[nwvg_7257]

This doesn't mean what people think it means. They adjust the inflation rate every 6 months https://www.treasurydirect.gov/indiv/research/indepth/ibonds... .

Right now it yields 7.12% because the last inflation number was really high, but once inflation goes back to normal, the yield will be much lower.

[rashkov]

Some interesting charts on this page. The 7.12% rate consists of a 0.00% fixed rate and a 3.56% inflation rate.

The formula is: Composite rate = [fixed rate + (2 x semiannual inflation rate) + (fixed rate x semiannual inflation rate)]

7.12% = [0.0000 + (2 x 0.0356) + (0.0000 x 0.0356)]

This rate is only valid until the inflation rate gets re-adjusted after 6 months. There is an interesting chart showing what the fixed rates and inflation rates have been throughout the history of this bond.

For those considering investing in this, there is a $10,000 max per eligible person. Eligibility includes: 1) United States citizen, whether you live in the U.S. or abroad. 2) United States resident. 3) Civilian employee of the United States, no matter where you live.

Parents can buy these bonds for their children, so a family of four could invest $40k earning 7.12% for at least 6 months. Eligibility requirements are here: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

[cornstalks]

> invest $40k earning 7.12% for at least 6 months

I'm sure you know this so this comment is more for the casual reader: "I bonds earn interest for 30 years unless you cash them first. You can cash them after one year. But if you cash them before five years, you lose the previous three months of interest."[1]

Worth keeping in mind these aren't really short-term investment vehicles. But earning 2x inflation rate is pretty decent for a low-risk investment.

[1]: https://www.treasurydirect.gov/indiv/research/indepth/ibonds...

[pvitz]

> But earning 2x inflation rate is pretty decent for a low-risk investment.

Maybe you mean this anyway, but your statement could be misunderstood: One doesn't earn twice the inflation rate. It is multiplied by two to give an annual rate that can then be combined with the annual fixed rate. When calculating the coupon, you would of course have to adjust for half a year.

[timr]

These are a good place to store your emergency fund (assuming you roll your money into them 10k at a time, so that you have short-term liquidity when needed.)

[JumpCrisscross]

> 7.12% rate consists of a 0.00% fixed rate and a 3.56% inflation rate.

For comparison, TIPS trade at a negative real yield [1].

[1] https://www.treasury.gov/resource-center/data-chart-center/i...

[LatteLazy]

Thanks for clarifying the maths. I missed the semi annual nature and couldn't see how 0+3.56 made 7.12

[mc32]

Right. The real question is : when will it abate?

Is it transitory as they unflinchingly claimed or are we in the Carter Years?

[mikewarot]

They called it the Great War, then it was renamed to World War I

They called it the Great Depression, I suspect it's about to get renamed. This is going to suck.

[AnimalMuppet]

You're using (rising) inflation as an indicator that we're headed for a depression? That's a rather unconventional use of economic indicators...

[bityard]

What are the economic indicators showing we're about to have another depression?

[mikewarot]

No "economic" indicators such as government statistics per se.

The supply chain looks ready to collapse, along with public confidence in all of our institutions. History doesn't repeat, but it sure is rhyming, quite loudly right now.

There are many many months of rent and utility bills that haven't been paid. Due to the massive shift to remote work, commercial office space is likely to experience a 50% or more occupancy drop (maybe even worse?). Our large urban centers have a funding model that is suddenly unsustainable if this happens.

Everything to me, at least, is screaming danger, danger Will Robinson.

[nytesky]

Great Depression as ALL about deflation, we see inflation right now. Which will be painful, but since all countries are seeing inflation its likely just driven by costs in production.

If we huge inflation, then all these expensive mortgages people stretched for the last few years will be super cheap, so all of a sudden majority of Americans will be out of debt, for example.

All those empty commercial properties instead of foreclosing will simply rent home out for "low rent" purposes like gyms, but that low rent in inflated terms will cover the cost of their lease/mortgage.

It could be messy, and will need support from many players, but I don't think we are looking at a Greater Depression.

[newacct583]

We would not be "in the Cater [sic] Years" regardless. The lowest inflation reported in the late 70's was about 5%, with a peak at 15%. Last year's post-covid number was 5.4%.

Your point seems mostly like demagoguery. I think the more interesting question is... is 5% actually bad? There's a real argument to be had here that rapid inflation reflects genuine improvements like rising wage levels and that it's worth paying for. Remember that the "biggest losers" in inflationary economies are people who hold assets, not investors (whose returns accomadate faster than things like loan terms) or wage workers (who don't have significant assets to depreciate and whose wages track inflation well).

[Spooky23]

Exactly. As a well to do tech person, the impact of 10% inflation is nil when my retirement funds returned 25%.

Now if I was some über rich dude with millions of capital tied up high friction investments, forced to choose between paying capital gains taxes or losing to inflation, i may feel differently.

Frankly, we need to put shitty businesses that exist by virtue of low interest rates out of business. It should not be feasible to buy thousands of single family homes as investment property, for example.

[mc32]

It's the poor who this hits most. Most tech workers can 'absorb' this. We may get raises, bonuses, etc., to make up the diff.

But your average Joe and Jill in the world working restaurants or deliveries, they can't just shrug it off.

[newacct583]

That's almost exactly backwards, where are you getting this? The big inflation driver right now is (1) the increase in liquid cash in the economy due to covid relief programs and (2) the higher wage levels needed to get people to work during a pandemic.

The "poor" are, in fact, doing significantly better (economically, anyway) now than they were in 2019. I'll have to go look it up, but there was a great blog post a few months back looking at poverty statistics over the pandemic. The relief bills helped a ton.

[dnautics]

> The relief bills helped a ton.

Those are transitory, and even if they become permanent, never forget, inflation is a compounding process, so to keep up there must be the political will to re-up them. Moreover, the irony is that the way to fund the relief bills is to create more inflation.

You are advocating putting all of society on an accelerating treadmill that pushes people backwards towards poverty.

[dnautics]

Joe and Jill? What about your unemployed person, formerly-middle-income retiree on fixed salary, homeless person surviving by panhandling, nonprofit serving the poor/homeless...

Inflation is nothing but fucking over the people who can handle it the least.

[ForHackernews]

Poor people are debtors: Inflation is a huge positive for them! If I owe $10,000 of credit card debt at a nominal 25% APR, I am praying for that hyperinflation to kick in soon.

[mc32]

The cost of borrowing goes up with inflation.

It’s like has prices. They go up before the new delivery is in the grind tanks, but goes back down way after the expensive gas in the ground was all sold.

[medvezhenok]

Note that how we calculate inflation has actually changed since the Carter Years - most importantly the substitution of housing in the inflation basket with OER (owner-equivalent rent).

If we had the previous inflation measure (same as 1970s), CPI would be closer to double digits now (because of housing appreciation over the last year).

https://www.wsj.com/articles/inflation-numbers-1970s-cpi-hou...

[newacct583]

True enough, though if the modern real estate market had existed in the 70's then "inflation" would have been something closer to 30-40%.

Like it or not "home values" decoupled from "housing costs" over the past two decades. The reason for that metric change was to preserve equivalency, you don't get to argue backwards because of it.

[rsync]

"Remember that the "biggest losers" in inflationary economies are people who hold assets, not investors ..."

The biggest losers among sophisticated, moneyed actors are indeed people who hold assets.

But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.

[dragonwriter]

> But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.

So, non-SS pensioners?

Not: Social Security recipients (it has an inflation-indexed COLA).

Not: public benefit recipients (this inflation is in part a product of temporary increases to aid at the lower end of the economic spectrum).

Not: low-end labor, where prices are being bid up. (And also, often a beneficiary of the previous point.)

[mc32]

The government basket used to calculate inflation isn’t the same basket of goods pensioners buy from.

If inflation were “good” then the US along with many countries the word over would cause it to happen —it’s easy to do.

[dragonwriter]

> if inflation were “good” then the US along with many countries the word over would cause it to happen

Literally every single one of them that controls its own monetary policy (including the US) actively and deliberately does, so there's that.

[AnimalMuppet]

Even those with COLAs. See, prices go up, and then, later, the COLA adjustment kicks in. It still hurts those who get COLA adjustments, just not as bad as it hurts those who don't.

[rdtwo]

Only if you own paper debt assets like bonds. If you own dividend paying stock or property you are going to be fine. If you buy stock in a company with a heavy debt load that is slowly digging it’s way it (not sure they exist) you might come out a big winner

[bityard]

Key word there, might. Even people who's actual job it is to pick winners and losers do worse in aggregate than an index fund.

[vineyardmike]

> do worse in aggregate than an index fund.

This is widely stated, but only barely accurate sentiment.

First, index funds do good at 1 thing - which is provide "market returns". Market returns is basically defined by an index, so naturally the definition is circular. The parent mentioned dividends, which are not the normal target for investors (but useful for retirees and others who want an "income" from investment). Dividend stocks may do worse at beating market returns, but better at income generation.

[ethbr0]

> company with a heavy debt load that is slowly digging [its] way [out?]

Telecom? Utilities? Mining?

[newacct583]

> But the biggest losers overall are those with fixed incomes dealing with rapidly rising prices.

And therein lies one of the big pseudo-centrist points here. A mild reduction[1] in fixed-rate entitlement programs is coming down the pipe at some point regardless. This essentially gets the hard part of that political calculus out of the way "for free" (or at least in a cheaper way, since you can blame covid).

[1] Contra the nutjobs who predict the Death of Social Security or whatnot.

[dragonwriter]

> This essentially gets the hard part of that political calculus out of the way "for free"

No, if anything it hastens having to deal with the hard part, since SS benefits are wage indexed during employment and CPI-indexed in retirement, not fixed. Inflation drives up the nominal $ cost for current retirees, and, ceteris paribus, hastens trust fund depletion.

[mc32]

I don't think the financial system of the 70s is the same financial system of the 2000s. We were were also pouring a lot of resources into countering the 'second world' including the Vietnam war, missile defence, etc. add to that the 'oil shock.'

As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone. You, know, where they'd have to 'devaluate' their currencies to make up the difference?

[Spooky23]

Huh? We just ended a 20-year war and are stuck in a military investment cycle to replace the worn out and obsolete equipment.

[jonathankoren]

> As far as I can recall, the current system is 'calibrated' for 2-3% annual growth. 5-8% is entering the banana republic inflation zone.

This is simply untrue. Like not even close the definition of hyperinflation used by economists. Hyperinflation is a monthly inflation rate of 50%, or 12974.63% annually.

This is scare tactics.

[mc32]

Hyperinflation is Zimbabwe or Brazil during some periods. That's not what I'm comparing it to.

High inflation is what we had during the Carter years. People who lived though it say it was awful. Five per-cent may be on the cusp, but 8% is getting up there where it eats up a wage earner's buying power.

[jonathankoren]

If you’re not comparing the United States in 2021 to countries where the entire economy has collapsed due to inflation, then why are you using terms like “banana republic”? You could have used the 1970s if you meant the the 1970s, which as someone that barely remembers it, was not a “banana republic”.

[pjc50]

When the real shock of COVID disruption abates. Which is .. not looking great at the moment.

[bko]

Whats going to happen to the $12 trillion of new money created during covid?

[ForHackernews]

It'll just go into house prices and $TSLA, same as all the other funny-money.

[mc32]

Even Bill Maher is saying we're pretty much at a plateau and should act like it instead of stretching this further for whatever reasons.

[ksaun]

Why do you say "even" here?

Bill Maher has expressed frustration with lockdowns throughout the pandemic. That he holds the view you mention does not seem surprising or remarkable to me.

(He also seems like an unusual choice to bring in as an authority on this topic. He is primarily a comedian.)

[op00to]

Even Donald Trump said end the lockdowns!!!

[angelzen]

We first embraced hard lockdowns. No cost was high enough if we could contain covid if only just a little bit. Then we turned to vaccines as a miraculous path back to a life resembling normal. As the vaccine performance falters (*), I'm uncomfortably curious to see which way the world will go.

(*) According to FDA/CDC and Israel, which are promoting the 3rd boosting shot in less than a year and anticipating the 4th.

[mhb]

It meant what I thought it meant. The adjustable interest rate on these has been much, much better than alternatives for a long time. Now it is even better.

[AndrewUnmuted]

> but once inflation goes back to normal

you mean, once the "inflation number" goes back to normal.

Inflation (supply of money) has been high [0] for literally decades. It won't get lower for a long time. It may never EVER go "back to normal." Normal would put us in a very bad macroeconomic position relative to all other nations. Why would we, the purveyor of the Petrodollar, do that?

[0] https://fred.stlouisfed.org/series/WM2NS

[mindslight]

I find it useful to refer to "price inflation", "monetary inflation", and "asset inflation" to distinguish between them all. Monetary inflation may or may not create asset inflation and or price inflation depending where it flows.

[iknowicouldturn]

Interesting. Are the inflation rate and inflation not causal with one another? I feel a bit ignorant now having always assumed they are essentially the same thing. Amount of new money printed.

[mudil]

but once inflation goes back to normal is not a fact. The future is uncertain, ie hyperinflation is possible.

[awakeasleep]

Hyperinflation refers to a very specific event where a country has no exports at all, and is also not self-sufficient with food production.

We could experience very high inflation, but hyperinflation is becoming a random word that people throw around without understanding the definition.