[yellowstuff]

Good point. Related- stocks are traditionally considered a good inflation hedge. Even this article partially debunking that idea shows positive real returns in all inflation regimes, and suggests that inflation up to 5% doesn't hurt stock real returns. Long term inflation over 5% has happened and could happen again, but it would be very surprising to most economists.

https://blogs.cfainstitute.org/investor/2021/07/19/myth-bust...

[jnwatson]

That's a great resource. I'd argue that inflation isn't "real" until it gets to around the 5% mark.

High inflation attracts Fed interest rate increases which attracts bond investment over equity investment.

In the US, we now have a triple whopper of post-pandemic supply chain adjustment, tight labor market due to early Boomer retirement, and now war-related energy cost increases. I don't think the economists have updated their model fast enough. I'm thinking we're going to have "real" inflation for a while now.

[WalterBright]

> it would be very surprising to most economists.

If the Progressives get their way with the budget, it will be inevitable.

You can't have trillions in deficits without massive inflation.

[mikeyouse]

The last 25+ years of American history prove this wrong.. and it’s not like the last administration was concerned with massive deficits, adding $7T during strong economic times. It seems a bit odd to blame progressives for this one…

[WalterBright]

> The last 25+ years of American history prove this wrong

The bill always comes due. There's no free lunch.

[astrange]

It's the opposite, our deficit is the way we run our worldwide financial empire that easily absorbs inflation. Your econ101 household analogies are for other little baby economies.

https://twitter.com/quantian1/status/1260387202871287809

Instead, inflation comes from energy shocks (70s) or supply chain shocks (now). And the current one is mostly because everyone started online shopping due to being stuck at home.

[WalterBright]

> inflation comes from energy shocks

The disproof of that is straightforward. Have we ever had deflation from gluts? There have been several oil gluts since the 70's. No deflation.

[astrange]

This isn't my personal theory here, it's the standard explanation.

It basically only happened once. One reason is that preventing deflation is the Fed's job and they've been doing it. Another is that for a wage-price spiral you need both things to increase; in the 70s we had wage spirals because we had a lot more union workers with automatic cost of living increase contracts. Losing those means inflation doesn't happen as fast, and workers don't exactly expect wage decreases the same way, so it's assymetric. (Japan does have wage decreases, and has been stuck in deflation for decades.)

Basic article:

https://www.frbsf.org/economic-research/publications/economi...

[WalterBright]

So the Fed prevents deflation by causing inflation.

I.e. not oil shocks.

[astrange]

It’s “stable prices and maximum employment” ie preventing both. They mostly fail to cause inflation, which is why we undershoot the 2% target more often than not.

Compare to Argentina for a country that really fails at it.

[dragonwriter]

> You can't have trillions in deficits without massive inflation

You empirically can, because the US has at times done so, but progressives (particularly MMT practitioners) not only recognize the relation between government spending balance, they hold up monetary effects like inflation as the only valid constraints on government spending balance, rejecting the idea that spending balance ought to be governed by the pretense of a fix purse that must be filled by tax or borrowing (the “fiscal” approach), while monetary concerns are controlled exclusively elsewhere on the system.

[WalterBright]

> the US has at times done so

That assumes all the other variables remained the same. The 2008 banking collapse may have resulted in deflation without the big spending program, which just countered the deflation.

[WalterBright]

For people who don't like what I wrote: believing deficit spending won't create inflation doesn't change the reality :-/