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10 June 2021

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Don Bessee

Here we go -

As the world economy awakens from the 15-month slumber caused by the pandemic, Deutsche Bank has launched a series of research articles to spark debate and discussion about pressing post-pandemic economic issues.

On June 7, Deutsche Bank issued its first report of the new series, titled “Inflation: The defining macro story of this decade.”

According to the report, “US macro policy and, indeed, the very role of government in the economy, is undergoing its biggest shift in direction in 40 years. In turn we are concerned that it will bring about uncomfortable levels of inflation.”

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That could be deemed an understatement considering that the U.S. economy is already experiencing “uncomfortable” inflation.

Consider: Based on the most recent inflation report from the U.S. Bureau of Labor Statistics, “In April, the Consumer Price Index for All Urban Consumers rose 0.8 percent on a seasonally adjusted basis; rising 4.2 percent over the last 12 months.”

An annual inflation rate of 4.2 percent is more than “uncomfortable.” But the looming threat of inflation seems to have fallen on deaf ears in Washington, D.C., over the past year, as Congress has supercharged spending to levels unseen since World War II.

https://thehill.com/opinion/finance/557743-deutsche-bank-issues-dire-economic-warning-for-america

https://www.msn.com/en-us/money/markets/prices-rose-5-percent-in-may-over-the-past-year-as-recovery-continues/ar-AAKUgFq

https://pittsburgh.cbslocal.com/2021/06/09/sticker-shock-at-the-grocery-store/

;-)

fish

Inflation huh......? Punch will need a Cello sized case for his change collection instead of the regular guitar sized case.

See people adjust.

scenes

So when do 30 year treasuries reflect any of this?

George Rebane

Scenes 1118am - Not sure what the "this" is that needs reflecting. If it's high inflation that is expected to last for the indefinite future, you'll read about Treasury interest rates going in banner headlines across the country. We can't afford to borrow all the cash we do at 'normal' interest rates. The Fed will then be running its presses day and night, no one else will want to be lenders.

Don Bessee

Thanks creepy grampa joe, for nothing! -

Consumers bear the costs

https://www.foxnews.com/politics/cartoons-slideshow

;-)

Scott O

Predicting the markets and forecasting the direction of the economy is always an exercise fraught with uncertainties. Who would have predicted the covid crises? There are always Black Swans popping up at the most inopportune time. Although for the CCP and the Dems it was actually a most fortunate 'crises' that they certainly did not let go to waste. The fed printing barrels of money and handing it out to literally hundreds of millions of people who are producing almost nothing of worth is an extremely inflationary act. Going forward, it looks like the spigot might just be opened wide combined with all sorts of new centrally planned multi-trillion dollar 'great leaps forward'.
I'll stick my neck out and predict the return of stagflation, although this isn't the 70's. China is now in position to aim towards becoming the provider of the world's stable currency.
I doubt we have the time to wander around in the finacial haze like we did in the 70's and expect a Reagan to appear to help bail us out.

George Rebane

Scott 749pm - Spot on, and today our electorate has spent the last 40 years collecting intellectual deficits.

scenes

"Scenes 1118am - Not sure what the "this" is that needs reflecting. "

It's just that I've seen 100 articles on high inflation as our new doom and no bond market collapse.

I've decided that in terms of investing, unless a prognosticator has some magic touch (like Buffet in terms of recognizing undervalued companies plus exerting active control when needed), any prediction I read is pretty much valueless.

scenes

To be fair, I'm not referring to your article, but to all the financial 'news' that exists out there.

You do have to wonder what would be the monkey business that erupted when/if the USD loses it's value as an international currency. I forget the name (XXX's Law) for the rise in value you get in a currency due to it's use as a common worldwide exchange of value.

scenes

On the third hand, you have to wonder if 'this time it's different', what with the potential in major changes in what an 'economy' even is due to information technology. The nature of investments has changed a lot between an agrarian culture to a fossil fuel based one and this promises to be another big set of changes. It's hard to get the flavor when you're living it though.

General AI isn't even necessary. Merely using AI to do things like develop chips gets you in that same place of design feedback resulting in creations not grokked by their human owners.

George Rebane

scenes 1116am - Yes, as you will note, I make no predictions about the onset, level, or duration of inflation. All I'm attempting is to educate the intelligent reader on the effective (and hidden) tax rates people will pay in an inflated economy in which they already pay at an explicit rate to the IRS.

From the response to this piece, I'm not sure whether it's over readers' heads or they just don't give a crap about their effective tax rates. My hope is that readers who do care will contact their Congress critters and at least let them know that they are aware of the taxes/tribute that is actually extracted from them.

scenes

The tax rate issue that bothers me the most is the objection to seemingly low long term capital gains rates. Obviously you need to tax gains on assets at a lesser rate since so large a part of the profit is due to price inflation. It's crazy to pay taxes on something you actually lose money on (which happens of course since there's no tax table that corrects for the year of the purchase...there probably should be).

It's the same kind of math that tells you that Bezos is worth, in concrete assets, the marginal price of the last share of Amazon sold x the shares he owns....or that if you split his net worth amongst the hoi polloi that it would make any difference.

Really it's all too much for my fuzzy brain. I always have trouble defining what money actually is or figuring out how it gets sopped up into financial markets and/or as an exchange mechanism in foreign countries.

Bill Tozer

The end of "the end of inflation"—The Grumpy Economist

“This spring's spurt of inflation clearly already means one thing: The end of "the end of inflation."

For 25 years inflation has seemed stuck on a downward trend. Those of us who worry about it seemed like end-of-the-world sign-holders that couldn't leave the 1970s behind. It's hard to buck the trend. A famous economist advised me to give up studying inflation -- inflation is 2%, he said, that's all you need to know. Apparently a new constant of nature.

Well, apparently not. Inflation can happen, and there is an economics of inflation. Right now it's pretty obvious -- supply constraints both natural and artificial, coupled with rampant demand.

Nobody is really sure where it will go. See the IGM survey for a good indication of how wide sensible consensus is on the issue. Maybe these are just temporary shocks, supply bottlenecks, a one-time price level rise from stimulus. Maybe it is the beginning of the 1970s, when exactly the same excuses were offered.

I'll summarize my bottom line in thinking about this issue.

1) The dynamics of inflation are roughly

inflation = expected inflation + inflation pressure (*)”

https://johnhcochrane.blogspot.com/2021/06/the-end-of-end-of-inflation.html


Scott O

BT 6:04 - Interesting thoughts from Cochrane. The comments bring up even more stuff to chew on. Love the guy that thinks inflation will reduce our effective fed debt. Ha!
The fed govt (and states and other munis) owe boatloads of money pegged to inflation. Defined benefit pensions and SS.
Not to mention what could happen to interest rates. Yes even in stagflation, interest rates could rise although govt bonds (in the past) have sold readily in those times due to lack of any return in the stock market. Of course a turgid stock market then heavily punishes the pension funds - so - round and round we go.
The Dems have no idea how to get a sound economy going with a high growth rate beyond printing money and handing it out.
This isn't the 1930's. And a world war won't do our economy any good this time.

Walt

What goes up with inflation? TAX revenue.
https://www.foxbusiness.com/economy/inflation-sending-cost-of-groceries-cosmetics-up

George Rebane

Walt 851am - Yes, this is one of those non-informative articles about the govt's tax take from inflation, it just cites consumer price increases. What your humble host has done in the above piece is to give you the tools to calculate the actual increased tax rates and the resulting govt take that result from their induced inflation. With that you can determine the resulting impact on your future buying power, which is where the rubber hits the road.

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