World, Writing, Wealth discussion

20% of the US money supply was created in 2020. Are we staring down the barrel of a massive devaluation of the US dollar and subsequent inflation?



REF: (Visual Capitalist) https://www.visualcapitalist.com/wp-c...

A reasonable inflation instigated by economic growth can be a positive thing. But not if it goes out of hand, fueled by enormous cash surpluses accumulated by a relatively small fraction of ppl & businesses. I read the raw materials go up and this will drag along almost everything else. Large groups of population, that barely hang in there, can be wiped out. While those with cash excesses will be on a shopping spree, seeking where to unload fast devaluating banknotes

Yeah, Graeme, I see that coming, along with a lot of other bad things. Grocery prices have been going up for years, but that's not included when measuring inflation (I'd ask why not but never get an answer from whoever's in charge :-) Now gas is going up. Interest rates are going up. It's difficult to keep a positive outlook.

I think inflation, even in small amounts, is bad for the poor because their pay never catches up. The main beneficiaries of Nik's "reasonable inflation" are governments whose debts erode away and bracket creep increases tax revenue, but of course governments then tend to waste the gains so we all lose. My guess is with all this printing of money, inflation would seem to be inevitable, and here it is happening with a huge boost in asset prices like houses, but our reserve bank claims there is negligible inflation because they do not count housing. If the money goes into the stock market, a lot can get wiped clean when the bubble bursts so I guess it depends on where it goes. The old tend to be major losers because their earning ability has gone.

The puzzle always is, if you see inflation coming, how do you defend against it? Investing in assets is fine, unless they bubble and burst.

With a 2.6% inflation rate, why would anyone want to work for the federal minimum wage of 7.25 an hour? In the USA, 21 states use the federal minimum wage.

In 2018, May through August had a higher inflation rate than this YTD. In 2015 half the year had a negative or 0 inflation rate. In 1942 and 1947, we had double digit infation rates. Of course, 1916-1920 was horrendous. Predicting the rate and determining how to prepare for it is outside my abilities. The historical chart at this site was eye-opening.
https://www.usinflationcalculator.com...

1974 was not exactly good either. It was very bad here. Fortunately, I had bought my house, and had a big loan just before the inflation, so it helped me, but my parents, having retired, would have hurt.

How will the government pay for these trillion-dollar social programs? It will print money, decreasing the value of the dollar, for which we'll all pay with inflation, which will disproportionately affect low earners, those Biden claims to champion.

The issue is how to measure which presidents did well by our economy and which didn't. Do we base it on unemployment, GDP, the deficit, or the inflation rate? I don't have an answer, those are just varied criteria I see articles on. This one in rating the top and bottom presidents claims to use all of the foregoing in determining percentages and rankings.
https://5minuteeconomist.com/which-pr...

Interesting list, but I don't think it fair because it counts change. Reagan did well because it started badly and the economy grew nicely, as it was bound to, but Reagan also started the trend of borrowing up and cutting taxes, leading to the big deficits we see now. Lincoln comes in badly because he had to deal with a civil war. Je3ffernso comes in badly, yet he enlarged the US to bring in Louisiana, and from what I recall, maybe erroneously, Polk is almost forgotten, yet he made a serious enlargement over in the West. You can do things that cost now but yield big returns later, and they don't show up at all in that list. The effect on the economy should consider what long-term effects followed., surely.

Ian wrote: "Interesting list, but I don't think it fair because it counts change. Reagan did well because it started badly and the economy grew nicely, as it was bound to, but Reagan also started the trend of ..."

Ian, I agree. I don't think there is really any means to account for all the variables - be it a prior administrations actions or an unexpected virus. They did try to balance it out based on something measureable - "Therefore, to rank US presidents, in this study we’re going to rank them according to the difference in the EPI score from their first full year in office to their last full year. "

My guess is that ranking Presidents is always a matter of opinion. In some ways I would rank Washington right up the top because after the revolution he set the country on the path that remains, and at the end of two terms he stood down. If you look at what has happened after some revolutions, that is a real achievement, and it set the tone that in some ways makes the US the great country it is. Putting him last doesn't seem fair to me :-)

Economies especially big economies take a long time to turn around especially where structural change is required or industries are dead.
Yesterday UK economic forecast was crowing about a 7.5% rise for this year. I'm sure the PM will take credit but that is from COVID drop. Likewise the impact of financial crashes can take many years to unravel - 2008 -10 still having impacts.

In the US the President get 8 years. But major infrastructure sometimes takes 10 or more to build (e.g. Biden's infrastructure plans)

Like planting a tree - it's not for you but for your grand children. Short term actions (like Regan's and Trumps tax cuts) might boost economy temporarily but don't appear to have long term benefits - as Ian mentioned deficit is still around

It's only "slips of tongue" or not of those in the know, may cast light on what they really think: https://www.ft.com/content/049f4a79-a...
At least, it's not only us - but the full US Treasury Sec. Wonder if some dudes in her office may feel a little shaky

The problem with rising interest rates is that the overcommitted get hurt really badly. The politicians don't like to see a whole lot of failures because they tend to cascade. I wonder what they will do?

Another inflation gauge comes in hot with producer prices jumping 6.2% in April from a year ago

https://www.cnbc.com/2021/05/13/produ...

The ratio between money and goods helps set value of the money. All the printing will presumably end up with consequences. We just have to wait and see what they are

It's not just the money printing, but the shortages. Right now, lumber is one item that is in such short supply, the prices are through the roof and they're only going up. Thanks to covid shutting some industry, keeping people at home, the shortages are spreading all throughout the economy. Even if the government didn't add all that new spending, law of supply and demand dictates these shortages are going to drive prices up.

The shortages in building materials are a big problem here too. There are various reasons, but the shortage and an influx of people means that house prices are going ballistic. One problem is that it is not easy to just start up a new sawmill, etc. Building new industrial infrastructure is a slow business, made even slower by government regulations that have to be met at every step.

What's causing inflation across the board? Any ideas on why prices are going up on everything?

Too much money issued, which has ended up increasing the price of assets. In NZ there is another matter. The money printing for Covid has mainly ended up going into the limited housing market, which is not counted for inflation, but there are flow-on costs that are emerging, and the inflation is starting to work its way through.

UK Inflation rate more than doubles in April

https://www.bbc.co.uk/news/business-5...

In Israel inflation picks up too.
The reasons are multiple:
- enormous amount of printed money and people wanting to trade it for something tangible in the fear of its devaluation
- natural bounce back of the economies after the corona crisis
- and maybe most important surging raw materials costs, which push up everything else: https://www.bloomberg.com/news/articl...
And all the factors feed each other

Don't forget a lot of companies are dealing with increased expenses in just trying to stay open during the pandemic, so those costs get passed onto the consumer.

Ian wrote: "Too much money issued, which has ended up increasing the price of assets. In NZ there is another matter. The money printing for Covid has mainly ended up going into the limited housing market, whic..."

Agreed.

20% of the current US monetary supply was printed in 2020. The US Federal Reserve was not alone. The other major central banks printed money left right and center.

All those tokens are sloshing around the world economy looking for homes.

Graeme wrote: "All those tokens are sloshing around the world economy looking for homes."

The savings rate is up. That tells me that the bulk of those checks got poured into savings accounts, CDs, and Wall Street. If true, most of the inflation has been hidden in the stock and bond markets.

As the broader economy opens people will begin withdrawing money from those markets. Stock prices will correct downwards as the inflation transfers into consumer goods. This could create a catastrophic feedback loop.

Some people are talking about a return to 70s style stagflation.

Inflation is a 20th century scourge. When I was young, I could get an ice cream for a penny and get into the movies for 3d. A half-penny was worth having, at least for a young boy. A shilling was wealth out of reach.

Right now, besides the points J makes, here at least there are also supply problems, so we have this problem of money sloshing around and less there to spend it on, which perforce also feeds inflation. I would like to see a soft exit from this, but I have this feeling I may be severely disappointed.

Do not underestimate the need for businesses to claw back losses. Check restaurant and holiday prices for example. Now UK has opened a little we've been looking at a UK weekend break. Costs are double what they were 2 years ago. Restaurant menus seem to have spent the last year being re-printed with lots of rounding up

Here, re-opened hospitality industry offers its services at extra steep prices and everything's bought out..

Everything is going up in price. Food, especially, but I was looking at an item on Amazon today, and before I could buy it, the price went up. Every time I look at the previous price I paid on Amazon, the current price is higher. Are prices higher because companies got used to charging more during COVID? Does it have to do with transportation costs due to higher gas prices? I get the feeling that companies are charging more right now because they can.

Scout wrote: "Everything is going up in price. Food, especially, but I was looking at an item on Amazon today, and before I could buy it, the price went up. Every time I look at the previous price I paid on Amaz..."

Amazon and other on-line retailers use algorithms to test interest and thus adjust prices in near real time. Holiday companies and air fare touts do the same. Show interest and price goes up - then they offer a special deal discount on highest price which is higher than first price this is not personal to you but across the thousands looking at a particualr deal

Answer block cookies/ads clear browsing caches and look like a new customer as much as possible until you login to buy

Don't forget Amazon normally offers a price match so find the item on sale elsewhere then quote it to Amazon

In all cases and for all purchases shop around or do without...

Philip wrote: "....Answer block cookies/ads clear browsing caches and look like a new customer as much as possible until you login to buy ..."

Sounds like a good advice and I indeed noticed this surprising appreciation of prices at airlines site.

Latest US inflation news.

QUOTE: "The core personal consumption expenditures price index increased 3.1% in April from a year earlier.

Federal Reserve officials consider the core PCE to be the best gauge of inflation.

Personal income dropped sharply as the effects faded from March’s government stimulus checks."

REF: (CNBC): https://www.cnbc.com/2021/05/28/pce-p...

What I did not understand was the comment in the link that the Fed is content with additional inflation because it leads to more employment. It doesn't, unless wages track, because people have less to spend and once nobody is buying, com[anies have to fire workers or go broke. But if the workers get wage increases we are back to where we were, and with uncertainty employers tend to defer hiring.

Ian wrote: "What I did not understand was the comment in the link that the Fed is content with additional inflation because it leads to more employment. It doesn't, unless wages track, because people have less..."

The specific quote:
"As part of its price stability mandate, the Fed considers 2% to be healthy, though it is committed to letting the level average higher than usual in the interest of promoting full employment."

I read that as them stating that they want your money to lose value at 2% per year, because that allows the bankers they represent to make more money. If it goes higher than that, then they'll stay hands off rather than raising interest rates to slow the economy, which would freak out the politicians.

If it gets out of hand the politicians will be more than freaked out. I confess I did not read it as the Fed was only interested in the fortunes of bankers, but that may well be the case.

The Federal Reserve is as much a part of the federal government as is Federal Express. It is a banking cartel which was ceded a major power of Congress, yet somehow doesn't have to report to Congress. Senator Ron Paul spent a good part of his career just trying to get basic oversight of the Fed.

Indeed, J. The name is a misnomer that suggests that the FED is a legitimate arm of the US government.

From my POV it is simply an interface between private interests and the US treasury.

It's a proxy structure for the co-option of the US monetary system and the US treasury by private interests.

It was no coincidence that the creation of the FED and the establishment of US Federal income taxes occurred at the same time.

REF1: "The Federal Reserve System (also known as the Federal Reserve or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act," https://en.wikipedia.org/wiki/Federal...

REF2: "The Sixteenth Amendment was ratified by the requisite number of states on February 3, 1913, " https://en.wikipedia.org/wiki/Sixteen...,

The Fed is one of those quirks in the American system that is counter intuitive. It works and works well.

Philip, would Duck Duck Go do the job of keeping me anonymous? Also, how do I do price matching on Amazon? And who might have lower prices? I'd appreciate any tips.

Hi - yes I use Duck Duck go as my search tool by default - less tracking from search results

Amazon will price match if notified of the lower price elsewhere under some circumstances e.g. including delivery ot not same guarantee etc (same version of goods also.) Specifically for books if the book i sold on Samshword or elsewhere at x price then Amazon will match - most often used to drive free on Kindle books when Amazon want to charge

Scout wrote: "Philip, would Duck Duck Go do the job of keeping me anonymous? Also, how do I do price matching on Amazon? And who might have lower prices? I'd appreciate any tips."

A lot of stores will match Amazon prices if they are lower - Best Buy and Target have done so several times in the past 2 years for me.

In regards to the price changes at Amazon, I was ordering 5 copies of a book that a friend wrote. It wouldn't allow me to order more than 4 at a time, so I ordered 3, and went back immediately to order the other 2 - the price had gone up $5 per book. A half hour call to Amazon and they gave me a credit equivalent to the difference and I then ordered the other 2 books. Annoying and taking up my time, but if you call customer service, generally they do seem to have leeway after listening and then "checking" with their supervisor.

Deutsche Bank warns of global 'time bomb' coming due to rising inflation

https://www.cnbc.com/2021/06/07/deuts...

J. wrote: "Deutsche Bank warns of global 'time bomb' coming due to rising inflation

https://www.cnbc.com/2021/06/07/deuts..."

It is hard to know what to make of that as you can find economists that will support any view at any time if you look hard enough. However, generally speaking, if the economy was growing at 10% in the last quarter as the item indicated (and I suspect that is wrong) then as long as it is growing well in a period it is usually inflationary to keep stimulating because where can the money go? Something has to use it, and if there are insufficient outlets, the usual response is price increases as companies price upwards to ensure their stocks don't expire. Better to make too much profit than to annoy everyone and lose gloss by being unable to supply.

I think that the stimulus has gone into the stock and bond markets. The stock market has over performed the economy during the lockdowns. This suggests, to me, a lot of people day trading with free money. If this assessment is correct either the money will be withdrawn and plowed into personal purchases or the bubble will burst, erasing the money (though not the debt).

There is a sign here that house prices are ebbing. The effect so far is small, but before prices collapse they usually oscillate a bit. The Reserve Bank has signalled that it will be raising interest rates "some time in the future" and that may cause the jitters because far too many have overspent on record low interest rates. Forced sales will erase some money.

Economy growing at 10% compared to 1 year ago is utterly stupid. especially when economies fell by 20%. Inflation is obvious in hotel costs, theatre ticket prices and some food items. Operators trying to get back all of last year's losses in one go

As for house prices - what goes up can come down

Maybe even more than the sheer quantity of new money thrown into circulation, I'm worried from deepening of the gap. With lots of people hanging there by a hair, even a small macroeconomic change for them can be critical, while those better off probably won't even feel it. Especially, after the corona crisis.

It is the very rich who do well out of inflation, as they have good assets to leverage, and then inflate away the borrowings.

If you already have debt, you can make out also by paying it back with inflated dollars.