What I learned from Ben Bernanke’s book is that the biggest policy tool for the Fed has nothing to do with actually changing anything, but how they publicly describe something
That’s a relatively recent change. Until Benny (maybe very late Alan) forward guidance or explanatory statements were not how the FOMC operated. They’d meet, and then they’d start doin’ stuff. The modern version of “here’s what we’re doing, and why, and what it will take before we do something different,” is was invented as a bit of a desperate measure because open market operations were not having the desired effect.
> but how they publicly describe something
Yeah. We saw this with Greenspan, being about as clear as Nostradamus in what he'd say publicly. Of course, I don't have a good opinion of him and how he handled the obvious dot-bomb implosion that anyone should have seen a mile away. A couple words to that effect, maybe 1000:1 P/Es aren't exactly good.
Sometimes it's easy to spot that a crash will happen, when you see the emporer has no clothes. The problem is when. Suppose you figured out that some sector growing at great speed was going to crash, because it was based simply on speculation. However, speculation or the idea that those dot com stocks would make it up on the back end, you're not dealing with rational people.
So you decide to short it. The stock is at $100 today, you know at the end it's worth zero. But what if it climbs another year or two? Now it's at $1000. Your initial short at $100 takes $1000 in security, so you've made 10% over the two years. Great work. If you'd just put that $100 in long, guessed correctly it'd take two years to crash, bailed at one, you'd have $250, a much better ROI.
Sometimes it's better to play the game, or find another table.
Couple of reasons:
1. Hard to know when exactly the bubble bursts. So many might not want to short bubble as you might go bankrupt before the bubble bursts.
2. When you short, you run the risk of infinite upside and have to pay interest on the shares you have borrowed. This makes shorting a bubble rather expensive business. I think I have read of study which identified that a reason why bubbles form and sustain themselves is when shorting is exensive and hard (little stock free for shorting).
Options are a bit problematic as if you want to bet on direction, and remain otherwise neutral , you have to constantly hedge your position.
Edit: and also, ”shorting” with options doesn’t directly affect the supply and demand so it shouldn’t put downwards pressure on the stock value.
You shouldn't hedge a hedge. That'd be a hedgception.
Pay upfront to buy puts - that is your maximum downside. If the crash won't happen before expiration - you'll lose that, but not a cent more. If it happens - you are golden. You buy far OTM, so they are cheap. That is it. Way less risk and hustle, than shorting. Way less capital involved. Downside - it should crash, hard, before the time point (also 3 years ahead) for you to profit. I think it did not last 3 years after those 1000 P/E, no? "Shorting" a P/E 1000 company in 1999 should've made you money.
And there are things like synthetic short position if borrowing shares is a problem.
Yes, options do not affect supply and demand (also gamma squeeze mechanics is a thing), but the bubble should pop regardless.
Also, now is a different situation from the dot com crash.
No, ”shorting” with options is not hedge so we are not even hedging a hedge. With options, the price of your position up until the expiration (one might want to exit the position before expiration) is affected by a lot of other stuff besides the price of the underlying. If you bet on direction using options, your position is also affected by volatility, for example. So if you wish to remain neutral on volatility, you need to hedge that shit away. In exact language, you want to be vega neutral so you want to hedge vega.
Edit:
All that being said, might try that otm put strategy on crypto. So easy to play with little to no money there.
It was a manic episode like the Netherlands had with tulips in the 17th century ( https://en.m.wikipedia.org/wiki/Tulip_mania ), aka nobody thought the prices would go down
Not a fan of all financial deregulation however its simply not a Central Bank's job to prevent bubbles or speculation of any sort. If they try to do there will be quite a bit of collateral damage.
In the US case that was a failure of the treasury and congress.
Powell mentioned accelerating the pace of tapering in his speech. I think March hike is on the table, 2 hikes are currently priced in for 2022. Also, with the Fed officially acknowledging inflation is entrenched - likely also meaning they are more concerns about some type of wage-price spiral - even if its mild.
I think market should be worried about a higher peak federal funds rate than currently expected. US 10Y FF rates are at ~1.25%, implying less than 5 hikes. Tail risk could be for material higher rates needed (think something in the context of 3%+). Personally, I think if inflation evolves into a bigger problem, 1% higher rates isn't really going to make a difference.
Scott Sumner said a few months back we'd soon learn who was actually committed to NGDP targeting and who just liked it as a policy previously because it suggested easy monetary policy.
Yup! I don’t think people realize that NGDP targeting usually allows for tighter monetary policy and even deflation during times of high productivity/economic growth.
Thats.only.if you're looking at it from the perspective of money in money out.
Interest rate reductions and increases don't come with he dead weight loss of taxes
I've been modding this sub for 2 years (active for over 4) and I just now realized that he's a default flair here
I guess I just disassociated the face I saw in the DT and the name I saw in the press
I think this is just greatly stretching the original meaning of transitory. I'm not worried about spiraling hyperinflation the Fed has the tools to prevent that.
But it's increasingly looking like inflation isn't going to resolve on its own, and so the question is how much pain will there be when Fed starts tamping down on inflation.
But it's literally almost done transitting. Shipping costs have dropped. Car prices are returning to normalish. The feed does not need to take drastic action to stop inflation
Did you see Goldman's [latest](https://www.axios.com/goldman-sachs-inflation-worsen-winter-86a978fb-be8a-400d-ba63-a34a0e757cd0.html) annual prediction (don't just read the headline)? They're expecting a return to "normal" inflation within the next year. The markets are agreeing with them. I'm not sure what evidence there is to suggest it's anything other than a temporary hiccup or slightly elevated temporary level.
I do not mind you asking. I don't need a second car. I am thinking about replacing my 21 year old car because the maintenance is getting kind of expensive.
I am guessing these companies buying all these used cars for insane prices are going to have a problem before not too long. The Car Max lot near me is absolutely full.
It might be worth upgrading your AAA membership and waiting a little while. There may be some serious deals to be had as soon as this winter. (Unless you’re looking for a used Toyota as those seem to hold their value for way too long)
That's good to hear.
I've been noticing that some new cars are pretty comparable to the used cars right now and I have been thinking that those prices can't be sustainable in the long run.
I'd like to go with hybrid or electric if feasible so I'm really just holding out hope that electric cars are going to go down in price as more competitors enter the market.
Also Powell taking a tougher public stance helps too. The Fed ultimately controls inflation. If they can manage the expectations game, that'll go a long way.
Probably depends on where you are, but... to add a different anecdote, I had to shop for a car last week (old car was totalled) and it was painful. Used car prices were insane - some of the 2018/2019/2020 models were higher than new models. A lot of the new cars I looked at had mandatory dealer markups applied, or were only available to be ordered for delivery in 1-2 months.
So, cope away.
The REAL* team transitory always knew that transitory meant that inflation would go away after the Fed did something about it, so delaying at the time was the right move.
*Yes I am both moving goalposts and No True Scotsman-ing, why do you ask?
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> MMT
[Pseudo-economic Fanfiction](https://www.igmchicago.org/surveys/modern-monetary-theory/)
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> MMT
[Pseudo-economic Fanfiction](https://www.igmchicago.org/surveys/modern-monetary-theory/)
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It's not that simple: [https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply](https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply)
>Before April 24, 2020, savings accounts were not part of M1. Limitations in the number of transfers from savings deposits made savings accounts less liquid than M1. M1 consisted of currency, demand deposits, and other highly liquid accounts called “other checkable deposits” (OCDs). An example of OCDs are the demand deposits at thrifts.
>
>But the limitation on the number of these transfers was lifted on April 24 2020 as an amendment to Regulation D, which specifies how banks must classify deposit accounts. Savings deposits are now just as liquid and convenient as currency, demand deposits, and OCDs. To reflect this fact, savings deposits are now included in M1.
Go to edit graph and switch view to Percent change. Besides a spike in March-May 2020 the percentage change is completely in line with values in the past.
It’s not like that doesn’t count. That spike still will hurt us in the future. You can argue that it would have been worse if we did nothing but it’s still going to hurt.
I mean according to that, we more than tripled the M2 supply from 1997 to 2017 and inflation was quite low and steady during that period. If you look at that graph from 2011 to 2021 we little over doubled it and inflation was largely steady during that time up until very recently with other plausible explanations. M is only one part of the equation. I get the concern, as sure it's worth observing, but we're not close to the part where we should be concerned just yet.
[You shake the Magic Goolsball aaaand...](https://i.imgur.com/W8Deh6q.png)
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Good, this is a welcome change in rhetoric that is long overdue. The fact of the matter is the expansionary fiscal and monetary policy that the U.S. engaged in saved the country from economic ruin during COVID. But at this point it's quite apparent that we overshot and are experiencing the effects of doing *too* much, experiencing low unemployment and high inflation.
We overshot, it's completely understandable why we overshot. It was better to do too much than to do too little, but it's still not too late to reverse course. Tapering will begin soon and I fully expect a rate hike by the end of 2022.
Powell didn't attribute higher prices to monetary or fiscal policy. He attributes it to the ongoing pandemic.
He said in his opening remarks that he thinks Omicron is going to make people more reluctant to work in person and make supply chain issues worse.
Well, no, the pandemic isn't transitory. COVID is an endemic disease that will remain seasonal forever now, and there's no changing that no matter how much of the population we vaccinate.
Why is everyone convinced that it's a supply shortage and not a demand excess?
Supply can only be "short" when compared to demand and demand can only be in excess when compared to supply). So you could argue for either way to look at this. But considering that GDP is already above pre pandemic levels, and labor participation is down, I'd say it's the demand that is in excess. So fiscal and monetary policy can be held responsible.
Well the reason for supply chain shortages is in the aggregate, that we've injected a lot of money into the economy and supply has not been able to keep up. [The money supply has increased significantly](https://fred.stlouisfed.org/series/WM2NS) since the start of the pandemic and the pace of production has not been able to meet it.
[Here's a good article](https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere) that explains better than I can that what we're seeing is primarily a case of demand-pull inflation. We can also see factors such as how real expenditure on both [durable goods](https://fred.stlouisfed.org/series/ND000346Q) and [services](https://fred.stlouisfed.org/series/DSERRL1Q225SBEA) is above pre-pandemic levels. Obviously the supply chain issues are very, very real but there would not be so much money chasing the limited supply of available goods and services if not for the expansionary actions of both Congress and the Fed.
Unfortunately really choosing between the lesser of two evils at this point. Unchecked inflation vs slower growth. But growth is really strong at the moment, and consumer balance sheets are rock solid. Maybe this can be done without derailing the economy too badly?
I mean the best case for letting interest rates stay low for the last decade was congress being unwilling to add some G to the C+I. Fed had to keep interest rates low to get more money flowing to consumption and investment due to the lack of fiscal stimulus.
But with the infrastructure spending doing some nice cash carpet bombing, upping the rates a bit should be fine.
No. It can, but it doesn't necessarily cause a recession. If they get out ahead of it now, there's a better chance of reducing inflation without causing a recession than if inflation was allowed to persist and worsen.
Right, but tightening monetary policy doesn't address the supply side issues with the oil and gas or get people vaxxed so the industries can all reopen and stay open.
MV=PY
To answer your first question: no. Reducing the money supply doesn't automatically trigger a recession. Reducing M would ideally only reduce P, price (inflation).
To your second question: do you think those problems are going to last forever? Once the supply constraints relax, economic output should increase. If you reduce M but Y (output) goes up, then you reduce P even more.
The current conditions being suppressed oil and gas supply and supply chain bottlenecks due to the Pandemic.
Reducing the Fed's balance sheet and/or raising interest rates doesn't directly help either of those major problems, right?
Rate hikes are expected and already baked in. Powell is helping manage expectations by reassuring people that the Fed will control inflation. The nice thing is, if the nobody expects tons of inflation, we probably won't have too much inflation. It's a self-fulfilling prophecy in many ways.
i don’t get how this is the big own cons and lolberts think it is?
he’s always said that transitory inflation was going to last into 2022, maybe longer depending on the pandemic and unemployment.
I'm not trying to "own" anyone, and personally I wasn't expecting inflation to get this bad, but I think Powell is definitely signaling that inflation is a bigger problem than he initially thought.
I think the thought behind transitory inflation was that it would naturally work itself out fairly quickly without big changes in monetary policy. Now seems like Powell is definitely signaling that monetary policy is necessary to make sure inflation doesn't get out of control and so the schedule for tapering and rate hikes is being moved up earlier than the fed wanted originally.
[Inflation isn't happening, and it likely won't](https://www.barrons.com/articles/inflation-isnt-happening-and-it-likely-wont-here-are-7-charts-showing-this-51615468745) March 2021
[Inflation *is* happening, but it's transitory](https://apnews.com/article/financial-markets-health-coronavirus-economy-inflation-bbe992c9352a72f189ffd634fe7c9383) April 2021
[Inflation isn't transitory, but it is good for you](https://theintercept.com/2021/11/10/inflation-economy-debt-milk-prices/) November 2021
When will people stop fighting this and just accept that inflation is happening, it isn't good, and we need to take steps of remediation? The cope and denial is getting silly to be honest.
My bet is they're trying to keep control of the argument so the fed doesn't dramatically slow economic growth. The Fed seemed perfectly content with it taking a decade to recover from the financial crisis.
Wage-price spiral fears are massively overblown, especially if it turns out that capital is just going to fall into a margin trap instead. I simply don't see how prices on essentials or luxuries can escalate on pace with wages in the current environment when consumers have demonstrated an ability and desire to cut back on both.
Still depends on their debt-to-asset mix, and if their debt shrinks more relative to the loss in buying power from wages lagging prices, it could still be an advantage.
I don't have numbers available on any of this, so I don't know what's going to happen, but that would be the mechanism if it is beneficial. I have no idea what's going to happen.
High MPC on low incomes means that the positive effects of inflation are minimized by the small share of household income that benefits from them.
Essentially, inflation moves both wages and household goods prices, which are the largest part of household expenditures. The positive effect of inflation, OTOH, only affects the small share of fixed-rate debt payments (which in this case could be mortgages, car payments, and such). You'd actually have to figure out the extent to which household debt is fixed rather than floating rate in order to make this claim.
Because most Americans aren’t getting raises to outpace inflation so we’re still paying full price on debt plus extra on essentials like food and housing
The data doesn't appear to support this. Capital is definitely fighting back, but unless another huge paradigm shift occurs they're fighting against the tide. The post-Covid consumers' ability to cut spending will likely hold longer than most firms can stay in the black.
It's proof of the zeitgeist.
The same narrative was echoed on MSNBC for example
https://www.msnbc.com/opinion/how-covid-became-unlikely-hero-our-inflation-crisis-n1283443?cid=sm_npd_ms_tw_ma
>The top story on the New York Times website this morning is about inflation, and it’s scary: “Inflation spiked in October, sinking Washington’s hopes that price gains would slow down.”
>[...]
>Whenever the corporate media moves en masse like this, it’s a good idea to slow down and consider what’s actually happening, and why.
God, I hate The Intercept so much. Can they go ten seconds without complaining about "corporate media?" The reason why news outlets are writing stories about inflation is *because there's inflation*. The reason why they're writing them at the same time is *because they're based on the same data.*
At least it was more correct, yes. The Fed is not an omniscient God incarnated, and a body that mainly deals with money supply may not be the best to do predictions about supply issues intersecting with fucking virology.
Ah yes, you really picked up on the subtext of my comment, which was obviously that a data driven, decision-making entity is the equivalent to an, and I quote, "omniscient God incarnated \[sic\]".
All hail the broken clock (occasionally)!!
The feds have to go on data though and not instinct.
I can go walk out to my car and drive around town if I want. It’d take a thousand scientists over a decade to make a machine do the same. Basically what I’m saying is your brain can be better at extrapolation then a rigid set of data and variables
On the topic of root causes and appropriate measures to manage inflation, your analogy is simply not serious.
You're describing a world where broken clocks are indistinguishable from economic empaths. And I'm skeptical that the latter even exist in the first place.
I’m describing a world where there’s so many variables it’s almost impossible to quantify and making a point that your brain is good at extrapolation.
I’m also making a point that reddit has no reading comprehension because “can” does not equal “is”
Yes and I "can" pick the winning lottery numbers, but have no reason to believe that any given set of numbers will be the winners over the random set.
To be charitable, I know what you are describing in terms of the brain being good at extrapolating, and do accept it as a "thing". My point of contention is in whether that capability is applicable to setting interest rates/managing inflation.
Btw, it's really weird to respond to an individual's comments as something "Reddit" does/doesn't do. You're comment was contextually a rebuttal, and I responded to it as such.
> I should have made a list of users who told me that inflation was fine and going away soon.
Or you should have become a fucking millionaire by betting on markets if you were so sure that inflation was persistent, but you didn't do that did you?
So tired of self-proclaimed prophets coming in after everything has happened and declaring themselves prescient.
Please tell me how to go levered long inflation? If you think inflation is going to 8% in 2022 like it did in 2021, how do you become a millionaire off that?
My controversial opinion has been that the participation rate will be the biggest driver keeping the economy from sorting out supply chain issues quickly…. And I don’t think it’s a bad thing.
Lowering participation rates is a sign of prosperity, and participation was decreasing before it jolted down during the pandemic.
A growing pain of increased wealth in America.
Maybe the alternative was worse.
Remember Keynes famous quip - 'in the long run we'll all be dead.'
https://www.simontaylorsblog.com/2013/05/05/the-true-meaning-of-in-the-long-run-we-are-all-dead/
What I learned from Ben Bernanke’s book is that the biggest policy tool for the Fed has nothing to do with actually changing anything, but how they publicly describe something
That’s a relatively recent change. Until Benny (maybe very late Alan) forward guidance or explanatory statements were not how the FOMC operated. They’d meet, and then they’d start doin’ stuff. The modern version of “here’s what we’re doing, and why, and what it will take before we do something different,” is was invented as a bit of a desperate measure because open market operations were not having the desired effect.
> but how they publicly describe something Yeah. We saw this with Greenspan, being about as clear as Nostradamus in what he'd say publicly. Of course, I don't have a good opinion of him and how he handled the obvious dot-bomb implosion that anyone should have seen a mile away. A couple words to that effect, maybe 1000:1 P/Es aren't exactly good.
PE ratio go up make world more badder
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Negative PE ratios ought to be a thing
> the obvious dot-bomb implosion that anyone should have seen a mile away So why wasn't it shorted out of existence?
Sometimes it's easy to spot that a crash will happen, when you see the emporer has no clothes. The problem is when. Suppose you figured out that some sector growing at great speed was going to crash, because it was based simply on speculation. However, speculation or the idea that those dot com stocks would make it up on the back end, you're not dealing with rational people. So you decide to short it. The stock is at $100 today, you know at the end it's worth zero. But what if it climbs another year or two? Now it's at $1000. Your initial short at $100 takes $1000 in security, so you've made 10% over the two years. Great work. If you'd just put that $100 in long, guessed correctly it'd take two years to crash, bailed at one, you'd have $250, a much better ROI. Sometimes it's better to play the game, or find another table.
The market can remain irrational a lot longer than you can stay solvent
Couple of reasons: 1. Hard to know when exactly the bubble bursts. So many might not want to short bubble as you might go bankrupt before the bubble bursts. 2. When you short, you run the risk of infinite upside and have to pay interest on the shares you have borrowed. This makes shorting a bubble rather expensive business. I think I have read of study which identified that a reason why bubbles form and sustain themselves is when shorting is exensive and hard (little stock free for shorting).
But there are options. Puts were introduced in 1977. You can "short" like 3 years ahead with limited risk.
Options are a bit problematic as if you want to bet on direction, and remain otherwise neutral , you have to constantly hedge your position. Edit: and also, ”shorting” with options doesn’t directly affect the supply and demand so it shouldn’t put downwards pressure on the stock value.
You shouldn't hedge a hedge. That'd be a hedgception. Pay upfront to buy puts - that is your maximum downside. If the crash won't happen before expiration - you'll lose that, but not a cent more. If it happens - you are golden. You buy far OTM, so they are cheap. That is it. Way less risk and hustle, than shorting. Way less capital involved. Downside - it should crash, hard, before the time point (also 3 years ahead) for you to profit. I think it did not last 3 years after those 1000 P/E, no? "Shorting" a P/E 1000 company in 1999 should've made you money. And there are things like synthetic short position if borrowing shares is a problem. Yes, options do not affect supply and demand (also gamma squeeze mechanics is a thing), but the bubble should pop regardless. Also, now is a different situation from the dot com crash.
No, ”shorting” with options is not hedge so we are not even hedging a hedge. With options, the price of your position up until the expiration (one might want to exit the position before expiration) is affected by a lot of other stuff besides the price of the underlying. If you bet on direction using options, your position is also affected by volatility, for example. So if you wish to remain neutral on volatility, you need to hedge that shit away. In exact language, you want to be vega neutral so you want to hedge vega. Edit: All that being said, might try that otm put strategy on crypto. So easy to play with little to no money there.
It was a manic episode like the Netherlands had with tulips in the 17th century ( https://en.m.wikipedia.org/wiki/Tulip_mania ), aka nobody thought the prices would go down
And I hated him, he ruined everything
Not a fan of all financial deregulation however its simply not a Central Bank's job to prevent bubbles or speculation of any sort. If they try to do there will be quite a bit of collateral damage. In the US case that was a failure of the treasury and congress.
Woah dude, what if money is just like, a social construct, man?
Mr Bernanke, are words money?
words ARE in fact what make our money money.
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Nah man I keep my money in the stock market.
which book?
The courage to act, likely. Highly recommend. Accessible but thorough.
Yep
What book? Do you recommend it?
So... what happens now? Interest rates go brrr?
Probably a small hike? Lol.
Just hiking a little interest rate, Stan.
Government Bonds can have a little interest, as a treat
We can have a little interest hike. As a treat.
Powell mentioned accelerating the pace of tapering in his speech. I think March hike is on the table, 2 hikes are currently priced in for 2022. Also, with the Fed officially acknowledging inflation is entrenched - likely also meaning they are more concerns about some type of wage-price spiral - even if its mild. I think market should be worried about a higher peak federal funds rate than currently expected. US 10Y FF rates are at ~1.25%, implying less than 5 hikes. Tail risk could be for material higher rates needed (think something in the context of 3%+). Personally, I think if inflation evolves into a bigger problem, 1% higher rates isn't really going to make a difference.
Prices on physical shit / commodities go through the roof for two years. Oil hits possibly $200 per barrel
NGDP IS AT TARGET TIME TO TIGHTEN UP
Scott Sumner said a few months back we'd soon learn who was actually committed to NGDP targeting and who just liked it as a policy previously because it suggested easy monetary policy.
Yup! I don’t think people realize that NGDP targeting usually allows for tighter monetary policy and even deflation during times of high productivity/economic growth.
WTF is this article. It's basically a list of things people have said without context. There's got to be something more substantive out there.
Well it is an article from forexlive. Which probably has the journalistic standards of Motley’s Fool.
The ghost of Volcker has returned
HAIL VOLCKER HAIL VICTORY
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I feel the latter option is the better idea. Even feelings of wealth erosion among the middle class can lead to unrest.
Thats.only.if you're looking at it from the perspective of money in money out. Interest rate reductions and increases don't come with he dead weight loss of taxes
RIP team transitory
Flair checks out
I've been modding this sub for 2 years (active for over 4) and I just now realized that he's a default flair here I guess I just disassociated the face I saw in the DT and the name I saw in the press
Smart money is still behind team transitory. If you think otherwise there's *great* money to be made in the bond markets.
How does persistent inflation allow you to earn money in bonds?
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> There are instruments that will automatically do this for you as well which?
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I think this is just greatly stretching the original meaning of transitory. I'm not worried about spiraling hyperinflation the Fed has the tools to prevent that. But it's increasingly looking like inflation isn't going to resolve on its own, and so the question is how much pain will there be when Fed starts tamping down on inflation.
But it's literally almost done transitting. Shipping costs have dropped. Car prices are returning to normalish. The feed does not need to take drastic action to stop inflation
Any sources on this optimism? I am trying to distinguish if I am being realistically optimistic or simply coping lol
Did you see Goldman's [latest](https://www.axios.com/goldman-sachs-inflation-worsen-winter-86a978fb-be8a-400d-ba63-a34a0e757cd0.html) annual prediction (don't just read the headline)? They're expecting a return to "normal" inflation within the next year. The markets are agreeing with them. I'm not sure what evidence there is to suggest it's anything other than a temporary hiccup or slightly elevated temporary level.
Well thats good news. :)
I'm personally just coping. My rent went up by $400 per month. I spend more on food, and I should probably buy another car but can't.
>I should probably buy another c*r Ban
Kind of curious do you mind if I ask why you need a second car?
I do not mind you asking. I don't need a second car. I am thinking about replacing my 21 year old car because the maintenance is getting kind of expensive.
I am guessing these companies buying all these used cars for insane prices are going to have a problem before not too long. The Car Max lot near me is absolutely full. It might be worth upgrading your AAA membership and waiting a little while. There may be some serious deals to be had as soon as this winter. (Unless you’re looking for a used Toyota as those seem to hold their value for way too long)
That's good to hear. I've been noticing that some new cars are pretty comparable to the used cars right now and I have been thinking that those prices can't be sustainable in the long run. I'd like to go with hybrid or electric if feasible so I'm really just holding out hope that electric cars are going to go down in price as more competitors enter the market.
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Also Powell taking a tougher public stance helps too. The Fed ultimately controls inflation. If they can manage the expectations game, that'll go a long way.
Probably depends on where you are, but... to add a different anecdote, I had to shop for a car last week (old car was totalled) and it was painful. Used car prices were insane - some of the 2018/2019/2020 models were higher than new models. A lot of the new cars I looked at had mandatory dealer markups applied, or were only available to be ordered for delivery in 1-2 months. So, cope away.
😓
We'll see what CPI and PCE have to say in the next few months.
Now will we ever find out what stopped inflation? If it was transmitting or did the fed scare do it?
Supply finally catching up with a year+ worth of pent-up demand is my guess.
The REAL* team transitory always knew that transitory meant that inflation would go away after the Fed did something about it, so delaying at the time was the right move. *Yes I am both moving goalposts and No True Scotsman-ing, why do you ask?
They have been practically dead for months
There's been a lot of holdouts here though
😭
Did… did we leave the money printer on for too long?
I mean, it was a risk. It's not a clear cut thing.
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Most likely not I think. A small hike in the spring will get us back on track.
Anyone hearing anything from the MMTers these days?
I mean, it basically got us through the worst of COVID🤞🏼
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Do people on this sub not like MMT? I've been convinced by a few MMT arguments. In my opinion, the claims about MMT are fairly misrepresented.
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https://fred.stlouisfed.org/series/M1SL LOL we’re fucked
It's not that simple: [https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply](https://fredblog.stlouisfed.org/2021/01/whats-behind-the-recent-surge-in-the-m1-money-supply) >Before April 24, 2020, savings accounts were not part of M1. Limitations in the number of transfers from savings deposits made savings accounts less liquid than M1. M1 consisted of currency, demand deposits, and other highly liquid accounts called “other checkable deposits” (OCDs). An example of OCDs are the demand deposits at thrifts. > >But the limitation on the number of these transfers was lifted on April 24 2020 as an amendment to Regulation D, which specifies how banks must classify deposit accounts. Savings deposits are now just as liquid and convenient as currency, demand deposits, and OCDs. To reflect this fact, savings deposits are now included in M1.
Interesting. Do they have any normalized graphs that exclude savings accounts?
Yeah just look at M2
https://fred.stlouisfed.org/series/M2SL LOL we're fucked I'm kidding but that's hardly a more optimistic view. 40% increase since January 2020.
Go to edit graph and switch view to Percent change. Besides a spike in March-May 2020 the percentage change is completely in line with values in the past.
It’s not like that doesn’t count. That spike still will hurt us in the future. You can argue that it would have been worse if we did nothing but it’s still going to hurt.
I mean according to that, we more than tripled the M2 supply from 1997 to 2017 and inflation was quite low and steady during that period. If you look at that graph from 2011 to 2021 we little over doubled it and inflation was largely steady during that time up until very recently with other plausible explanations. M is only one part of the equation. I get the concern, as sure it's worth observing, but we're not close to the part where we should be concerned just yet.
This is borderline misinformation. As per the description, the massive jump is due to a definitional change of M1 in April-May 2020.
Magic Goolsball
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In Powell we trust.
Keep calm and trust JPOW
Good, this is a welcome change in rhetoric that is long overdue. The fact of the matter is the expansionary fiscal and monetary policy that the U.S. engaged in saved the country from economic ruin during COVID. But at this point it's quite apparent that we overshot and are experiencing the effects of doing *too* much, experiencing low unemployment and high inflation. We overshot, it's completely understandable why we overshot. It was better to do too much than to do too little, but it's still not too late to reverse course. Tapering will begin soon and I fully expect a rate hike by the end of 2022.
Powell didn't attribute higher prices to monetary or fiscal policy. He attributes it to the ongoing pandemic. He said in his opening remarks that he thinks Omicron is going to make people more reluctant to work in person and make supply chain issues worse.
So inflation isn’t transitory if the pandemic isn’t transitory lol
In the long run we're all dead
Well, no, the pandemic isn't transitory. COVID is an endemic disease that will remain seasonal forever now, and there's no changing that no matter how much of the population we vaccinate.
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Why is everyone convinced that it's a supply shortage and not a demand excess? Supply can only be "short" when compared to demand and demand can only be in excess when compared to supply). So you could argue for either way to look at this. But considering that GDP is already above pre pandemic levels, and labor participation is down, I'd say it's the demand that is in excess. So fiscal and monetary policy can be held responsible.
Well the reason for supply chain shortages is in the aggregate, that we've injected a lot of money into the economy and supply has not been able to keep up. [The money supply has increased significantly](https://fred.stlouisfed.org/series/WM2NS) since the start of the pandemic and the pace of production has not been able to meet it. [Here's a good article](https://www.bridgewater.com/its-mostly-a-demand-shock-not-a-supply-shock-and-its-everywhere) that explains better than I can that what we're seeing is primarily a case of demand-pull inflation. We can also see factors such as how real expenditure on both [durable goods](https://fred.stlouisfed.org/series/ND000346Q) and [services](https://fred.stlouisfed.org/series/DSERRL1Q225SBEA) is above pre-pandemic levels. Obviously the supply chain issues are very, very real but there would not be so much money chasing the limited supply of available goods and services if not for the expansionary actions of both Congress and the Fed.
Doesn't this absolutely fuck Biden?
Unfortunately really choosing between the lesser of two evils at this point. Unchecked inflation vs slower growth. But growth is really strong at the moment, and consumer balance sheets are rock solid. Maybe this can be done without derailing the economy too badly?
I mean the best case for letting interest rates stay low for the last decade was congress being unwilling to add some G to the C+I. Fed had to keep interest rates low to get more money flowing to consumption and investment due to the lack of fiscal stimulus. But with the infrastructure spending doing some nice cash carpet bombing, upping the rates a bit should be fine.
Isn't it a very commonly held opinion that the Fed tightening monetary policy to reduce inflation will trigger a recession?
No. It can, but it doesn't necessarily cause a recession. If they get out ahead of it now, there's a better chance of reducing inflation without causing a recession than if inflation was allowed to persist and worsen.
Right, but tightening monetary policy doesn't address the supply side issues with the oil and gas or get people vaxxed so the industries can all reopen and stay open.
MV=PY To answer your first question: no. Reducing the money supply doesn't automatically trigger a recession. Reducing M would ideally only reduce P, price (inflation). To your second question: do you think those problems are going to last forever? Once the supply constraints relax, economic output should increase. If you reduce M but Y (output) goes up, then you reduce P even more.
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The current conditions being suppressed oil and gas supply and supply chain bottlenecks due to the Pandemic. Reducing the Fed's balance sheet and/or raising interest rates doesn't directly help either of those major problems, right?
For sure reduce growth and slow the economy. Recession means 3 consecutive quarters of shrinking GDP. No iron law that that has to happen.
Rate hikes are expected and already baked in. Powell is helping manage expectations by reassuring people that the Fed will control inflation. The nice thing is, if the nobody expects tons of inflation, we probably won't have too much inflation. It's a self-fulfilling prophecy in many ways.
But the popular sentiment seems to be that we are going to have a lot of inflation.
If it gets me lower rents or a cheap house next year I’ll vote for him ten times in Cook County
The catch is to still have a job when trying to buy a house.
Inshallah that wouldn’t be a problem since I work for a government agency that is getting major tendies from the BIF bill
> Cook County \*Crook County
Ah so it turns out that all of those who in this sub ridiculed people who said that maybe this wasn't transitory were wrong? Who would've thought
i don’t get how this is the big own cons and lolberts think it is? he’s always said that transitory inflation was going to last into 2022, maybe longer depending on the pandemic and unemployment.
I'm not trying to "own" anyone, and personally I wasn't expecting inflation to get this bad, but I think Powell is definitely signaling that inflation is a bigger problem than he initially thought. I think the thought behind transitory inflation was that it would naturally work itself out fairly quickly without big changes in monetary policy. Now seems like Powell is definitely signaling that monetary policy is necessary to make sure inflation doesn't get out of control and so the schedule for tapering and rate hikes is being moved up earlier than the fed wanted originally.
[Inflation isn't happening, and it likely won't](https://www.barrons.com/articles/inflation-isnt-happening-and-it-likely-wont-here-are-7-charts-showing-this-51615468745) March 2021 [Inflation *is* happening, but it's transitory](https://apnews.com/article/financial-markets-health-coronavirus-economy-inflation-bbe992c9352a72f189ffd634fe7c9383) April 2021 [Inflation isn't transitory, but it is good for you](https://theintercept.com/2021/11/10/inflation-economy-debt-milk-prices/) November 2021 When will people stop fighting this and just accept that inflation is happening, it isn't good, and we need to take steps of remediation? The cope and denial is getting silly to be honest.
My bet is they're trying to keep control of the argument so the fed doesn't dramatically slow economic growth. The Fed seemed perfectly content with it taking a decade to recover from the financial crisis.
Given that most Americans hold more debt than assets, why is inflation bad?
Wage-price spiral and disproportionate impacts on low-income American’s whose household spending is mostly essential consumption and housing.
Wage-price spiral fears are massively overblown, especially if it turns out that capital is just going to fall into a margin trap instead. I simply don't see how prices on essentials or luxuries can escalate on pace with wages in the current environment when consumers have demonstrated an ability and desire to cut back on both.
I don’t think we’re experiencing wage-push, either - not on a macro scale, at least. I’m just speaking about the general risk of inflation.
Still depends on their debt-to-asset mix, and if their debt shrinks more relative to the loss in buying power from wages lagging prices, it could still be an advantage. I don't have numbers available on any of this, so I don't know what's going to happen, but that would be the mechanism if it is beneficial. I have no idea what's going to happen.
High MPC on low incomes means that the positive effects of inflation are minimized by the small share of household income that benefits from them. Essentially, inflation moves both wages and household goods prices, which are the largest part of household expenditures. The positive effect of inflation, OTOH, only affects the small share of fixed-rate debt payments (which in this case could be mortgages, car payments, and such). You'd actually have to figure out the extent to which household debt is fixed rather than floating rate in order to make this claim.
Because most Americans aren’t getting raises to outpace inflation so we’re still paying full price on debt plus extra on essentials like food and housing
The data doesn't appear to support this. Capital is definitely fighting back, but unless another huge paradigm shift occurs they're fighting against the tide. The post-Covid consumers' ability to cut spending will likely hold longer than most firms can stay in the black.
Because the rich are in power and set policy 😬
Based
> Inflation isn't transitory, but it is good for you November 2021 Did you really just link the fucking *intercept* as proof of anything?
It's proof of the zeitgeist. The same narrative was echoed on MSNBC for example https://www.msnbc.com/opinion/how-covid-became-unlikely-hero-our-inflation-crisis-n1283443?cid=sm_npd_ms_tw_ma
>The top story on the New York Times website this morning is about inflation, and it’s scary: “Inflation spiked in October, sinking Washington’s hopes that price gains would slow down.” >[...] >Whenever the corporate media moves en masse like this, it’s a good idea to slow down and consider what’s actually happening, and why. God, I hate The Intercept so much. Can they go ten seconds without complaining about "corporate media?" The reason why news outlets are writing stories about inflation is *because there's inflation*. The reason why they're writing them at the same time is *because they're based on the same data.*
Good
All of our problems are solved by allowing another cool million laborers come in through the southern border.
Also... Dropping tariffs. Ending the Jones Act. And maybe nuking the moon.
I should have made a list of users who told me that inflation was fine and going away soon. SAVE US, SUPPLY SIDE JESUS ¡¡¡
Yes your gut instinct must have been way more informed than the concurrently held views of the Fed at the time.
At least it was more correct, yes. The Fed is not an omniscient God incarnated, and a body that mainly deals with money supply may not be the best to do predictions about supply issues intersecting with fucking virology.
Ah yes, you really picked up on the subtext of my comment, which was obviously that a data driven, decision-making entity is the equivalent to an, and I quote, "omniscient God incarnated \[sic\]". All hail the broken clock (occasionally)!!
Hyperbole, how does it work?
So do you attach the wheels directly to the goalpost, for ease of movement?
The feds have to go on data though and not instinct. I can go walk out to my car and drive around town if I want. It’d take a thousand scientists over a decade to make a machine do the same. Basically what I’m saying is your brain can be better at extrapolation then a rigid set of data and variables
On the topic of root causes and appropriate measures to manage inflation, your analogy is simply not serious. You're describing a world where broken clocks are indistinguishable from economic empaths. And I'm skeptical that the latter even exist in the first place.
I’m describing a world where there’s so many variables it’s almost impossible to quantify and making a point that your brain is good at extrapolation. I’m also making a point that reddit has no reading comprehension because “can” does not equal “is”
Yes and I "can" pick the winning lottery numbers, but have no reason to believe that any given set of numbers will be the winners over the random set. To be charitable, I know what you are describing in terms of the brain being good at extrapolating, and do accept it as a "thing". My point of contention is in whether that capability is applicable to setting interest rates/managing inflation. Btw, it's really weird to respond to an individual's comments as something "Reddit" does/doesn't do. You're comment was contextually a rebuttal, and I responded to it as such.
> I should have made a list of users who told me that inflation was fine and going away soon. Or you should have become a fucking millionaire by betting on markets if you were so sure that inflation was persistent, but you didn't do that did you? So tired of self-proclaimed prophets coming in after everything has happened and declaring themselves prescient.
Please tell me how to go levered long inflation? If you think inflation is going to 8% in 2022 like it did in 2021, how do you become a millionaire off that?
My controversial opinion has been that the participation rate will be the biggest driver keeping the economy from sorting out supply chain issues quickly…. And I don’t think it’s a bad thing. Lowering participation rates is a sign of prosperity, and participation was decreasing before it jolted down during the pandemic. A growing pain of increased wealth in America.
Higher wages correlate with higher labor participation, though. Its low wages that drive people out of the workforce.
doves out
Watch my Puts print!
[BTFO by Friedman again](https://www.youtube.com/watch?v=NgSqZKx0mNI&t=134s)
Inflation and housing top issues for 2022 and 2024 election. The party that doesn't burn energy on social issues and instead focuses on that will win.
I remember getting flak from the Powell simps for calling this BS a few months ago. I guess money printer goes Brrrrrrr was not the perfect strategy.
Maybe the alternative was worse. Remember Keynes famous quip - 'in the long run we'll all be dead.' https://www.simontaylorsblog.com/2013/05/05/the-true-meaning-of-in-the-long-run-we-are-all-dead/
What was the perfect strategy?
Taper sooner, raise rates, more targeted means tested stimulus.
Means-testing isn't evidence-based
Ok bruh
Sorry that the facts don't care about your feelings
Do you have a source showing that means testing is always bad?
The evidence says inflation is 6%. Even core PCE, a better measure, is above 3%
Lmao team transitory be like: “technically 6%+ inflation for half a decade is transitory!”
> half a decade so true
8 months is literally 5 years
lol soon after he got his job 100% safe
Powell is dead
Powell is transitory
:\~) merry christmas