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Old 18th October 2021, 03:48 PM   #1
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Inflation

Inflation has finally arrived.

The combined banging out money from the GFC, then parlayed by Covid, might be finally coming home to roost.

The traditional view has been that throwing money out creates inflation, and we've now had a decade of that, except the inflation has been assets rather than consumer products, so the idiotically-named "headline inflation" has shown nothing for the entire 12 years since quantitative easing became QE.

Now, we have what may well be the perfect storm for inflationary pressure:

Unlimited money
Assets at prices where leverage is low
Close to zero interest paid on deposits
Supply chain problems/lack of shipping (and containers)
Labour shortage worldwide
OPEC finally getting its **** together
Closing fossil fuel & nuclear power plants

The key this time is the labour shortage. Up to now, employers have been able to keep a lid on wage demands, but unions are shaking off their fossil status now they've realised employers can't just go and hire different people.

Economists are split on whether the inflation - already running at 5% in lots of countries - is temporary or long-term.

Central banks are going to struggle with the issue, because printing more money won't fix it, but would exacerbate it nicely. Raising interest rates is a double-edged sword - it's guaranteed to push wage demands higher, leading to more inflation.

I'd love to know which way it's going, because if you pick it right there's a fortune to be made on the bond market.
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Old 18th October 2021, 04:27 PM   #2
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IMO timing the bond market is a fool's game.

But I'm nothing if not a fool, and I think bonds are not a good place for my money for at least the next 10 years. Per Benjamin Graham, I never go lower than 25% in bonds, and that's probably pretty close to where I am now.
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Old 18th October 2021, 05:50 PM   #3
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Originally Posted by sir drinks-a-lot View Post
IMO timing the bond market is a fool's game.
Always worth risking a grand to try to make 20 or 30.

Originally Posted by sir drinks-a-lot View Post
But I'm nothing if not a fool, and I think bonds are not a good place for my money for at least the next 10 years.
I've never invested in them, and it's not the angle I'm looking at. It's a case of pick your time, have a punt, and if it loses, no big deal, but if you win, it could be very lucrative.

If you're investing, like all other asset classes, when you invest doesn't matter too much.
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Old 18th October 2021, 08:39 PM   #4
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I've got no economic math to defend this thought with, but I have an impression that higher wages pushing prices up some is a better scenario than prices going up with wages stagnant. At the risk of an argument from consequence, the alternative implies that a significant portion of the workforce must be at poverty wages for the economy to function. I'd like to think capitalism can work better than that.
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Old 19th October 2021, 02:16 AM   #5
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Well, we're going to find out.

ANZ Bank has been cautioning for a while, and came out today expecting inflation here to hit 5.8% next year.

Wage earners will be looking to recover that asap.

https://www.stuff.co.nz/business/126...-hard-and-soon
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Old 19th October 2021, 03:03 AM   #6
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Is Japan expected to have inflation too?
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Old 19th October 2021, 03:10 AM   #7
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To answer my own question:

https://tradingeconomics.com/japan/inflation-cpi

Quote:
Japan's consumer prices declined by 0.4% yoy in August 2021, after a 0.3% drop a month earlier. This was the eleventh straight month of decrease in consumer prices, amid weakening consumption due to the ongoing COVID-19 pandemic.
Quote:
Inflation Rate in Japan is expected to be 0.10 percent by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the Japan Inflation Rate is projected to trend around 0.70 percent in 2022 and 1.40 percent in 2023, according to our econometric models.
Sounds pretty tame for now.
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Old 19th October 2021, 12:07 PM   #8
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Originally Posted by Puppycow View Post
Sounds pretty tame for now.
Ever the outlier...

How are property prices in Japan? Has there been the huge increase we've seen elsewhere?

I know the Nikkei has about the same increase as the Dow.
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Old 19th October 2021, 09:07 PM   #9
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Originally Posted by The Atheist View Post
Ever the outlier...

How are property prices in Japan? Has there been the huge increase we've seen elsewhere?

I know the Nikkei has about the same increase as the Dow.
On a national level, rather steady, but my impression is that prices are rising where I live.

Two data sources:

https://www.globalpropertyguide.com/.../Price-History

https://fred.stlouisfed.org/series/QJPN628BIS

There's the property market in the major urban centers, which is fine, but in rural areas I imagine it's quite bad, as those are the areas losing population. Population is decreasing overall, but also moving from rural areas to urban areas, and particularly the Tokyo/Kanto region.
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Old 19th October 2021, 11:10 PM   #10
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Thanks!
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Old 20th October 2021, 04:06 AM   #11
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Japan is experiencing some shortages now due to imports not arriving.

For example, KFC had to stop offering french fried potatoes and Saizeria cut back on their buffalo wings. I believe supply chain issues are to blame. Both would be imported from America, and the pandemic seems to be causing labor shortage problems.

https://japantoday.com/category/busi...ench-fry-sales

A fast-food restaurant without french fries is unusual.

Saizeria cut back on the chicken wings so that you now get 4 instead of 5 in your order, but the price hasn't changed. So in effect, that's inflation.

Japan only produces 37% of its food domestically, on a calorie basis.

https://www.rieti.go.jp/en/papers/co...shita/128.html

So, it seems inevitable that if there are supply chain problems in the countries it imports its food from, there would be a ripple effect in Japan. It's a little concerning from a food security point of view, how dependent Japan is on other countries for food.
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Old 20th October 2021, 10:29 AM   #12
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Originally Posted by Puppycow View Post
Japan is experiencing some shortages now due to imports not arriving.
Welcome to that club. You want to try being the last stop in the supply chain on a bunch of remote islands at the bottom end of the Pacific!

Christmas presents are likely to be in short supply, and some food items have been off the shelves for months.

Originally Posted by Puppycow View Post
Saizeria cut back on the chicken wings so that you now get 4 instead of 5 in your order, but the price hasn't changed. So in effect, that's inflation.
That is counted as 20% inflation - it's a question I actually asked the bureau in charge of tracking inflation a few months ago, because it's an effect I've seen a lot recently; keep the price the same and decrease the amount inside.

Originally Posted by Puppycow View Post
Japan only produces 37% of its food domestically, on a calorie basis.
Ouch. That's a recipe for trouble. Go long on baked beans.
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Old 20th October 2021, 11:29 PM   #13
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The government does maintain a stockpile of rice and perhaps other food (stuff like powdered milk) for emergencies. Still, that could cover a temporary gap if necessary, but not a long-term shortage.
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Old 27th October 2021, 02:51 PM   #14
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More on the subject today: https://finance.yahoo.com/news/analy...050725140.html

While the issue of stagflation is divided - and not very likely, in my view - there seems to be a consensus on inflation being here to stay.

Mortgage rates are up over 80% in the last month in NZ. Still only 3.6, but coming off a low of 1.9, it's a big jump in a short time.
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Old 28th October 2021, 01:10 AM   #15
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Originally Posted by The Atheist View Post
More on the subject today: https://finance.yahoo.com/news/analy...050725140.html

While the issue of stagflation is divided - and not very likely, in my view - there seems to be a consensus on inflation being here to stay.

Mortgage rates are up over 80% in the last month in NZ. Still only 3.6, but coming off a low of 1.9, it's a big jump in a short time.
In the UK, a big increase in mortgage rates would tend to reduce inflationary pressure elsewhere in the economy.

That said, more and more people are on medium-term fixed rate deals so there's much less of an effect than there was 20 or 30 years ago when almost everyone here had a standard variable rate mortgage.
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Old 28th October 2021, 01:59 AM   #16
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Originally Posted by The Don View Post
In the UK, a big increase in mortgage rates would tend to reduce inflationary pressure elsewhere in the economy.
Nope. It puts pressure on wages, which creates inflationary pressure.

We had double-digit interest rates in the '70s & '80s and they didn't slow inflation at all.

Originally Posted by The Don View Post
That said, more and more people are on medium-term fixed rate deals so there's much less of an effect than there was 20 or 30 years ago when almost everyone here had a standard variable rate mortgage.
Sure, but it's just one of many upwards pressures at the moment.
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Old 28th October 2021, 06:12 AM   #17
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There's two way cause and effect between inflation and interest rates. Higher interest rates slow the economy and reduce inflation. But higher inflation increases interest rates.
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Old 28th October 2021, 11:37 AM   #18
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Originally Posted by The Atheist View Post
Nope. It puts pressure on wages, which creates inflationary pressure.

We had double-digit interest rates in the '70s & '80s and they didn't slow inflation at all.
In all probability, yes it did, it also caused a major recession.

Inflation ticked up throughout the 1970s until the Fed, under Chairman Volcker, took drastic measures to promote greater price stability. A special Federal Open Market Committee (FOMC) meeting on October 6, 1979, put in motion unique policy actions to combat the persistent surge in inflation. The Committee decided to target (i.e., reduce) specifically the growth rate of the money stock in the economy. Consequently, the federal funds rate soared from 10 percent at the start of 1979 to 19 percent by the middle of 1981, signaling the effects of tightening monetary policy designed to reduce inflation.

The Volcker disinflation, along with other factors, severely weakened the U.S. economy and resulted in two recessions in the early 1980s. Real (or inflation-adjusted) output remained stagnant from 1979 to 1982, and unemployment rose to more than 10 percent (see bottom chart). In addition, businesses failed in large numbers as access to capital became constrained due to higher interest rates. Specifically, almost 25,000 businesses failed in 1982—a postwar high that climbed to over 52,000 failures by 1984 (Samuelson, 2008). Credit-dependent sectors of the economy felt an even stronger pinch; sales of homes and cars suffered dramatically. Volcker's medicine was a tough pill to swallow at first, but it eventually had the desired effect. 4 By the mid-1980s, inflation started to dip below 5 percent and has remained relatively stable ever since.


As I said, in all probability (not certainty), we're talking economic theory here.

https://research.stlouisfed.org/publ...ssons-learned/

Those were fantastic times to be someone with disposable money though. Investment grade muni bonds that were virtually risk free paid around 10% above inflation and were tax free. The problem was... why start a business or do anything risky with your money?

ETA: bah there I go forgetting there be foreigners here. I haven't the foggiest about the state of your economy or its policies from decades ago.

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Old 28th October 2021, 11:44 AM   #19
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Originally Posted by Startz View Post
There's two way cause and effect between inflation and interest rates. Higher interest rates slow the economy and reduce inflation. But higher inflation increases interest rates.
That statement is very much not holding true at present.
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Old 28th October 2021, 12:24 PM   #20
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Originally Posted by startz
But higher inflation increases interest rates.
Originally Posted by lobosrul5 View Post
That statement is very much not holding true at present.
I really should have said that inflationary expectations increase interest rates. If inflation lasts long enough, then inflationary expectations rise.

It is also true that very short term interest rates are set by the Fed, not by the market or market expectations.

Note also that since the beginning of the year the five-year treasury rate has risen about 75 basis points.
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Old 28th October 2021, 01:02 PM   #21
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Originally Posted by Startz View Post
I really should have said that inflationary expectations increase interest rates. If inflation lasts long enough, then inflationary expectations rise.

It is also true that very short term interest rates are set by the Fed, not by the market or market expectations.

Note also that since the beginning of the year the five-year treasury rate has risen about 75 basis points.
Yes, treasuries are sold at auction, the rates are whatever the market decides. But... the Fed can lower rates by buying back bonds. So, they can and do control even long term rates.
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Old 28th October 2021, 01:05 PM   #22
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Originally Posted by lobosrul5 View Post
Yes, treasuries are sold at auction, the rates are whatever the market decides. But... the Fed can lower rates by buying back bonds. So, they can and do control even long term rates.
The Fed certainly controls the overnight rate. Doing this (and some other things) influences long term rates. I don' think it's right to say that the Fed controls long term rates though.
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Old 28th October 2021, 01:07 PM   #23
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Originally Posted by Startz View Post
The Fed certainly controls the overnight rate. Doing this (and some other things) influences long term rates. I don' think it's right to say that the Fed controls long term rates though.
Maybe not controls, but they can greatly influence them.

https://www.nytimes.com/2021/07/28/b...questions.html

Once they taper we'll see treasury rates increase, and the suckers holding them at 1 or 2% are going to get burned. I really think there are a lot of people that don't understand interest rate risks when buying bonds.

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Old 28th October 2021, 01:32 PM   #24
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No disagreement.
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Old 28th October 2021, 06:35 PM   #25
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Originally Posted by lobosrul5 View Post
ETA: bah there I go forgetting there be foreigners here. I haven't the foggiest about the state of your economy or its policies from decades ago.
The '70s & '80s inflationary period was pretty well worldwide.
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Old 28th October 2021, 06:54 PM   #26
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More on the subject today: https://www.stuff.co.nz/business/126...istic-anz-says
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Old 1st November 2021, 02:55 AM   #27
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Originally Posted by The Atheist View Post
The traditional view has been that throwing money out creates inflation, and we've now had a decade of that, except the inflation has been assets rather than consumer products, so the idiotically-named "headline inflation" has shown nothing for the entire 12 years since quantitative easing became QE.
Most of the transmission of the new money that has wound up in assets, has gone to the super-rich as well, which has allowed them to consolidate rents, which has both an offsetting deflationary effect, and a massive increase in the wealth gap. So not only do middle class people have less passive income from rents, their costs-of-living are rising at the same time. The poor of course are utterly screwed, as their wages can barely pay for their shelter.

Quote:

Central banks are going to struggle with the issue, because printing more money won't fix it, but would exacerbate it nicely. Raising interest rates is a double-edged sword - it's guaranteed to push wage demands higher, leading to more inflation.

I'd love to know which way it's going, because if you pick it right there's a fortune to be made on the bond market.
Before you short the bond market, consider that it is the primary method for central bank monetary transmission. They can create unlimited money and put a floor on the price of bonds, which means a ceiling on interest rates. This would represent an obscene condition of rising bond prices and consumer price inflation at the same time - will bond investors blink if they believe central banks cannot allow interest rates to rise? They already tolerate NIRP in Japan and Germany.

The endless central bank subsidies of bond and stock markets represent an insane colossal welfare scheme for the rich, perpetuating and widening an unsustainable wealth gap while destroying the social fabric of the developed world.

All of this will be blamed on "capitalism", by those without the intellectual capacity to distinguish between a system based on the private ownership of the means of production, and the colossal fraud of state counterfeiting for the benefit of the super-rich.
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Old 4th November 2021, 01:47 PM   #28
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Inflation in food prices as global prices hit a 10-year high. https://www.aljazeera.com/economy/20...t-10-year-high

I have no doubt we will shortly see historical highs, because prices aren't coming down anytime soon, no doubt leading to famine in some places.

NZ has undergone another round of mortgage rate increases already, with the current 2-year fixed rate being advertised at an unbelievable 3.9%, more than double the rate of only four weeks ago.
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Old 4th November 2021, 09:08 PM   #29
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Originally Posted by The Atheist View Post
Inflation in food prices as global prices hit a 10-year high. https://www.aljazeera.com/economy/20...t-10-year-high

I have no doubt we will shortly see historical highs, because prices aren't coming down anytime soon, no doubt leading to famine in some places.

NZ has undergone another round of mortgage rate increases already, with the current 2-year fixed rate being advertised at an unbelievable 3.9%, more than double the rate of only four weeks ago.
It looks like inflation is coming to Japan too. At least, that's what I saw on my TV this morning.

Fuel prices are up. Mainly anything imported I think.

The thing is, it all seems to be stemming from problems on the supply side.

Semiconductor chips are in short supply, leading to shortages of the end products that incorporate them. There's also shipping problems. The ports on the US west coast are clogged up, and shipments are delayed, both coming and going.
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Old 5th November 2021, 01:50 PM   #30
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Originally Posted by Puppycow View Post
Semiconductor chips are in short supply
Having several hundred shares of Nvidia made me smile this week.
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Old 5th November 2021, 01:58 PM   #31
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Energy crisis. Inflation.

But enough about Jimmy Carter.
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The government should nationalize it! Socialized, single-payer video game development and sales now! More, cheaper, better games, right? Right?
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Old 6th November 2021, 02:44 AM   #32
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Originally Posted by Beerina View Post
Energy crisis. Inflation.

But enough about Jimmy Carter.
It is very reminiscent of the 1970s. Hopefully it won't be quite to that extent, but I'm not betting either way right now.
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Old 6th November 2021, 01:09 PM   #33
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Hey, that just might work...

If you start with a United States federal yearly deficit of 3 trillion per year,
a 28 trillion starting debt, an ending debt of 100 trillion dollars, an average
inflation rate of 17.5% per year, then after 24 years the 100 trillion becomes
like 2 two trillion in debt today, thus stopping capital starvation in its tracks.

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Old 9th November 2021, 01:03 PM   #34
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Originally Posted by Solitaire View Post
Hey, that just might work...

If you start with a United States federal yearly deficit of 3 trillion per year,
a 28 trillion starting debt, an ending debt of 100 trillion dollars, an average
inflation rate of 17.5% per year, then after 24 years the 100 trillion becomes
like 2 two trillion in debt today, thus stopping capital starvation in its tracks.

http://www.internationalskeptics.com...milies/arr.gif
Its why it would be a ridiculous idea the the US ever will or will need to default on our debt, when we can just inflate our way out of it. Negative real yields for decades, here we come!
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Old 9th November 2021, 07:10 PM   #35
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Originally Posted by lobosrul5 View Post
Its why it would be a ridiculous idea the the US ever will or will need to default on our debt, when we can just inflate our way out of it. Negative real yields for decades, here we come!
Devaluing one's currency is essentially a soft default.
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Old 9th November 2021, 07:19 PM   #36
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Originally Posted by Tippit View Post
Devaluing one's currency is essentially a soft default.
I am less worried about the morality of it than I am about going over the tipping point.
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Old 9th November 2021, 09:05 PM   #37
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Originally Posted by The Atheist View Post
It is very reminiscent of the 1970s. Hopefully it won't be quite to that extent, but I'm not betting either way right now.
What's the current informed assessment on how we got the heck out of "stagflation"? My understanding of it is rooted in a 90s-era analysis of what the Fed was doing wrong and how they finally wised up--with particular regard to policies by Volcker which were at first immensely unpopular, but probably did the trick.

I don't know if that analysis is still accepted 30 years later. Any more recent takes that aren't supply-side bullcrap instead?
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Old 10th November 2021, 02:05 AM   #38
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Originally Posted by gnome View Post
What's the current informed assessment on how we got the heck out of "stagflation"?
Massively high interest rates until the economies had bled enough to get to the point where growth is possible, I think.
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Old 10th November 2021, 08:35 AM   #39
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The Fed is wrong for existing. No human beings should have the power to create money, because it's too great of a power, and too easy to corrupt. Money should be pre-existing, scarce, and independently valuable.

Why is it that no one complains about the asset price inflation that has been occurring more or less since the Fed's inception, but they complain about consumer price inflation?

If there is a large contingent of homeless people who simply cannot afford the price of homes and/or who are not creditworthy enough to buy them, how is this any better for them than consumer price inflation is for the consumer?

If you want to solve the inflation problem and live in a more just world, then you have to abolish central banking, and the fiat money fractional reserve system. Raising interest rates at this point after all the assets have been stolen by the issuance of free money will only hurt the poorest, and ensure "The Great Reset" that people like Klaus Schwab desire.
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Old 10th November 2021, 10:19 AM   #40
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Inflation is USA hits 30-year high.

https://www.axios.com/consumer-price...43e1a47ba.html
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