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Post by Mustang on Sept 16, 2023 19:57:48 GMT
Here it comes. Inflation took a pause in the 70s then came roaring back worse than ever. Inflation has come down from last years high but two years of high inflation has decreased purchasing power. People are fully aware that their paycheck are not going as far. They are depleting savings, increasing the use of credit cards, defaulting on credit cards and when buying switching to less costly alternatives and shopping at less costly stores.
Inflation today was started the same way as inflation in the 1970s.
"The Great Inflation was blamed on oil prices, currency speculators, greedy businessmen, and avaricious union leaders. However, it is clear that monetary policies that financed massive budget deficits and were supported by political leaders were the cause. Yet these unusually bad economic times were preceded by a period in which the economy boomed or appeared to boom. Many Americans were awed by the temporarily low unemployment and strong growth numbers of 1972.. The steady and lasting rise in prices seen during the Great Inflation created a time of tremendous and disturbing instability for Americans. With the accompanying loss of purchasing power, the risk that the savings of many would be depleted was real. People found it difficult and dismaying to plan for purchases from week to week. They had to make unpleasant choices about which needed items to buy. Certain items simply were out of reach for many. The deeply unsettling effect of inflation eroded their confidence in their standard of living and in the country's leadership." www.investopedia.com/articles/economics/09/1970s-great-inflation.asp
How did it begin? A shortage of oil was part of the problem but huge deficits over stimulated demand and forced the Fed to increase the money supply When demand exceeds supply prices rise. This sounds very familiar.
What keeps inflation going? Falling further and further behind workers demanded wage increases.
"The wage-price spiral is an economic term that describes the phenomenon of price increases as a result of higher wages. When workers receive a wage hike, they demand more goods and services and this, in turn, causes prices to rise. The wage increase effectively increases general business expenses that are passed on to the consumer as higher prices. It is essentially a perpetual loop or cycle of consistent price increases." www.investopedia.com/terms/w/wage-price-spiral.asp
Higher prices cause workers to demand higher wages. Higher wages cause companies to raise prices. And this repeats over and over.
Airline workers, actors and writers, auto workers are all on strike wanting higher wages. California just increased it minimum wage for some workers. The only way the Fed can contain spiraling inflation is by raising rates so high that it forces a recession. My crystal ball says that higher interest rates are here to stay and they may go higher yet. For those too young to remember, welcome to the 1970s.
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Post by FD1000 on Sept 16, 2023 20:33:46 GMT
Mustang , good stuff 1) The Fed and the CME Fedtool ( www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html) are telling us that rates will stay at current levels (minus -0.25%) until July of 2024. 2) What I care about a lot more is what to do with my investments. Stocks have been "easy", AKA SP500. Bonds: so far were predictable. When rates go up usually bank loans shine, see FAFRX, EIFAX(my LT favorite in rising rates) while "safe" bonds lag badly. 3) We are still far from the 70s. Attachments:
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Post by newtecher on Sept 16, 2023 20:48:05 GMT
I really do not think so. If you listen to Powell, he is painfully aware of the 1970s history and would do anything to avoid a repeat. If there is any hint of core inflation accelerating again (none exist yet), the Fed is much more likely to cause a severe recession than go through another bout of high inflation. It is likely they already increased the rates high enough to cause a recession. I do not think there is evidence for wage inflation either. While the strike and wage demands are in the news, it is worth remembering that only 11% of the US workforce is unionized and that the wage increases are slowing right now. |
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Post by roi2020 on Sept 16, 2023 21:33:49 GMT
I doubt we'll experience 70s-style inflation.
However, inflation may remain higher and last longer than current expectations.
The 2008-2020 period of low inflation was an anomoly.
CPI-U (end-of-year) was greater than 2.0% only five times during this period (2011 was highest - 3.0%).
I purchased some TIPS in my bond sleeve as insurance against unexpected inflation.
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Post by retiredat48 on Sept 17, 2023 4:57:49 GMT
Some observations on why we are not in 1970's range yet...
--Treasury bonds got to yields above 15%.
--I was giving relatively very large pay raises to GE employees, some who exclaimed: "R48 this annual pay raise is more than my current annual total mortgage payment!"
--Homeowners did not have locked-in 3% home mortgage rates, like exists today.
--Since the USA is not a huge importer of oil/gas, like the 1970's, the price rise of same is like paying ourselves and oil companies for which many Americans own shares in same.
--Economic spirals, such as the wage/price spiral discussed above, have an academic element of belief, but in practice such spirals never go on forever...up or down.
--Penn State was a top four premier football program during that time period, once winning 33 games in a row.
The price increases of the 1970's eventually became embedded in stock prices...rising to fully maintain share ownership purchasing power. Investing 101...owning the means of production aka stocks...aka stock funds, is the way to cope with inflation...don't be talked out of this ownership.
Good day...
R48...go Nittany Lions
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mani
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Posts: 56
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Post by mani on Sept 17, 2023 15:52:32 GMT
Inflation has come down from last years high but two years of high inflation has decreased purchasing power. People are fully aware that their paycheck are not going as far. They are depleting savings, increasing the use of credit cards, defaulting on credit cards and when buying switching to less costly alternatives and shopping at less costly stores. With the exception of renters who got hit hard (some of them, mine got rent raises well below inflation and their own wage increases), I wonder how true this is? Just about everyone I know got wage increases matching or above inflation at just about every income range. SS adjustments were significant. Employees are in a very strong position. Owners with mortgages see rising salaries with fix house payments freeing tons of money. Maybe people need to start living within their mean and not try to keep up with the Joneses? Personnally a few more years of 4-5% inflation would suit me very very well! |
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Post by FD1000 on Sept 17, 2023 16:39:40 GMT
Inflation has come down from last years high but two years of high inflation has decreased purchasing power. People are fully aware that their paycheck are not going as far. They are depleting savings, increasing the use of credit cards, defaulting on credit cards and when buying switching to less costly alternatives and shopping at less costly stores. With the exception of renters who got hit hard (some of them, mine got rent raises well below inflation and their own wage increases), I wonder how true this is? Just about everyone I know got wage increases matching or above inflation at just about every income range. SS adjustments were significant. Employees are in a very strong position. Owners with mortgages see rising salaries with fix house payments freeing tons of money. Maybe people need to start living within their mean and not try to keep up with the Joneses? Personnally a few more years of 4-5% inflation would suit me very very well! The real income, after inflation, for the median household is lower by almost $4K since 2019. See fred.stlouisfed.org/series/MEHOINUSA672N. Attachments:
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Post by uncleharley on Sept 17, 2023 16:40:19 GMT
The rate of inflation is trending down. Let me know when the trend changes.
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mani
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Post by mani on Sept 18, 2023 0:49:24 GMT
Thank you for the data! I guess I must be blind to many sectors / geographical areas because around me wage raises have been nuts. New hires require LOTS more money than in 2019. |
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Post by roi2020 on Sept 18, 2023 1:13:50 GMT
Charlie Bilello uploaded his weekly video earlier today.
He discusses inflation during the first nine minutes of the video.
Video
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Post by mnfish on Sept 18, 2023 9:51:25 GMT
The rate of inflation is trending down. Let me know when the trend changes. Annual Inflation Rate Monthly Inflation Rate (not seasonally adjusted) (seasonally adjusted) June 2023 +3% May .10 July 2023 +3.2% June .20Aug 2023 +3.7% July .20 Aug .60Isn't that an uptrend? |
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Post by uncleharley on Sept 18, 2023 12:31:22 GMT
The rate of inflation is trending down. Let me know when the trend changes. Annual Inflation Rate Monthly Inflation Rate (not seasonally adjusted) (seasonally adjusted) June 2023 +3% May .10 July 2023 +3.2% June .20Aug 2023 +3.7% July .20 Aug .60Isn't that an uptrend? Yup. |
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Post by archer on Sept 18, 2023 16:01:51 GMT
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mani
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Post by mani on Sept 19, 2023 3:24:11 GMT
Sept 17, 2023 19:13:50 GMT -6 roi2020 said: Charlie Bilello uploaded his weekly video earlier today. He discusses inflation during the first nine minutes of the video. Video Great link! Watched all 40' and well worth it. Subscribed! |
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Post by mnfish on Sept 19, 2023 12:33:59 GMT
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