Most of these price increases (e.g. semiconductors, lumber, consumer perishables) are supply-chain related. It’s reasonable to expect them to subside as the most acute phase of the pandemic recedes. Only one I’m not sure about is the price of a meal at a restaurant …
Idk. I somewhat agree; but I’m not sure what to think of that because it’s a fiscal and not a monetary intervention. Minimum wages going up (whether explicitly or because unemployment benefits are competing with them) will definitely bump up demand and will also bump up costs for some industries, particularly restaurants and hospitality. Insofar as demand responds positively a little inflation is imo not a terrible price to pay. This article, however, is bringing up a boogeyman that inflation will somehow slip from the Fed’s grasp, which I very much doubt.
So idk how deep you want to go into “basic” common sense economics and not this trashy thing they call it now, but the divide between fiscal/monetary is by name only. Let me explain:
There used to be the real divide between both, but now every action by the fiscal side is effectively done by the monetary side. Congress writes some laws, the treasury calls up the FED the night before the day of selling new bonds and just like magic, the bonds get sold at a superb price.
The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost…
So what’s the FED to do?
Why are living expenses going up faster than real wages?
Why do you think theres a godly group of supremely moral and righteous humans sitting at the FED?
>The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates, would lead to default as just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost…
Sure but this is "boring". An economy that can only support a negative interest rate can obviously not support a 4-5% interest rate. I don't see any surprise or any malice or trickery. The economy wants negative interest rates, the interest rates are at 0% so people hold onto their deposits and prevent the repayment of the debt. An economy that doesn't want to give up its deposits will obviously die if you give it even more reasons to hold onto deposits.
There is no gotcha. No criminal to catch. Interest rates want to be low, raising them for no reason will destroy the market because it wants the interest rates to be low. If there was sufficient inflation i.e. the market demanded higher interest rates you could raise interest rates with no ill effect. Before that happens you'll have to let the current inflation be here for a year. If you kill it prematurely you'll actually have to do more unconventional monetary policy.
>Why do you think theres a godly group of supremely moral and righteous humans sitting at the FED?
Because you don't want something like turkey to happen where the democratically elected president messes with monetary policy and causes double digit inflation.
There is a criminal to catch. There is no free lunch. This isn’t a “grow the pie” idea when it comes to money printing.
Imagine you had:
1/10 of all dollars.
Next year they printed 20% of money supply, so now you own:
1/12 of all dollars.
Your own wealth got siphoned off indirectly without you being cognizant of it. That’s exactly whats happening here. Every year they’ve been siphoning off 2-5% (maybe more) and now they have to ramp up further just to stay ahead of the game.
This isn’t by accident, it’s by design. So yes, there is a criminal here.
Most of the printed $100 USD bills are abroad in someone’s cabinet or mattress being used as a store of value vs their own trash currency. Most of these people still hold faith that the USD is a sound currency, and the FED takes that faith and abuses it by quietly eroding their savings.
Just because the Fed is the originator of US Dollars (which it isn’t directly — banks do that by lending, but whatever), that doesn’t imply that fiscal and monetary policy are the same thing. They are decisions by different people for different goals. I think the Fed would be surprised to learn that they are responsible for fiscal policy as you assert.
Also, selling Treasuries isn’t “magic”. US Treasuries act as reserves in the banking system, that’s how modern banking works. You would be right to say that the Fed and the Treasury do indeed work together — after all, the US government is unlikely to default on any US-denominated obligation issued by itself — but the level of coordination you’re implying is a fiction.
There doesn’t need to be explicit coordination if incentives are set up as they are.
The fed has a dual mandate to provide full employment and economic stability. If the Fed’s policy caused mass bankruptcies.. then the Fed would be failing part of its mandate.
IMO the scary part of this for the fed is housing. Housing is appreciating to substantial multiples of incomes due to low interest rates and restricted supply. If the FED raised rates and crushed the housing market the majority of Americans will feel the pain.
> The fed is very much aware of the inflation, but is on the awkward position that were they to raise the rates even a tiny bit, it would bankrupt the federal government. Going from 0-1% to 4-5% interest rates
400 basis basis points, back to the level of late 2005-early 2007, is a “tiny” increase in rates? That's an enormous increase...
> just the interest on the money owed is at $hundreds-billions yearly. Now double or tripe that cost…
If you look at history of Treasury interest rates and Fed Funds rates, the relationship you imply where even that giant increase to the Fed Funds target would do that... doesn't exist.
I mean, they charge nearly $3 for a 20oz soda. I know some of that is convenience store surcharge but their prices have gone up at least 10% in the last year.
There's about to be a boom in overconstruction of semiconductor fabs with all the government incentives to build new fabs in the US and Europe. It will be a sad day if we go back to the days of tariffs raise on DRAM that were a regular part of the semiconductor industry 30 years ago.
Absolutely correct. Printing excess money does not cause inflation. Disrupting supply chain does. Especially with USD which has virtually unlimited appetite.
If anything good comes out of this covid, it will be remote work and universal basic income (since we already tested that printing more money causes no major issues)
The microchip shortage has impeded new car manufacturing, and car fleet operators are buying back fleets they sold during the pandemic to stay afloat. Give it a year.
Lol. Don’t you think it’s very linear and simple variable thinking with that comment?
The car salesman won’t see the higher prices? The guy down the street won’t see the higher prices and ask for higher wages to afford the price increases?
If everyone asks for a raise the economy will support a higher interest rate. I'd be more worried if there are people who can't get a raise because we haven't reached full employment.
> It really is true today that buying a trusted used car is WAY easier than buying a new car.
Could you elaborate on this? Is this a recent development?
I bought a new car in November 2020 and while I certainly don’t _love_ the dealership experience and I’m probably less uncomfortable with financial negations than your average person, it didn’t strike me as a particularly painful experience.
I think there is a lot of confusion based on terminology. Even though the US failed to hit the 2% inflation goal for years that doesn't change that the Fed considers 2% inflation to be price stability i.e. the same thing as no inflation.
When they say transitory inflation they obviously mean transitory inflation above 2%. One problem with transitory is that a lot of people think the timescale is very short, maybe it will be over by the end of 2021 but nobody really knows because it all depends on how quickly the supply chains catch up.
The biggest cause of inflation is talking about inflation. If people believe it will happen, it will. Otherwise, it won’t. So, uh, let’s not about it, OK? ;)
Also we all experience inflation differently and our past experiences influence our expectations. The things I look at are already highly inflated (electronics, cars, housing, restaurants). Those are not everything. But I bet readers of this Website most often look at those same things …
Most of these price increases (e.g. semiconductors, lumber, consumer perishables) are supply-chain related. It’s reasonable to expect them to subside as the most acute phase of the pandemic recedes. Only one I’m not sure about is the price of a meal at a restaurant …