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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.

Paul Emery

Yeah George inflation after a recession is the way it always goes. We can thank Trump for the massive recession he left Biden to deal with. Thank goodness we have a strong team at the white House now that will turn things around but it will take time. Look how long it took after the Depression or how long it took for Obama after the the great recession Bush left.

fish

Posted by: Paul Emery | 13 June 2021 at 01:01 PM


Punch LARPing as economist again. Big fun!


There is much more but that is all for now.

Paul Emery

Here's a quote from Trump March 11 2020 that shows how lost he was in dealing with the Pandemic and therefor the economy and recession that resulted:

“This is not a financial crisis, this is just a temporary moment of time that we will overcome together as a nation and as a world.”

Read more here: https://www.sacbee.com/news/politics-government/election/presidential-election/article245050265.html#storylink=cpy

fish

Posted by: Paul Emery | 13 June 2021 at 01:50 PM


There is much more but that is all for now.

scenes

“This is not a financial crisis, this is just a temporary moment of time that we will overcome together as a nation and as a world.”

Huh. That actually sounds like the truth. It's not really a structural problem or a war. Dunno what the outrage is.

Fish, don't sweat Paul, although he probably needs to get back to the Sandbox (which he owns, not George). A quick bit of research shows the same per capita GDP hit on all of the Western nations.

Heck, we all have the same problems. Mass immigration, a tendency to push useful work overseas (except perhaps for the Germans), too many people doing un-useful things for a living (like being a bar musician or running a 'business' nonprofit). An unserious people doing unserious things.

fish

Posted by: scenes | 13 June 2021 at 02:04 PM

Fish, don't sweat Paul, although he probably needs to get back to the Sandbox (which he owns, not George). A quick bit of research shows the same per capita GDP hit on all of the Western nations.


Oh I don't.....in fact he gives me great joy.....I do worry about him and his fellow progressive geriatrics out puttering around in your neck of the woods though. I don't think that the Punchy's, dugsKKKi's (wonder where he and his furiously waving T-Rex arms have toddled off to), and Roberta's should be out without dedicated professional minders.

And I don't really care if it's Trump, Biden or whomever in the White House I'm pretty sure the course for the country was irrevocably set during Bush II.

But I am digging on the utterly focused obsession that Punch devotes to a guy who is likely done with public life. I'm guessing that he needs to continue reliving the experience.....skipped out on Viet Nam....saw hostile fire during the Trump years. Never felt so alive.


There is much more but that is all for now.


(and I will forever be grateful for this most recent Yodaesque sign off! Bless you Punch!)

scenes

"But I am digging on the utterly focused obsession that Punch devotes to a guy who is likely done with public life."

Well, it's ever so much easier to be *against* something than *for*.

You have to wonder how it feels to be on the outskirts of the economy, but the Pauls of the world will give you what-fer in any case.

Back to the original post, and the additive effects of taxes and inflation, I was thinking about how one thing that adds to the beauty of the situation is increasingly arcane tax law and more widespread taxes. You not only get more carve-outs (never less) and moneys paid at more and more levels (gasoline tax being an example). View it as regulation inflation. A natural side effect of all of the tribes fighting over the filthy lucre, be they teachers unions, diversity hires, or funding for the county anti-cigarette czar. Your total tax bill is never really obvious.

No doubt Pharaoh's Egypt had the same problem. The priests get a bit too greedy, the whole she-bang blows up, a new lineage of rulers begin.

scenes

..as an aside, and probably can be viewed as a risk to investments, at some point we'll see a genuine effort by the government to seize some part of retirement accounts. Seriously, there's just too much money there. The country is filled with folks with no savings and run by folks who don't care about tax-deferred savings.

You can argue that that is the real target of fiat-driven inflation.

There is much more but that is all for now.

Bill Tozer

Scenes @ 2:04 pm

“Fish, don't sweat Paul, although he probably needs to get back to the Sandbox (which he owns, not George). A quick bit of research shows the same per capita GDP hit on all of the Western nations.”

“This is not a financial crisis, this is just a temporary moment of time that we will overcome together as a nation and as a world.” —Trump

Yes, it does sound like the truth to me, also:

I, for one, cannot point to Trump ever cancelling KVMR’s biggest fundraiser of the year, one White Priviledge Celebration Celtic Festival. Nope, Trump had nothing to do with that. Blame our Looney Governor. Trump never shut down on business in the entire USA, one factory, one concert, one performance, one government office or private office. Trump never shut down or shut up one professional entertainer or one News Director. Nope, nope, and nope.

Trump let’s the states decide. Massachusetts was/is the worse economic performer during COVID, along with Jersey and the usual Blue states run by Democrats. They shut Punchy down. States rights and all that. 50 experiments of Federalism. Just as the founders laid out in the US Constitution. Even Biden said that national mandates would not pass constitutional muster. Congress needs to pass a mandate bill or let the states decide. Gavin choose to follow the Mad Scientists, not the science. The Blue governors decided to follow science fiction, not the science. And all of them got in cahoots with the media and big tech to keep the crisis going until after the election. Even Pfizer held back the news they were ready with the vax in October, 2020...until AFTER the election. Lock everybody down, shut it all down until AFTER the election... except, of course, the Greater Good of mostly peaceful demonstrations of criminal mobs looting and rioting and burning places up. Those non-social distancing ‘packed in like sardines’ protests were ok, lol.

Me thinks Paul emery has some misguided ideas of what the Resistance did to our economy. Oh, he knows, he knows all to well. The Lefties were gleefully hoping for a recession.

Hmmmm. The red states are the ones doing the best (economically ) after and during the Shut Downs and all, with several (5 plus) actually increasing their GDP during the ‘follow the science’ drumbeat and have the lowest unemployment figures. Texas’s manufacturing base increased 20% during the pandemic, for example. And enough Californians fled the Democrat single party state shitholes to take 8 billion with them.

Now Biden has inherited an economy with higher unemployment and 9 and a shortage of 9 million workers. Employers are desperate for employees who can fog a mirror and the economic engines would be running on all cylinders with additional shifts added until they find enough workers.

So, how come we have high unemployment with a massive 9 million labor shortfall??? How can this be?

Answer is simple: Biden keeps sending folks extended unemployment checks to keep folks from working. What a friggin genius. Blame Trump, you are going to anyway.

If you want to be honest about inflation, blame Richard Milhouse Nixon for starting the ball rolling and blame Reagan for setting Volker loose on crushing inflation into dust. There, I tossed paul empty a bone. Nixon’s the One! Carter inherited it, lol.

Bill Tozer

‘American Stagnation Plan’
President Biden’s rescue package will finance a flood of questionable local government programs unlikely to produce much economic stimulus.

https://www.city-journal.org/biden-american-rescue-plan-unlikely-to-produce-much-economic-stimulus?wallit_nosession=1

fish

Posted by: scenes | 13 June 2021 at 02:44 PM


..as an aside, and probably can be viewed as a risk to investments, at some point we'll see a genuine effort by the government to seize some part of retirement accounts. Seriously, there's just too much money there. The country is filled with folks with no savings and run by folks who don't care about tax-deferred savings.


Yes....we must think of what is best for Paris!


Sincerely....The Montagnards

Scott O

"...at some point we'll see a genuine effort by the government to seize some part of retirement accounts. Seriously, there's just too much money there."
Ain't it the tooth!
Paul and the average idiot lefty truly believe a handful of the filthy rich multi-billionaires have all the dough we need to pay for everything.
You could empty their vaults and run the govt for a few weeks...
Then what?
It's an old saying that apparently no one actually said - "...it's where the money is."

Don Bessee

So here is what the insiders are preparing for, so should you -

https://www.mediaite.com/news/jamie-dimon-says-he-has-jpmorgan-chase-effectively-stockpiling-cash-because-theres-a-very-good-chance-of-long-term-inflation/

;-)

George Rebane

DonB 748pm - why would you stockpile something for an eventuality that would reduce the value of your stockpile?

Don Bessee

I am not saying hold on to cash, that works for lenders for sure when shit gets expensive and rates go up! Be prepared. LOL

;-)

George Rebane

DonB 955pm - Actually, in an inflation, especially hyperinflation, it is the lenders who get hurt because they get paid back in nominal dollars that have less value than the dollars they lent. As long as you can still earn at inflated rates, it pays to be a borrower during inflationary times. Think Weimar and the 1970s.

Bill Tozer

Media Bust: New Poll Shows More Americans Blame Biden for Inflation

https://www.newsbusters.org/blogs/business/joseph-vazquez/2021/06/15/media-bust-new-poll-shows-more-americans-blame-biden

Headline should read ‘Former News Director Bust: New Polls Shows More More Americans Blame Biden for Inflation’, IMHO.

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