on CPI Inflation: White House Official telling me they expect headline inflation will be elevated because gas prices were 8.5% were greater in April than May. The White House Official says that will seep into CORE inflation through airline tickets because of the price of jet fuel
on recessions: White House Official tells me the gains in the labor market & demand for goods don’t indicate we are in a recession. They said it is “very unlikely”. Official says the administration is in a “good spot to transition” the economy to stable growth
The dockworkers’ union, which gave in to some automation in highly contentious talks in years past, wants to draw a line against any further use of automated cranes, self-driving vehicles and other equipment they fear could replace some of the best-paying union jobs in the nation.
In principle, West Coast dockworkers agreed to automation in contract negotiations in 2008 and in 2014. In practice, union leaders have resisted cargo-handlers’ efforts to automate. So far, just two of the 13 container terminals at the neighboring Los Angeles and Long Beach ports have been fully or partially automated.
Importers fear that if both sides dig in, the ports could see a repeat of the work slowdowns and other actions taken during highly combative negotiations as a contract expired in 2014. An agreement was finally reached the following year, after big backups in shipping that buffeted the U.S. economy.
So much to think about there, xerty. This inflation is FAR AND AWAY my largest expense item. Nothing else even comes close. My nestegg is melting like an ice cream cone, out in the sun, on a brutally hot July afternoon. Thank God I am older. I don’t know how younger folks are going to be able to navigate this, and that includes even “younger” people who might be in their 60’s!
To make matters worse, the DJIA is down over 2% just today and down over 13% since beginning of 2022.
ETA
Explanatory note:
Decades ago when I retired at a fairly young age I realized I would need to take inflation into account in order to survive the decades ahead. I wrote a computer program which enabled me to project, even into the distant future, a variety of financial outcomes within the context of various scenarios. In that program, right or wrong, I accounted for inflation as an expense . . . . like any other.
My program was written in BASIC and ran on my Commodore 64 computer, the only one I had that far back. As the years went by I would compare my actual financial condition with the projections that program had offered me earlier. The outcomes were satisfactory and gave me some confidence I was not running off the rails.
With inflation like we’re experiencing now I would be frightened to run that program today, were I still young. Lucky for me I’m not.
I agree that we’ve never seen anything like this. But that’s the extent to which Biden’s comments match reality. This inflation is entirely self-inflicted.
I don’t want to say President Joseph Robinette Biden has dementia, as it may just be a long-term memory issue. Since he was a Senator from 1973 onward, he must be familiar with Tricky Dick’s taxes, and Peanut Head’s taxes, malaise, and creation of the first ever misery index.
“Don’t worry” quickly followed by “it’s not my fault”.
On a more quantitative front, here’s a chart of the inflation CPI expectations from each point in time. Each time everyone thought it was going lower, but now it looks like the peak is still ahead of us.
Basically the gray lines break off the white (actual CPI) line to reflect the market priced expected future CPI at the time of the break off from the white line.
The inflation situation right now is not good. In order to bring it to heel, the Fed will have to kick the crap out of the stock market by raising interest rates significantly.
I’m curious as heck to learn whether or not Powell has the cajones to do that.
Moreover:
For Powell, timing is everything. We saw that earlier this year when he hesitated to act forcefully until after his second term as Fed chief was confirmed by the Senate.
Now it’s the election pulling Powell’s strings. The Fed traditionally prefers not to involve itself in elections. The November election is less than five month’s time hence. Next week’s FOMC meeting is probably their last before election tampering becomes a sobering consideration for Powell.
The Fed’s pre-election situation will become interesting. There is never a dull moment in this life.
Many progressives embraced a fringe concept called Modern Monetary Theory (MMT), which argued that simply printing trillions of dollars could magically finance the progressive wish list without inflation. Right on cue, progressive analysts developed proposals to borrow tens of trillions of dollars to spend on Universal Basic Income, the Green New Deal, a government-funded job guarantee, single-payer health care, and free public college.
The “free-lunch” experiment has collapsed. Inflation has jumped past 8 percent for the first time in 40 years—reaching 8.6 percent in May—interest rates are rising every month, real wages are falling, and economic growth is dipping. Budget deficits are now projected to soar past $2 trillion within a decade, even assuming peace, prosperity, and the scheduled expiration of most of the 2017 tax cuts. This is not a coincidence. Economists such as Lawrence Summers warned that the ARP would worsen inflation, and research from the San Francisco Fed has confirmed it. America’s inflation rate has thus exceeded those of European countries with smaller fiscal responses.
This economic failure has brought political disaster for the Democrats. President Biden’s approval rating has crashed into the 30s, and Republicans are poised to capture control of the House and possibly the Senate in November. Perhaps even more importantly, BBB appears dead in its current form, and voters will likely continue to associate trillion-dollar spending bills with inflation and economic chaos.
I’m always up for a bit of well deserved Biden bashing. But not this time.
Too many Americans, and in particular those who did not have all that much to start off with, are hurting really badly with this inflation. My concerns are two in particular:
First, I do not enjoy a situation where other people are struggling. I want people to have a chance regardless their financial starting point.
Second, selfishly, I have noted over the years that I do better when other Americans have a chance to improve their lives and are not under financial duress, as is the case currently with this inflation. Food and energy prices alone today are enough to deflate the dreams of many. And I see no real relief in sight until early 2025. That is too long for many Americans to wait.
The sainted Milton Friedman said that inflation is always and everywhere a monetary phenomenon. Yes, drops in the stock market do reduce stock holders’ ability to spend but that is not nearly enough. there are huge overhangs from the national debt and the Fed $10 trillion balance sheet of treasury and mortgage backed securities. The treasury has to create money to pay interest on the national debt and to rollover securities as they mature. The Fed has to unwind their balance sheet somehow and that will involve creating money.
The only way to fight inflation is for the Biden administration and Congress to raise taxes and cut federal spending. Fat chance. they would prefer to let inflation allow them to pay off their debt with reduced value money. The people of United States will pay the price anyway but this way they can avoid the blame.
I’m not an expert on this, but I think the treasury can print to pay interest but when they roll over the maturing debt, they’re selling new treasuries to replace the maturing ones, either to bond investors or to the Fed I guess. If they didn’t want to roll over the debt, maybe they could just print money to pay off that bond, but then it wouldn’t be “rolled over”.
The Fed has to unwind their balance sheet somehow and that will involve creating money.
I think that actually results in destroying money, and QT is often likened to a rate hike in terms of tightening effects on the market and money supply. If the Fed starts letting their treasury holdings mature, that means they end up with cash and the treasury has to find a new replacement buyer if they roll over that debt. I’m not sure what happens to the cash at the Fed. I guess they can create or destroy cash and maybe by recollecting the cash they created during covid they’re reducing the money supply rather than increasing it.
I was wrong about Quantitative tightening. here’s what Wikipedia says about it.
Quantitative easing was massively applied by leading central banks to counter the Great Recession that started in 2008.[3] The prime rates were decreased to zero; some rates later went into the negative territory. For example, to fight with ultra-low inflation or deflationcaused by the economic crisis, the European Central Bank, overseeing monetary policy for countries that use the euro, introduced negative rates in 2014. The central banks of Japan, Denmark, Sweden, and Switzerland also set negative rates.[4]
The main goal of QT is to normalize (i.e. raise) interest rates in order to avoid increasing inflation, by increasing the cost of accessing money and reducing demand for goods and services in the economy. Like QE before it,[ needs update ] QT has never been done before on a massive scale, and its consequences have yet to materialize and be studied.[5] In 2018, the Federal Reserve began retiring some of the debt on their balance sheet, beginning quantitative tightening. In 2019, less than a year after initiating QT, central banks, including the Federal Reserve, ended quantitative tightening due to negative market conditions occurring soon after.[6]
edit. As a point of reference, the total market capitalization of United States stock market is $48 trillion.
Problem is, a good chunk of the inflation we are seeing now is due to basic supply/demand economics. Everyone continues to use the same amount of [for example] oil, but we’ve removed 10% of the supply from the equation by cutting off Russia. Interest rates won’t fix that situation, and will only prove counterproductive once that situation stabilizes.
While inflation is a severe problem right now, we are walking a very fine line between fixing it and compounding the damage.
Right. They created money when buying the debt with previously nonexistent cash. Unloading the debt brings in cash to negate the faux cash used to buy it, thus “destroying” what had previously been created. I’m pretty sure the whole concept of printing money essentially equates to having a Line of Credit with no limit and no counterparty actually lending the money.
