Likelihood of 70s style inflation

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Forester
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Re: Likelihood of 70s style inflation

Post by Forester »

Inflation rate is more linked to quality of governance than demographics. Many historical examples of societies with declining populations, debasing their money. I don't believe many people have portfolios which can cope with 4% inflation, mid single digits for a decade.
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dual
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Re: Likelihood of 70s style inflation

Post by dual »

One of the reasons for the 1970s inflation is the two "oil shocks." They led to large increases in the price of energy that then filtered through the economy. I well remember sitting in gas lines in my car. Due to the policies of the last four years, the US has achieved energy independence and that has made a big difference in inflation even in the last couple of years. See the plot of energy inflation in Asia vs. US since 2019.

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Re: Likelihood of 70s style inflation

Post by rockstar »

illumination wrote: Sun Jan 17, 2021 11:54 am Raising the minimum wage is going to have a big effect on inflation, that seems to get lost in the discussion when only things like large deficits and stimulus are discussed. And that seems to be happening everywhere right now. If you say had a federal 50 state $15+ an hour minimum wage, that's going to be a much larger driver of inflation than say a few trillion extra in stimulus.

I just know I have a cabin in a small town and they voted for a sky high minimum wage the area couldn't really support (it was a college town) and you immediately saw the effects on prices. Just about everything in the town went up. Small business owners were up in arms about it, many are adding things like a separate surcharge on top of your bill as a "minimum wage fee" etc.
The minimum wage has been stagnant to declining on a real terms basis for so long. I'm really not concerned. It should grow at the inflation rate. This is a big catch up. People need to earn more to buy more. Otherwise, they take on debt, buy more, and then end up filing for bankruptcy. We end up repeating this cycle over and over again. A better scenario is to just pay them more. It should create a better debt cycle.
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Re: Likelihood of 70s style inflation

Post by nedsaid »

stocknoob4111 wrote: Sat Jan 16, 2021 4:29 pm With all the deficit spending going on, 4 Trillion already spent, another 1.9 Trillion upcoming, and more Trillions coming for sure, what is the chance that we will have a repeat of the inflation problem that happened in the 70s? If so, is there anything that we can pro-actively do about it?

If there is a repeat of high inflation I know Bonds are not going to fare well, how would that affect stocks?

Lastly, did the 4% rule survive the 70s inflationary period?
There are at least two scenarios here, a 1988-present Japan scenario with high government deficits, a slow growth economy, and very low inflation. The other most likely scenario would be a 1970's Stagflation. My thoughts right now is that the former and not the latter is most probable.
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Re: Likelihood of 70s style inflation

Post by shelanman »

Thesaints wrote: Sat Jan 16, 2021 9:12 pm
Wrench wrote: Sat Jan 16, 2021 8:59 pm The government will print money to cover the high current and future spending,
They have already "printed" several trillion dollars since 2008. Where is the inflation ? We almost had deflation
Officially we may have almost had deflation since then, but go back and watch old TV commercials from 2007/8.

You'll be amazed at the prices.

The dollar has lost closer to half it's actual purchasing power since then, not zero. Almost 2/3 when it comes to food. (I just happened to be watching some old TV from 2007 on YouTube on Friday, and couldn't believe the prices in the ads. Especially food, which was so cheap it might as well have been free. Sit-down restaurants advertising their $5 lunch specials that I know were $12.99 and $14.99 before covid shut them, for example. A car that today sells for $20k-25k being advertised for $14990.

This is the risk with officially-inflation protected assets: they offset the official inflation rate, not actual inflation.

Even the size of the bailouts has inflated away. In 2008, we did $750 billion spending bills. Now we do $2 trillion and complain that it is "crumbs".

I can't say that we are or aren't going to have massive inflation from all this for sure, but I certainly don't feel safe holding on to dollars myself.
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Re: Likelihood of 70s style inflation

Post by vineviz »

rockstar wrote: Sun Jan 17, 2021 12:46 pm
illumination wrote: Sun Jan 17, 2021 11:54 am Raising the minimum wage is going to have a big effect on inflation, that seems to get lost in the discussion when only things like large deficits and stimulus are discussed. And that seems to be happening everywhere right now. If you say had a federal 50 state $15+ an hour minimum wage, that's going to be a much larger driver of inflation than say a few trillion extra in stimulus.

I just know I have a cabin in a small town and they voted for a sky high minimum wage the area couldn't really support (it was a college town) and you immediately saw the effects on prices. Just about everything in the town went up. Small business owners were up in arms about it, many are adding things like a separate surcharge on top of your bill as a "minimum wage fee" etc.
The minimum wage has been stagnant to declining on a real terms basis for so long. I'm really not concerned. It should grow at the inflation rate. This is a big catch up. People need to earn more to buy more. Otherwise, they take on debt, buy more, and then end up filing for bankruptcy. We end up repeating this cycle over and over again. A better scenario is to just pay them more. It should create a better debt cycle.
I agree. Most economists now undertake that the minimum wage is not a driver of price inflation.
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Re: Likelihood of 70s style inflation

Post by sunset »

Tamarind wrote: Sun Jan 17, 2021 9:59 am
The 4% rule did survive the 70s - in that it was calculated based on many 30 year retirement periods, including lots that had some or all of this inflation included.

Look, people have been screaming about deficit spending and QE causing wild inflation since at least 2008, right after I started investing. It hasn't happened at all, in fact rates have stayed low or even fallen father. That means one of the following must be true:

1) Deficit spending/QE is not actually inflationary. All the worry is meaningless and a waste of energy.

2) Deficit spending/QE is inflationary but there is also a strong deflationary trend countering it. All the worry actually increases the risk of deflation.
What about a third possibility:
3) Deficit spending/QE is inflationary, but a bubble has been building up in the economy from 2008, which has muted inflation. When it collapses, inflation will shoot up, asset/equity prices will collapse (is that mutually contradictory), and it will lead to the mother of all depressions, followed by deflation.

I am hoping it is not the case, and would like some BH expert economists to assure me of it :)
Last edited by sunset on Sun Jan 17, 2021 1:10 pm, edited 3 times in total.
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Re: Likelihood of 70s style inflation

Post by JackoC »

The confidence of most responses in predicting future realized inflation, would be highly reassuring...if there was much reason to believe one could really predict it. There are always arguments in favor of consensus expectations being the realized outcome, which you can read in articles then repeat in web posts. They sound convincing. But if things turn out quite differently than expected*, rest assured there will be good explanations in articles for that too. :happy

The one actually relevant thing about everyone piling on to say there won't be 70's level inflation is to the degree realized inflation is an autocorrelated function of inflation expectations. According to some legitimate views, if almost nobody expects higher inflation, that itself importantly contributes to there not being higher inflation. Although, there's a range of legitimate disagreement what causes high inflation and per various viewpoints 'anchoring of expectations' is a less important factor. We now know or should that simply tracking the growth in money supply doesn't predict inflation well since velocity is not at all constant. But determining the long term relationship between supply/velocity and a little faster or slower economic growth (due to public policies like immigration, regulatory, tax, environmental etc.; or the rate of private innovation or baked in demographics) is not easy.

*it's a fact that the current inflation *expectation*, as read by TIPS breakeven, inflation swap prices etc. is far below 1970's level, but nobody can say for a fact realized inflation won't be much higher than expected. It's similar to frequent discussions about future stock return: expected return is now significantly lower than long term past realized return per market measures; it doesn't mean future realized return has '0%' chance of matching or exceeding past realized return.
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Re: Likelihood of 70s style inflation

Post by texasfight »

Depends on fiscal. If they keep passing fiscal. Then massive stagflation. If there are hangups, then another deflationary bust until they print solvency again.

Rates need to be negative, we have a 12% output gap and 7% unemployment. To get shadow funds rate down to where it needs to be (in 2014 it was negative 4%) Fed balance sheet needs to be 20T.

My guess is we have another blow up before we enter full stagflation.

You are already seeing it now, if real rates don't rise, then unemployment doesn't come back.

We are going to go full MMT, but not before we have another crash that makes March 2020 look like a picnic. A 2 trillion stimulus is not even close to enough.
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Re: Likelihood of 70s style inflation

Post by JPM »

Klang fool

I agree that your plan is optimal. An old acquaintance of mine's family did exactly that when Castro took over in Cuba. His dad, a jeweler, left with a "pocketful" of diamonds etc and managed somehow to escape the country with them, and landed in Miami a rich Cuban expat. When Nixon took the buck off the $35/oz gold peg, the same man converted everything he owned or could borrow at the time into gold and rode that one to a twenty bagger. Market timing worked out great for him.

I do not expect seventies style inflation in the near future, but then anything can happen. Czar Nicholas probably thought he would die in his bed until it was too late. I do believe that as long as Chimerica is in business and globalization continues, Mugabe/Weimar-style inflation in the US is a long way off. Wages can't rise enough in the face of international competition. It will be interesting to see how the $15 minimum wage works out in terms of promoting more outsourcing of production and giving a little boost to domestic inflation. And maybe wrecking the economies of Mississippi and similarly poor low-wage US states. Eventually the US may run out of things to trade on favorable terms for consumer goods in the global marketplace and the trade deficit will shrink, and then serious inflation will probably arrive. I will be long dead before then and my children probably will be, and maybe even my grandchildren will be too.

Warmest regards,
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Re: Likelihood of 70s style inflation

Post by garlandwhizzer »

Excessive levels of debt, aging demographics, increasing globalization, and innovative technology that increases efficiency of production and distribution have all been strong secular forces that have kept inflation low in spite of massive increases in the M1 money supply. You cannot get runaway inflation like in 1970s without drivers like runaway wage increases and runaway commodity price increases which occurred in the 1970s. In the 1970s we had the Arab Oil Embargo (price of oil went up 400% in 7 months) and powerful labor unions which were able in many industries to force higher and higher wages in response to inflation which in turn increased inflation more. In economic terms we had cost push inflation rather than demand pull inflation. Demand pull inflation is self-correcting. Cost push isn't.

None of those drivers of inflation are present now and instead we have a combination of anti-inflationary secular trends. It is entirely possible that in 2021 we'll see inflation reaching somewhere near 2% and bond yields increasing as well but the likelihood that we'll get the runaway inflation of the 1970s is IMO extremely remote.

DMs all over the world have been trying with extremely stimulative monetary policy never before used in history to create even a modest 2% inflation and they have uniformly been unable to do so. That excess money has instead wound up bidding up the prices of investment assets like stocks, bonds, and real estate whose prices have in fact shown substantial inflation. Bonds are more expensive than they've ever been in history. The stock market recently hit an all time during a pandemic, severe recession, and over 10 million people unemployed. The market and the economy have totally diverged. All that monetary and fiscal stimulus to get the economy going and to increase inflation has been like beating a dead horse to get it moving. That should tell you something about the current macroeconomic status with regard to inflation.

Increased fiscal stimulation which is expected with the Biden administration in combination with Covid control due to vaccination is expected by the market to stimulate increasing economic growth and inflation in 2021 which is one reason why long suffering value stocks have suddenly become popular. The market expects economic growth and inflation to increase in 2021 which favors value stocks more than growth stocks. No one, however, expects runaway inflation in the foreseeable future. The most optimistic projections for 2021 S&P 500 earnings are only slightly better than they were in 2019, essentially zero of less in real inflation adjusted terms. Stocks weren't cheap at the end of 2019 but they look cheap now with the S&P 500 at a PE1 of 34.3. In short there is a lot of optimism bid into current prices. Investors as a group have focused on reward which has been easy, and neglected risk. I hope they're right but I suspect the road ahead will have some bumps.

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Re: Likelihood of 70s style inflation

Post by garlandwhizzer »

Correction from my last post. The current S&P 500 ratio based on the last 12 months earnings is 38. The figure I quoted, 34.3, is the Shiller PE 10 ratio. Either way, it's not cheap.

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Re: Likelihood of 70s style inflation

Post by MarkBarb »

Nobody knows for sure, but the market is probably your best guide. The 10-year TIPS spread shows an anticipated inflation rate of just over 2% over the next 10 years.

https://fred.stlouisfed.org/series/T10YIE
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Re: Likelihood of 70s style inflation

Post by abuss368 »

Leesbro63 wrote: Sun Jan 17, 2021 5:53 am
abuss368 wrote: Sat Jan 16, 2021 10:55 pm
stocknoob4111 wrote: Sat Jan 16, 2021 4:29 pm With all the deficit spending going on, 4 Trillion already spent, another 1.9 Trillion upcoming, and more Trillions coming for sure, what is the chance that we will have a repeat of the inflation problem that happened in the 70s? If so, is there anything that we can pro-actively do about it?

If there is a repeat of high inflation I know Bonds are not going to fare well, how would that affect stocks?

Lastly, did the 4% rule survive the 70s inflationary period?
Honestly no one knows for sure. I thought after the Great Recession inflation would take off with all the record (at that time) stimulus and spending. That did not happen.

Tony
+1. Jack Bogle’s best advice ever, IMHO, is to remember that “Nobody knows nuthin’ “.
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Re: Likelihood of 70s style inflation

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illumination wrote: Sun Jan 17, 2021 11:54 am Raising the minimum wage is going to have a big effect on inflation
Are you saying "this time is different" or do you have evidence correlating increases in minimum wage over the years with high inflation?
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Re: Likelihood of 70s style inflation

Post by JoeRetire »

texasfight wrote: Sun Jan 17, 2021 1:20 pm Depends on fiscal. If they keep passing fiscal.
What does "passing fiscal" mean?
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Re: Likelihood of 70s style inflation

Post by illumination »

vineviz wrote: Sun Jan 17, 2021 12:52 pm
rockstar wrote: Sun Jan 17, 2021 12:46 pm
illumination wrote: Sun Jan 17, 2021 11:54 am Raising the minimum wage is going to have a big effect on inflation, that seems to get lost in the discussion when only things like large deficits and stimulus are discussed. And that seems to be happening everywhere right now. If you say had a federal 50 state $15+ an hour minimum wage, that's going to be a much larger driver of inflation than say a few trillion extra in stimulus.

I just know I have a cabin in a small town and they voted for a sky high minimum wage the area couldn't really support (it was a college town) and you immediately saw the effects on prices. Just about everything in the town went up. Small business owners were up in arms about it, many are adding things like a separate surcharge on top of your bill as a "minimum wage fee" etc.
The minimum wage has been stagnant to declining on a real terms basis for so long. I'm really not concerned. It should grow at the inflation rate. This is a big catch up. People need to earn more to buy more. Otherwise, they take on debt, buy more, and then end up filing for bankruptcy. We end up repeating this cycle over and over again. A better scenario is to just pay them more. It should create a better debt cycle.
I agree. Most economists now undertake that the minimum wage is not a driver of price inflation.
"

"Most" economists would not say there's zero correlation between a dramatic increase in a minimum wage and inflation. There's also a link to unemployment increases. But economics can be very political, you can find a lot of economists that say a lot of stupid things that just hppen to follow their politics.

I'm not interested in debating the "social justice" or political angle of whether or not it's a good idea for society (I'm in the middle) but it's pretty basic that if you make a business dramatically increase its labor costs, those costs are going to passed on to consumers and prices rise. To say it has zero effect on inflation just not true. Or someone will use something like core CPI to show "no inflation", not taking in consideration many minimum wage jobs are in food service industries where food prices aren't counted. Look at the oil shocks in the 1970's, oil prices dramatically increased, industries that used energy had to pass on these costs, etc. Is anyone going to say oil prices increasing dramatically weren't a factor in 1970's inflation?

I'm starting to wonder if you can anyone to agree that inflation is even a real thing, it seems every time someone even speculates about it, it's labeled as some sort of fringe conspiracy theory.
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Re: Likelihood of 70s style inflation

Post by JoeRetire »

illumination wrote: Sun Jan 17, 2021 4:42 pm Raising the minimum wage is going to have a big effect on inflation, that seems to get lost in the discussion when only things like large deficits and stimulus are discussed. And that seems to be happening everywhere right now.
Your premise appears flawed. How much of a minimum wage increase do you believe is "happening everywhere right now"?
I'm starting to wonder if you can anyone to agree that inflation is even a real thing, it seems every time someone even speculates about it, it's labeled as some sort of fringe conspiracy theory.
Inflation is a real thing. It just happens to be relatively low right now. And there's no evidence that a few minimum wage changes are going to change that.
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Re: Likelihood of 70s style inflation

Post by illumination »

JoeRetire wrote: Sun Jan 17, 2021 4:55 pm
Inflation is a real thing. It just happens to be relatively low right now. And there's no evidence that a few minimum wage changes are going to change that.
This is sort of a non sequitur isn't it? There's no evidence of inflation right now, so raising the minimum wage by more than double the current rate shouldn't do anything. You could really say that about any policy.

One might say that this is the longest the US has gone without a federal minimum wage increase and also one of the longest time periods where we've had really low inflation.
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Re: Likelihood of 70s style inflation

Post by Marseille07 »

I think the risk is higher than people might think. Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode. The good news is it's not hard to dodge a bullet, as inflation signs are hard to miss.
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Re: Likelihood of 70s style inflation

Post by vineviz »

Marseille07 wrote: Sun Jan 17, 2021 5:11 pm Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode.
None of these things are inflation triggers.
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Re: Likelihood of 70s style inflation

Post by Marseille07 »

vineviz wrote: Sun Jan 17, 2021 5:18 pm
Marseille07 wrote: Sun Jan 17, 2021 5:11 pm Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode.
None of these things are inflation triggers.
It's backwards, yes. Interest rates rise to contain inflation after we already started inflating.
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Re: Likelihood of 70s style inflation

Post by jmw »

The risk is very near zero.

We've had trillions and trillions of printed money and not a whiff of 70s style inflation. Meanwhile, we've had several close brushes with deflation. That printed money isn't reaching the masses which is an indication that we're not benefitting from the printed money policies.
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Re: Likelihood of 70s style inflation

Post by texasfight »

JoeRetire wrote: Sun Jan 17, 2021 2:41 pm
texasfight wrote: Sun Jan 17, 2021 1:20 pm Depends on fiscal. If they keep passing fiscal.
What does "passing fiscal" mean?
Fiscal package = additional unemployment, stimulus checks, PPP funding, state and local funding, etc. First time we are really printing solvency vs. prior Fed policy of focus on reducing risk free rate to push people out on risk curve.
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Re: Likelihood of 70s style inflation

Post by vineviz »

illumination wrote: Sun Jan 17, 2021 4:42 pm
I'm not interested in debating the "social justice" or political angle of whether or not it's a good idea for society (I'm in the middle) but it's pretty basic that if you make a business dramatically increase its labor costs, those costs are going to passed on to consumers and prices rise.
If intuition were always correct, there’d be no need for education.

It just not as simple as the popular press would have you believe: increases in demand and/or productivity can easily offset - or MORE than offset- the increase in labor costs.

Nixon’s wage controls didn’t prevent inflation in the 1970s and there little credible evidence that increasing the minimum wage causes inflation today.
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Re: Likelihood of 70s style inflation

Post by illumination »

vineviz wrote: Sun Jan 17, 2021 6:22 pm

It just not as simple as the popular press would have you believe: increases in demand and/or productivity can easily offset - or MORE than offset- the increase in labor costs.

But you're conceding that something needs to offset it.

Maybe a worker getting twice the pay is twice as productive and it all evens out. But it's a relevant factor if you have to look for ways it needs to be offset.
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Re: Likelihood of 70s style inflation

Post by willthrill81 »

Marseille07 wrote: Sun Jan 17, 2021 5:11 pm I think the risk is higher than people might think. Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode.
With regard to student debt, I've been hearing about a 'coming crisis' since at least 2016, but so far, we're in mostly the same situation today as we were back then apart from the COVID-19 related issues. In 2019, the median student loan debt was $17k, and the mean was $33k.

The chart below indicates that roughly 90% of student loan borrowers owe under $75k, and 83% owe under $50k. That's hardly a millstone hanging around most borrower's necks, contrary to what they may feel about it.

Image

It's true that the number of those with student loan debt over $100k might be too high, but a great many, probably a majority, of those are graduate students who will have greater earning potential on average than those with only a bachelor's degree.
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Re: Likelihood of 70s style inflation

Post by Marseille07 »

willthrill81 wrote: Sun Jan 17, 2021 6:52 pm
Marseille07 wrote: Sun Jan 17, 2021 5:11 pm I think the risk is higher than people might think. Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode.
With regard to student debt, I've been hearing about a 'coming crisis' since at least 2016, but so far, we're in mostly the same situation today as we were back then apart from the COVID-19 related issues. In 2019, the median student loan debt was $17k, and the mean was $33k.

The chart below indicates that roughly 90% of student loan borrowers owe under $75k, and 83% owe under $50k. That's hardly a millstone hanging around most borrower's necks, contrary to what they may feel about it.

Image

It's true that the number of those with student loan debt over $100k might be too high, but a great many, probably a majority, of those are graduate students who will have greater earning potential on average than those with only a bachelor's degree.
Thank you. This is very interesting, median being 17K isn't too bad at all. And the mean is pulled up by heavy hitters having 200K+ I'm sure.
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Re: Likelihood of 70s style inflation

Post by Soon2BXProgrammer »

Marseille07 wrote: Sun Jan 17, 2021 7:00 pm
willthrill81 wrote: Sun Jan 17, 2021 6:52 pm
Marseille07 wrote: Sun Jan 17, 2021 5:11 pm I think the risk is higher than people might think. Interest rates can only go up from here, and we have student debt / healthcare cost crisis about to explode.
With regard to student debt, I've been hearing about a 'coming crisis' since at least 2016, but so far, we're in mostly the same situation today as we were back then apart from the COVID-19 related issues. In 2019, the median student loan debt was $17k, and the mean was $33k.

The chart below indicates that roughly 90% of student loan borrowers owe under $75k, and 83% owe under $50k. That's hardly a millstone hanging around most borrower's necks, contrary to what they may feel about it.

Image

It's true that the number of those with student loan debt over $100k might be too high, but a great many, probably a majority, of those are graduate students who will have greater earning potential on average than those with only a bachelor's degree.
Thank you. This is very interesting, median being 17K isn't too bad at all. And the mean is pulled up by heavy hitters having 200K+ I'm sure.
The median is skewed towards 20k because that is about what can be borrowed without it being a parent plus loan
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Re: Likelihood of 70s style inflation

Post by oldlongbeard »

dual wrote: Sun Jan 17, 2021 12:30 pm One of the reasons for the 1970s inflation is the two "oil shocks." They led to large increases in the price of energy that then filtered through the economy. I well remember sitting in gas lines in my car. Due to the policies of the last four years, the US has achieved energy independence and that has made a big difference in inflation even in the last couple of years. See the plot of energy inflation in Asia vs. US since 2019.

Image
Interesting that you were talking about waiting in "gas" lines, but your chart (still valid) is for LNG. Natural Gas prices in the US over the last 10-15 years were driven down due to fracking. Natural Gas is a by-product of the process. Once the price got so low, much of it was "burned off" on-site, as it wasn't worth the costs of transporting it for sale. Now, OIL prices have fallen so far that oil produced by fracking is at a tipping point for returns as well. If the prices stay so low, the frackers will pack in the holes, and oil prices will rise again, and OPEC will re-gain its power. They can afford to wait. Frackers cannot wait forever. Enjoy the low energy prices. I am going to predict you've seen the bottom. I can also see locally the early signs of rising inflation. (Prices, NOT wages.) If I had a low-interest mortgage, I would think REAL hard before paying it off. My 2 cents, but I do realize I know nothing. Just hunches, mostly.
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Re: Likelihood of 70s style inflation

Post by JoeRetire »

illumination wrote: Sun Jan 17, 2021 5:08 pm
JoeRetire wrote: Sun Jan 17, 2021 4:55 pm
Inflation is a real thing. It just happens to be relatively low right now. And there's no evidence that a few minimum wage changes are going to change that.
This is sort of a non sequitur isn't it?
They are distinct statements, not meant to lead into the other and no statement of a conclusion. So you could call it a non sequitur, but that wouldn't make sense.

It's meant to convey that nobody here has demonstrated any evidence that some imagined change to the federal minimum wage is going to cause inflation. That's all. And that's a real thing.
One might say that this is the longest the US has gone without a federal minimum wage increase and also one of the longest time periods where we've had really low inflation.
One might say that. I didn't. But one might.
And if one was attempting to show causation, one would need more evidence than that.
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JoeRetire
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Re: Likelihood of 70s style inflation

Post by JoeRetire »

texasfight wrote: Sun Jan 17, 2021 6:02 pm
JoeRetire wrote: Sun Jan 17, 2021 2:41 pm
texasfight wrote: Sun Jan 17, 2021 1:20 pm Depends on fiscal. If they keep passing fiscal.
What does "passing fiscal" mean?
Fiscal package = additional unemployment, stimulus checks, PPP funding, state and local funding, etc. First time we are really printing solvency vs. prior Fed policy of focus on reducing risk free rate to push people out on risk curve.
So "fiscal" = "fiscal package"? Got it. Thanks.

And when you say "First time", you mean second time? Or first time since last year? Or this time is different than 2008? Or something else?
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Re: Likelihood of 70s style inflation

Post by Tamarind »

sunset wrote: Sun Jan 17, 2021 1:01 pm
Tamarind wrote: Sun Jan 17, 2021 9:59 am
The 4% rule did survive the 70s - in that it was calculated based on many 30 year retirement periods, including lots that had some or all of this inflation included.

Look, people have been screaming about deficit spending and QE causing wild inflation since at least 2008, right after I started investing. It hasn't happened at all, in fact rates have stayed low or even fallen father. That means one of the following must be true:

1) Deficit spending/QE is not actually inflationary. All the worry is meaningless and a waste of energy.

2) Deficit spending/QE is inflationary but there is also a strong deflationary trend countering it. All the worry actually increases the risk of deflation.
What about a third possibility:
3) Deficit spending/QE is inflationary, but a bubble has been building up in the economy from 2008, which has muted inflation. When it collapses, inflation will shoot up, asset/equity prices will collapse (is that mutually contradictory), and it will lead to the mother of all depressions, followed by deflation.

I am hoping it is not the case, and would like some BH expert economists to assure me of it :)
I'm no economist. This makes little sense to me, however. Yes it is contradictory. Why would a bubble hold inflation down? Insofar as a bubble is the driving up of asset prices I'd expect it to *contribute* to inflation. There was also no increase in US inflation after the popping of asset bubbles in 2000 or in 2008. Even the "bubbled" assets themselves did not experience an increase in the rate of price growth after their bubbles popped - the very opposite.
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Re: Likelihood of 70s style inflation

Post by matt1882 »

For the middle/upper middle class the CPI is almost meaningless. Over the last 10+ years, there has been a huge amount of inflation (perhaps exceeding 70s levels) for higher education, property in desirable areas, health care, and (because of low interest rates) annuities/bonds sufficient to ensure financial security in the future.
Thesaints wrote: Sat Jan 16, 2021 9:12 pm
Wrench wrote: Sat Jan 16, 2021 8:59 pm The government will print money to cover the high current and future spending,
They have already "printed" several trillion dollars since 2008. Where is the inflation ? We almost had deflation.
Even without manufacturing jobs, service workers will have to get wage increases to pay the rent and buy food. We are already seeing that with the push for $15 minimum wage.

If it becomes $15 tomorrow, that would be a ~7/8% yearly increase calculating from the last adjustment (2009), but calculating from 1998 it would be only a 4.5% increase.
But it would be prudent to plan on higher inflation and maybe much higher inflation sometime in the 2020 decade.

Or not. Within the next 10 years it is not too likely, with unemployment increasing to boot.
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Re: Likelihood of 70s style inflation

Post by sunset »

Tamarind wrote: Sun Jan 17, 2021 8:03 pm
sunset wrote: Sun Jan 17, 2021 1:01 pm
Tamarind wrote: Sun Jan 17, 2021 9:59 am
The 4% rule did survive the 70s - in that it was calculated based on many 30 year retirement periods, including lots that had some or all of this inflation included.

Look, people have been screaming about deficit spending and QE causing wild inflation since at least 2008, right after I started investing. It hasn't happened at all, in fact rates have stayed low or even fallen father. That means one of the following must be true:

1) Deficit spending/QE is not actually inflationary. All the worry is meaningless and a waste of energy.

2) Deficit spending/QE is inflationary but there is also a strong deflationary trend countering it. All the worry actually increases the risk of deflation.
What about a third possibility:
3) Deficit spending/QE is inflationary, but a bubble has been building up in the economy from 2008, which has muted inflation. When it collapses, inflation will shoot up, asset/equity prices will collapse (is that mutually contradictory), and it will lead to the mother of all depressions, followed by deflation.

I am hoping it is not the case, and would like some BH expert economists to assure me of it :)
I'm no economist. This makes little sense to me, however. Yes it is contradictory. Why would a bubble hold inflation down? Insofar as a bubble is the driving up of asset prices I'd expect it to *contribute* to inflation. There was also no increase in US inflation after the popping of asset bubbles in 2000 or in 2008. Even the "bubbled" assets themselves did not experience an increase in the rate of price growth after their bubbles popped - the very opposite.
I guess I should explain better. What I meant by QE contributing to a bubble was that money printed by QE is going into equities and other assets, driving up the prices, as speculated on by a previous poster, and indicated by the insane stock price increases. When the bubble pops, the asset prices are going to crumble, and the money flowing out of assets then flows into other things driving up their prices. Hope someone will disprove my speculations and say that it is not going to happen.
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Re: Likelihood of 70s style inflation

Post by dumbfarmer85 »

I only see 1 response that makes sense. The purchasing power is dropping fast. Lumber went to all time highs due to covid. Then it doubled again. I farm and the grain I sell is up 50%+ this year. Steel is skyrocketing. Health insurance cost today for my family would have taken 90% of my 2006 take-home pay as a new college grad. College tuition is up way over 2%. I feel many w-2 employees with upper middle class incomes are insulated to these realities as they are so "rich" vs low earners and receive benefits with their jobs. Cheap interest and long mortgages are now the norm. Perhaps the gov tells us it's 2% but I say false.
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Re: Likelihood of 70s style inflation

Post by typical.investor »

sunset wrote: Sun Jan 17, 2021 10:00 pm I guess I should explain better. What I meant by QE contributing to a bubble was that money printed by QE is going into equities and other assets, driving up the prices, as speculated on by a previous poster, and indicated by the insane stock price increases. When the bubble pops, the asset prices are going to crumble, and the money flowing out of assets then flows into other things driving up their prices. Hope someone will disprove my speculations and say that it is not going to happen.
Not really sure I buy your scenerio.

When (if) the bubble pops, you won't be able to sell assets at such high prices. That's the definition of pop right. Thus, the flows to other assets will not be that great. And if equity prices are low, people will look at it as an opportunity to buy.

Anyway, '70s style inflation was years of keeping rates low to promote employment, a supply shock in oil, and a switch in policy to rates hikes to finally tame inflation.

While the Fed is signaling they will go over the 2% inflation for some time before raising rates, I don't see a return to pre-Volcker policy (as it turns out that employment benefits from tamed inflation). I don't see an energy crisis. And I see globalization as having a major, major impact on reducing costs by shifting production. And then there is demographics which favor deflation.

So unless globalization is reversed (which seems less of a possibility now, but of course depends on prevalent political goals), or environmental change cause shortages (or changes to fight environmental threats cause shortages), or demographics suddenly changing; I am not sure where inflation would come from.

Anyway, is it really QE that is causing insane equity pricing? I think it's more to do with people being at home and using chat like applications to follow trends and to pursue a momentum like strategy. I don't see value stocks as being insanely priced.

Sure QE boosted the price of financial assets, but what happens when QE is unwound (which is surely to have a deflationary effect)? I just don't see QE as necessarily leading to 70s style inflation ...
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Re: Likelihood of 70s style inflation

Post by rockstar »

sunset wrote: Sun Jan 17, 2021 10:00 pm
Tamarind wrote: Sun Jan 17, 2021 8:03 pm
sunset wrote: Sun Jan 17, 2021 1:01 pm
Tamarind wrote: Sun Jan 17, 2021 9:59 am
The 4% rule did survive the 70s - in that it was calculated based on many 30 year retirement periods, including lots that had some or all of this inflation included.

Look, people have been screaming about deficit spending and QE causing wild inflation since at least 2008, right after I started investing. It hasn't happened at all, in fact rates have stayed low or even fallen father. That means one of the following must be true:

1) Deficit spending/QE is not actually inflationary. All the worry is meaningless and a waste of energy.

2) Deficit spending/QE is inflationary but there is also a strong deflationary trend countering it. All the worry actually increases the risk of deflation.
What about a third possibility:
3) Deficit spending/QE is inflationary, but a bubble has been building up in the economy from 2008, which has muted inflation. When it collapses, inflation will shoot up, asset/equity prices will collapse (is that mutually contradictory), and it will lead to the mother of all depressions, followed by deflation.

I am hoping it is not the case, and would like some BH expert economists to assure me of it :)
I'm no economist. This makes little sense to me, however. Yes it is contradictory. Why would a bubble hold inflation down? Insofar as a bubble is the driving up of asset prices I'd expect it to *contribute* to inflation. There was also no increase in US inflation after the popping of asset bubbles in 2000 or in 2008. Even the "bubbled" assets themselves did not experience an increase in the rate of price growth after their bubbles popped - the very opposite.
I guess I should explain better. What I meant by QE contributing to a bubble was that money printed by QE is going into equities and other assets, driving up the prices, as speculated on by a previous poster, and indicated by the insane stock price increases. When the bubble pops, the asset prices are going to crumble, and the money flowing out of assets then flows into other things driving up their prices. Hope someone will disprove my speculations and say that it is not going to happen.
If folks dump stocks, they will most likely buy real estate to shield themselves against inflation. It was one of the biggest winners during the 70s. Of course, if I can buy a 30 year bond that pays double digits, I'll sell all of my equities and buy that.
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Re: Likelihood of 70s style inflation

Post by Soon2BXProgrammer »

dumbfarmer85 wrote: Sun Jan 17, 2021 10:31 pm I only see 1 response that makes sense. The purchasing power is dropping fast. Lumber went to all time highs due to covid. Then it doubled again. I farm and the grain I sell is up 50%+ this year. Steel is skyrocketing. Health insurance cost today for my family would have taken 90% of my 2006 take-home pay as a new college grad. College tuition is up way over 2%. I feel many w-2 employees with upper middle class incomes are insulated to these realities as they are so "rich" vs low earners and receive benefits with their jobs. Cheap interest and long mortgages are now the norm. Perhaps the gov tells us it's 2% but I say false.
The real question is will the price trends you have identified stay once vaccines make a serious dent in the disease progress.

Every upper middle class income family I know has made home improvements. Once they are allowed to travel, they won't spend their money on their house as much.
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Re: Likelihood of 70s style inflation

Post by dumbfarmer85 »

Only the lumber and maybe steel are covid spikes. The grain is fundamentals and speculators both (farmers don't stop for covid). Tuition and health care are mostly due to govt meddling imho. But nothing seems too stagnant right now. Even energy is rising, maybe due to fear of govt meddling. My wife wants an addition but I say wait a year. There is 1 heavy duty pickup on the car lots in my nearest city, normally 60-70 to pick from. The stimulus money is being very disruptive right now with so many business owners getting free money. If everyone gets 2k from Biden, this will have a long tail I bet. Strange times.
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Re: Likelihood of 70s style inflation

Post by illumination »

JoeRetire wrote: Sun Jan 17, 2021 7:37 pm

It's meant to convey that nobody here has demonstrated any evidence that some imagined change to the federal minimum wage is going to cause inflation. That's all. And that's a real thing.

Plenty of economists maintain the concept of wage-push inflation. I'm not sure how it matters that "someone here" needs to demonstrate it.

Can you demonstrate that it's not real or there is no relationship? My guess is you can find economists on opposite sides of nearly every issue, but that doesn't disprove anything.
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Re: Likelihood of 70s style inflation

Post by 000 »

Likelihood of 70s style inflation in basic materials (namely oil) seems low but the possibility of issues leading to manufacturing shortages leading to consumer goods inflation seems somewhat more probable.

Of course, asset inflation (includes tuition and housing) is likely to continue on.
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Re: Likelihood of 70s style inflation

Post by JoeRetire »

illumination wrote: Sun Jan 17, 2021 11:52 pm
JoeRetire wrote: Sun Jan 17, 2021 7:37 pm

It's meant to convey that nobody here has demonstrated any evidence that some imagined change to the federal minimum wage is going to cause inflation. That's all. And that's a real thing.

Plenty of economists maintain the concept of wage-push inflation. I'm not sure how it matters that "someone here" needs to demonstrate it.
Okay.

So you have convinced yourself that a minimum wage increase that you claim is "happening everywhere right now" is going to have a big effect on inflation. And when asked about it, you can only claim support for the thought from "plenty of economists".

Pretty hard to argue with that. :oops:

I'm guessing that you are actively working on your portfolio to protect yourself against this impending inflation wave.

Good luck.
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Re: Likelihood of 70s style inflation

Post by Shallowpockets »

Whether or not minimum wage adds to or causes inflation is neither here nor there. There is nobody on the BH boards that makes minimum wage. Almost every one on here is probably in the top 20% of assets. To anyone making a minimum wage now, there is already a problem making ends meet. You think they care if it there is inflation when now they cannot afford what they require? Even if we somehow connect a minimum wage increase to inflation, it would still be the right thing to do. I am sure BHs would adjust to the inflation. Did any BHs in the 70s really feel that inflation? Sure, maybe you have to pay more for things, but if already living on an income far far exceeding a minimum wage, is that really a factor?
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Re: Likelihood of 70s style inflation

Post by smitcat »

Shallowpockets wrote: Mon Jan 18, 2021 9:34 am Whether or not minimum wage adds to or causes inflation is neither here nor there. There is nobody on the BH boards that makes minimum wage. Almost every one on here is probably in the top 20% of assets. To anyone making a minimum wage now, there is already a problem making ends meet. You think they care if it there is inflation when now they cannot afford what they require? Even if we somehow connect a minimum wage increase to inflation, it would still be the right thing to do. I am sure BHs would adjust to the inflation. Did any BHs in the 70s really feel that inflation? Sure, maybe you have to pay more for things, but if already living on an income far far exceeding a minimum wage, is that really a factor?
"To anyone making a minimum wage now, there is already a problem making ends meet"
I do not see that as being true in all areas. In addition to mimimum wage being a starting point for salaries to rise with additional experience and skills the minimum wage is not that low in all locations to begin with.
YMMV
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Re: Likelihood of 70s style inflation

Post by JackoC »

illumination wrote: Sun Jan 17, 2021 11:52 pm
JoeRetire wrote: Sun Jan 17, 2021 7:37 pm It's meant to convey that nobody here has demonstrated any evidence that some imagined change to the federal minimum wage is going to cause inflation. That's all. And that's a real thing.
Plenty of economists maintain the concept of wage-push inflation. I'm not sure how it matters that "someone here" needs to demonstrate it.

Can you demonstrate that it's not real or there is no relationship? My guess is you can find economists on opposite sides of nearly every issue, but that doesn't disprove anything.
Yes the more general issue is lack of agreement what actually causes inflation. Many posts have cited 1970's oil price increases, or even the relatively minor impact of recent *LNG* price spike in Asia (not natural gas prices generally worldwide and definitely not domestic US ones to anything like that degree) as causes of inflation. But even for the undoubtedly important oil price spike of the 70's, it's not agreed that *caused* inflation. The monetary policy response certainly had something to with it, and US inflation was increasing uncomfortably well before 1973: the Nixon wage/price controls were before that. And at least now those kinds of controls would be viewed as a dramatic or even desperate measure, maybe not viewed quite the same then (when US society was closer in time to the economic controls of WWII which had been accepted as necessary) but hard to say inflation but nothing to worry about until the oil spikes.

With minimum wage hike there are therefore two issues. In the big picture it's perhaps more like the recent spike in delivered LNG prices in Asia than the overall big increase in energy prices worldwide of the 1970's, IOW it only affects a portion of the world economy. Then, what's the actual effect on *inflation*, the general price level, by mandating a price increase on a particular thing, big or small? Monetarists would say the pure effect of a mandated price increase in one thing is zero, other prices go up slower or go down, as long as monetary policy response is appropriate. In the real world it's fuzzy. Pure monetarists* may be on the run in recent years, but it's still not clear you necessarily raise inflation by mandating a price increase on one particular thing. And the smaller the thing is, the more of a question.

*especially those saying money *supply* is the be all and end all, but saying that supply and velocity are what cause higher/lower inflation, not one off price increases of particular goods or services, is still monetarism. As opposed to those who believe eg. an oil price increase 'causes' inflation.
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Re: Likelihood of 70s style inflation

Post by willthrill81 »

smitcat wrote: Mon Jan 18, 2021 9:49 am
Shallowpockets wrote: Mon Jan 18, 2021 9:34 am Whether or not minimum wage adds to or causes inflation is neither here nor there. There is nobody on the BH boards that makes minimum wage. Almost every one on here is probably in the top 20% of assets. To anyone making a minimum wage now, there is already a problem making ends meet. You think they care if it there is inflation when now they cannot afford what they require? Even if we somehow connect a minimum wage increase to inflation, it would still be the right thing to do. I am sure BHs would adjust to the inflation. Did any BHs in the 70s really feel that inflation? Sure, maybe you have to pay more for things, but if already living on an income far far exceeding a minimum wage, is that really a factor?
"To anyone making a minimum wage now, there is already a problem making ends meet"
I do not see that as being true in all areas. In addition to mimimum wage being a starting point for salaries to rise with additional experience and skills the minimum wage is not that low in all locations to begin with.
YMMV
If we're talking about the federal minimum wage of $7.25/hr., I have a hard time seeing that being 'not that low' almost anywhere. For someone working 2k hours a year, that's $14,500 annually. We lived on about that much for four years in a LCOL area, but it wasn't sustainable for the long-term and certainly would not have been possible if we had children.

Many states have higher minimum wages. The state minimum wage in our state (WA) is $13.69. In certain areas, that's a lot more livable.
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Re: Likelihood of 70s style inflation

Post by exodusNH »

willthrill81 wrote: Mon Jan 18, 2021 11:23 am Many states have higher minimum wages. The state minimum wage in our state (WA) is $13.69. In certain areas, that's a lot more livable.
And even in states without a minimum wage, e.g. NH, which then sets the floor at the federal level, very few jobs -- even "mcjobs" pay minimum. All of those are $10-$12/hr and some even have benefits. I'm not smart enough to know whether $15/hr is the magic level. I don't think so -- I think the market should set it, which may mean a higher minimum in a place such as NYC. Even in in NH, which is geographically small, there's a big difference between $12/hr in the far north vs $12/hr on the border of Massachusetts.
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Re: Likelihood of 70s style inflation

Post by Ernest74 »

Minimum wage debate aside. I am an accountant for a manufacturer. We work with plastics of all kinds. In Nov we got an across the board plastic price increase of 10%. This morning just got notice of another 10% increase effective 2/1. FWIW
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Re: Likelihood of 70s style inflation

Post by willthrill81 »

exodusNH wrote: Mon Jan 18, 2021 11:39 am
willthrill81 wrote: Mon Jan 18, 2021 11:23 am Many states have higher minimum wages. The state minimum wage in our state (WA) is $13.69. In certain areas, that's a lot more livable.
And even in states without a minimum wage, e.g. NH, which then sets the floor at the federal level, very few jobs -- even "mcjobs" pay minimum. All of those are $10-$12/hr and some even have benefits.
In neighboring Idaho, which has no state minimum wage, those 'Mcjobs' pay $11/hr. or more, and yes, some have benefits too.

TMK, the market has, in many places at least, simply moved beyond the federal minimum wage.
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