Generational Dynamics Forum - New Site

richard5za wrote: Mon Jul 04, 2022 4:48 am Vince,
Do you have an indication for June inflation?

Last month was 8.6% and Cleveland Fed is estimating up a little to 8.67%.
They have been low most of the time this last year.

The way to encourage inflation is to have interest rates below the inflation rate. We have that. So really inflation
should be going up.

I think in general people don't understand that the velocity of money depends on the inflation rate and the interest rate.
As those go up, the velocity of money goes up. Then inflation depends on the velocity of money. So "putting the genie
back in the bottle" is much harder than people think. By the end of the 1970s people started to understand how hard it
was but very few people today really appreciate how hard it is.

So I think it will be more than 8.6% of last month. I think this will surprise people.
Cleveland Fed is estimating that next month will go down to 8.44% but if July 13th info is higher (as I expect) they
will increase the next month estimate that same day.

https://www.clevelandfed.org/our-resear ... sting.aspx

John wrote: Mon Dec 13, 2021 12:56 am ** 12-Dec-2021 World View: CPI downward pressures

vincecate wrote: Sun Dec 12, 2021 10:56 am > John, or anyone else, there seems to be some belief that
> "inflation is peaking about now". If you think that, how many
> more months of CPI going up 0.5% or more per month would shake
> your belief?

I was surprised that it increased by 0.7% in November, and I would be
even more surprised if it continues to increase at that rate in
December.

As I've written in the past, I expect the cpi to hold steady or start
falling in the new year, as supply chain problems clear up,
holiday-based demand decreases, and post-holiday sales bring retail
prices down. That would mean that the answer to your question would
be the January cpi to be announced in February.

Thanks. My belief is that since the inflation rate is now further above the interest rate than it was, that the monthly increase in inflation will be even larger.
So if we have averaged something like 0.5% per month the last few months that the next two months will be even more (assuming Fed Funds is still 0% to 0.3%). This is the "runaway inflation" or "genie out of the bottle" type problem.
I believe we will be over 8% by the time the CPI is released in Feb.
Let the experiment begin.

vincecate wrote: Wed Oct 20, 2021 4:43 pm

Higgenbotham wrote: Wed Oct 20, 2021 3:01 pm One final note. I don't feel inflation today at 5% is low. Inflation at 5% or even 2% during a time during the generational cycle that should have been outright deflationary is very high. But as I said above 9 years ago, I don't believe that a chronic absence of naturally occurring deflation due to money "printing" by the Fed will lead to "high inflation" like that seen in the 1970s. It will lead to a collapse before the high inflation is seen because too much of the cost increase is being put on the backs of producers or, as I used to say, the cost structure in the US is too high.

I think all sorts of things will just not be available, but the important things that people keep buying, food and energy, will have high inflation.
As a larger fraction of the average consumer's budget is taken up by food, energy, housing, the empty shelves for the other things won't matter so much to them.

There was so much money printed and the velocity of money got so low, that some modest inflation will cause a big change in the velocity of money, and result in more inflation. I really think it is a "genie out of the bottle" situation. But coming months data will tell the tale.

I believe there will be a period before the financial crisis and a period after that is radically different. If that's true, the question is how much inflation can be pushed before things break. Your guess is probably as good as mine, but my guess is not much more because we have high inflation right now even at 5% relative to my guess as to where it should optimally be.

Regarding food, as far as the radically different after the financial crisis, I thought I had documented it here, but about 7 years ago I had a long conversation with a woman who worked in the big box grocery business for 21 years, most of it in management. I asked her if there is another financial crisis, presumably worse and she agreed the next one will be worse, would the big box grocery business survive. Without batting an eye, she said no and gave me all her reasons which I have unfortunately forgotten. I said something to the effect of, well, I can see you've already thought this through and then asked her if the big box grocery chains go out of business whether a manager like herself would take over an individual store and own it and run it. She said her dream had always been to own a store but that under today's conditions it would be too difficult for a sole proprietor to make it in the business. As a side note, many small cities in Kansas now have city owned grocery stores because the retiring owners can't find buyers and the residents have to decide whether to subsidize a city owned grocery business or go without a grocery store (other than a Dollar General). The difficulties she and others cite (for sole proprietors) are costs and regulations. Much of that will go away because it will have to but there will be some pain as the system lurches down to what some would call a lower level of complexity. My best guess is that while the 1970s had high food inflation, no or few food shortages in the US and no radical system changes, the period after the financial crisis will mainly be characterized by prices all over the map, shortages and radical system changes. I can imagine Washington apples, for example, being very cheap or even free in Washington and nonexistent in Texas.

Higgenbotham wrote: Wed Oct 20, 2021 3:01 pm One final note. I don't feel inflation today at 5% is low. Inflation at 5% or even 2% during a time during the generational cycle that should have been outright deflationary is very high. But as I said above 9 years ago, I don't believe that a chronic absence of naturally occurring deflation due to money "printing" by the Fed will lead to "high inflation" like that seen in the 1970s. It will lead to a collapse before the high inflation is seen because too much of the cost increase is being put on the backs of producers or, as I used to say, the cost structure in the US is too high.

I think all sorts of things will just not be available, but the important things that people keep buying, food and energy, will have high inflation.
As a larger fraction of the average consumer's budget is taken up by food, energy, housing, the empty shelves for the other things won't matter so much to them.

There was so much money printed and the velocity of money got so low, that some modest inflation will cause a big change in the velocity of money, and result in more inflation. I really think it is a "genie out of the bottle" situation. But coming months data will tell the tale.

John wrote: Fri Oct 08, 2021 11:29 am The biggest mistake that these "experts" make is not
to understand that just because supply prices increase once, they
won't cause inflation until those supply prices continue to increase
at the same rate.

If it goes up and then stops going up, all is well, maybe. But maybe not. Container shipping costs from China to USA have gone up around a factor of 5. If they were to just stay at this level you could say "it was a one time change and not really inflation". But maybe it will result in all sorts of other costs going up, which may look a lot more like "real inflation" and might even eventually go back and cause fuel/wages/ship costs to go up and so cause shipping prices to go up more. Economies are very complex, in a Chaos theory kind of way. The money printing has "long and variable delays" before impacting prices. Anyway, this is the real question, is inflation "transitory" or has the "genie gotten out of the bottle" and we will have hell to get it back in. So far the market still has lowest bond interest rates in recorded human history, which makes it seem like the market is not worried about inflation, yet. I think the coming CPI reports will push people away from the transitory belief. Time will tell.

You can do the same thing with oil. Oil is much more expensive now. Maybe this is a one time change, but maybe energy costs increase costs all around the economy, so prices in general will have to go up. Many people explain the inflation in the 1970s just using "oil shocks".

Or with coal in China. With coal much more expensive, they have to increase electricity prices, or ration it. Either way the cost of produced goods is going to go up. Can spread from there.

Shortages, supply chain problems, and gas lines are things that happen when there is real inflation.
Each shortage really means supply and demand do not meet, which means price should be higher.
But at the start people are not used to adjusting prices so much. They will get used to increasing their
prices, then it becomes harder to stop inflation.

vincecate wrote: Mon Jul 19, 2021 10:25 pm

Cool Breeze wrote: Mon Jul 19, 2021 7:22 pm As I've predicted, inflation will give way to deflation (that is what breaks it).

When interest rates and inflation rates were going down to near zero they could make more and more money without causing inflation because the velocity of money goes down when interest rates and inflation rates go down. But now that inflation is picking up, the velocity of money is picking up. There is so much money, and people will be getting out of bonds causing more Fed printing/buying, so this an unstoppable positive feedback loop. It won't break. The genie is out of the bottle. Even modest attempts at raising interest rates would not stop this. Modest interest rate increases will increase the velocity of money more. They would need like 8+% interest rate and that would kill the economy and the government, so they won't do that. So the dollar will die and the world gets a generational crisis.

I'm not as bold and concrete in my prediction but yes, we have agreed generally that like Admiral Ackbar said, "It's a trap!"

Cool Breeze wrote: Mon Jul 19, 2021 7:22 pm As I've predicted, inflation will give way to deflation (that is what breaks it).

When interest rates and inflation rates were going down to near zero they could make more and more money without causing inflation because the velocity of money goes down when interest rates and inflation rates go down. But now that inflation is picking up, the velocity of money is picking up. There is so much money, and people will be getting out of bonds causing more Fed printing/buying, so this an unstoppable positive feedback loop. It won't break. The genie is out of the bottle. Even modest attempts at raising interest rates would not stop this. Modest interest rate increases will increase the velocity of money more. They would need like 8+% interest rate and that would kill the economy and the government, so they won't do that. So the dollar will die and the world gets a generational crisis.

You are right, you never get the genie back in the bottle, and "disinflation" is the tricky way to act like "deflation" is happening, when addressing the public or trying to sound smart with your language.

As I have stated multiple times, which makes us all correct but the deflation people less so since they are way off on the nuance of this, INFLATION runs until confidence breaks and then the deflationary event happens. I don't know why this is so hard for smart people to understand here.

In the face of improving technology and efficiency for decades, we still have had inflation (Tom always points this out). I stress the fact that deflation would be good for workers and savers, but it's not for the government, so we get lies, as usual.

Observe reality = data
USD 1970 to now: 462%
USD 1980 to now: 227%
USD 1990 to now: 106%
USD 2000 to now: 56%
USD 2010 to now: 27%

vincecate wrote: Sun May 16, 2021 2:09 pm

Higgenbotham wrote: Sun May 16, 2021 1:49 pm

vincecate wrote: Sun May 16, 2021 8:19 am I think the genie is getting out of the bottle this year. Time will tell.

https://youtu.be/mcC1SB2tXmY?t=472

That is a good video. The "owners equivalent rent" is up 2% while median home price is up 17%. If you replaced OER with home prices the inflation rate would have been 8%!!! Wow. A big part of where the OER number comes from is asking home owners what they think their house could rent for, but they are not renters and are not up to date with rental rates. These home owners don't know current rent rates. So the data is collecting made up numbers and not measurements of reality. The CPI is a lie.

Most interesting to me was Gundlach's comment that he has a good model that predicted CPI would be over 3.5% a month or two from now and it actually came in at 4.2% this month. He then went on to say that his model would therefore forecast CPI to be higher than 4.2% next month and the month after that. This might imply that my estimate for how much total credit market debt would need to increase to get 5% inflation is too high.

Going back to the article I posted awhile back from April 14, 2000 that stated the reason for the 25% drop in the Nasdaq that week (about a month after the all time high at that time) was inflation fears, there may be a repeat of that next month because it seems everyone is underestimating inflation and, according to Gundlach's model, that is likely to continue for at least a couple more months.

Higgenbotham wrote: Sun May 16, 2021 1:49 pm

vincecate wrote: Sun May 16, 2021 8:19 am I think the genie is getting out of the bottle this year. Time will tell.

https://youtu.be/mcC1SB2tXmY?t=472

That is a good video. The "owners equivalent rent" is up 2% while median home price is up 17%. If you replaced OER with home prices the inflation rate would have been 8%!!! Wow. A big part of where the OER number comes from is asking home owners what they think their house could rent for, but they are not renters and are not up to date with rental rates. These home owners don't know current rent rates. So the data is collecting made up numbers and not measurements of reality. The CPI is a lie.