[…] Regarding groupthink on inflation expectations and the Phillips Curve, please see Inflation Expectations are Crashing. So What? It Doesn’t Matter. […]
Lisa_Hooker
1 year ago
Inflation?
When you give cheap money to the rich folk the price of stocks and real estate goes up.
When you give free money to the poor folks the price of food and energy and shelter goes up.
But I got a great deal on some Apple and some Tesla.
oee
1 year ago
it does matter because the hysteria about “wage inflation spiral.” If you are expecting higher inflation you are more apt to demand higher wages and therefore higher CPI in the future. Thus, inflation expectations to be anchored you will not get that and then you can say inflation is transitory. Therefore, you do not need to lobo Mize the econ by increasing interest rates.
MPO45
1 year ago
inflation expectations don’t really matter but for a different reason: people always get inflation wrong. Last year, no one was expecting 9% inflation and right now some people are expecting inflation will go down by this time next year, both, I humbly submit will be WRONG.
Tyson reported yesterday and a key issue for missing estimates was supply chain issues and labor shortages. Yes, there may be layoffs happening in tech but the daily labor needed everywhere on farms, restaurants, hotels, teachers, nurses, police, and other blue collar roles simply doesn’t exist. It is depleting every day for a variety of reasons and no one likes the only viable solution: more immigration. The other viable solution people like even less: lower consumption, services and expectations (i.e. lower standard of living).
It is far, far better and much safer to have a firm anchor in nonsense than to put out on the troubled seas of thought. John Kenneth Galbraith
Just baffle them with B.S.
vanderlyn
1 year ago
people already perceive a inflationary recession and have pulled in the reins. price drops on homes for sale in my very large coastal city already. folks will buy 2 houses if they think prices are gonna be higher in a few months or few years and will unload second homes and such when the reverse happens. we are in stagflation. the fed will need to keep jacking up rates for a long long time. imho. the fed is owned by the banks. they set up the fed to bail them out of bankruptcy and lend to each other…………..the concern of the fed for anything like inflation or house prices is just fodder for fools. they are not idiots. read “creature from jekyll island” to get a grasp on the master plan for decades since the end of the 2nd amerikan central bank until our current one. all the other stuff the fed publishes and discloses is fodder for fools. there is only ONE JOB for the fed. and they do it marvelously well. to the 99.99% of us detriment. sound money and reigning in our empire back to a republic is the only sane way forward. but of course that is not gonna happen.
Salmo Trutta
1 year ago
Virtually all demand drafts cleared through “total checkable deposits”. But Powell deemphasized the role of money in the
economy. To coverup his ruse Powell has destroyed deposit classifications.
Powell eliminated the 6 withdrawal restrictions on savings accounts, which
isolated money intended for spending, from the money held as savings. Powell thinks banks are intermediaries.
While John Greenwood and Steve Hanke (WSJ July 8th) can’t define means-of-payment money, they nevertheless know how it is created.
“When a bank makes a loan, it credits the
borrower’s deposit account. The loan does not come from the bank drawing down
on its reserves at the Fed. Banks can
also create money by purchasing securities, again crediting the deposit account
of the issuer or seller of the securities. Provided they can meet all capital, liquidity and leverage requirements,
banks create loans out of thin air…QE, purchasing assets on a large scale…increases
the money supply because asset purchases by the Fed from the nonbank public result
in a payment passing from the Fed to the seller, which deposits the payment in
a commercial bank. This is new
money. In turn, the bank passes the
payment back to the Fed, which credits the commercial bank’s reserve account. This is how QE increases both banks’ reserves
and the money supply out of thin air.”
Salmo Trutta
1 year ago
Great points. Expectations are moot. The evidence is conclusive. The only way to track R-GDP and prices was to
track required reserves, the truistic monetary base (as Dr. Richard Anderson said: “reserves were driven by payments”). As Dr. Richard
Anderson pointed out: (11/16/06 “Since no one in the Fed tracks reserves”).
Even the weightings in Divisia aggregates are questionable.
Bernanke caused the GFC and bankrupt half the home builders. He contracted required reserves for 29 contiguous months turning safe assets into impaired assets. And Powell increased the Gini
coefficient to the highest level in 50 years.
Bhakta
1 year ago
Good morning from Bangkok Mish. There is no way to stop inflation if the Fed keeps printing money and financing the government deficits.
Captain Ahab
1 year ago
I suspect today’s raid on Trump’s house will be a massive game changer for the mid-term election. Emotions will run high, and will very likely explode. For those looking for Black Swans, this might be it.
What if they don’t find anything like in the collusion fiasco, the Jan 5 hearings and the other investigations since six years that haven’t come up with anything? If anything it’s convincing more and more people that Trump is clean while Dem very many politicians can’t pass scrutiny.
Regardless of what was found, who approved, who planned…. What does the raid reveal to the rest of the world? A pre-dawn secret raid of a past-president, 20 cars from Washington DC… The US just revealed it is a banana republic. Regardless of whether you like or hate Trump, you are NOT allowed to vote for him…… NAZI TACTICS,
Having been around real estate developers for over 45 years, I have a low opinion of them in general: high egos, verging on narcissistic, low on the trust scale, few scruples, power hungry…. A few standouts have been otherwise. I’ve never met Trump, but from what I have seen he is not one of them.
That said, he was elected President, and largely prevented from doing the job in ways that disgust me. The media’s power to shape opinion with lies and omissions focused on one person for purely political reasons has made the Fourth Estate the mouthpiece of the DemoNAZI’s.
Do you think the foiled assassination attempt will be at the beginning or end of October?
JRM
1 year ago
Unless the Biden/Obama admin puts price caps on food prices, it will continue to up.. Marxist move!!!
Wait until the fall when the price for fertilizer, hay and feed prices start showing up in the food being sold in the markets!!!
dtj
1 year ago
There is such a thing as an “inflationary mindset” which keeps inflation going. Costs have been increasing steadily throughout the years but before the pandemic, companies showed a lot of restraint in raising prices because they didn’t think they could get away with it.
Now, everybody is raising prices because “everyone else is” and there is a sense that nobody wants to be left “holding the bag” and taking the hit from the devaluation of the dollar. So it becomes a game of hot potato and that keeps inflation going.
Inflation, without the “H”, yes, it’s a monetary phenomenon. *H*yper-inflation is a psychological phenomenon.
Consider that the past couple of generations have not really experienced inflation (if, as most do, they accept government numbers). Probably very few people alive in the US have experienced Hyper-inflation, so most are clueless with respect to the signs and the risks.
Normalcy bias ensures the blinders stay on. Long popcorn.
Bam_Man
1 year ago
All current Central Bankers are monetary charlatans perpetrating egregious fraud and theft upon their respective populations. The day will soon come when this is fully recognized by even the most naive among them – and then it is ‘Game Over’.
That day is not coming. And there isn’t anything you can do about it. Except try to take advantage of the situation rather than always complaining about it.
Perhaps if you understood the relationship of risk and return, after ‘return’ is artificially depressed for ten years…. The ‘Great Recession’ was initiated by the miss-pricing of risk in the US housing market. That miss-pricing of risk now extends through all markets, globally. When actual implosion happens, no one can know, but it will cause significant structural change in economies.
Lol! I am a simple person. I look for investment opportunities and I take advantage of them. I made good money on tech and then switched over to energy before the recent tech bloodbath. Energy has been doing great for the last two years since I got in because of the structural changes that you talk about. And I expect it to keep doing great for a while yet.
Did you get in to the energy trade? Clearly, you didn’t, because you are always arguing against it. How did you miss it?
I will let you worry and fret about the “coming collapse”. I’m too busy making money from the opportunities that currently exist.
And while the energy story plays out, I am busy looking for the next big opportunity while you suffer from the paralysis of fear.
The Affordable Care Act did not result in affordable care, the Homeland Security Act did not result in homeland security, the National Affordable Housing Act did not result in affordable housing, the Child Poverty Reduction Act did not reduce childhood poverty, the PATRIOT Act was anything but patriotic, et cetera.
Similar to Fedspeak, lobbyists have a long history of legislation misnomers, hiding their true intentions behind a beneficial-sounding title and occasionally a whimsical acronym.
I have to admit: I don’t get it. Our entire lives and the decisions we make are based on our expectations. If we expect it to rain, we bring an umbrella. If we expect it to be 100F we dress appropriately.
I expect oil demand to exceed supply, so I invest in oil stocks.
Why is it any different with inflation expectations?
If workers expect prices to increase 10%, they want at least a10% raise to keep up. If they expect prices to go up 2%, they want at least a 2% raise to keep up.
“Do wages go up based on what you think inflation is?”
People want their wages to keep up with inflation. When negotiating their wages, they will take their inflation expectations into account. If they expect 2% inflation, they might ask for a 3% raise, but when they expect 9% inflation they will ask for a 10% raise, not a 3% raise.
If you think rent will go up will you rent two houses?
Of course not. But if you are in the market to buy a house and you expect prices to go up, you will try to buy before they do.
When potential buyers expect interest rates to increase they try to lock rates in before any rate increase.
Personally, I believe that expectations influence decisions that people make.
Of course, expectations influence decisions–investment decisions in particular.
Perhaps Economics 101 might be helpful–expectations of future prices is ONE factor underlying demand for anything (and supply, too–an oil company might not drill if it expects declining prices). Expectations are predicated with ‘if a need for more exists.’ If you expect gasoline to cost more in a week, you will fill your tank now. Perhaps even buy 5-gals in a jerry can. Most people would not put in underground storage. Ina volatile market, a savvy gas station might sell ‘gas futures’ to its customers–lock in tomorrow’s price at today’s price, then hedge the bet with oil futures. 🙂
Then again, some people might buy a house closer to their place of work if they expect the increased gas price to be permanent, or a more fuel efficient vehicle… Prices change based on substitutes and complements….
“Of course not. But if you are in the market to buy a house and you expect prices to go up, you will try to buy before they do.”
BINGO
Something I have complained about for ages
But guess what?
Home prices are not in the CPI nor considered to be part of inflation by almost everyone but me!
Yes indeed, that is one of the idiotic things and why the Fed is chasing its tail. I mention this about this every time I update my Housing price charts.
Then we agree that expectations do matter to the decisions that individuals make.
Regarding the calculation of CPI. I cannot change how it is calculated so I don’t worry about it. Just like I can’t change what the Fed does. All I can do is make my own decisions based on my expectations.
I expect slow growth, and continuing growth in demand for energy. Combined with my expectations for constrained supply, it explains my decision to be heavily invested in oil and gas stocks.
Slow “economic” growth worldwide; resulting in continued demand growth for energy worldwide; resulting in firm prices for oil and gas for several years. Perhaps in a few years time the growth in renewables will begin to reduce demand for oil and gas. But renewables haven’t resulted in lower demand for oil and gas yet.
Wanting a raise to match inflation (and wanting more for a safety margin) is part of negotiation. What the worker actually gets depends on other factors, many outside his/her control.
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[…] Regarding groupthink on inflation expectations and the Phillips Curve, please see Inflation Expectations are Crashing. So What? It Doesn’t Matter. […]
economy. To coverup his ruse Powell has destroyed deposit classifications.
Powell eliminated the 6 withdrawal restrictions on savings accounts, which
isolated money intended for spending, from the money held as savings. Powell thinks banks are intermediaries.
borrower’s deposit account. The loan does not come from the bank drawing down
on its reserves at the Fed. Banks can
also create money by purchasing securities, again crediting the deposit account
of the issuer or seller of the securities. Provided they can meet all capital, liquidity and leverage requirements,
banks create loans out of thin air…QE, purchasing assets on a large scale…increases
the money supply because asset purchases by the Fed from the nonbank public result
in a payment passing from the Fed to the seller, which deposits the payment in
a commercial bank. This is new
money. In turn, the bank passes the
payment back to the Fed, which credits the commercial bank’s reserve account. This is how QE increases both banks’ reserves
and the money supply out of thin air.”
track required reserves, the truistic monetary base (as Dr. Richard Anderson said: “reserves were driven by payments”). As Dr. Richard
Anderson pointed out: (11/16/06 “Since no one in the Fed tracks reserves”).
coefficient to the highest level in 50 years.