Have We Hit The Top?

[Blake Hampton]

Inflation itself is simple: it's an equation. It's when too many dollars are chasing too few goods. On one side, you have the supply of money, and on the other, goods and services.

 

Consider the Federal Reserve. They come into the inflation game by operating under a dual mandate:

• Promoting price stability
• Promoting maximum employment

There's always a tension between these two variables, because when you raise interest rates, you promote price stability but impede employment. Vice versa.

 

The equation of money to goods is the root of inflation, and the purpose of raising interest rates is to keep inflation from getting so out of hand that it becomes devastating. When you print a dollar, it has to lower the value of the other dollars in the system unless growth in goods and services can mitigate its creation. However, exactly when it ends up being reflected in the value of those other dollars is still in question.

[Castanza]

25 minutes ago, nsx5200 said:

Having infinite generation wealth transfer turns merit-based society into ovarian lottery based society.

Yeah and “merit-based” systems like you’re suggesting end in slavery, work camps and genocide. Not to mention they stifle innovation, motivation and happiness. Sorry, I’m not a governmental resource that exists to be tapped because you can’t run a balanced budget and reverse handout programs. The ones writing the laws are subject to the same odds as the ones they write the laws for. Equality can’t be legislated…

[Blake Hampton]

My above post excludes some important variables, such as the dollar being the reserve currency and how the Fed has bought assets to increase bank reserves. However, at its base, inflation is about the amount of money relative to goods, and the Fed's job is to respond to it.

[Blake Hampton]

4 minutes ago, Castanza said:

Yeah and “merit-based” systems like you’re suggesting end in slavery, work camps and genocide. Not to mention they stifle innovation, motivation and happiness. Sorry, I’m not a governmental resource that exists to be tapped because you can’t run a balanced budget and reverse handout programs. The ones writing the laws are subject to the same odds as the ones they write the laws for. Equality can’t be legislated…

 

"Democracy Capitalism is the worst form of government economic system, except for all those other forms that have been tried from time to time."

- Winston Churchill Me

[gfp]

Blake, you give the Federal Reserve too much credit for powers it doesn't have.  You should instead focus on money creation through Federal deficits and the creation of new bank money.  Also, money has to be circulating and not scared and stagnant or sequestered in order to really matter in your equation.  The other side of your equation is supply of goods and services, which were recently disrupted simultaneously with large fiscal stimulus.

 

The primary tools the Federal Reserve has are 1.) signaling (psychology, expectations, etc - this is why they are so obsessed with maintaining their "credibility") and 2.) indirectly influencing the demand for new loans, which create new bank money.  They also serve to backstop large systemic institutions from failing or dominos cascading but that isn't their primary role.

 

QE and QT are useless and the Fed is aware of it.  The Fed doesn't really play much of a role at all in creating new "money" except to the extent that they control the price of non termed out commercial loans and after 5 years or so that starts to really have an impact as refinancing comes along.  Usually long enough for another "crisis" to come along and rates to start marching down again.  We'll see if this time is different.  We are approaching another of these refinancing walls in 2025

 

 

 

[Castanza]

Besides…a higher estate tax doesn’t solve shit. It’s widely known 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. That money is entering the free market the proper way imo. I’d rather see someone piss it away in parties or foolish business ventures than have it go to the govt where immediately 50% is evaporated in bureaucracy…

[Blake Hampton]

8 minutes ago, gfp said:

Blake, you give the Federal Reserve too much credit for powers it doesn't have.  You should instead focus on money creation through Federal deficits and the creation of new bank money.  Also, money has to be circulating and not scared and stagnant or sequestered in order to really matter in your equation.  The other side of your equation is supply of goods and services, which were recently disrupted simultaneously with large fiscal stimulus.

 

The primary tools the Federal Reserve has are 1.) signaling (psychology, expectations, etc - this is why they are so obsessed with maintaining their "credibility") and 2.) indirectly influencing the demand for new loans, which create new bank money.  They also serve to backstop large systemic institutions from failing or dominos cascading but that isn't their primary role.

 

QE and QT are useless and the Fed is aware of it.  The Fed doesn't really play much of a role at all in creating new "money" except to the extent that they control the price of non termed out commercial loans and after 5 years or so that starts to really have an impact as refinancing comes along.  Usually long enough for another "crisis" to come along and rates to start marching down again.  We'll see if this time is different.  We are approaching another of these refinancing walls in 2025

I’m not saying that the Federal Reserve is some all-powerful entity. It’s like how Jerome Powell said it at the NYT DealBook Summit, “We’re a creature of congress.”

 

The FED doesn’t create the problems, they’re simply supposed to respond to them. Whether they can do so adequately in the future, I’m not sure whether anyone knows.

 

Here’s that interview with Powell for anyone interested, I thought it was pretty good. I also really like Andrew Ross Sorkin.

 

 

[Jaygo]

19 minutes ago, Castanza said:

Besides…a higher estate tax doesn’t solve shit. It’s widely known 70% of wealthy families will lose their wealth by the second generation and 90% will lose it by the third. That money is entering the free market the proper way imo. I’d rather see someone piss it away in parties or foolish business ventures than have it go to the govt where immediately 50% is evaporated in bureaucracy

Thank you for saying this. Wealth and inheritance taxes are theft. I simply cannot understand how anyone can think it is not. It is not effect economically and more importantly it is morally corrupt.

[73 Reds]

1 hour ago, nsx5200 said:

There are two(probably more) forces to the value of currency, and you're focused on just one.  The ones that I can think of, inflation and productivity gain play significant roles.

 

Things that improves with productivity does come down over time.  I remember when the availability of sub $1000 computer was a big deal.  Productivity gain and the availability of new manufacturing capabilities from China influence the price of many thing when China started coming on-line to the global market 10-20 years ago.  Now that we're starting to decouple from that manufacturing  machine, as well as China plateauing on their productivity, price of things are getting influenced by inflation more now.  This is probably the dominate factor causes the perception that inflation is rising so much faster than the past decade or so.

 

I saw his YT videos, and his theory makes a lot of sense.  I don't see a solution that would fix the system.  There's not enough political will power to implement what he's proposing: tax the rich, and tax wealth, not income.  The best that we can muster is to at least lessen generational wealth transfer by closing the estate tax loopholes so there can be no infinite generation wealth transfer.  Having infinite generation wealth transfer turns merit-based society into ovarian lottery based society.

I respectfully disagree.  We already tax large generational wealth transfers well beyond any reasonable proportionality.  Just check the lowest estate tax rates.  Why would we choose to punish those who have generated/created/earned the most wealth, who have also paid (by far) the most taxes during their lifetimes and who also disproportionately support charities and other public interest causes?  What is the ultimate goal?  Simply raising more revenues is a weak argument in light of the relatively tiny revenues raised from gift and estate taxes.  If the goal is to encourage more consumption, statistics reflect that fortunes are often completely spent by the 2nd and 3rd generations so that too doesn't support higher taxes on wealth transfer.  The flip side is if folks know that they can't build a legacy that can be passed down as they wish, how many legacies will ever get built?

Edited 4 hours ago by 73 Reds
word

[nsx5200]

27 minutes ago, Castanza said:

Equality can’t be legislated…

Agreed that the DEI policies are wonky and anti-merit based.  When you have colored people pushing out better-performing Asians in the name of DEI, the system is broken.  Never mind all holes about unequal starting point when you see many of the first or second generation Asians climbing to the top of the economic ladders when the blacks are still complaining about slavery that are 4-5+ generations ago.

 

I'll disagree with your thinking about multi-generation wealth.  It's also not right that generation wealth can be passed down, even if their future generation have not earned it.  Born Rich is a interesting documentary that exemplifies that.  Just because most recent rich blows it in a few generation doesn't mean in the long-run, it's a good policy for society.

[Malmqky]

Wealth taxes are just stupid. Anyone with a brain that understands risk gets this. On the other side, say you support it. If Berkshire stock drops 50% tomorrow, it’s probably not worth 50% less. Yet, WB would pay significantly less in wealth tax. So how does that even make sense?

 

Nothing about a wealth tax is a good idea unless you want capital leaving the country.

Edited 4 hours ago by Malmqky

[Castanza]

3 minutes ago, nsx5200 said:

It's also not right that generation wealth can be passed down, even if their future generation have not earned it.

Says who and on what basis? Society and government exist to back the rights in the individual….you’ve got it backwards. 
 

Here is a book for you to introduce you to the topic: 

 

The Quest for Cosmic Justice - Thomas Sowell 

[Jaygo]

 

 

11 minutes ago, nsx5200 said:

I'll disagree with your thinking about multi-generation wealth.  It's also not right that generation wealth can be passed down, even if their future generation have not earned it.  Born Rich is a interesting documentary that exemplifies that.  Just because most recent rich blows it in a few generation doesn't mean in the long-run, it's a good policy for society.

 

Every human should be subject to the same rights. What you say is otherwise. If i can be robbed for my wealth, should I be allowed to rob a poor peasant without retribution?

 

Nobody is equal, some are brilliant, some are fast, some are beautiful, some are tall, some are dumb. The only thing that matters is equality of rights and freedoms. Fix that and even the short, fat, ugly poor people will end up living better quality of lives over time.

 

 

[Gregmal]

The Fed using the “these are the tools we have” and “the textbook says ….” is like a landscaper trying to build a house with a weedwhacker because “it’s the only tool they have”. Why not just use common sense and say efforts are better off spent doing pretty much anything else?

 

Theres currently no signs of inflation and there hasn’t been for years. It’s been a straight line down with a few minor gyrations that have bizarrely caused screaming fits. All that’s keeping us from deflation is housing and things inflated BY HIGH RATES! And yet, now these clowns are literally making up future inflation, as evidenced by their “we think Trump policies may cause inflation” as their excuses for keeping things where they are. It’s basically comedy for the ruling class and tragedy for the rest. 
 

 

[gfp]

I'm not going to stop freaking out until Jay Powell gets this under control

[Malmqky]

Here in the Midwest I can buy eggs for $1.99 per dozen from the store.

 

Not to mention all the folks that actually have chickens around me that will sell me their top-tier eggs for like $5 a dozen or barter them.

 

Just bragging back on topic.

Edited 4 hours ago by Malmqky

[Blake Hampton]

7 minutes ago, Gregmal said:

The Fed using the “these are the tools we have” and “the textbook says ….” is like a landscaper trying to build a house with a weedwhacker because “it’s the only tool they have”. Why not just use common sense and say efforts are better off spent doing pretty much anything else?

 

Theres currently no signs of inflation and there hasn’t been for years. It’s been a straight line down with a few minor gyrations that have bizarrely caused screaming fits. All that’s keeping us from deflation is housing and things inflated BY HIGH RATES! And yet, now these clowns are literally making up future inflation, as evidenced by their “we think Trump policies may cause inflation” as their excuses for keeping things where they are. It’s basically comedy for the ruling class and tragedy for the rest.

 

 

[Blake Hampton]

Since 2007, just currency in circulation has expanded nearly threefold.

 

All of the Fed's liabilities are essentially "money," even if they are in the form of bank reserves. This is on top of an unsustainable fiscal situation where the government is creating new assets every day that must find buyers. When they don’t, they have to be monetized, further increasing this "money." The latter already occurred once in 2020 when Treasury markets failed, and the Fed had to step in to provide liquidity.

 

Edited 4 hours ago by Blake Hampton

[gfp]

2 minutes ago, Blake Hampton said:

Since 2007, just currency in circulation has expanded nearly 3x.

All of the FED's liabilities are essentially "money," even if they're in the form of bank reserves. This is on top of unsustainable fiscal situation where the government is creating new assets everyday that have to find buyers, and when they don't, have to be monetized, further increasing the money supply. The latter already happened once in 2020 when treasury markets failed and the FED had to step in to provide liquidity.

 

You aren't really listening.  It's not the Federal Reserve you should be focusing on - it is the US government.  They are not the same thing.  Excess bank reserves are not a useful or circulating form of "money" in the real economy.  They are trading tokens between large banks, each other, and the Fed.  Bank lending to the real economy is not being restricted by the level of bank reserves in the system.  Bank reserves got so high because they were swapped for other federal liabilities - treasury securities, agency securities, etc - useful liabilities that do circulate and have great utility in the real economy.  If the Fed swaps one federal liability for another it doesn't create new money.  Fiscal deficits create new "money" and private bank lending growth creates new "money." 

[nsx5200]

36 minutes ago, Castanza said:

Says who and on what basis? Society and government exist to back the rights in the individual….you’ve got it backwards. 
 

Here is a book for you to introduce you to the topic: 

 

The Quest for Cosmic Justice - Thomas Sowell 

Thanks for that book recommendation.  I'll have to add that to my queue.

 

It's not a popular opinion to have, but it's from a view point of "how do we create the incentive in society such that everybody, regardless of their natural ability, is able and encouraged to grow and contribute to that society in the end goal of advancing human kind?"

 

It would be a real shame to have an Einstein-caliber offspring born in a multi-generation wealth family in a system that actively shields that offspring from having to contribute to society.

[Castanza]

20 minutes ago, nsx5200 said:

"how do we create the incentive in society such that everybody, regardless of their natural ability, is able and encouraged to grow and contribute to that society in the end goal of advancing human kind?"

 

Nature takes care of this naturally. I think intellectuals spend way to much time thinking about things like this. At the end of the day you have type A people and type B people. 

 

 

 

[Vish_ram]

@gfp

@Blake Hampton 

you guys are talking past each other. Both govt and fed are part of the problem. Yes, Fed reserves doesn't cause inflation and goes into Banks balance sheet. But the action of Fed buying Govt debt (instead of people buying with their savings) allows deficit to balloon as big as it has gotten. 

 

When Fed does the open market ops and buys all debt securities and sets rates directly or indirectly, they create an environment that makes it easy for Govt to borrow, and hence increase the deficit.

 

Fed sprinkles gasoline everywhere and Govt (Treasury) lights up everything. You need both their actions to cause fire and you cannot just blame treasury for torching. 

[gfp]

41 minutes ago, Vish_ram said:

@gfp

@Blake Hampton 

you guys are talking past each other. Both govt and fed are part of the problem. Yes, Fed reserves doesn't cause inflation and goes into Banks balance sheet. But the action of Fed buying Govt debt (instead of people buying with their savings) allows deficit to balloon as big as it has gotten. 

 

When Fed does the open market ops and buys all debt securities and sets rates directly or indirectly, they create an environment that makes it easy for Govt to borrow, and hence increase the deficit.

 

Fed sprinkles gasoline everywhere and Govt (Treasury) lights up everything. You need both their actions to cause fire and you cannot just blame treasury for torching. 

 

This is incorrect on almost all points