IMO you can’t back test treasuries and CD’s because IMO that ride is done going forward.
Seriously? IMO that’s just not likely to be the case.

If we do hit inflation rates will get hiked to choke it off and treasury yields will jump. CDs will go up too if banks have any customers who need to borrow.

Nothing to say to say those treasuries and CDs won’t get left behind by inflation as it goes up, but that’s the same as last time strong inflation hit.

Food aside though, where is inflation now? Seems like a lot of lost demand. Food ... yeah pigs destroyed and milk thrown out, fewer workers to do the work.

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Re: Inflationary effects pending?

Post by Xrayman69 » Tue May 26, 2020 10:28 am

typical.investor wrote:
Tue May 26, 2020 7:30 am
macher wrote:
Tue May 26, 2020 6:49 am
tetractys wrote:
Sun May 24, 2020 10:01 pm
Food prices are moving, sale prices have dispersed, it looks like inflation is kicking in.
Yea but what’s your definition of inflation? If I’m correct inflation has been about 2% average? Now hyper inflation is a different story.

In the past when there was hyper inflation CD’s and treasuries were high sort of kept up with the hyper inflation.In this climate if there is hyper inflation I don’t see CD’s treasuries and the like coming even close.

In other words IMO you can’t back test treasuries and CD’s because IMO that ride is done going forward.
Seriously? IMO that’s just not likely to be the case.

If we do hit inflation rates will get hiked to choke it off and treasury yields will jump. CDs will go up too if banks have any customers who need to borrow.

Nothing to say to say those treasuries and CDs won’t get left behind by inflation as it goes up, but that’s the same as last time strong inflation hit.

Food aside though, where is inflation now? Seems like a lot of lost demand. Food ... yeah pigs destroyed and milk thrown out, fewer workers to do the work.
Food demand and the supply chain will likely “normalize” or level off and balance. I don’t think the lack of “sale” pricing is an indicator of excessive inflation just as I would not consider “cut” in home prices advertised be an argument for deflation.

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Re: Inflationary effects pending?

Post by willthrill81 » Tue May 26, 2020 10:33 am

Xrayman69 wrote:
Tue May 26, 2020 10:28 am
Food demand and the supply chain will likely “normalize” or level off and balance. I don’t think the lack of “sale” pricing is an indicator of excessive inflation just as I would not consider “cut” in home prices advertised be an argument for deflation.
Clark Howard discussed the national home buying/selling issue yesterday. Basically, he argued that once the virus started spreading and lockdowns came in place that would-be sellers became less interested in putting their home on the market, at least as much as any waning in buyers' interest. Consequently, home prices in most markets have either been stable or risen in 2020, even though there is less volume sold.

In our area, prices have continued to rise, and homes are continuing to go under contract within days, sometimes hours, of being listed.
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Re: Inflationary effects pending?

Post by almostretired1965 » Tue May 26, 2020 10:57 am

All you have to do is look at Japan for the last 30 years to understand that relationship between budget deficits/debt levels on the one hand and price inflation/sustainability on the other is very complicated. If a country is able to borrow against its own currency, it has a lot more latitude than one that does not.

For those of you who think there is somewhere else in the world safer to store cash, what exactly do you have in mind? Japan, EU, China, India? No, Switzerland is not big enough to matter. I'm not saying it is impossible at some point (though in my lifetime I would say it is impossible), but we are a long ways from any conceivable scenario where the US Dollar faces a run of the sort that is being contemplated.

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Re: Inflationary effects pending?

Post by rgs92 » Tue May 26, 2020 12:46 pm

I always thought inflation was caused by a wage-price spiral (upwards). I just cannot see significantly rising wages in the near future or beyond. There is too much productivity improvement from technology. And labor unions are still fading away fast.

And prices of energy and commodities are flat to falling.
There are too many goods chasing too few buyers.

I do not see these trends changing.

Just my 1.5 cents here.

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Re: Inflationary effects pending?

Post by PDX_Traveler » Tue May 26, 2020 2:25 pm

rgs92 wrote:
Tue May 26, 2020 12:46 pm
I always thought inflation was caused by a wage-price spiral (upwards). I just cannot see significantly rising wages in the near future or beyond. There is too much productivity improvement from technology. And labor unions are still fading away fast.

And prices of energy and commodities are flat to falling.
There are too many goods chasing too few buyers.

I do not see these trends changing.

Just my 1.5 cents here.
+1
Productivity improvements, with jobs involving human labor continuing to decrease in number is a trend that will only continue if not accelerate and dislocate many more fields of endeavour. If anything we are moving towards a world where the discussions on univeral basic income will go from abstract to the political center stage at some point in time. It is indeed hard to see inflation (in the longer term at least) rising. Short term volatility - who knows?

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